Earnings Call: Q4 2013

Feb 11, 2014

day, ladies and gentlemen, and welcome to the Levi Strauss and Company's 4th Quarter Fiscal Year 2013 Earnings Conference Call. All parties will be in a listen only mode until the question and answer session, at which time instructions will follow. This conference is being recorded and may not be reproduced in whole or in part without written permission from the company. A telephone replay will be available 2 hours after the completion of this call through February 17, 2014 by calling 800-585-8367. Please use conference ID 541-75329. This conference call also is being broadcast over the Internet and a replay of the webcast will be accessible for 1 month on the company's website, levastrauss.com. I would now like to turn the call over to Chris Ogle, Vice President, Investor Relations and Assistant Treasurer at Levi Strauss and Company. Good afternoon, and welcome to our conference call. I'm pleased to introduce members of the Levi Strauss and Company management team. With us here today are Chip Berg, our President and CEO and Harmit Singh, our Executive Vice President and Chief Financial Officer. Before we begin, I'll remind you of a few items. Our discussion today may include forward looking statements based on our current assumptions, expectations and projections about future events. Although these statements reflect the best judgment of our senior management, they involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the statements as more fully described in our annual report on Form 10 ks, our registration statements and other filings with the Securities and Exchange Commission. Other unknown or unpredictable factors also could have material adverse effects on our future results, performance or achievements. We provide information on our website about how we compile various measures used to describe our business performance. Participants on today's call may discuss non GAAP financial measures. You will find the appropriate reconciliations at the earnings webcast page in the Investors section of our website. Finally, today we filed our annual financial report on Form 10 ks with the SEC. You can link to our SEC filings from our website. And now I'd like to turn the call over to Chip Berg. Thanks, Chris, and good afternoon, everyone. Thank you for joining us today. Overall, fiscal 2013 was a good year in terms of sales, profitability and cash flow. We achieved top and bottom line growth with net revenues up 2% and net income up 59%. The company generated significant cash and further strengthened the balance sheet. We're particularly pleased to have accomplished these results amid a challenging second half. The holiday season was highly promotional with soft traffic and due to the timing of our fiscal year, the Black Friday sales week occurred after our Q4 closed. Before I discuss overall performance for the year and our 2014 focus, I'd like to turn it over to Harmit, who will walk you through the Q4 financial results. Harmit? Thank you, Chip. Welcome to everyone joining our call. My comments today will first focus on the results of the Q4 followed by the full year and will reference comparisons on a year over year basis in U. S. Dollars unless I indicate otherwise. Total consolidated net revenues for the Q4 of 2013 were $1,300,000,000 flat to prior year as higher wholesale revenues in our core men's business in the Americas offset lower revenues in Europe. On a global basis, wholesale was nearly flat to 2012, while company operated retail revenues grew 4%. As we noted on our last earnings call, we anticipated a soft 4th quarter owing to the sluggish traffic trends at retail and the lack of Black Friday week in our fiscal year. The change in Black Friday timing impacted our 4th quarter revenues by approximately 1%. Gross profit for the quarter was $637,000,000 down 2% from $649,000,000 last year. 4th quarter gross margins decreased 80 basis points to 49.2%. This was primarily due to higher discounted sales and inventory markdowns, mainly in the Americas, reflecting a slower than anticipated holiday season and a decline in the Levi's women's business at wholesale in the United States. SG and A and expense increased 3% to $571,000,000 mainly due to A and P and retail. A and P grew 8% reflecting brand campaigns and products we launched in the 3rd 4th quarters such as the Levi's Modern Frontier campaign and the launch of Levi's Revel for Women. Expenses related to retail also increased, reflecting the ongoing expansion of our retail store network. 4th quarter operating income of $66,000,000 was $25,000,000 lower than last year and operating margin was 5% compared to 7% last year due to the decline in gross margins and higher SG and A. And taxes were higher this year, owing to the tax benefit we recorded in 2012 from reaching agreement with the State of California on refund claims for past tax years. Due to these factors, 4th quarter net income declined to $17,000,000 as compared to $53,000,000 last year. Now I'll share more detail on the Q4 results of our 3 regions. Net revenues in the Americas of $828,000,000 were up from $818,000,000 in the prior year. The Levi's Men and Dockers brand revenues grew again at key wholesale accounts. These gains were partially offset by declines in the Levi's, Mrs. And Junior business at wholesale. A slight decline in our retail revenues was attributable to the timing of our fiscal year end, which preceded the Black Friday sales week in November. In Europe, net revenue declined 5% on a reported basis and without the impact or benefit of currency, revenues were down 8%. Sales to traditional wholesale customers declined across the region, reflecting difficult market conditions in the South and some execution issues in the North, which we have diagnosed and are addressing. Retail revenue was up however, driven by higher productivity of our existing stores throughout the region and the expansion of our store network, especially in Russia. In Asia Pacific, revenues were up 2% on a reported basis and were 9% higher without the impact of currency. Revenues were driven primarily by price promotion and we are pleased with our initial launch of the Levi's brand Revel collection in the region. While we had a relatively good quarter in Asia, we recognize that we still have work to do in several markets including China. So challenging quarter to conclude the year, but we are pleased with our full year 2013 results. We grew revenues 2%, posted a 250 basis point improvement in gross margin, which pushed it to over 50%, reduced our overall SG and A rate while investing behind our brands with advertising and grew operating margin to 10%, up from 7% last year. Additionally, we continue to strengthen our balance sheet as reflected in our overall liquidity position, our better credit ratings, lower net debt and reduced leverage. Free cash flow for 2013 was a solid $291,000,000 Collection trends and payables also improved. Inventory balances were $85,000,000 higher than a year ago. As we discussed in prior calls, our inventory base at the end of 2012 was low and the increase substantially reflects the return of inventory to more normal levels. The majority of the increase at the end of 2013 is consistent with our needs to support our business in 2014. That being said, we do have a few pockets of inventory that we need to address due to business challenges we have discussed, such as in some parts of Asia and in juniors and misses business in the United States. Proactively managing our inventory levels in line with changing volume expectations is a critical objective of 2014. Capital expenditures in 2013 were $92,000,000 as compared to $84,000,000 last year, reflecting facilities upgrades and increase in technology investment and our distribution center retrofit project. At the end of the year, we had $489,000,000 in cash on hand and $635,000,000 available under our credit facility, yielding total available liquidity of more than $1,100,000,000 Net debt was less than $1,100,000,000 as compared to more than $1,300,000,000 a year ago, primarily reflecting our Q2 2013 refinancing activities when we paid down nearly $200,000,000 in debt. Our leverage has significantly improved in 2013 due to the combination of our lower debt and a higher full year operating results. With that, I'll turn it back over to Chip to discuss our progress against our strategies and our vision for 2014. Thanks, Harmit. Before I take you through 2013, let's remember the 4 key strategies that we're executing against. Our focus is to deliver profitable growth in order to generate strong cash flow. We're committed to these strategies, but know it's going to take time for them to gain traction. We introduced them in 2012 and continue to pursue them in 2013. Our 4 key strategic choices are 1st, to grow the profitable core 2nd, build a more balanced portfolio 3rd, become a leading world class omnichannel retailer and finally, 4th, leveraging our global scale to develop a competitive cost structure. Let me walk you through what worked in 2013. Most importantly, despite the challenges we faced in the Q4, in 2013, we grew both the top and bottom line and made meaningful progress in strengthening the company's financial position, largely driven by the strategic choices we made. Our focus on the profitable core drove our results, specifically Levi's Men's and Dockers U. S. Men's businesses grew in 2013. One of our main focal points was upgrading our brand's expression to key wholesale customers with new fixtures, displays and expanded assortments to show consumers how to put whole looks together. Within the Levi's brand, core products performed well driven by sales to our key customers, particularly in North America. The Dockers brand grew 3%, driven by the strength of the U. S. Men's business and an expanded product offering for both traditional and modern consumers. Throughout the year, Alpha Khaki and Signature Khaki gained traction with consumers and the brand sales grew each quarter this year. We made some progress in building a more balanced portfolio. Men's and women's tops grew in 2013. Our Levi's Revel launch performed well in our retail stores globally and the emerging markets of Russia and India increased double digits. And against our retail strategy, our focus on improving productivity and conversion in our store network as well as the expansion of our e commerce business drove full year retail sales growth of 9%. The outlet format was particularly strong in the Americas and Europe. E commerce sales grew in every region in 20 13. In Europe, we launched a new platform to connect with consumers. And while we're pleased with our e commerce performance overall, it still represents an enormous opportunity as it remains just 10% of our retail sales. But we didn't fire on all cylinders in 2013. As previously mentioned, our juniors and misses business at wholesale in the Americas declined in the second half of the year. These categories shrank in department stores, which hurt us. But execution issues on our part, including some product misses, exacerbated the problem. Additionally, as Harmit noted, performance in Northern Europe lagged the industry as we exited the year. And China remains a work in progress where brick and mortar retail is challenged. So with that, I'd like to turn to the year ahead. In 2014, we'll build on what worked in 2013, while at the same time addressing our challenges. This coming year is all about execution. To drive our profitable core in 2014, the Levi's and Doctors teams will continue to focus on growing the share of Closet, putting the consumer front and center as they develop innovative products and shopping experiences. The Levi's team is building on the successes from 2013, the 501, 505, 511 and our Commuter series, innovating in a way that matters to consumers through fabric, fits and finishes. Our attention to iconic pieces has never been stronger and we're backing it across channels. When you walk in the stores or shop online, you will see our iconic items prominently displayed. We're also making our advertising working harder with a higher level of attention to ROI to drive traffic and sales. You'll see a shift this year with new creative direction and a campaign anchored in product. The full campaign will roll out in the second half to support our fall season. We're advancing the success we've had this year at key wholesale accounts in the Americas through elevating the consumer experience on floor and in our account marketing. We prioritize investment behind the Onfloor presence, making it easier for consumers to discover and shop our brands. Dockers will build on the momentum gained in 2013 by working closely with some of our wholesale customers in the Americas, where we're able to present Dockers as a lifestyle brand, reaching consumers in new ways and testing the experience through new environments to elevate the perception of the brand. We'll leverage the progress we've made in retail. Our denim leadership program and the team's commitment to improving the consumer experience is driving gains in the brick and mortar businesses in the Americas and Europe despite ongoing declining traffic trends. We're investing in retail systems and technology to support multichannel shopping experiences that drive brand loyalty and profitable retail growth. By the end of the year, you'll see an upgraded e commerce presence in the United States. We're aiming to deliver a flagship worthy online experience with better functionality and more exclusive products. We've also recently appointed a new retail leader, Craig Namura, who brings 25 years of experience working in every area of retail. He's got deep operational and global expertise. Craig and the team will continue to focus on driving productivity and converting foot traffic into sales through outstanding service. Now let's look at the opportunities for improvement. We're focused on several priorities this year, our women's business, Europe, China and cost management. Some of these efforts will take time, but longer term, we believe these will improve our structural economics. First is our U. S. Levi's women's business at wholesale. We're addressing the product issues as quickly as possible and we've had positive response from customers who've had a chance to preview the new product, but it won't land on floor until about the second half of the year. We also need to make it easier to find the perfect fitting Levi's jeans when women are shopping in department stores. We'll do so by improving our in store presentation and navigation and we're building marketing campaigns that specifically target women and feature product specific benefits. And at retail, we'll emphasize our innovative approach to providing the best fitting jeans and we'll build on the positive Breville launch by adding new colors and styles for spring. Breville was especially well received internationally. In Europe, we're reversing the slide we've experienced in the North. With the right leadership now in place, we're getting back on track and addressing the execution issues we've had at wholesale. And we're working to improve the business in China. Remember, Asia represents just 15% of sales and China only a portion of that. The long term outlook for the region remains strong. Our Asia Pacific leaders are focused on delivering the right product assortments and deploying more effective marketing campaigns. We're also rationalizing the franchisee base and working with them to increase store productivity and experience as well as continuing to build out our e commerce presence in the market. Finally, execution against our 4th strategy, improving our cost structure, will be particularly visible in 2014. We've looked at our cost structure, including external benchmarks, and we recognize that we're uncompetitive. As we speak, we're identifying opportunities to streamline processes, eliminate redundant work, take advantage of lower cost service delivery options and overhaul our procurement practices. We're concentrating on what's within our control as we drive our business forward. Harmit will now share the financial implications of our objectives. Thank you, Chip. As we pursue our 2014 objectives, we will retain our emphasis on profitability both by growing revenue and reducing costs, building a stronger balance sheet and creating value for our stakeholders. While we remain committed to driving the top and bottom line annually, we're taking a cautious approach to 2014. As Chip mentioned, the first half of twenty fourteen will be especially challenging particularly in light of our strong first half twenty thirteen results and the softer retail environment in the United States. Our objective in 2014 is to once again profitably grow full year revenue. We will be aided by the fact that due to the timing of our fiscal year, as I discussed earlier, 2014 will contain 2 Black Friday weeks. Full year gross margin in 2014 will likely be in the 50% range dependent upon our ability to work through the inventory risk I discussed a moment ago. In SG and A, ongoing expansion of our retail presence around the world will continue to drive higher selling expenses. We're planning our A and P investment to be similar to 2013 as a percentage of revenue. And as Chip mentioned a moment ago, we need to get more cost competitive and are working on identifying opportunities to simplify our organization and improve agility. This global initiative has been activated recently and it is our intent to begin executing this as we move through 2014 and beyond. This will result in some non recurring upfront charges that provide sustainable benefits over the long term. We will share more on these efforts as they're finalized. Strengthening our balance sheet with a clear capital deployment strategy continues to be a top priority. Our capital expenditures in 2014 is projected to be in the range of $90,000,000 to $110,000,000 increasing from 2013 driven primarily by our investments in retail systems to drive productivity, e commerce and carry forward of projects from 2013. We estimate pension contributions of about $20,000,000 during 2014. Debt reduction remains a key objective going forward. The Board of Directors also recently approved a dividend payout of $30,000,000 to our shareholders. This reflects a $5,000,000 increase from our most recent dividend and it will be paid in April 2014. To summarize, we are pleased with our full year 2013 results, but we are cautious as we move into 2014 for the reasons we have shared today. We'll now take your questions. Thank you. The floor is now open for questions. Your first question comes from William Reuter, Bank of America Merrill Lynch. Go ahead with your question. Good afternoon, guys. Hi, Bill. I was wondering if you could quantify for us the impact of the shift in Black Friday out of 2013 from both the sales and or EBITDA perspective? Yes. So from a sales perspective, the impact in quarter 4 when you compare quarter 4 of 2013 to 2012 is about a percentage in revenue terms. We haven't disclosed the EBIT impact, but I'll just I'd encourage you to just look at gross margin in the news that as a way to flow through the profit number. Now talking a little bit about 2014 because in 2014 we'll have 2 Black Fridays. And the other thing is we're going to have an extra week or 53rd week. So the way we're thinking about it on a projected basis the revenue impact in 2014 which will be positive will be about 1 point relative to 2013 percent for the year. Okay. That's helpful. And then maybe with regard to your inventories, I would imagine that some of the timing of Black Friday impacted that. Can you give us a sense for maybe how much lower your inventory levels would have been had your quarter ended a week later or 5 or 6 days later? Yes. I mean, it's difficult to quantify Bill that diver precision. Let me give you a little bit of color on our inventory position. I understand your interest. And yes, the inventory levels are higher versus a year ago. But a few things to keep in mind. First, we're recovering this year from a lower base in 2012 at the same time. If you look at inventory levels 2013 versus 2011 at the same time, we're probably flat in total inventory levels. In terms of the healthy inventory, if I look at the excess and absolute 2013 versus 11, excess and absolute is actually down, which is a good thing. The you're right, part of the increases reflects earlier timing of all receipts and things like Black Friday. And part of the growth really reflects our perspective on a business that's growing over the long term. That said, we continue to manage inventory levels carefully, particularly in light of the current retail environment as well as the issues that we that Chip highlighted relative to the women's business. So it's an area of focus as we begin the year and will continue to be an area of focus through 2014. Okay. And then just one last one for me. You have a lot of cash in your balance sheet. I'm curious what you might be thinking there, particularly in light of the fact that you noted debt reduction as one of your key initiatives. So I guess uses of cash and whether you have a goal for debt reduction in 2014? Thanks. Sure. Having cash and a solid cash flow is a good thing. So Premier will celebrate that. And I think it's largely contributed by successful business results in 2013. The way we are thinking about cash and capital deployment is our prime area of focus is debt reduction, which given our maturity cycle is going to be opportunistic. We're going to look at reducing debt as and when opportunities provide us. And we'll balance the economic impact of that with the longer term impact of holding the debt. The way we're thinking about capital deployment beside debt, I mentioned anywhere between $90,000,000 to $110,000,000 towards CapEx requirements. And the CapEx requirements are largely initiatives to grow the business. So capital deployed against e commerce initiatives, capital deployment against retail systems and the like. And the last piece is the projection of a dividend payout in 2014. Longer term, strengthening the balance sheet continues to be a priority of Chip and I and the Board. And I think over time, we intend to reduce leverage levels to the extent we can. Okay. Thanks a lot. Your next question comes from Carla Casella with JPMorgan. Go ahead with your question. Hi. I'm wondering if you could give us a little more color on the women's miss. What was it? When did you start to notice it? And you mentioned we should start to see an improvement by the second half. If you get a bit, we just slowed down in women's shopping behavior or change in behavior? Or was it a product certain product that was off? It's really the latter. So and it's fundamentally our juniors and misses business in U. S. Wholesale here. If you look at the rest of our women's business around the world, we're generally okay. It's the U. S. Wholesale juniors and misses business where we are most challenged. We started seeing this, I guess, kind of sometime around mid to late Q3. It started to show itself. And fundamentally, what's happened out there, Carla, is the market has moved to stretchy, super soft fabric and we're out there with more rigid fabric. I mean we just we missed from a product standpoint is kind of the real quick and dirty. It's like let's call it like it is. And so we're now we're scrambling. We've got new product. We've shown it to customers, as I referred to in the prepared remarks. They're excited about it. But it takes a while to get the pig through the python and it will be about another half a year or so before it shows up on customer floors. So it's really isolated to just this one part of our women's business where we just had a product mix and we're scrambling to recover from it. It's also it's part of the dilution effect that you saw in the Q4. We were marking it down and trying to burn off some inventory as we saw this issue coming. Okay. And then did you lose any space as you go into fall 2014 because of this? No. I mean one thing I will say is we've got great relationships with all of our key customers. And the fact that we responded quickly here on this issue and put product in front of them that they feel confident in and it includes some innovation, They've protected our space. And so hopefully we'll make a fix save and a beauty here over the next couple of months. Okay, great. And then I guess a little bit maybe a little more focused on the men's side. The denim bars that were so successful and seem to be spreading to other retailers, were those rolled out in Q4? Or is that something that's going to be 2014 event? Or I guess not the denim bars, but the product that looked like a denim bar at Macy's? And I think you had mentioned Kohl's or Nordstrom? Yes. So let's not call them denim bars, but let's call it enhanced consumer experiences in our key retailers. And every retailer has got their approach to doing that. We've been working quite collaboratively with them. And Macy's, we started the rollout, I think, Q3 last year. We're continuing to refine the program with Macy's, working with them, kind of identifying what's working, what's not working. And we're kind of improving as we go along. So we're expanding stores kind of on an as we go basis. That will continue through this fiscal year. Same thing with Kohl's. I mean, we're working with Kohl. We're working with all the big customers on how do we enhance the shopper, the consumer experience, improve navigation, improve the findability of our product. And each approach is a little bit different and we're making investments in that through 2014. Okay. And then just one question on cotton. And what's the timing of or the cotton benefit from last year? When is that versus last year? When should you start to have more difficult comps? And when will the current prices start rolling through? So, Carla, the benefit on cotton was really a 2013 versus a 20 12 factor. It's really the first half. And it was really the first half of twenty thirteen versus twenty twelve. So as we think about 2014 relative to 2013, yes, we had strong results in the first half of last year, but it was driven by a couple of things. There was cotton obviously year over year. And the second was we really managed our cost structure beautifully. And there was the impact of a Denizen shutdown in Asia, which happened towards the second half of twenty twelve or so. So I think those are the factors that helped the first half of twenty thirteen. The only other thing that I would say is that it to twenty fourteen is the retail environment as we begin the year is a little tougher in twenty fourteen than it was at this time a year ago. Okay, great. I will I'll let someone else in. Thank you. You're welcome, caller. Your next question comes from Karru Martinson with Deutsche Bank. Go ahead with your question. Thank you. In terms of the Revel product, it certainly sounds like it's getting better traction internationally. Is the issue here in the U. S. That we didn't have that super stretchy, super soft fabric? Or is there something else that you feel is just not being communicated with the target audience? No. The issue here in the U. S. Is not really an issue. The structure of our business in the U. S. Is fundamentally different than it is in Europe and Asia. So and it's really being it's driven by the large wholesale business that we have here in the U. S, which is not revel. And in general, it's selling at price points kind of in the $50 south range. Whereas overseas in Europe and Asia, the market is more premium. Our product sells at premium prices. Revel is priced around $100 And so we're able to get wholesale distribution as well as retail distribution in Europe and Asia. Whereas here in the U. S, Revel is available in our 30 mainline stores and online. That's it. I mean, it's a relatively narrow distribution in part because of the price point and because of the structure of our business here in the U. S. Okay. And when you guys look at the cash balance that you have and the stronger balance sheet, what do you feel about M and A opportunities to perhaps fill out the portfolio when you look at the product offering that you bring to the table? Yes. I mean, I think it begins with the with our base business, what I call the organic business. We're pretty optimistic about growing our base business at this point. And given the strategic choices that Chip talked about, we feel there's enough growth left in our organic base business for a while. So that's how we're thinking about it. The question of M and A and portfolio build, I think again is more of an opportunistic question. And depending on opportunities available, we'll take a look at it. But at this point, we feel pretty good about growing our business organically over the long term. Okay. We had a modest step up in the dividend for the family. What's the big picture thinking from the family in terms of the company both as a private entity and what's the dividend policy if you would? Yeah. Sure. The first, Kyra, just as a reminder, we don't have a dividend policy. The decision of capital deployment or cash use towards returning capital to shareholders is a decision that's taken by the Board, taking into consideration growth expectations for the year as well as capital needs for the year by the company. So from that perspective, this was a decision as we viewed 14 that the Board took a couple of weeks ago. And that's why we're talking about it. In terms of the capital structure decisions by the family, those are discussions that happen on an ongoing basis. And as and when something changes, we'll come back to you. But I think our job number 1 is to grow this business against the choices that Chipotle does. I mean, I would just add one other thing and that is what we're focused on in the end ultimately will benefit the shareholders. We're focused on driving profitable business growth, creating shareholder value by doing that. And in the end that will create value for the shareholders. And so our job as a management team doesn't really change because we're privately held and the family owns most of the shares of stock. We're doing what I think any shareholder would want which is to drive shareholder value. Thank you very much guys. Appreciate it. Thanks, Phil. Your next question comes from Grant Jordan with Wells Fargo. Go ahead with your question. Good afternoon. Most of mine have been around taken. But on the inventory, when do you expect that will be more in line with sales trends? Yes. We expect they will be in line with sales trends. We also depending on the promotional environment and what's happening around us in terms of products that are being marketed, we'll look at dilution and markdown levels on a regular basis. So do you think you'll get it where you want it to be by the end of Q1? Or do you think it will be further out in the year? I think towards the end of the first half of the year. Okay. And then you mentioned that one of the challenges facing the company is the more or the less favorable retail environment today that you're seeing from customers. Any insights you can share with us in terms of what you're seeing out of your retail stores or conversations with your wholesalers in terms of what you're thinking for the consumer this year? Yes. I mean, I guess everything you read in the public environment about the traffic challenges, particularly here in the U. S, we're seeing the same thing. Traffic has been a challenge. And even though we're only commenting on the Q4, which only goes through the Sunday before Black Friday, it's a tough environment out there. And we've been traffic challenged for at least the last three quarters. The good news is in our retail stores we've done a good job with conversion. That's how we were able to drive retail growth for the year. But it's hard. And the environment because of the declining traffic situation, the environment has become incredibly promotional and that's kind of carried on. Okay. Great. That's helpful. Thanks. Thanks, Ron. Next question comes from Karen Eltreich with Goldman Sachs. Go ahead with your question. Thank you very much. Can you maybe break out for the decline in Europe kind of what the obviously, you listed the different factors, but what was the key problems in terms of was it sales driven? Was it the advertising? Or was it the new stores? Like what was the largest contributor to that decline? And when could we expect some of those investments to taper off? Okay. So I'll take that. So first of all, you have to think about Europe North and South, okay? And I think generally everybody is seeing relative softness in the South and that's been a phenomenon that's been going on now for the last 2 years or so. We've experienced some softness in the North most recently over the last quarter or 2 quarters and that's a combination of really two things. 1 is we've lost some wholesale doors through a combination of some executional issues, let's call it service and delivery issues fundamentally. And we've also had some leadership vacancies in the North, which we've now fixed. So we've kind of isolated what the issues were. We've addressed those issues. And the North has historically been a pretty good performing part of the business for us. We expect to get that business back on track pretty quickly. Great. Thank you. And sorry, I should clarify. It's Karen Elchurch with Bank. 2nd, can you give out store count for next year with regards to how many openings you expect to have and how it breaks out domestically and international? Unfortunately, we don't disclose that. Philosophically and principally, I'd say that we have a couple of retail markets that are doing really well, example being Russia. We just talked Europe. Russia is clearly an outlier relative to the performance. And we continue to expand our retail footprint in markets like that. Just by way of color Karen, we have broadly about 2,800 retail stores. I'd say between anywhere between 600 to 700 is our stores we own. The rest are franchisees. So as we look at our retail footprint, I think the area of focus right now is to drive more dollars per square foot. And wherever we think we can expand our footprint in markets like Russia for example or China or India, we are investing behind the expansion. Great. And final question as you mentioned with the Fashion Miss, how quickly can you kind of write something like that? What is the production pipeline? And at what point in the year should we expect to see that product in the store? So On the Mrs. And Juniors side, it's I refer to as the pig in the python. The supply chain, if you're chasing something, it's kind of 6 to 8 months. And that's what we're operating against to address this product mix that we had in Mrs. And Juniors. We started chasing it kind of late last calendar year. It should hit customers' floors sometime this summer, call it June, July sometime around that time frame. And that's working really fast. Great. So but then basically we should expect kind of the same kind of margin pressure as you kind of clear out some of this inventory until that time? Yes. Okay, great. Thank you. Next question comes from Hale Holden with Barclays. Go ahead with your question. Thanks for taking the call. I had two quick ones. You mentioned benchmarking on getting your cost levels down to more competitive rates. I was wondering what the benchmark levels were or where over a longer time you wanted to drive some of the ratios? Yes, sure. I won't go into get into specific on the names, but the way we are benchmarking is we're looking at SG and A as a percentage of revenue and we're also looking at profit per employee. And we're benchmarking against key players in the industry, so similar like size businesses. And then we're also looking at our cost structures the way they were a couple of years ago. And I think as we think through this, because we do believe as going into this that any costs that we take out need to be sustained over time. But importantly, build an organization that's agile and nimble to react to what's happening around the marketplace. So the areas we're looking at as we mentioned earlier, we're looking at streamlining processes making them simpler, eliminating redundant work, taking advantage of lower cost delivery options and reviewing our procurement practices. And this is a company wide review as against one area one particular area etcetera. I mean and while we can't get into the details right now Hill, the idea is as we are able to finalize the specifics whether it's the magnitude of the sustainable savings or the one time charges or the time associated with this initiative, we will talk about it at the relevant time. So just stay tuned and we'll give the details as they're final. Great. Thank you. And then I guess just as a quick high level follow on to Grant's question on traffic declines. As you think about operating the company, do you think there's been any long term shift here in the last 6 or 9 months? Or just kind of operating through 2 or 3 bad quarters and traffic may get more stable at current rates or even improve. I guess is there been a fundamental shift or From an industry do you mean from an industry or consumer standpoint? Is that what you mean? Yes. Yeah. Yeah. So I do think that what we're I do think we're starting to see more of a fundamental consumer shift to the whole digital experience in e commerce. Go around and ask 30 people how many people did all of their holiday shopping online and you'll be amazed at the number. I look at my street, the number of FedEx and UPS trucks coming up and down the street, especially over the holidays. So I do think we're seeing a shift there. And I also think the consumer has been really impacted by the recession and kind of the lingering malaise in the economy. They've been trained to buy on deal. I mean, that's I think part of the reason why we saw the holiday season get so incredibly promotional is the consumers, they're not giving credit. They're smart. And they know when the deals are coming and they're waiting. They're holding them. They're keeping their powder dry until the deals start coming. And the deals keep coming earlier and earlier and earlier. So I think you've got those two dynamics going on that does signal a different world today than the world we were in a couple of years ago. Does that argue that over time you and the industry should have lower or fewer doors or I think the big thing that we're working on is are a lot of other people. It's building that omnichannel experience for the consumer. I mean, one of the good things about apparel is people like to feel the product and they want to try it on before they buy it. And that's why you saw even in the industry publications, apparel traffic was down less than the overall traffic over the holidays. Why? Because people still want to touch it, feel it, try it on, see what they look like in it. And so I don't think a day will come where we won't have stores anymore. But what we do need to do is build the capability where a consumer can shop online, reserve product and it's waiting for them in the store when they show up. And build those kind of omni channel digitally enabled capabilities. Great. Thank you very much. Appreciate it guys. Yeah. Your next question comes from Kevin Cloying with Goldman Sachs. Go ahead with your question. Hi. This is Celeste Divid on for Kevin. How are you? Hey, Celeste. Thanks. So just on that note going more into your e commerce and mobile strategy, can you give us some more details on what your plans are for this year and beyond? What regions are you building out more and how many countries do you currently reach and how much opportunity do you think there is from your current 10% retail sales mix? So first of all, I think the opportunity is quite significant. I mean, you can do the math. Our total e commerce business about $120,000,000 last year. That's owned and operated e commerce and most of it's in the United States. So we have big opportunities internationally. We are really just getting going with e commerce in Asia. Up until 4 or 5 months ago, the only site that we were on in China was Tmall, which I call China's largest flea market. I mean, we're now building out sites in China and across Asia. Last fiscal year, we launched our own platform in Europe around the February time frame, how to shake down crews in Europe. The plan is to bring that platform to the United States, which we'll launch later this year. That platform has more functionality and capabilities built into it, which will enhance the consumer experience and the shop ability and the navigation online. And the plan is to roll that into the critical markets that matter most internationally over the next couple of years. So we're very focused on it. I'll put a plug in. Maybe you guys know somebody, but we're out looking for a head of e commerce right now as well. And the role has been the Board has basically said we want the role to be a member of the executive committee reporting directly to me. So even though it's a $120,000,000 business, we believe the upside potential is so big that we're going to staff it with an executive level position reporting directly to the CEO. And that search is on. So if anybody knows anybody, drop me a line. I'll see who we can identify. Hope that answers your question. It does. And then just a separate item, given some of the misses that you had for the juniors and misses side, which sounds like it's more fabric. I'm just curious about some of the early fashion trends that we see are pointing to this sort of rebirth of high waisted bottoms and jeans. Are you planning to offer some of these high waisted options? And what are your thoughts on this trend and potential pickup? I think we did notice a few options on your website. Yes. And the higher waste is definitely in and we've got product in our current line with that and we've got more coming. So it's definitely a trend and we're on it. That one we didn't miss. All right. That's it for us. Thank you. Thank you. Your next question comes from Gina Giannelli with Citigroup. Go ahead with your question. Hi. This is Jenna from Citi. Most of my questions have been answered. But can you talk a little bit more about some of the product mix that you saw in women's and in misses, particularly in misses? How much do you think of that was purely the product mix or just really competitive environment in some of the jewelry and your teen apparel space? It's kind of hard to say. I mean, it is in both of those categories, it's intensely competitive. And the price points that we're selling at in some of the retailers, it's kind of like you look at it and you do the math and you go, how can you make money at this? And so it is challenging for us. I would say most of our issues right now are product related. The product mix it was big. I mean there's a big difference between the product that we've got on the floor today and what the consumer is looking for. And we just flat out missed it. I mean call it like it is. I think that's the majority of the issue. We need to figure out how we begin creating value in that space and getting the consumer willing to pay a little bit more money for product in those two categories and bring back some innovation. We frankly have not been innovating there the way we need to. Okay, great. Thanks. And then just also with respect to men's, are you seeing any sort of product trends there, styles, fabrics that are a little bit more popular, things that are performing well or better or worse than others? Well, as I said in the prepared remarks, I mean, one of the great things about this business is we have one of the most iconic items in the fashion industry with the 501. And the 501 has performed pretty well this past year, and we're putting a lot of energy and attention against rebuilding, if you will, and driving the success of our most iconic items, 501 trucker jacket, western shirt. So a lot of energy going there. And one of the other products that has done very, very well over the last 2 years has been our commuter series, which we're now rolling out into wholesale. And that has got a little bit of stretch and some high technology built into the fibers of the product. That's resonated with consumers and we're continuing to focus on driving that franchise. Great. And then just actually one more for me on back on the international front. When I think you mentioned that you're talking about China that bricks and mortar there have been particularly more challenging. Is that kind of a shift in anything versus what you've seen in the past couple of quarters? And is that kind of changing how you're thinking just about growth in China overall? Well, we're very focused on growing in China. I mean, it's a big market and it's only going to get bigger. What's happened over the last couple of years in China is the market's evolving. Most of the companies that have been in business or most of the brands that have been doing business in China over the last 10 or 15 years started with this notion of shop in shops. So it's a small little retail space inside of a large department store. And that's really how a number of brands including ours got started. And that still is the majority of our stores in China. What's happening is China is becoming more like the West in terms of shopping malls with standalone stores. So the retail environment is changing there to more stand alone stores. And the location and the position whether it's on a street or in a mall becomes even more important and more expensive too. So we're working through that. We're committed to growing our brand in China. It's a market that really matters for us. We call it out strategically as a market that we to grow and we're investing to build capabilities there including building retail capabilities. Okay, great. Thanks so much. I appreciate the time. Welcome. Thank you. Your next question comes from Carlo Casella with JPMorgan. Go ahead with your question. Hi. You can probably guess what it is, but I just forgot to follow-up with the RP basket where it stands today. It's 0.7000000 dollars 1,000,000,000 Wait, what? It was $700,000,000 Okay. Dollars 700,000,000 Okay. Thank you. No worries. We're waiting for you Carla. We'll let you down. Okay. Well, we're going to wrap it there. Thank you all very much for joining us. And we look forward to talking with you again in just a couple of months in April with our Q1 results. Thanks a lot. Good evening, everyone. Thank you. Thank you. This concludes today's conference call. Please disconnect