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Edited Transcript of CRI earnings conference call or presentation 25-Feb-19 1:30pm GMT

Q4 2018 Carter's Inc Earnings Call

Atlanta Feb 26, 2019 (Thomson StreetEvents) -- Edited Transcript of Carter's Inc earnings conference call or presentation Monday, February 25, 2019 at 1:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Brian J. Lynch

Carter's, Inc. - President

* Michael D. Casey

Carter's, Inc. - Chairman & CEO

* Richard F. Westenberger

Carter's, Inc. - EVP & CFO

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Conference Call Participants

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* Heather Nicole Balsky

BofA Merrill Lynch, Research Division - VP

* Irwin Bernard Boruchow

Wells Fargo Securities, LLC, Research Division - MD and Senior Specialty Retail Analyst

* James Andrew Chartier

Monness, Crespi, Hardt & Co., Inc., Research Division - Security Analyst

* Jay Daniel Sole

UBS Investment Bank, Research Division - Executive Director and Equity Research Analyst of Softlines & Luxury

* Laurent Andre Vasilescu

Macquarie Research - Consumer Analyst

* Susan Kay Anderson

B. Riley FBR, Inc., Research Division - Analyst

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Presentation

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Operator [1]

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Welcome to Carter's Fourth Quarter 2018 Earnings Conference Call. On the call today are Michael Casey, Chairman and Chief Executive Officer; Richard Westenberger, Executive Vice President and Chief Financial Officer; Brian Lynch, President; and Sean McHugh, Vice President and Treasurer. (Operator Instructions)

Carter's issued its fourth quarter and fiscal 2018 earnings press release earlier this morning. A copy of the release and presentation materials for today's call have been posted on the Investor Relations section of the company's website at ir.carters.com

Before we begin, let me remind you that statements made on this conference call and in the company's presentation materials about the company's outlook, plans and future performance are forward-looking statements. Actual results may differ materially from those projected. For a discussion of factors that could cause actual results to vary from those contained in the forward-looking statements, please refer to the company's most recent annual report filed with the Securities and Exchange Commission and the presentation materials posted on the company's website.

On this call, the company will reference various non-GAAP financial measurements. A reconciliation of these non-GAAP financial measurements to the GAAP financial measurements is provided in the company's earnings release and presentation materials. Also, today's call is being recorded.

I would now like to turn the call over to Mr. Casey.

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Michael D. Casey, Carter's, Inc. - Chairman & CEO [2]

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Thanks very much, good morning, everyone. Thank you for joining us on the call. Before we walk you through the presentation on our website, I'd like to share some thoughts on our business with you.

We exceeded the sales and earnings goals that we shared with you on October. We had a very strong finish to the year, with high single-digit growth in our Retail and Wholesale businesses.

Our analysis suggests that young children's apparel was a good source of growth for many retailers in the fourth quarter, particularly during the holiday shopping periods. In our retail business, we achieved the strongest growth in comparable fourth quarter sales in 5 years, driven by positive store comps and double-digit growth in eCommerce sales.

The quarter got off to a good start as weather turned cooler. We saw a strong demand for our fall product offerings, with comparable sales up 9% in October. On a combined basis, sales in November and December grew nearly 5%, including good growth during the Thanksgiving and Christmas holiday shopping periods.

Our Retail segment contributed nearly 70% of our sales growth in the fourth quarter. We continued to see the strongest traffic to our co-branded stores, with comparable sales in the quarter up about 10%, up nearly 6% for the year. These stores offer consumers the convenience of shopping 2 of the best-known brands in children's apparel in one convenient location.

We continue to assess the performance of our various store models. With the success of our co-branded stores and convenience of shopping online, we are seeing fewer visits to our legacy outlet stores. Over the next 5 years, we plan to close over 10% of our stores in the United States as leases expire. These are lower-margin stores, many in declining outlet centers. There's no compelling reason to accelerate these store closures given they collectively are cash flow positive. We plan to replace the sales of closed stores by opening over 100 more profitable co-branded stores in better centers closer to the consumer.

We believe the Gymboree store closures may provide a new $100 million growth opportunity for us. We have evaluated every Gymboree, Crazy8 and Janie and Jack store location.

Our stores share many of the same locations with Gymboree in the outlet centers. We have less overlap in malls and off-mall locations. Historically, we have focused our store growth on nonmall locations with good results. That said, today we have about 50 mall-based stores, which have been a good source of growth for us. Given our success with malls, we plan to very selectively pursue new opportunities given the Gymboree closures.

Our mix of eCommerce sales grew to 32% of our U.S. retail sales in the fourth quarter, up 3 percentage points from the prior year. Carter's is the best-selling young children's apparel brand in the online channel in the United States, with more than twice the share of our nearest competitor. In 2017, international consumers ranked carters.com as one of their top 3 favorite websites during the holiday shopping season, together with Amazon and Ralph Lauren. That said, we saw less demand than expected from international consumers shopping online with us in the fourth quarter. Our analysis reflects a direct correlation between unfavorable changes in exchange rates and international demand for our brands, particularly from Brazil, Argentina and Russia.

In years past, as exchange rates improved, international demand for our brands also improved. In 2019, we expect to see continued softness in international demand in the first half and improved trends in the second half.

With respect to our Wholesale business, we saw a very good growth in the fourth quarter, driven by our exclusive brands for Target, Walmart and Amazon. No other company in young children's apparel has developed these meaningful sources of growth with 3 of the largest retailers in the world.

We believe Target, Walmart and Amazon were the largest beneficiaries of the Toys "R" Us store closures. Each of them provides a broader product offering for families with young children, especially newborns, relative to our retail stores and other retailers. The Toys "R" Us and Bon-Ton closures weighed on the growth we had forecasted last year. Collectively, they contributed over $100 million in sales in 2017 and less than $20 million in sales last year.

As you may know, we had expected to recapture at least half of the lost sales to these retailers last year. We invested in additional targeted marketing to their customers and saw a good return on those investments. We saw a nice lift in sales at our stores within a 5-mile radius of the closed Toys "R" Us stores; so did some of our wholesale customers. Our best analysis suggests that we achieved about 85% of our $40 million sales recapture assumption last year. Thankfully, with the passage of time, following those store closures, we are seeing an improved trend in some of our key replenishment product categories. If those trends continue, we may recapture more of the lost sales this year.

We expect to see further consolidation of our wholesale sales over time, with fewer, better and stronger retailers. Last year, our top 5 customers contributed about 60% of our wholesale sales. Sales to those top 5 customers grew about 4%. We're forecasting low single-digit growth in wholesale sales in 2019, with sales to our top 5 customers up about 5%.

Despite the effect of door closures in 2018, our brands continue to have the most extensive presence of any young children's apparel brand in the country. Our brands are currently sold in over 17,000 stores in the United States.

We are also uniquely positioned in the market with our ability to sell our brands through the websites of the largest retailers of children's apparel in North America. Online sales of our brands through our top wholesale eCommerce customers grew over 30% last year. And with the support of our wholesale customers, we expect online sales of our brands to exceed $1 billion next year.

Our International business grew 4% last year to nearly 12.5% of our total company sales. Sales were down a bit in the fourth quarter, largely due to a transition in our business model for China. We believe China continues to be a meaningful source of growth for us over time. It is a highly fragmented $24 billion market with 4x the number of annual births relative to the United States. In 2018, we decided to change our business model for China. We are transitioning from a retail and wholesale model to a licensing model. The old business model was generating sales but not profitability, and we concluded there was not a clear path to profitability.

Earlier this month, we entered into a licensing agreement with a new China partner. Our new partner has demonstrated retail expertise in young children's apparel in China. One of the principals in this new venture has been one of our largest suppliers of baby apparel for the past 20 years. Beginning this year, our new partner will source our product offerings for the China market, and will manage both the online and offline experiences for our Carter's and OshKosh B'gosh brands. We believe this new model will provide consumers with a better experience with our brands and enable a more profitable growth strategy for us in China.

Going forward, we're forecasting mid-single-digit growth in international sales, driven by the growth in our multichannel operations in Canada and Mexico and growth through our wholesale relationships with Costco, Walmart, Amazon and other retailers representing our brands throughout the world.

Since our last call with you, we have revisited the growth we believe possible over the next 5 years. We're forecasting over $4 billion in annual sales by 2023 and about $500 million in operating income. Those growth objectives equate to low single-digit growth in sales, mid-single-digit growth in operating income and high single-digit growth in earnings per share. We have the interest and potential to outperform these growth objectives. Our current projections reflect nearly $2 billion in cash flow from operations over the next 5 years. Though currently, we believe there are relatively few attractive acquisition opportunities, we continue to explore opportunities we believe would provide a new source of growth and attractive returns on investment. Absent better alternatives to allocate capital, we plan to continue returning excess capital to our shareholders through share repurchases and dividends.

Our growth plan is focused on 5 key strategies, which are: winning in baby, aging up our brands, leading in eCommerce, expanding globally and investing in new growth opportunities. Baby apparel represents over 50% of our annual apparel sales. Our stores are rated as mom's favorite place to shop for apparel for their newborn to 24-month-old child. Last year, nearly 90% of millennials shopping for newborn apparel purchased the Carter's brand. Though annual births have trended lower in recent years, we have expanded our customer base through our marketing efforts. We are also seeing higher frequency of visits and customer retention.

In May, we will relaunch our Little Baby Basics product offering. This product offering is the core of our Carter's brand, providing the everyday essentials for a newborn to 24-month-old child. It is the best-selling baby apparel product offering in the United States and a high-margin replenishment business for the largest retailers of our Carter's brand.

In the fourth quarter, we saw growth in every age segment in our retail business. The largest and fastest rate of sales growth was in our product offering for 8- to 10-year-old children. Carter's has the largest share of children's apparel in the baby and toddler age segments, 2 to 3x the share of our nearest competitors. In fall 2018, we launched an extension of the Carter's product offering to serve the needs of families with young children up to about a 10-year-old child.

This new strategy was driven by market research, which indicated consumers wished to stay with the Carter's brand longer. Based on that input, we added new size ranges to the Carter's brand. By entering this slightly older age segment, we now have an opportunity to gain share in a much larger market.

With respect to leading in eCommerce, we have the best-performing branded website, exclusively for young children's apparel in the United States, with twice the share of our nearest online competitor. In 2019, we are launching new capabilities to further strengthen the consumers' experience shopping with us. Later this year, we expect to enable same day pickup of online orders in our stores. As we've seen in recent years, nearly 15% of our online customers choose the free ship-to-store option and about 1/4 of those customers increased their purchase when they visit our stores.

We believe our new same day pickup service will further enhance the convenience of shopping with us and drive more traffic to our stores. We have also invested in capabilities to enable us to ship online orders from our stores. This new service is designed to expedite the fulfillment of eCommerce orders and will be tested with consumers later this year. Our brands are sold in about 85 countries through our eCommerce capabilities and relationships with retailers throughout the world.

We will continue to pursue opportunities that enable profitable expansion in new markets. Over the next 5 years, about 60% of our international sales growth is forecasted to be driven by Canada and Mexico. Earlier this year, we restructured our international organization to enable better collaboration between our U.S. operations and our teams in Canada and Mexico. Over the past 5 years, we have made significant investments in consumer-facing and revenue-driving capabilities in the United States. With this new organization, we plan to leverage those investments and extend those capabilities to support the growth we envision possible in North America.

As we view it today, our organic growth rate is about 2% to 3% a year. Over the next 5 years, we plan to close almost as many stores as we plan to open. With nearly 850 stores in the United States, we are one of the largest specialty retailers for young children's apparel. We don't currently see a need for significantly more stores, just better stores in better locations.

Our wholesale customers do a great job presenting our brands in their stores, and they have been good partners and a source of growth for many years. Over time, however, growth in our wholesale segment will be limited by the growth collectively planned by the largest retailers for their own businesses. Faster sales growth in international markets is possible, but to do so profitably has been challenging, so we will pursue a more profitable pace for growth expanding globally over the next 5 years.

We aspire to achieve a sales growth rate twice what would otherwise be possible organically. Over the past 15 years, we have acquired brands and businesses that contributed over $1 billion in sales in 2018. Acquisitions have enabled us to strengthen our multichannel model and reach more consumers with our brands. We have a team devoted full time to exploring acquisition opportunities for us and they are supported by external resources. We search for brands and businesses focused on the needs of families with young children, led by strong management teams and a track record of profitable growth. It is intentionally a tight screen given the risk of any acquisition. We'll be patient with our search for new brands and businesses to ensure future acquisitions provide new sources of meaningful growth and attractive returns for our shareholders.

We believe that the fundamentals of our business have never been stronger. We are the largest branded marketer of young children's apparel in the United States and the largest supplier of young children's apparel to the largest retailers in the country. We have built a diversified business model, which has enabled 30 consecutive years of sales growth and a cash flow model that is -- has enabled us to return nearly $2 billion in excess capital to shareholders since 2007.

Over the past 10 years, we have managed to grow through the recession, the cotton crisis shifts to private label brands and de-stocking initiatives. We're now faced with the risk of tariffs, continued decline in annual births and customer store closures. The constant through all of these challenges over the years has been the strength of our brands, which have served the needs of multiple generations of consumers and the quality of Carter's employees, who are focused on providing the best value and experience in young children's apparel. That focus has served us well over the years.

In summary, we had a strong finish to the year. We're reporting a record level of sales and profitability for 2018 and a record level of free cash flow. The outlook for our business is good. We have built a unique multi-brand, multichannel model, which we believe is well positioned to grow and gain market share. We're committed to strengthen our business and provide better performance for our shareholders in the years ahead.

Richard will now walk you through the presentation on our website.

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Richard F. Westenberger, Carter's, Inc. - EVP & CFO [3]

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Thank you, Mike. Good morning, everyone. I'll begin on Page 2, with our GAAP income statement for the fourth quarter. Most of my comments will speak to our results on an adjusted basis.

Our GAAP results for both this year and 2017 included some unusual items which are detailed in this morning's press release. The items that I'd draw your attention to would be a minor charge in this year's fourth quarter related to the transition of our business model in China. Fourth quarter 2017 included a significant net gain related to the adoption of the new tax reform legislation. Our adjusted results exclude these unusual items in both periods for greater comparability. Our full year GAAP P&L is included on Page 3.

Today's presentation and earnings release include reconciliations of our GAAP basis results to the adjusted basis of presentation. I encourage you to review this information as you evaluate our results.

Moving to Page 4, with some highlights of Q4 and fiscal 2018. We had a strong finish to the year. Fourth quarter consolidated net sales grew 6%, with solid growth in both our U.S. Retail and U.S. Wholesale segments. Adjusted earnings per share grew 22% to $2.84, reflecting largely comparable operating income, a lower effective tax rate and the benefit of share repurchases. Higher sales, lower SG&A and a lower tax rate drove the outperformance in EPS relative to our prior guidance. For the full year, consolidated net sales grew approximately 2% and were adversely affected by the bankruptcies of Toys "R" Us and Bon-Ton. Recall that we had planned operating income for 2018 to be comparable with 2017 as we had intended to reinvest approximately half of the earnings upside generated by the reduction in the U.S. corporate tax rate back into the business.

Our adjusted operating income for the full year was down approximately 8% versus that comparable objective. We had several factors which worked against us this past year. Obviously, the loss of planned sales to Toys "R" Us and Bon-Ton was a big hurdle to overcome. Our sales over the important Labor Day selling period were below our expectations and in the second half of the year, in particular, we saw lower-than-planned demand from international consumers in our U.S. Retail business.

Full year 2018 adjusted earnings per share grew 9% as the benefits of the lower effective tax rate and lower average shares outstanding helped to offset the decline in operating income for the year.

Lastly, in 2018, we continued to return significant capital to shareholders through share repurchases and dividends.

Moving to Page 5, with a summary of our sales performance in the fourth quarter. Sales in our U.S. Retail segment grew 7%, with comp sales growing 5.7%, which was on top of a positive 4.5% comp in the fourth quarter of 2017. This was our 8th consecutive positive fourth quarter retail comp. Sales in U.S. Wholesale grew 7%, driven by growth in our exclusive brands sold at Target, Walmart and Amazon. International sales declined 2%, reflecting lower demand in China and unfavorable movements in currency exchange rates, which were partially offset by growth in Mexico.

Moving to our adjusted P&L for the fourth quarter on Page 6. Adjusted gross margin was 43.2% compared to 44.9% in the fourth quarter of 2017. This principally reflects higher shipping costs and promotions in our U.S. eCommerce business and customer mix changes within U.S. Wholesale. Royalty income declined modestly, principally due to the timing of certain spring 2019 retail programs. Our adjusted SG&A rate levered 120 basis points to 28.4% reflecting expense leverage in all segments and lower provisions for performance-based compensation.

Fourth quarter net interest and other expense was $10 million compared to $8 million last year. This increase reflects higher interest expense due to higher market interest rates and higher average borrowings versus a year ago and expense related to unfavorable movements in foreign currency exchange rates. Our fourth quarter effective tax rate was 18.9% and our average share count declined 4% compared to last year, reflecting our share repurchase activity. So again, on the bottom line, fourth quarter adjusted EPS was $2.84, up 22% from $2.33 last year.

Turning to Page 7, with a recap of our balance sheet and cash flow. Our balance sheet was in very good shape as of the end of the year. We ended 2018 with cash on hand and available borrowing capacity on our revolver totaling over $700 million. Net inventories were up 5% at year-end, driven by product cost increases and higher on-hand baby replenishment inventory. On a unit basis, inventories grew approximately 3% in the fourth quarter. The quality of our inventory at year-end was high.

Our business continues to generate great cash flow. Operating cash flow for fiscal 2018 was $356 million, up from $330 million in 2017. While our GAAP net income was somewhat lower versus last year, the new tax law resulted in meaningfully lower tax payments than under the previous higher rate structure. Capital expenditures were $64 million compared to $69 million in 2017. Significant areas of investment included new stores and retail systems, enterprise technology and distribution capabilities.

2018 was another strong year of returning capital to shareholders. We returned a total of $277 million, comprised of $193 million in share repurchases and $84 million in dividends. Over the last 12 years, we've returned a total of $1.8 billion to shareholders and retired 38% of our outstanding shares.

As noted in today's press release, our Board of Directors has authorized an 11% increase to our quarterly dividend to $0.50 per share, beginning with our next dividend payment in March. This represents our 6th consecutive annual increase since we initiated our recurring dividend in 2013.

Now turning to Page 9, with an overview of our business segment performance in the fourth quarter. Our consolidated adjusted operating margin was 15.7% compared to 16.3% in last year's fourth quarter. Improved profitability in International was offset by lower profitability in our U.S. Retail and Wholesale businesses. Corporate expenses, as a percent of net sales, were comparable year-over-year.

Moving to some additional perspective on our business results for the fourth quarter, beginning with U.S. Retail on Page 10. Total U.S. Retail segment sales increased 7%. Our total retail comp was 5.7%, with double-digit comps in eCommerce and positive comps also achieved in our retail stores. This was our highest Q4 comp performance since 2013. In the fourth quarter, while overall domestic demand was very good, up in the high single digits, demand from international consumers declined in the high single digits, which we believe was a result of the strength of the U.S. dollar. We saw a particular impact of lower international demand in eCommerce, which caused us to be more promotional than planned in that channel in order to clear inventory.

In 2018, we opened 55 new stores and closed 41, ending the year with 844 stores in the United States. U.S. Retail segment margin was 16.9% compared to 17.8% in the fourth quarter of 2017. This performance reflects the higher eCommerce promotional activity, which I mentioned, and higher shipping and distribution costs.

On Page 11, we've included a photo of a relatively new co-branded store in Garfield, New Jersey. In the fourth quarter, co-branded stores were our best-performing store type, comping up nearly 10%. We've been investing recently in new fixtures in our stores, which we think will better present the strength and beauty of our baby assortments. This new presentation in one of our Atlanta area stores is shown on Page 12.

Moving to Page 13 and a recap of our plans for our U.S. Retail store portfolio. We've made good progress over the past several years in improving the convenience of shopping for our brands and improving the productivity of our store portfolio. We've found that consumers value the ability to shop the 2 leading brands in young children's apparel in a single shopping trip. Our dual-branded locations, which present both the Carter's and OshKosh brands, currently represent about 40% of our store base. We anticipate that the majority of future store growth will be in the co-branded store format. Additionally, as we have opened co-branded stores in recent years, the proportion of our store base located in traditional, further-out outlet centers has declined. We expect this trend will continue as consumers look to shop closer to home versus driving longer distances to the outlets.

As we've shared on our previous calls, we've increased our focus on optimizing our store portfolio. Over the next 5 years, we expect to open about 110 new stores and close just over 90 locations. We've seen good results to date from closing stores with marginal profit performance at their lease expiration. We've seen a roughly 20% sales transfer rate to nearby store locations at a very attractive profit conversion. We've seen good performance of our recent classes of new stores, which are comping positively and delivering good returns. We're continuing to focus on improving the performance of our brick-and-mortar stores, including introducing new omni-channel capabilities, refining our assortments and improving our fixturing presentation and service.

On Pages 14 and 15, we've included some of our Spring marketing for Carter's and OshKosh. These pages feature great examples of our Easter dressing products and Spring products such as t-shirts and shorts which mom is going to need for her family as the warm weather arrives around the country.

On Page 16, Skip Hop also continues to innovate in its product assortment. The play enclosure, shown here, is a new product just introduced in the market and early selling of this item is off to a great start.

We're seeing good demand for the Skip Hop brand across all channels in the United States and good growth internationally. We're planning that Skip Hop net sales will grow approximately 20% globally in 2019, with a meaningfully improved profit contribution to the company.

Page 17 highlights the continuing strength of our Carter's, OshKosh and Skip Hop brands on social media. We've invested heavily in building our social media capabilities in recent years. Social media has emerged as one of the most important ways that consumers, especially younger parents, engage with brands. Among the comparable brands we track, the Carter's brand has the highest number of followers on both Instagram and Facebook. In the fourth quarter, Carter's posts on Instagram elicited a great response from consumers, earning 9 of the top 10 engagement scores among our peers.

Turning to Page 18 with results for our U.S. Wholesale business in the fourth quarter. Sales in U.S. Wholesale were strong, growing 7% over last year. Growth was particularly strong in our exclusive brands, which offset the loss of sales to Toys "R" Us, Bon-Ton and Sears, which collectively represented approximately $34 million in the fourth quarter of 2017. As we noted on our last call, sales in the fourth quarter benefited from year-over-year calendar changes with some of our wholesale customers, which resulted in volume shifting from the third quarter last year to the fourth quarter this year.

As Mike noted, over the last 3 quarters of the year, we have estimated that we recaptured approximately $34 million of sales that had been previously planned to Toys "R" Us and Bon-Ton. Most of this recapture occurred in our Wholesale channel. Segment operating profit was $74 million compared to $71 million last year. Segment operating margin was 21% versus 21.7% in Q4 of last year, reflecting unfavorable changes in customer mix, including greater off-price channel activity than a year ago and higher shipping costs.

SG&A in the segment was lower than a year ago. For the full year in 2018, sales in our U.S. Wholesale segment declined 2%. For full year 2017, sales to Toys "R" Us, Bon-Ton and Sears represented $115 million. Full year 2018 operating margin for the U.S. Wholesale segment was nearly 20%.

On Page 19, we've included a photo of the Carter's baby shop at Kohl's. The offset photo, on the left side of the page, features a special additional fixture of Carter's Little Baby Basics product, which Kohl's added in the front entry area of about 400 of their stores during their recent January baby sale. This fixture drove excellent productivity for Kohl's exceeding expectations. We continue to partner with our most significant wholesale customers to ensure very strong presentation of the Carter's and OshKosh brands on the selling floor.

Developing the eCommerce channel is obviously an enormous priority and opportunity for all of our wholesale customers. On Pages 20 and 21, we've included some recent screenshots from the websites of Target, Walmart and Amazon. We've been very pleased that our exclusive Just One You, Child of Mine and Simple Joys brands play such a prominent role in driving the online businesses of the largest retailers in the country. As you'll note on these pages, these brands are unique in their product point of view and value propositions. They provide very attractive assortments and AURs for each of these retailers.

Moving to Page 22 and International segment results for the fourth quarter. International segment net sales declined 2%. This reflects lower demand in China and unfavorable movements in foreign currency exchange rates, partially offset by increased demand in Mexico. On a constant currency basis, fourth quarter International segment net sales grew about 1%. For the full year 2018, International segment net sales grew approximately 4% on a reported and constant currency basis. Net sales in Mexico in the fourth quarter were approximately $15 million.

We continue to be pleased with the progress we're making in Mexico. The Mexico market represented about $45 million in net sales in 2018. We believe we can meaningfully grow our business in Mexico to double its current size over the next several years. In 2019, we'll be testing some new larger retail store formats in Mexico, with the goal of replicating our co-branded store format, which has proven so successful in the U.S. and Canada.

Canadian net sales in the fourth quarter declined 1% on a reported basis, but grew 2% on a local currency basis. Canada's performance in the fourth quarter was below our expectations, particularly in our stores. Canadian retail comps declined 2%. The quarter began very strongly in Canada and weakened in November and December. We believe the extremely strong October demand left us in an oversold inventory position later in the quarter, in addition to the inventory mix, including less of the special holiday dressing items, which sold so successfully in the U.S. this past season. We saw strong eCommerce growth in Canada in Q4, even with the adverse effects of the postal strike during the quarter.

International segment adjusted operating income was $21 million, comparable to the fourth quarter of 2017. Segment operating margin improved 20 basis points to 16%, reflecting improved profitability in Mexico, partially offset by higher promotions and expense deleverage in Canada. For 2019, we expect our International business to grow in the mid-single-digits. Note that this reflects the planned transition of our China business from the previous eCommerce and wholesale models to a licensed arrangement with a single partner in this market. We're also planning on adding approximately 10 new retail stores in Canada in 2019.

Pages 23 through 27 highlight the extensive distribution our brands enjoy in key markets around the world. On Page 23, we've included a photo of a new Carter's and OshKosh co-branded store in Istanbul. eCommerce is an important channel for many of our international partners, and on Pages 24 through 27, we've included examples of the websites serving consumers in India, Brazil, Israel and Russia. As of the end of 2018, our international partners operate nearly 780 retail locations and 45 websites in approximately 85 markets worldwide.

On Pages 28 through 31, we've included a few pages for your reference summarizing our full year performance in 2018. Despite the challenge of the unplanned bankruptcies and liquidations of 2 significant wholesale customers, we still delivered top line and bottom line growth for the year. We also launched new growth initiatives, continued to invest in important retail and enterprise technology initiatives and developed a new and we believe more profitable path forward in China.

Turning to Page 32 with a recap of our growth opportunities over the next 5 years. As Mike noted in his remarks, we believe we can grow our consolidated net sales to over $4 billion by 2023, which would represent a compound annual growth rate of approximately 3%. Our U.S. Retail business is expected to be the most meaningful contributor to our growth, led by continued growth in the eCommerce channel.

We also see contributions to growth from our U.S. Wholesale and International businesses. We are committed to margin expansion in our business and believe we can grow profitably at a rate faster than sales, driven by improved profit contributions from our new growth initiatives, including Skip Hop, Mexico, Simple Joys and Amazon -- with Amazon, a potentially higher return business model in China and improved sourcing, pricing and inventory management disciplines. We're also strengthening our focus on productivity and efficiency initiatives, with the objective of optimizing investment and spending across the enterprise. We'd like to see spending grow at a rate less than the growth rate of gross profit.

As Mike said, we're open to adding new sources of growth through M&A. Our bar for acquisitions is appropriately high. Importantly though, we have the resources and strength to pursue those assets which we find compelling. To the extent we don't utilize our significant projected cash flow for M&A, we would look to continue to distribute excess capital to shareholders through dividends and share repurchases.

Moving to our outlook for 2019 on Page 34. There are several important factors to keep in mind as we look ahead to the first quarter of 2019. First, the Easter holiday falls later this year, which we believe will shift some holiday-related demand to our second quarter this year compared to the first quarter in 2018. Second, we have not yet fully anniversaried discontinued sales to Toys "R" Us and Bon-Ton, which contributed approximately $13 million in net sales in the first quarter of 2018.

We will be past this comparability issue by the end of the first quarter. Our retail businesses in the U.S. and Canada are off to a slower-than-planned start to the year, we believe as a result of the current cold weather around the country. It's important to note that March is an extremely significant month for our U.S. Retail business, roughly equal in volume to January and February combined. Given the significant weather disruption we saw in March last year, we think the comparisons this year may be favorable for this year's outlook for this important selling period. Due to these factors, we expect first quarter consolidated net sales will be down approximately 4% to 5% and adjusted EPS to be in the range of $0.65 to $0.70 per share. For the full year 2019, we expect net sales to increase approximately 1% to 2% and adjusted earnings per share to increase approximately 4% to 6%. This outlook contemplates sales growth in all segments, improvement in our operating margin, SG&A leverage and continued share repurchases. 2019 operating cash flow is expected to be strong in the range of $375 million to $400 million. Capital expenditures are planned to be approximately $85 million, up somewhat from 2018, due to investments in retail systems, corporate technology, infrastructure and our distribution network.

Risks that we're monitoring include the status of trade negotiations between the United States and China, international consumer traffic and demand in our U.S. Retail businesses, the level of promotional activity in the marketplace and the performance of our wholesale customers. And with those remarks, we're ready to take your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We'll take our first question from Susan Anderson of B. Riley FBR.

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Susan Kay Anderson, B. Riley FBR, Inc., Research Division - Analyst [2]

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I was wondering if you could talk about the older kids' business. It sounds like it continued to be strong in the quarter. I guess, have you seen that business get competitive in terms of promotions with the Gymboree liquidations? And do you think that you'll be able to maybe take some market share from Gymboree, even though you're not necessarily in the malls except through wholesale? And then also, I was curious, are you seeing any of those in-mall wholesale customers potentially want to take on more older kid product from you guys?

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Brian J. Lynch, Carter's, Inc. - President [3]

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Couple of things. On the Age Up, we launched that Carter's "Kids" line last fall. We supported it with great marketing. And added -- in adding those sizes, we can address a child up to about 10 years old. So the product sold really great from toddler through size 14. Our sales grew high single digits last fall, most of it from adding those new sizes 10 to 14. I think we did about an extra $14 million in the fourth quarter. So we continue to drive that initiative. With great product, things like sibling dressing and events and uniform and denim, all places we think we can gain share. So it's a good nice opportunity for growth.

As far as Gymboree, Mike said, we think that's a potential $100 million opportunity to capture market share. Their liquidation has become, it's begun in earnest. So first half could be a little bit disruptive for us, but we've got 200 stores located in the same centers as Gymboree, 150 of those are in outlets, and they also had a meaningfully present -- meaningful presence in the malls. So we've got only about 50 mall locations. Our performance there has exceeded expectations. So we're going to look at malls as a potential growth opportunity given this void in the market and some more attractive rents we're seeing. As far as wholesale, I would say the biggest incremental business we've got there is toddler. We dominate in baby. A lot of folks have our toddler business, but to several new -- several customers last fall intensified the toddler component of the business with us, so we're happy about that performance.

And overall, we think this is a good vehicle of growth for our company. Again, Mike said, we tend to have about 90% of the moms buy the Carter's brand when they have a child. And if we can keep those folks in the brand another year or 2, all the way through a 10-year-old child, we think that's -- that'll be a good thing for our company.

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Susan Kay Anderson, B. Riley FBR, Inc., Research Division - Analyst [4]

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Great. That's very helpful. And if I could add one follow up just on Toys "R" Us. I think you guys said you recaptured about 85% of the $40 million. Yet, obviously, the wholesale and retail sales were very strong in the quarter. So I guess, maybe if you could just give some color on why you didn't think you reached the $40 million. And then also just, what do you think the opportunity could be in 2019?

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Michael D. Casey, Carter's, Inc. - Chairman & CEO [5]

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Just a couple of reactions. One, the market data would suggest that consumer purchases of our brands was up over 2% last year. So when we reference what we recaptured, it was based on our shipments to replenish some of those sales. And replenishment business, I would say, trended better in the fourth quarter than it had been, say, in the third quarter. It just didn't reach the level that we had expected. You've seen the holiday performance reported by a number of retailers. We had very good holiday performance in that 9-week November, December shopping period. We had very good, nearly 5% comp. And if you lined up our same 9 weeks to the major retailers' 9 weeks, which was about a week later, their period ended the first week of January, our comps were up closer to 6%. Not every one of our customers had that kind of performance during those 9-week periods. So depending on the performance they had determines what kind of replenishment we would see in our own business. But we -- I would say, by and large, we were happy with the fourth quarter. And we expect, based on the current trends in our replenishment sales, which is the high-margin component of our major retailers' business and our business, if those trends continue we'll see more of a recapture in 2019.

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Susan Kay Anderson, B. Riley FBR, Inc., Research Division - Analyst [6]

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Great. And it sounds like that lack of replenishment was more department stores versus mass?

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Michael D. Casey, Carter's, Inc. - Chairman & CEO [7]

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Yes. That's fair to say.

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Operator [8]

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We'll take our next question from Heather Balsky of Bank of America.

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Heather Nicole Balsky, BofA Merrill Lynch, Research Division - VP [9]

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I was hoping you could talk a little bit, first, on your plans around SG&A spending for 2019. And then layering on top of that, what level of comp do you need, I guess, over the next few years to leverage operating expense? How should we think about that dynamic in terms of how you plan to spend?

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Richard F. Westenberger, Carter's, Inc. - EVP & CFO [10]

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As it relates to SG&A, we're planning actually for leverage. In 2019 it's been quite a number of years since we set a plan like that. We've, I think, made some very good steps to constrain discretionary spending, just reflective of the lower top line outlook for the business. Continuing to invest in important areas, marketing, technology, that kind of forward consumer-facing sides of the business, I'd say, the overhead areas of the business is extremely well controlled. So we're planning for low single-digit growth in SG&A and rate leverage. As it relates to where do we leverage in the Retail business, typically, it's at that kind of 3% total retail comp level. That's the level that allows us to leverage the cost bases of the business.

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Heather Nicole Balsky, BofA Merrill Lynch, Research Division - VP [11]

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And just one follow-up. In 4Q, you talked about some expedited shipping initiatives, I'm curious how those tested in the fourth quarter and how you're thinking about that going forward?

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Richard F. Westenberger, Carter's, Inc. - EVP & CFO [12]

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Yes, we did make some investments in expedited shipping, I'd say, in a couple of different respects. One we wanted to try and increase the processing time through our distribution center. And then once we got the products into the shipping stream themselves, we spent a bit more on increasing the speed of delivery. I'd say we're still reading those results. I think we are kind of at parity with a number of our competitors now, whereas as a year ago, we felt like we were delivering those eCommerce orders a bit more slowly than perhaps our peer group. So I think we're very comparable. So looking for ways to get product to the consumers as quickly as we can.

We do have some initiatives as it relates to testing fulfillment, for instance, from some of our retail stores. We'll have those capabilities later this year, and we'll give that a good test. But clearly, the consumer has elevated their expectations in terms of the speed with which they expect to get that product and we're trying to respond accordingly.

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Operator [13]

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(Operator Instructions) We'll take our next question from Ike Boruchow of Wells Fargo.

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Irwin Bernard Boruchow, Wells Fargo Securities, LLC, Research Division - MD and Senior Specialty Retail Analyst [14]

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Two questions. First one is just on the guidance for Q1. Could you maybe give us a little bit more color about what retail comp is embedded in the 1Q guide. Just curious how we should expect the later Easter to hurt you guys. And then obviously, help you when we get to second quarter.

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Brian J. Lynch, Carter's, Inc. - President [15]

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Well, we had a good start out of the gate in Q1 in all of our channels, I would just say, wholesale particularly good. And we've had some softer business in our retail business the last few weeks. So running down a little bit, a little bit of a negative comp there at this point. We planned Q1 down low single digits, and we're running slightly behind that right now. Keep in mind, that January and February, the lightest months of the year. March is as big as January and February combined. We've got a later Easter this year, which just pushes about 2 points of comp into Q2.

So we're monitoring some of the weather things, the tax return situation, what have you. But we're planning a low single-digit comp for the quarter at this point, down low single digits.

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Michael D. Casey, Carter's, Inc. - Chairman & CEO [16]

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The best way to think about it, Ike, when -- the best way to think about it is with the type of comp we're planning for the first 4 months of the year which takes the Easter holiday out of it is about a 3 comp.

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Irwin Bernard Boruchow, Wells Fargo Securities, LLC, Research Division - MD and Senior Specialty Retail Analyst [17]

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Perfect. That's helpful. And just a quick follow-up, maybe for Richard. Just more color on the China model and what's changing would be helpful. I get that there's a lot of changes going on right now. Maybe, what were the sales and the EBIT losses last year that you had with your prior partner? And then what we should expect for sales and EBIT contribution potentially this fiscal year? Just trying to understand the changes in the model and how it affects the P&L a little bit better?

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Richard F. Westenberger, Carter's, Inc. - EVP & CFO [18]

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Sure. So the previous model, we had kind of a disjointed effort, we think, at approaching that market. So we were running the eCommerce channel, which was our website on Tmall. And then we had a partner, which was a wholesale relationship for us, so we sold product to that partner and then they sold it through the retail stores that they operated. From memory, sales in China last year were about $12 million. So we're transitioning to a new model which is more of a royalty relationship. So that $12 million will come out of the base of our net sales, and we will earn royalty income from that partner on their sales of product in China over time. As Mike said, this was one of our long-standing suppliers, so they will actually source the product which is a little different. We were previously sourcing that product, in some cases unique product, for China, which brought with it a great deal of complexity because that was product that was unique just to China. So that new partner who has that great expertise, both in terms of manufacturing the product and also importantly, experience with retail distribution of young children's apparel in China, we think that'll be a great advantage for us.

As 2019 is a year of transition, we're not planning, I wouldn't say, for material contributions of royalty income, that's probably more of a 2020 and beyond. So not expecting a significant contribution in 2019. We did incur significant losses in China in 2018. The amount that ran through our P&L was probably $5 million or $6 million. And then we had another $5 million or $6 million of additional charges that we've treated as adjusting items, so a better part of $11 million or $12 million of losses and that's a combination of taking charges related to that unique inventory for China and also just severance as we unwind the team and resources that we had put in place in that market.

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Michael D. Casey, Carter's, Inc. - Chairman & CEO [19]

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This new model, what we hope to do is replicate the success that we had in Canada -- we've had in Canada and Mexico. So we started both of those relationships in Canada and Mexico through licensing arrangements. We partnered with someone who grew up in those countries and knew how to operate in those countries and had demonstrated expertise in running retail businesses and sourcing operations. And that's now what we have in China. So for -- as fortunate to have the experience that we've had in Canada and Mexico in China, it'll be a nice source of growth for us over time.

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Operator [20]

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We'll now take our next question from James Chartier of Monness, Crespi, Hardt.

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James Andrew Chartier, Monness, Crespi, Hardt & Co., Inc., Research Division - Security Analyst [21]

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So on the Toys "R" Us disruption, with most of the demand being recaptured by Walmart, Target and Amazon who have exclusive brands. Now that you've got more time to plan, how much of an opportunity do you see to kind of recapture that? And how much of a disruption was it to have kind of Carter's lost sales and not be able to meet the demand with the exclusive brands?

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Michael D. Casey, Carter's, Inc. - Chairman & CEO [22]

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It was highly disruptive. Toys "R" Us had been a very good customer of ours for years. A good margin customer because it was primarily focused on baby. And not surprisingly, as we analyzed the results, we saw a nice lift in our stores. But most of the business went to the exclusive brands, primarily because those retailers sell the things that Toys "R" Us was selling, diapers, formulas, strollers, other things that we do not sell directly to consumers and things a number of our Carter's brand customers don't sell to consumers. So we're not surprised by the results.

The encouraging thing is we're -- our brands are sold wherever people are shopping for young children's apparel. So people are just shopping at other places. And thankfully, we've seen a nice lift in those exclusive brands. But we're also seeing -- we're also planning good growth with our Carter's brand customers in 2019 going forward. So as I shared with you, in some ways it's -- the Toys "R" Us closures, Bon-Ton, Sears disruptive. What we're encouraged by, going forward, there's going to be fewer, better, stronger retailers, and we do business with all of them. So that should be a nice source of growth for us.

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Brian J. Lynch, Carter's, Inc. - President [23]

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Jim, I would just also add to that, the shift is something we've worked on. We've got that great business with Amazon. We grew our Amazon business about 50% last year in our first full year. They're now our top 10 customer. And our exclusive brand, Simple Joys, is doing great, it doubled over last year. As a matter of fact, Simple Joys was one of the most requested fashion brands on Amazon's Christmas wish list last year, and we just signed a new longer-term agreement in January to extend our exclusivity with Simple Joys. So those are the types of changes we've made in the company. We continue to have channel shifts. We monitor them. But we want to make sure we're there wherever mom wants to shop for her young children's apparel. And as Mike said, we're going to have fewer, stronger retailers. We've got great relationships with all of our partners, but as that exclusive brand shift has started to happen, we're thrilled that we do have those brands, and we have those relationships with those folks as well.

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James Andrew Chartier, Monness, Crespi, Hardt & Co., Inc., Research Division - Security Analyst [24]

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Great. And then you guys referenced a potential disruption from China tariffs. Can you just remind us what percentage of your product will be sourced from China in 2019? And where do you see that over time?

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Michael D. Casey, Carter's, Inc. - Chairman & CEO [25]

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It's somewhere around 25%, comes from China. And that's larger for apparel. For Skip Hop, it's a much higher percentage. Closer to 100% of Skip Hop's product comes from China. The tariffs in 2018 were not meaningful. It hit some of the categories. I think even this year, it's probably -- the impact is probably somewhere less than $4 million or $5 million. So it's not overly significant, it's not 0. We already pay tens of millions of dollars in duties from product coming in from China. So thankfully, the tone of the dialogue on those tariffs has improved, and we hope it's not a meaningful exposure for us in the balance of the year and going forward.

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James Andrew Chartier, Monness, Crespi, Hardt & Co., Inc., Research Division - Security Analyst [26]

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Great. And then just lastly, you mentioned acquisition potential going forward a number of times. Can you just -- on Skip Hop, your most recent acquisition, can you just give us a sense of where revenue will be in 2019 versus when you purchased it a couple of years ago? And where is operating profit next year versus when you bought it?

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Brian J. Lynch, Carter's, Inc. - President [27]

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Sure. Skip Hop's performing well. We had real strong sales growth last year, up about 30%. I think Richard said that we were going to grow that about 20% this year. We finished last year at about $125 million with Skip Hop. And we can kind of look at it, we purchased a nice $100 million business in 2017. We still feel that we can double that business in the first 5 years of ownership. I would say the profit side's not optimized yet. We had investments in talent and systems. And of course, we had the Toys "R" Us impact that also played in with Skip Hop as well. But we've got a real strong product agenda in 2019. We're looking forward to continued growth. We've opened several different accounts, got some great new product and our direct business is also growing rapidly. So we feel very confident about the Skip Hop business.

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Operator [28]

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We'll now take our next question from Jay Sole of UBS.

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Jay Daniel Sole, UBS Investment Bank, Research Division - Executive Director and Equity Research Analyst of Softlines & Luxury [29]

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Mike you mentioned fewer stronger retail partners in your Wholesale business. Could you give us an idea of what percentage of your Wholesale business right now is your top 5 customers?

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Michael D. Casey, Carter's, Inc. - Chairman & CEO [30]

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I think we said, it's probably better part of 60% to 70% of our top 5. Yes. Thereabouts -- it's a high percentage, yes.

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Jay Daniel Sole, UBS Investment Bank, Research Division - Executive Director and Equity Research Analyst of Softlines & Luxury [31]

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Do you anticipate that number will increase over the next couple of years?

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Michael D. Casey, Carter's, Inc. - Chairman & CEO [32]

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It may. The others -- there are still some major retailers who are working hard to find relevance with consumers today. So my guess is there'll be further consolidation.

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Jay Daniel Sole, UBS Investment Bank, Research Division - Executive Director and Equity Research Analyst of Softlines & Luxury [33]

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Got it. And then maybe just on the square footage. You gave that nice slide on Page 13, showing your store plans. Does the store count growth correlate with what you expect the square footage growth to be? Or just because you're doing more dual branded stores, will there be a relatively greater increase in square footage relatively to the store count?

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Michael D. Casey, Carter's, Inc. - Chairman & CEO [34]

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The typical model we have right now is 4,000 to 5,000 square feet. Something we have not built into the model is this new Gymboree opportunity, where we're going to test the smaller mall store format. And it's worked beautifully for us up in Canada. We have smaller store formats up in Canada. We have some smaller formats in the United States. There's a smaller store format in Mexico. So we've got a line of sight to it what makes sense in the malls. And so going forward, it might be more stores, but the square footage may be smaller.

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Jay Daniel Sole, UBS Investment Bank, Research Division - Executive Director and Equity Research Analyst of Softlines & Luxury [35]

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Got it. And then maybe one last one. Richard, just on the gross margin in 4Q, can you just maybe parse out some of the drivers in a little bit more detail to what really changed versus last year?

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Richard F. Westenberger, Carter's, Inc. - EVP & CFO [36]

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Jay, your question is for the fourth quarter gross margin or for 2019?

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Jay Daniel Sole, UBS Investment Bank, Research Division - Executive Director and Equity Research Analyst of Softlines & Luxury [37]

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No, for fourth quarter, the quarter that was just finished.

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Richard F. Westenberger, Carter's, Inc. - EVP & CFO [38]

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I think the major effect really has to do with the mix of the business. So within Wholesale, we still had the effects of the losses the Toys "R" Us and Bon-Ton, which was very good margin business for us. We were relatively more promotional in eCommerce. That's still good margin business for us, but not quite up to our plans. We've seen a real issue around freight costs being higher, the cost to serve that eCommerce business has been increasing. I mentioned the additional investment in expedited shipping. But really the operational cost around the eCommerce has been some pressure. And some of those cost run through the gross margin line. So that was bit of pressure there. We also saw some additional off-price channel sales in the fourth quarter. That was a feature of just being a littler heavier on some of that Toys "R" Us-related inventory that we were clearing through. So those were some factors that probably put a bit more pressure on gross margin than is typical for us.

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Operator [39]

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And we'll take our next question from Laurent Vasilescu of Macquarie.

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Laurent Andre Vasilescu, Macquarie Research - Consumer Analyst [40]

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I wanted to follow up on Jay's gross margin question. Curious to know how we should model the gross margin down for the first quarter. Is it probably down 150 bps? And then how should we think about the gross margin over all for the year? And then maybe, any color on the tax rate for the year?

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Richard F. Westenberger, Carter's, Inc. - EVP & CFO [41]

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I would say we are planning gross margins down in the first quarter. I'd say the planning assumption for 2019 is more comparability year-over-year, so we're looking for more comparable gross margins for the full year period. The factors that are affecting Q1 certainly would be the slow start to the year. The factors that I mentioned as it relates to higher freight expenses. There is a bit still of that comparability issue on Toys "R" Us in the first quarter, where, again, that was very good margin business, it's not in the base at the moment. But, expecting good performance and actually some gross margin expansion in the second half of the year. Effective tax rate will be similar as well to 2018, in that low 20% range.

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Laurent Andre Vasilescu, Macquarie Research - Consumer Analyst [42]

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Okay. Very helpful. And then I think it was called out, the SG&A -- the adjusted SG&A levered by 120 bps, reflecting expense leverage in all segments. And then I think also lowered provisions for performance-based compensation. Could you potentially quantify that provision? And then how do you think about any -- are there any onetime investments we should consider for the first quarter?

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Richard F. Westenberger, Carter's, Inc. - EVP & CFO [43]

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In terms of SG&A in the fourth quarter, I believe the year-over-year reduction in that provision for performance-based compensation is about $9 million, so we did not achieve our performance objectives for the year. A good portion of that relates to the unexpected bankruptcies of Toys "R" Us and Bon-Ton. But the decrease in the provision that benefited the full year, actually, I should say, was about $9 million, it's a smaller number for the fourth quarter. Your second question as it relates to investments?

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Michael D. Casey, Carter's, Inc. - Chairman & CEO [44]

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For the first quarter.

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Richard F. Westenberger, Carter's, Inc. - EVP & CFO [45]

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Yes. I don't think there are any unique investments. We continue to spend on some of our technology initiatives. We're working on some of the ongoing integration efforts with Skip Hop. We're transitioning some of our distribution, adding additional distribution capabilities on the West Coast in service of the Skip Hop brand. Those are some of the...

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Michael D. Casey, Carter's, Inc. - Chairman & CEO [46]

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Normal business.

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Richard F. Westenberger, Carter's, Inc. - EVP & CFO [47]

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Those are some of the projects that we're pursuing in the first quarter. Nothing unusual.

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Laurent Andre Vasilescu, Macquarie Research - Consumer Analyst [48]

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Okay. Very helpful. And, just last question here. Last February, I think it was call out that international should grow by $300 million and eCommerce should grow by $400 million over the next 5 years. With today's call outs for the 5-year plan, with international growing about $100 million, can you parse out -- that out by region? And then is eCommerce still expected to grow by $400 million over the next 5 years?

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Michael D. Casey, Carter's, Inc. - Chairman & CEO [49]

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Well, on international, we've trimmed the previous forecast by about $100 million, that's entirely China. Because the new model that we have with China is a licensing model. Those sales will not be coming through our sales line item. And then we do continue to expect good growth in eCommerce. We'd probably trim that by some portion of $100 million as well relative to our forecast last February, simply because we're seeing some pressure with international demand on our U.S. website. That's been a good source of growth for us over the years. And just based on our experience this past year, we're seeing lower demand from international consumers shopping on our U.S. website, which our analysis suggests is directly attributable to the stronger dollar and the weaker exchange rates. We've seen that not only online but in our stores. Lower international.

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Operator [50]

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That concludes today's question-and-answer session. Mr. Casey, I would like to turn the call back to you for any additional or closing remarks.

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Michael D. Casey, Carter's, Inc. - Chairman & CEO [51]

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Okay, thank you. Thank you all for joining us this morning. We appreciate your interest in our business, and we'll look forward to updating you again on our progress in April. Goodbye, everybody.

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Operator [52]

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This concludes today's call. Thank you for your participation, you may now disconnect.