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Tumi Holdings (NYSE:TUMI)

Q4 2013 Earnings Call

February 27, 2014 4:30 pm ET

Executives

Joseph Teklits

Jerome Squire Griffith - Chief Executive Officer, President and Director

Michael J. Mardy - Chief Financial Officer, Principal Accounting Officer, Executive Vice President and Director

Analysts

Bilun Boyner - JP Morgan Chase & Co, Research Division

Oliver Chen - Citigroup Inc, Research Division

Lindsay Drucker Mann - Goldman Sachs Group Inc., Research Division

Rick B. Patel - Stephens Inc., Research Division

Faye I. Landes - Cowen and Company, LLC, Research Division

Christian Buss - Crédit Suisse AG, Research Division

Edward J. Yruma - KeyBanc Capital Markets Inc., Research Division

Operator

Welcome to the Fourth Quarter Fiscal Year 2013 Tumi Holdings, Inc. Earnings Conference Call. My name is Leslie, and I'll be your operator for today. [Operator Instructions] Please note that this conference is being recorded.

I'll now turn the call over to Joseph Teklits. Joseph, you may begin.

Joseph Teklits

Great, thanks. And thanks, everybody, for joining us for Tumi Holdings' Fourth Quarter 2013 Earnings Conference Call. Hosting today's call will be Jerome Griffith, the company's Chief Executive Officer; and Mike Mardy, Chief Financial Officer.

Please also note that the information we are about to discuss includes forward-looking statements for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Such statements involve risks and uncertainties. The company's actual results could differ materially from those discussed on the call. Factors that could contribute to such differences include, but are not limited to, those items noted and included in the company's SEC filings, including our annual report on Form 10-K and quarterly reports on Form 10-Q. The forward-looking information that is provided by the company in this call represents the company's outlook as of today, and we do not undertake any obligation to update forward-looking statements made by us. Subsequent events and developments may cause the company's outlook to change.

During this call, we will also be referring to non-GAAP measures. These non-GAAP measures are not prepared in accordance with Generally Accepted Accounting Principles. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP measure can be found in our earnings release issued earlier today, a copy of which is posted in the Investor section of the website at tumi.com.

And now, I will turn the call over to Jerome Griffith.

Jerome Squire Griffith

Thanks, Joe, and thanks, everybody, for joining us today to discuss our fourth quarter and fiscal year end 2013 results. I'll give you an update on the quarter and year as well as our growth initiatives for 2014, and then I'll turn it over to Mike for a more detailed financial review and outlook.

Summing up 2013, Tumi delivered solid performance, especially given the challenging retail environment. Importantly, we focused on product innovation and delivering the highest standards in quality, durability, functionality and design to our loyal customers. We also continued to extend our product offering to meet our customers' lifestyle needs. And we executed on our store growth plans, international expansion and ongoing efforts to build brand awareness. All of this leverages the tremendous brand equity that Tumi enjoys and continues to build. Looking ahead, we're committed to making the strategic investments that are necessary to support our long-term growth objectives.

Overall, I'm pleased with both our fourth quarter and full year results. For the quarter, sales were up 16% year-over-year, and earnings per share increased by 23% to $0.31 a share. For 2013, we grew net sales by 17% and earnings per share by 38% to $0.80 per diluted share on a GAAP basis or $0.82 per diluted share on an adjusted basis.

Each of our key directives contributed to the growth: product innovation, impactful marketing programs, channel penetration and growth in existing and new markets. And each of these areas leverages our strong brand and advantageous market positioning as the leading premium travel and business accessories brand.

I'm especially happy with Tumi's growth in the online marketplace. Our total e-commerce business, both via tumi.com and with third-party retailers, grew approximately 23% for both the fourth quarter and the full year.

Highlighting our product introductions this year will be the Alpha 2 collection. The Alpha 2 product is a true showcase of Tumi's superior design and construction capabilities. We're tremendously excited about the opportunity that we have with Alpha 2 in 2014 and beyond. The global launch is well underway, and some of you may have already seen it in your travels. This is an important refresh in an iconic category for Tumi.

To support it, we'll also launch our digital concierge, an interactive marketing effort to help promote the collection. The concierge, designed to help you find the right Tumi product, will commence on March 1 in London's Heathrow Airport in a pop-up shop in Terminal 5, at Charles De Gaulle in Paris and sky lounges within several U.S. delta terminal lounges.

The digital concierge will roll out additional leads into key cities globally, including Dubai, Hong Kong, Singapore, Shanghai, Seoul, Tokyo, Osaka and Nagoya. We've even developed an app to provide the same experience for the Tumi enthusiast and neophyte.

I'm just as excited for our launch of Tegra-Lite Max later in the year. Tegra-Lite is our lightest and strongest material. When we first introduced it, customer response was overwhelmingly positive and it's become a staple of our product architecture. With Tegra-Lite Max, we've added expansion capability, and the collection is going to feature a new double-recessed wheel system which increases capacity. This revolution of Tegra-Lite is a perfect example of our continued devotion to innovation.

We continue to focus on our women's business. Our goal is to own the world of women's business and travel by strengthening our offering. For example, we recently embarked on a collaboration with Jonathan Adler. He is known for his modern and colorful interior designs, and we brought that fun sensibility to a line of luggage and travel accessories that are stylish and functional.

We'll continue introducing seasonal colors and updated silhouettes for our core women's products throughout the year. Later in the year, we'll see a new women's business collection called Sinclair. We'll also introduce an accessories program targeted towards our female customer in Q4. We're pleased to be giving our loyal female customers more of the fashionable styles that they want with the quality and innovation that comes with every Tumi product.

Of course, we remain focused on opening stores in key locations around the world. We finished 2013 with 130 company-owned stores, having opened 17 new company-owned stores, which was at the top of our guidance range. With our store portfolio average sales increasing to nearly $1,100 per square foot, we are laser-focused on increasing our store count. We believe that we have the ability to ultimately grow the Tumi store base to more than triple our current locations globally over time.

To that end, we see ourselves increasing the number of stores we will open in 2014 to between 18 to 22, with the potential for more depending on deal availability. The vast majority of these stores will open in the back half of the year. However, we will incur some expenses related to the store openings in the first half of the year.

We're particularly excited about our new store in Regent Street in London, which will open in Q2 of this year. The location will serve as a true flagship while helping build the Tumi brand in both the U.K. and globally. In addition, we will continue to work with our international partners to expand the brand in both new and existing markets.

It's also vitally important that Tumi has a presence everywhere where the global citizen lives and travels. As we move into 2014, we'll be focused on the expanding points of sales in some of the best airports around the world, including Dulles, Orly, Heathrow and Shenzhen. Importantly, as stores open up in 2014, they will reflect our new store concept. The concept features simple, elegant design solutions with polished metal fixtures and wood detailing to further enhance the Tumi assortment. This will help us to improve brand standards and the consistency with which the brand is presented throughout the world. Ultimately, this will reinforce Tumi's global position in the premium lifestyle space.

On the digital front, we plan to roll out our new e-commerce platform globally in 2014. Following an extremely successful 2013 e-commerce performance, we're very excited that the new platform will improve the user experience with enhanced merchandising ability, video interface, social media interaction, mobile capability and international rollout opportunity. The new platform is designed to address the needs of the global citizen, wherever he or she may be. However, it must be noted that we will be investing in the range of $3 million to $4 million in the new e-commerce platform, and we will continue to incur costs with our old website provider while we invest in the new site.

With tumi.com representing 14% of our global Direct-to-Consumer business, and the increase of our e-commerce database by 33% in 2013, we believe this investment to be a significant opportunity for Tumi to capitalize on the change in consumer buying practices that we saw during the holiday season in 2013. Plus, this will help optimize the digital experience for the Tumi consumer. We expect to be fully transitioned to the new platform by the fall.

As you can see, we're making a significant commitment to continue growing our brand in 2014. With this commitment comes a necessary investment in the company. Mike will talk more about this in a bit, but we expect that our capital spending will increase significantly during 2014 versus our spend in 2013.

The majority of this capital is devoted to growing points of sale, with a sizable portion also going towards our e-commerce technology, which will improve our customer experience and operating efficiency. As the business grows and evolves, we are dedicated to ensuring that we continue to drive productivity, and we believe that these investments are prudent.

Overall, we're pleased with our accomplishments in 2013 and excited with Tumi's momentum going into 2014. Tumi is very well positioned in the global premium lifestyle market as a brand that offers exceptional quality, design and brand image. And there is a great potential for this brand that we are just beginning to unlock.

With that, I'll turn it over to Mike to review our financial performance. Mike?

Michael J. Mardy

Thanks, Jerome, and good afternoon, everyone. I'll begin my comments with a review of fourth quarter 2013 results and our results for the full year ending December 31, 2013, and then discuss our outlook for the coming year.

We delivered another quarter of solid financial performance. Net sales for the fourth quarter increased 16.2% to $147.4 million compared to $126.8 million in the fourth quarter of 2012. Keep in mind that there were 6 fewer sales days in the fourth quarter of 2013 compared to 2012. Our performance benefited from positive reaction to new product introductions, brand extensions, new store openings in North America, improved retail performance in the EMEA region, continued growth in the Asia-Pacific region and strength in our EMEA wholesale business.

Moving to gross profit performance for the fourth quarter. Gross profit increased 15.5% to $84.5 million. Gross margin declined in the fourth quarter by 40 basis points to 57.3% as a percentage of net sales when compared to the fourth quarter of 2012, due mainly to our anticipated transition from our legacy Alpha line to the new Alpha 2 line. We provided incentives to our customers to move through legacy Alpha inventory to make room for the next generation of Tumi travel products, and we ended up successfully clearing more product in the fourth quarter than expected, which negatively impacted Q4 gross margin. This was particularly true within the specialty store and department store sub-channels in our Indirect-to-Consumer North America segment, which in total had a negative 90 basis points effect on our overall gross margins in the quarter.

The onetime pick, pack and ship expenses which we saw in the fourth quarter of 2012 did not factor into the margin decline, as our U.S. wholesale e-commerce gross margins were up quarter-over-quarter and contributed approximately a 50 basis point bump to our overall gross margin.

Total operating expenses were $52.2 million for the fourth quarter of 2013 compared to $44.1 million in the fourth quarter of 2012. The increase was due to several factors, including increased marketing spend related to our New York metro area media blitz of approximately $1.4 million, increased retail operations expense of approximately $1.2 million related to the opening of 6 new stores in Q4 2013, additional retail operations expenses of approximately $0.3 million related to the in-sourcing of our e-commerce platform and additional incentive compensation accruals of about $300,000.

As a percentage of net sales, operating expenses were 35.4% in the fourth quarter of 2013 compared to 34.7% in the fourth quarter of 2012. As a result, operating income for the fourth quarter of 2013 increased 11.2% to $32.4 million for an operating income margin of 22% compared to an operating income margin of 23% in the fourth quarter of 2012.

In our Direct-to-Consumer North America segment, net sales increased 9.7% to $69.7 million, driven by comparable store sales growth, including e-commerce sales of 1.3%, as well as 6 new store openings in the fourth quarter of 2013.

For the full year of 2013, we opened a total of 17 new stores, which included 11 domestic full-price locations, 5 domestic outlets, 1 international full-price store. In addition, we opened 1 airport kiosk and renovated 4 stores and closed 1 location, Desert Passage, in 2013.

Excluding e-commerce sales direct to North America -- Direct-to-Consumer North America comparable store sales decreased 1.9% in the fourth quarter of 2013. Adjusting for the 6 fewer sales days, however, Direct-to-Consumer North America comparable store sales, excluding e-commerce, would have increased 2.7%.

Operating income in this segment was $22.9 million, which was essentially flat with the same quarter last year. As a percentage of net sales, operating income in this segment was 32.9% compared to 35.6% in the same quarter last year. This reflects increased upfront costs to open 6 new stores and the margin impact of transitioning out of legacy Alpha. In the fourth quarter 2012, we opened only 3 stores.

In our Direct-to-Consumer International segment, net sales increased 17.9% to $7 million for the fourth quarter compared to the same period last year. In U.S. dollars, comparable store sales rose 14.3%, including e-commerce sales. Excluding e-commerce, comparable store sales increased 11.5%.

In euros, the principal local currency, comparable store sales, including e-commerce, increased 9.3%. Excluding e-commerce, comparable store sales were up 6.6%. The increase in our international business was partially attributable to increased traffic and conversion. Adjusting for the 6 fewer sales days, Direct-to-Consumer International comparable store sales, excluding e-commerce, would have increased 19.4% in U.S. dollars.

Operating income increased approximately 25.3% to $1.4 million compared to the $1.1 million in the same quarter last year. As a percentage of net sales, operating income was 19.9% in the fourth quarter compared to 18.8% in the same quarter last year. This increase resulted from leverage on strong sales and the impact of increased traffic and conversion.

In our Indirect-to-Consumer North America segment, net sales in the quarter rose 15% to $34.8 million. Sales were driven by strong growth in third-party e-commerce business, department stores and our Canadian wholesale business. Operating income increased approximately 12.7% to $13.1 million. And as a percentage of net sales, was 37.6% in the fourth quarter of 2013 as compared to 38.4% in the same quarter last year.

Finally, net sales in our Indirect-to-Consumer International segment rose 32.5% in the quarter, reflecting strong demand for Tumi product abroad and favorable response to new product introductions. We experienced strong growth in Europe, the Middle East, Africa and resumed strong growth in Asia.

Operating income increased approximately 78.6% to $11.6 million, reflecting good results across all regions. As a percentage of net sales, operating income was 32.4% in the fourth quarter compared to 24% in the same quarter last year, with margin expansion driven primarily by sales leverage.

Unallocated corporate expenses increased $3.9 million to $16.7 million in the fourth quarter of 2013, which was predominantly driven by the $1.4 million increased marketing spend related to our New York area media blitz.

Total other expenses in the fourth quarter of 2015 (sic) [ 2013 ] were approximately $200,000 compared to income of $400,000 in the fourth quarter of 2012.

Provision for income taxes for the fourth quarter of 2013 was $11.4 million. The effective tax rate in the quarter was 35.4%.

GAAP net income in the fourth -- for the fourth quarter was $20.8 million or $0.31 per diluted share based upon 67.9 million diluted weighted average shares outstanding. This compares to net income of $16.9 million or $0.25 per share in the fourth quarter of 2012 based on the 67.9 million diluted weighted average shares outstanding.

Adjusting for the November 2012 onetime secondary offering cost of $0.4 million after tax, net income in the fourth quarter of 2012 would have been $17.3 million or $0.25 per diluted share.

Turning to the balance sheet. As of December 31, 2013, cash and cash equivalents were $37.6 million compared to $36.7 million at December 31, 2012. It should be noted that during 2013, the company paid down $37 million on its revolving credit facility, and as of December 31, 2013, had an outstanding balance of about $8 million.

Inventory balances of $80 million were produced by $18.1 million compared to the balances at the end of the third quarter 2013. Inventory was $9.1 million higher than the balances of December 31, 2012, and the inventory increase was consistent with our top line growth.

For the full year ending December 31, 2013, net sales increased approximately 17.3% to $467.4 million. GAAP operating income increased 20.5% to $86.4 million or 18.5% of net sales.

During 2013, Tumi paid approximately $0.5 million, $0.3 million after tax, in operating expenses incurred in the fourth quarter of 2013 in conjunction with the secondary common stock offering completed in April 2013, as well as a $1.5 million, that's $0.9 million after tax, charge in connection with the early termination of an agreement with Tumi's web services provider in the second quarter of 2013. Excluding these items, operating income for the full year December 31, 2013, would have been $88.3 million or 18.9% of sales.

And during 2012, Tumi paid a $5.5 million, $3.1 million after tax, onetime special bonus to its Chief Executive Officer in connection with the successful completion of its IPO in April 2012; and approximately $0.6 million in onetime secondary common stock offering expense incurred in the fourth quarter of 2012. Excluding these operating items, operating income in 2012 would have been $77.8 million or 19.5% of net sales.

On a GAAP basis, EPS was $0.80 per diluted share versus $0.58 per diluted share for the period ended December 31, 2012. This represents a 38% increase in GAAP EPS year-over-year.

Excluding the aforementioned charges in both -- in each year, adjusted EPS was $0.82 per diluted share for the year ended December 31, 2013, and $0.76 for the year ended December 31, 2012.

Weighted average common shares outstanding used in calculating EPS were 67.9 million shares in 2013 and 63.3 million shares in 2012.

I would now like to take a look at our outlook for the fiscal 2014.

For 2014, net sales are expected to increase between 15% and 17%. This estimate assumes total comparable store sales growth in the mid-single digits. Diluted earnings per share growth for fiscal 2014 is expected to be in line with the company's long-term goal of 16% to 18%.

As previously discussed, 2014 will be a year of higher-than-normal investment and expenses, driven primarily by transitioning e-commerce in-house. In addition to the $2.5 million to $3.5 million in operator fees paid to the old platform provider, the company will incur expenses of approximately $1 million to $2 million on migrating to the new platform during the first half of 2014. It should also be noted that weather throughout much of North America in the first 6 weeks of 2014 has probably had an effect on performance throughout the retail sector.

Diluted EPS for 2014 is expected to be between $0.92 and $0.96. This estimate assumes diluted weighted average common shares outstanding of approximately 68.1 million shares on a weighted GAAP tax rate of 36.6%.

We expect to open 18 to 22 new stores with the store opening cadence to be heavily weighted toward the back end of the year. Capital expenditures for fiscal 2014 are expected to be in the range of $40 million to $45 million.

With that, I will turn it over to the operator for questions.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question is from Brian Tunick with JPMorgan.

Bilun Boyner - JP Morgan Chase & Co, Research Division

This is Bilun Boyner for Brian today. Mike, I think you said the Alpha clearance in the fourth quarter impacted gross margins by about 60 basis points. Are we cleared with that? In the first quarter, did you have any clearance sales? Or are you planning to have more in the second quarter? And then my second question is timing for the Alpha 2 product. When are you planning to launch that in your U.S. stores? And when do the wholesale accounts start ordering that?

Jerome Squire Griffith

It's Jerome. I'll take that question. The Alpha legacy clearance in Q4 actually went a little bit better than what we had anticipated. And we sold a little bit more than what we had thought. So we actually cleared through Alpha legacy, kind of to the detriment of what we were planning to do, going into January in our retail stores because we sold through it. You may have noticed that we're starting to launch Alpha 2 in stores in North America a little bit early. So Alpha 2 started to roll into the states on the West Coast the first week of February, and we just finished with the rollouts on the East Coast last week. So we actually brought product out a little bit earlier than anticipated. However, the marketing campaign doesn't start until next week on that. So we don't really have much Alpha legacy product left within the pipeline at all.

Operator

Our next question is from Edward Yruma with KeyBanc Capital Markets. We'll go to the next to question, Oliver Chen with Citigroup.

Oliver Chen - Citigroup Inc, Research Division

Regarding the algorithm and the outlook here. That's net sales is kind of similar to your bottom line growth, how do we think about the GM versus SG&A split? I know there's spending happening, so potential deleverage on the SG&A side. And on the comp cadence throughout the year, you're going to anniversary another kind of tough comparison. So are we supposed to model towards a better comp in the back half versus the first half? Or are the new product launch -- the Alpha 2 going to generate upside benefit to Q1?

Michael J. Mardy

Yes, that's a good question, Oliver. Oliver, we -- I think your idea there is that the back half for us will be stronger than the first half for a bunch of reasons. One is the additional investments in the web store. The Alpha 2 sell-in is actually taking place now and later on in the first quarter and the beginning part of the second quarter. So I think that comp store cadence, I think, is better modeled with the back-end bias. And frankly, we will be opening a lot of new stores this year, more than we've ever opened before. Many of them in Q2, many more them in Q3 and quite a few in Q4. So it'll be an interesting year to try to model because, as you know, you spend a lot of money opening stores, you don't necessarily get the full benefit of the sales right away, although we're opening up, I think, the kind of stores that will get a pretty good pop once they begin to open. So it's a hard year to model. I think you'll see just as we did last year. I think you'll see us being able to expand our gross margin a little bit. But we're not going to get a lot of operating leverage in the first half of the year.

Oliver Chen - Citigroup Inc, Research Division

And Jerome, on the Alpha 2, what percentage of mix is that expected to be around? And could you just speak to the attributes that you're most excited about and the degree of newness? It seems like it's a great opportunity for you.

Jerome Squire Griffith

Yes, we've started to get some early results on Alpha 2 and what's selling. And I can tell you that by far, the #1 thing that people are most excited about is 4 wheels, and carry-ons with additional capacity. Adding the capacity, recessing the wheels and putting more styles into 4 wheels has been a big winner. And that's -- we got that early read in Asia because we launched there a little bit earlier than in the U.S. because we wanted to catch the Chinese New Year. And the early results in the States tend to be the same thing. The other thing that people seem to be relatively excited about is the double pop-up expansion. So you've got a 2-stage expansion capability in all the bags and it's levelloft [ph] as well. So those seem to be -- out of the top 5 things, those seem to be the top 2 things people are responding to. And if you look at percentages, the legacy Alpha represented 17% of the total company's business, and we're modeling it in the same area for the coming year because even though the prices are slightly higher, we have higher sales increases expected this year.

Operator

Our next question is from Lindsay Drucker Mann with Goldman Sachs.

Lindsay Drucker Mann - Goldman Sachs Group Inc., Research Division

I wanted to ask on North America Direct. We saw some operating margin compression in that division specifically based on the number you report, and you're coming up against last year where you had some, I believe, some extra expenses related to double shifting your DC and some other kind of onetime expenses. I was curious, as we think about the further margin compression this year off of last year, how much of that is a function of deleverage from fewer selling days? How much of it is maybe the pushing -- the margin dilutive impact maybe pushing Alpha old school through your stores? Could you just help understand what's going on from a margin perspective, Indirect U.S. North America?

Michael J. Mardy

Yes, Lindsay, this is Mike. And thanks for the question. The biggest single component of the margin compression in our North American Indirect-to-Consumer business was the Alpha 2 business. As I said in the dialogue it was like 90 basis points. And then we actually had a benefit because so much of the increase in sales relative to the Indirect-to-Consumer North America business was related to wholesale e-commerce. And that actually benefited -- we had a positive margin impact of 40 basis points relative to the fact that last year, we made that investment and had a relatively efficient pick, pack and ship operation. So the investment paid off, frankly. But we started clearing out -- we started clearing out the Alpha 2 right after holiday, and it started having an impact on margin as we went by, in particular in the North American wholesale business.

Lindsay Drucker Mann - Goldman Sachs Group Inc., Research Division

So was there ever a moment as you were transitioning where you felt like, because you were clearing out of the old Alpha so quickly, you didn't have enough of new product to sell in its place? Have you felt like...

Jerome Squire Griffith

We started to run out of styles going into January, actually. As Mike had mentioned earlier, Indirect-to-Consumer took advantage of some pricing that we had given them in the early part of the quarter. And they cleared through a fair amount of it, so as we were going into January and even in the back part of December, our margins -- gross margins were not as compressed as what we thought they would be because we didn't have so much Alpha legacy to sell. We were out of some key sizes, and we didn't have the Alpha 2 availability going -- at the beginning of this year. So yes, that definitely hurt us. If you saw us online with e-commerce for the month of January, you could see that there were certain styles that were missing and certain key sizes that were missing. So that's why we ended up making a decision to launch Alpha 2 as soon as we could get it in. And one thing I don't know, Lindsay, if you got a sense for -- I think you were asking also about Direct-to-Consumer margins and operating margins in the quarter 4. We opened up double the amount of stores this year versus last year in Q4. And one of those stores was our first store in Canada, which was a higher expense than average. So I think that -- yes, that was more of an anomaly in Q4 because it was more regular expense going into our store base, meaning just opening up double stores. And what Mike was alluding to in the outlook is you'll see that again in Q3 and Q4 of this year because the store numbers, again, will ratchet up as a number of stores that we'll end up opening, on the only expense side.

Operator

[Operator Instructions] And our next question is from Rick Patel with Stephens.

Rick B. Patel - Stephens Inc., Research Division

So you have a number of designer lines currently in the portfolio, and it looks like you have some women's product launching a little bit later this year. Can you talk about which inning you're at in terms of pursuing the opportunity for women's products. Perhaps highlight what that was as a percentage of sales in 2013 and where you expect to end the year given some of the new products that will roll out?

Jerome Squire Griffith

Sure. Women's still represents around 12% of our business, which is the same percentage as what accessories represents. The growth rates for us have been pretty good in those areas. And I want to tell you that in the world of women's, particularly when it comes to Indirect-to-Consumer, we're in inning 1. When it comes to Direct-to-Consumer, we're probably in inning 2 or 3. Women still come into the brand, first purchases through a travel piece, second purchase is through a business piece. And our business side of the women's -- of our women's product is still growing. But I think it's still in the early days. I mean, if you look at shop-in-shops and Indirect-to-Consumer distribution, we're not even scratching the surface of where we can be. So we've got a big opportunity in front of us there. And that's why you'll see us continue to give more space and add more product to our women's lines. And I don't know if you've been up to 610 Madison, which is the new store prototype which we're calling the Madison concept. It was designed by Dror Benshetrit, who we had a collaboration with a couple of years ago. That is now starting to roll out to Macy's. Our first Canadian store was in that concept. We've added Lennox. We've added San Francisco. And Regent Street and Saint Honoré in Paris will also be in that concept. And by midyear, we'll have all the new stores and all the new shop-in-shops in that one as well, which further highlights our women's product offering.

Rick B. Patel - Stephens Inc., Research Division

Can you talk about the performance of some of your designer lines like, has Jonathan Adler performed to your expectations? And then perhaps give us a little bit more color about the Sinclair line that you'll launch later this year, perhaps highlight price point and the types of products that will be in that line.

Jerome Squire Griffith

Sure. Jonathan Adler -- different parts of the line had been overperforming. Some parts of the line have been underperforming. But we really aren't doing the marketing campaign on Adler until April of this year. So it's a little premature to give real sales results on that because I'm not comparing apples-to-apples, like what it's really up against is the Anna Sui collection from a year ago, and that launched in January. Jonathan Adler is not really launching with the marketing side until April. And on Sinclair, which will launch in Q3 of this year, Sinclair is coated canvas and leather business bags. They come in 6 styles. They'll come in 5 colors, and then some color additions as well. We've got people out, we're testing them right now. Early feedback has been fantastic. It's very upscale. Price points will be anywhere from $395 to $595. So it's affordable -- more affordable, luxurious price points. And we're pretty excited about that going into the back part of the year.

Operator

Our next question is from Faye Landes with Cowen and Company.

Faye I. Landes - Cowen and Company, LLC, Research Division

A couple of questions. Really, at this point, clarifications. First of all, Mike, can you just clarify the liquidation, therefore, started really after holiday. So I'm trying to figure out why such a big impact on the gross margin during such a -- that took place during such a compressed period. Or am I thinking about this wrong?

Jerome Squire Griffith

It's a sell-in, Faye. It got sold in, in October, November to be sold out to the ultimate consumer in December.

Faye I. Landes - Cowen and Company, LLC, Research Division

Okay, so it's on the wholesale side?

Jerome Squire Griffith

It's in the Indirect-to-Consumer. It was really 2 pieces. We had margin compression in department stores and in specialty stores, which are 2 large parts of our Indirect-to-Consumer business in North America. And that was the big hit.

Michael J. Mardy

Yes, so what we did, Faye, to be clear is that in late October, we incentivized the wholesale trade to take some old Alpha product for holiday. And we incentivized them by giving them a discount on it. And they sold -- they blasted through it, which was great for them. And then, in our own retail stores, we went on after holidays. So this is a big deal for us to transition from Alpha 1 to Alpha 2, being a significant portion of the business. So we tried to plan it out so that it wouldn't be crazy in the fourth quarter.

Faye I. Landes - Cowen and Company, LLC, Research Division

Okay, I hear you. Okay. And also, kind of just a couple other cleanup type questions. Women's, you said is 12% -- did I hear you say 12%?

Jerome Squire Griffith

Yes. 11.5% to be exact.

Faye I. Landes - Cowen and Company, LLC, Research Division

That 12% -- I'm trying to figure out what the -- 12% of what? In other words how you -- I understand in total but how do you define it? It's not stuff sold to women. Is it women-specific product?

Jerome Squire Griffith

It's product that's specifically designed for women. It's driven [ph] by our Alpha product, Faye, but that falls under our core category.

Faye I. Landes - Cowen and Company, LLC, Research Division

Right. So I've heard, you've discussed before there's sort of your -- how much you -- what percent of your customers do you think are women? Can you just talk about that a little bit where you see -- and has that changed in your most recent measurements?

Jerome Squire Griffith

Yes. No, it hasn't. In fact, for the last 5 years, it stayed more or less within 3 or 4 percentage points of the total between 40 -- like, right now, it's 44 points as the percentage to our total. So it hasn't moved the needle a ton, but slightly over the last 2 years. So like from 40 to 44 points.

Faye I. Landes - Cowen and Company, LLC, Research Division

Okay. And also -- I know you obviously have a very varied product base, but can you give us -- however you measure it, the change in ASPs in the quarter and then I have one final -- one more question.

Jerome Squire Griffith

The change in which in the quarter, Faye?

Faye I. Landes - Cowen and Company, LLC, Research Division

,

ASPs.

Jerome Squire Griffith

Average selling price, yes, it was up slightly. Hold on one second, I'll give you the exact number. Give me a second question while I'm looking for it, okay?

Faye I. Landes - Cowen and Company, LLC, Research Division

Okay. The second question, this is for Mike, inventory -- you said inventory was in line with sale -- inventory grew less than sales. Do you have the right -- did you have enough?

Michael J. Mardy

Well, that's a good question. We -- as Jerome said, we sold more Alpha -- legacy Alpha than we anticipated. So the way we backfill for that -- I think the answer is we have enough. The way we backfill for that is I just airfreight stuff in, and frankly, we've done a little bit of that, but we got plenty. When you have $80 million of inventory in this business, you have enough inventory. You may not have exactly the right SKUs, but you have enough to meet demand. So I always like to reduce inventory levels, but we have plenty right now. And we're bringing more in, in the month of January and February.

Jerome Squire Griffith

The [indiscernible] transactions, just so you know, we're up $2 for the end of the year.

Operator

Our next question is from Christian Buss with Crédit Suisse.

Christian Buss - Crédit Suisse AG, Research Division

I was wondering if you could provide some perspective on the e-commerce platform that you're developing. What kind of benefits you're expecting to see from that? And what you're thinking in terms of penetration for e-commerce, what the potential is there over time?

Jerome Squire Griffith

Sure, Christian. Thanks for the question. We're expecting to get 4 or 5 different types of benefits out of moving to a platform that we're managing. The first one is huge for us. It's going to be the ability to re-merchandise it, based upon what we're selling or what want to highlight, which we can't, now. Right now, the platform is very stagnant, so I can't move it. Second is the ability to have a video interface. One of the things that people like to know is how something was designed, why it was designed, who designed it, how to use it. And this will make it a lot easier for us to embed video in our website. Thirdly, we'll be able to more easily have you interact with social media because friends take things they like, if they want to move from our website to Facebook or to Twitter and then back. And this makes -- this platform makes it much more easy to embed -- sorry, to interact with social media from the e-commerce site. Fourth is our ability to maximize mobile. We have a growing number of orders and a much higher number of lookers on mobile devices and people -- we've talked about this before. People shop in 2 or 3 different places before they end up making the purchasing decision, whether it's our website or a third-party website. And a lot of people do research and get friend's comments from our website and someone else's. And it's just easier to interact with mobile. And finally, we're going to have the ability to roll this out in any country around the world in local price points and local language.

Christian Buss - Crédit Suisse AG, Research Division

Okay, that's helpful. And could you talk a little bit about your third-party distributors owned retail stores? How many did you end the year with and what's their store opening plan for 2014?

Jerome Squire Griffith

Sure. We opened our third-party partner stores. You're talking about Tumi stores, right? Christian, you're talking about Tumi stores, right? All right. I'm hoping -- I guess they shut your microphone off. So let me just let you know where we ended the year. We're at 135 partner stores. We opened up 27 partner stores last year. And this is a combination of regular partner stores and airport stores. And we're looking at a cadence, again, this year, which is relatively similar with most of the openings coming out of Asia, more Asia than the EMEA focus. The other part of your question that I didn't answer before is currently, e-commerce represents 14% of our global Direct-to-Consumer business. And I see that being well over 20% in the long run because year-on-year, you continue to see that ratchet up, particularly noticeable in fourth quarter and particularly noticeable this year in the time period from Thanksgiving to Christmas.

Operator

Our next question is from Edward Yruma with KeyBanc.

Edward J. Yruma - KeyBanc Capital Markets Inc., Research Division

Just a couple of quick questions. I guess, first, thanks for the color on the incremental expense for the website, that was helpful. How should we think about the gross margin benefits as it flows through the P&L? When will we get kind of the full impact? And how impactful -- and how meaningful could it be?

Michael J. Mardy

Yes, so here's just the math and it's really not so much gross margin since gross margin is really sales less cost of goods sold, less any promotions we do. It's really at the operating margin that you see the benefit. And the pure math is this: If the website is a $40 million website and we just stayed where we were, we'd be paying $0.20 on the dollar to the old website provider to perform the front-end services where we did most of the back-end fulfillment. In the second half of the year, when this thing gets rolling, we will not be spending the $0.20 on a dollar to provide -- to the website hoster because we'll be hosting the website ourselves. So it's a pretty rapid payback, and it affects operating margin because that's where the $0.20 operator fee goes. It goes into SG&A, actually selling expense. So it's a pretty rapid return on investment. But it happens in the second half.

Edward J. Yruma - KeyBanc Capital Markets Inc., Research Division

Perfect. Just 2 other quick questions. I guess, first, I know it's hard to delineate necessarily, but did you get the expected return, do you believe, on the incremental New York marketing expenditures? And then, two, we noticed that some of your product is now being sold at Walmart.com. Is that a potential store opportunity, or is that a channel you want to be in longer term?

Jerome Squire Griffith

Let me take the second question first because I'm going to have to have you repeat your first one. I didn't hear the whole thing. On the Walmart thing, this is one of the problems that we have with special markets. And it's also one of the reasons why we talked a couple of years ago about this is not a growing channel for us. It'll probably be a shrinking channel in some cases, because it ends up going into the gray market. We do not sell to Walmart, and we have a lawsuit going against someone who did take our products. I mean, we will. This is not right, this is not where we want to be and we are not responsible for this. So it's quite disappointing, quite honestly. And we really have to police our Special Markets business a lot. And that Special Markets is B2B, which normally goes to the United Miles and More club, or American Express card rewards. So this was not good. And what was your first question again, Ed?

Edward J. Yruma - KeyBanc Capital Markets Inc., Research Division

Sure. You had an intensification of your marketing expenditures in New York City for 4Q. Do you think you got the return you were looking for?

Jerome Squire Griffith

We saw traffic improve from October to November and then from November to December. So we did see good traffic improvements from it, whether it was from the outdoor or the magazines or newspapers or the web, I'm not really sure. But we did see a nice return or a nice increase in foot traffic coming into the stores. So we're looking at what we should do to anniversary that this coming year right now.

Michael J. Mardy

And one of the things that's interesting, because it was so media -- so New York City-centric. We were going to close that one Madison Avenue store and open up a new Madison Avenue concept. We did open up the new Madison Avenue concept. We expected to see a fairly large decline, which would eventually lead us to closing the lower Madison store. But I think one of the salutary benefits -- it's hard to draw a direct relationship. But one of the salutary benefits of that was that store did very well and didn't cannibalize -- didn't get cannibalized too much by the new store. It kind of leads us to believe that we have yet to over-penetrate the New York market, given the fact that we could probably open a store a few blocks south on Madison Avenue where the old store was located and have it be a net cost business. So advertising is hard to gauge. I got a lot of compliments on the advertising campaign. A lot of people mentioned they saw Tumi here or Tumi there. But it's really hard to gauge longer-term. We've traditionally under-invested in advertising. And this is a good little experiment. I think we got a little bit of a payback, but we can't really quantify what it was.

Operator

Thank you. At this time, I'd like to turn the call over to management for closing remarks.

Michael J. Mardy

Okay, everybody. Thank you so much for dialing in and participating in the call. We have a bunch of calls to make, and we like to keep this train rolling. So thank you very much for your interest and your participation.

Jerome Squire Griffith

Thank you, all.

Operator

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.

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Source: Tumi Holdings Management Discusses Q4 2013 Results - Earnings Call Transcript
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