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Executives

Bill McComb - CEO

Andy Warren - EVP & CFO

Analysts

Edward Yruma - KeyBanc

Alfred Chen - Citi Investments

Bob Drbul - Barclays Capital

Mary Gilbert - Imperial Capital

Chi Lee - Morgan Stanley

Jim Chartier - Moness Crespi Hardt

Robin Murchison - SunTrust

Lana Si - Bank of America

Liz Claiborne Inc. (LIZ) Q3 2010 Earnings Call November 4, 2010 10:00 AM ET

Operator

Good morning everyone and welcome to the Liz Claiborne Third Quarter 2010 Conference Call hosted by Chief Executive Officer, Bill McComb. After the opening remarks we will be taking questions. This call is being recorded and is copyrighted material. Therefore, please note that it cannot be recorded, transcribed or re-broadcasted without Liz Claiborne's permission. Your participation implies compliance with these requirements. If you do not agree simply drop off the line.

 Please note that there will be a slide presentation accompanying the prepared remarks. The slides and earnings release can be accessed at www.lizclaiborneinc.com in the Investor Relations section. There are separate links to the slides for webcast and phone participants. Please note that the statements made during this call that relate to the company's future performance and future events are forward-looking statements within the Private Securities Litigation Reform Act. These forward-looking statements are based on current expectations, and are subject to the qualifications set out in this morning's press release, as well as in the company's 2009 annual report on Form 10-K and second quarter 2010 quarterly report on form 10-Q filed on august 5, 2010 and at third quarter 2010 quarterly report on form 10-Q being filed today with the SEC in each case under the captions Item 1a Risk Factors and statement regarding forward-looking statements. Also, please note that during this call and in the accompanying slides and press release, net sales, gross profit, gross margin, SG&A, SG&A as a percentage of sales, operating income or loss, operating margin, interest expense, net income or loss from continuing operations and EPS. Reconciliations of adjusted results to the actual results are available in the tables attached to the earnings release and slides captioned Reconciliation of Non-GAAP Financial Information.

The company believes that the adjusted results represent a more meaningful presentation of its historical operations and financial performance, since they provide period-to-period comparisons that are consistent and more easily understood.

Now, I would like to turn the call over to your host, Mr. McComb. Please go ahead, sir.

Bill McComb

Good morning and welcome to our third quarter 2010 earnings report conference call. This morning’s call is being webcast along with speaker’s support slides per usual which we will refer to throughout the call. These slides can be viewed now with our commentary or accessed via the investor relations section of our corporate website lizclaiborneinc.com.

Andy Warren, our CFO is also here with us and will add to the commentary in the Q&A session. We’ll follow our typical format. I’ll provide some opening perspectives on the quarter and our framework for performance in the second half of 2010 overall and Andy will walk you through a detailed review of third quarter performance. I will then review the adjusted segments results and provide closing remarks.

We are pleased with the results that we posted in this mornings press release. Third quarter by and large played out as we had described that it wouldn’t back in August when we reported our second quarter earnings. Our business is showing operational traction in many key areas and we remain on track for ongoing system wide profit expansion.

We are very pleased with the progress that we are making at Mexx Europe. We’ve seen several weeks with positive comps in both the retail stores and our e-Commerce business and our wholesale accounts are indicating increases for the April-May period. We are pleased with our performance in concessions in department stores with some important Bellwether locations reporting even stronger then our own comp trend and we are seeing strengthened women's products sell-throughs that we haven’t seen in five years.

At Lucky brand the trend is also improved, we are no longer seeing the minus 20 to minus 30 comp store declines. The comps by major classification shows some triumphs, we are specially encouraged by excellent progress in both men's and women's fashion, where sell-throughs in same store sales increases have been strong. Denim, overall in the market place is soft as we've heard from other retailers but Lucky brand is responding by managing price points, promotion and inventory levels.

With both Mexx and Lucky brands we're seeing what happens when you take a business that is suffered a long-term decline and radically changed it with brand appropriate product and marketing. You got immediate conversion of full price on some great items. Comp sales results begin flashing to positive and what I'll call a blinking pattern, traffic can remain sluggish but as the store widows and marketing campaign start to stimulate new interest this will begin to change.

Traffic lags, conversion leads, you focus on the critical product categories first. Men's and women's core in fashion and look for specific wins, product classifications that resonate, items marketed in windows and catalogs that check well, being very mindful of what's working and what’s not and making adjustments to future assortments to reflect this.

Once the consumer embraces the new direction in the critical core, other categories like accessories and kids will ramp up adding to the same-store sales build. This was how Kate Spade pulled out of its sluggish and negative period over a year ago.

Overall the leading indicators at both Mexx Europe and Lucky brand jeans are encouraging. Juicy Couture had a very strong third quarter with sales up 11% and profits up double digits. Business was very good in our retail stores and on our E-Commerce site and a significant improvement in on-time deliveries was the key factor in driving the improvements in sales growth versus the first half of the year.

Juicy achieved these results despite ongoing rationalization of the wholesale business where sales were down versus last year and will probably be down again in the fourth quarter. Juicy continues to enjoy a strong brand franchise with the consumer and remains an important contributor to our overall profit picture.

Kate Spade now up against the year ago category launch of apparel is showing outstanding sales results in all product categories including handbags where design upgrades are playing well with the consumer. The Liz Claiborne business at JCPenney is tracking very well. We are very pleased with our partner’s execution including product quality and sourcing. It is placement on the floor their marketing effort, the tone intender of the partnership and the plans we both have for the future.

We are also pleased with our overall performance on Air with the Liz Claiborne New York brand on QBC. We are efficiently managing our exit from the Liz Claiborne branded outlet stores. And I am happy report that our actions there are on schedule. So while I am generally pleased with how our businesses are operating. I also must take a second to reiterate what I have said all year and what many of you are hearing the consumer and the market place overall.

The traffic and sales pattern are inconsistent week to week. The consumer is value oriented, and the market place is promotionally driven. Generally speaking we hear that many retailers have characterized their inventory levels as high particularly after October which could mean a period of greater promotion and mark down in the fourth quarter.

The pressure on margin you heard us all talk about from increased commodity price is factored into our fourth quarter outlook and we will primarily impact the industry next year. I addressed this on our last call and the story remains unchanged. So reflecting back on the 2010 second half operating goals that we laid out in August, we remained on track on all four we are projecting still that adjusted net sales for the two quarter combined would be down 9 to 14% inclusive of the impact related to our transition to the licensing model under the JCPenney and QVC arrangement. We believe we are still on track to deliver adjusted gross margin at or above 500 basis points of improvement for the second half.

Third quarter delivered an increase of 631 basis points and although we are seeing a high percent of discount at mid season sales in the industry we don’t think the situation is as volatile as what we saw two years ago. Our view of adjusted SG&A remains at $675 million for the two quarters combined. And back in august we told you that our operating income would be up approximately $80 million versus last year we were up 40 million in the third quarter and expect that momentum to carry into the fourth quarter. The variable determining the size of the variance with the intensity of the promotional environment. Certainly the remaining $40 million increases achievable but we believe that is it the high end of what the quarter will be given the likelihood of promotion activity.

So as I look at the third quarter results in some detail and the progress that we have made at Mexx and Lucky brand, I believe our year end 2012 threshold goals remain attainable implying that Mexx Europe will deliver a break even operating profit in 2012. We said that our guiding principles are to deliver an EBIT margin of 10% or greater by year end 2012. 2010 to 2012 cumulative operating cash flow of $600 million or greater and 2012 year ended adjusted earnings per share of $1 or more. At that point we would be well on the road to truly achieving our strategic ambition. With very strong brand leaders, consisted product and marketing execution driving exceptional consumer loyalty, outstanding product quality and price value for the consumer, optimized e-Commerce and direct store franchise building and a profitable and humming partnered brands portfolio. So with that let’s dive down deep into the third quarter results. Andy take it away.

Andy Warren

Thank you Bill and good morning everyone. I will start today by walking you through our third quarter adjusted results and key financial metrics. 515 pairs of actually operating performance again separating assumptions that we previewed to you back in august in our second quarter conference call.

Overall our financial results were inline with our expectations. Adjusted operating income of $8 million was 40 million better in 3Q 2009 and 56 million better in second quarter of this year. Back in august we guided that our third quarter adjusted EPS will be flat and slightly negative. Our actual results of negative $0.04 was inline with this guidance we exclude the FX loss of $0.20 per share primarily related to the translation of the de-designated portion of the Eurobond hedge.

We continue to make impressive balance sheet progress for the quarter with total inventories down 7% accounts receivable down 26% and total debt reduced by $92 million lastly we ended the quarter with significant credit facility durability of $157 million. We remain highly focused and continue to be very successful and managing cash and de-leveraging the company. Slide 7 speaks for itself. You may see this quick snapshot of our third quarter adjusted P&L versus our 3Q 2009 performance. Slide 8 is a summary of our key balance sheet measures.

Let me highlight a couple of important metrics. First, total debt was reduced significantly by $92 million by 11% decline year-over-year. We ended the quarter with 737 million versus 829 million in total debt.

Second, capital expenditures were $62 million for last 12 months. For 2010, we have planned our capital expenditures to be just below 90 million compared to 73 million in 2009. As we are opening approximately 35 additional retail and outlet doors globally.

On slide nine, we bridge the 16% year over year adjusted net sales decrease. The Partnered Brand segment drew approximately 86% as the third quarter sales decline. Primarily due to Liz Claiborne brands exit from two tier department stores. As we have outlined before the Liz Claiborne brand was planned at no third quarter shipments to two tier department stores. As we transition the business model for our launches at JCPenney and QVC back in August.

International-Based Direct Brands declined 37 million. This decline was largely driven by Mexx Europe’s planned wholesale rationalization, fewer doors and reduced open to buys, slightly offset by a 15% sales increase in Mexx Canada.

Domestic-Based Direct Brands net sales increased 20 million. Juicy Couture and Kate Spade both had increased sales for the quarter, Lucky had sales down 6% mostly driven by specialty retail and outlet negative counts.

On the next slide, we have broken out our third quarter adjusted gross margin trend by segment. Overall, adjusted gross margin increased 631 basis points year over year.

Domestic-Based Direct Brands Juicy, Lucky and Kate Spade combined had a healthy adjusted gross margin of almost 55%, up 38 basis points versus last year. Kate margins were significantly for the quarter, partially offset by reduced margins of both Juicy and Lucky as a result of higher promotional activity.

Partner brands adjusted gross margin was up a very healthy 935 basis points to 42.4% driven by the exit of the Liz Claiborne brand from Tier 2 department stores and to my conclusion of the Penny and QVC license royalties.

International-Based Direct Brands, our Mexx business, had adjusted gross margin up 588 basis points versus last year. Both Mexx Europe and Canada realized significant adjusted gross margin gains for the quarter growing 581 and 512 basis points respectively.

Year-over-year gross margin betterment across all of our segments is imparted for the fourth quarter we accelerated a gross margin extension this past third quarter and are maintaining our forecasted 500 plus basis point improvement for the second half of this year. Of the forecast fourth quarter unadjusted margins to be higher than both 3Q 2010 and 4Q ‘09, we do however, expect our fourth quarter basis improvement to be the last in the third quarter improvement as we are planning to be more promotional and to make sure appropriate inventory levels at year end.

Now on slide 11, our year-over-year third quarter adjusted SG&A trend reflects our continued, very successful cross productivity efforts for adjusted SG&A down another 14%. We've dramatically reduced cost in both partnered brands and cooperate overhead while further decreasing expenses in our International-Based Direct Brands segment.

We continued to benefit from the animalization of the many cost reduction efforts we are secured to find last year and are always looking for opportunities such as further cost per activity and realized SG&A efficiencies. Partially offsetting this global expense reductions is an increased investment in marketing across the company. For the third quarter alone we increased our marketing spend Juicy, Lucky Kate and Mexx by $6 million to 4% of sales compared to less then 3% of sales last year.

Now on the slide 12 we continue to thoughtfully reduce inventory levels with partnered brands and International-Based Direct Brands total inventories down 51 and 27% respectively to compared to ‘09. As a company, we are focusing on key metrics to measure the efficiency of inventory management. Although we have successfully reduced inventories year-over-year for 12 consecutive quarter including this quarter, you will note that Domestic-Based Direct Brand inventories were up 48% compared to last year to an investment we made in currencies inventories and to support many growth initiatives such as retail store expansion, forecast for fourth quarter comp increases, the Juicy e-com re-launch et cetera. However, I do have to say currencies and inventories are higher than we even like. And therefore we all work diligently to get these inventories to appropriate levels by year end.

Now let’s see if you have total company debt on slide 13. We remain highly focused and committed to de-leveraging the company throughout 2010 and beyond. We will continue to utilize a 100% of our free cash flow to reduce debt. I will walk you through our availability of calculation on prior conference calls.

So today on slide 14, I will simply update you on the numbers. At the end of third quarter our availability was a robust $157 million. Remember, we no longer had any financial coverage covenants. And our minimum availability of threshold is $45 million with our ending third quarter actual volume-based calculation being $428 million, 78 million above our ABL facility size.

We have realized significant availability of expansion in the fourth quarter. As these excess ABL oriented capital assets turn into sales and cash. Therefore, we are forecasting the unavailability to be well in excess of $200 million. Our actions continued to be focused on keeping the total availability high enough to meet our needs in any economic or operating scenario. Based upon our current forecast and operating assumptions we are very comfortable with our forward looking availability of forecast.

Now, on slide 15, Bill just confirmed our second half key financial operating goals, so I will now provide our key drivers and assumptions behind the fourth quarter element of this forecast. For this forward looking frame book we have adjusted out to sales, gross margin, cost, and operating loss associated with the Liz Claiborne branded outlook stores for the second half. All we do know now that the majority of these stores will remain open through the year-end holiday season, our adjusted results were excluded performance from the date of the august announcement to the end of the year.

Let's now discuss adjusted net sales. We were still expecting total accompanying second half sales to be down 9% to 14% knowing that third quarter actual sales were down 16% we were therefore forecasting fourth quarter sales to be down less significantly. We are forecasting flat to positive director consumer comps across all of our retail platforms in both November and in December. However, we are not relying on a robust holiday sales environment to support these positive comps; we were also not anticipating a worsening of the current retail environment.

Second, we are confirming a robust 500 basis point adjusted gross margin improvement for the second half. This is mostly driven by the Liz Claiborne brand model change which significantly drove our third quarter margin expansion as well as better margins at Mexx to the healthy inventory levels which are expected to result and reduce markdowns.

This outlook does include margin pressure from real documented raw material inflation. Cotton prices and yarns are significantly higher in both last year and the first half of this year. Our third quarter actual adjusted SG&A was down to 14% to $223 million, we are sticking with our second half forecast of approximately $675 million. There are two important drivers in this implied fourth quarter, $350 plus million SG&A forecast. One we are increasing our combined marketing spend by $9 million at Juicy, Lucky, Kate and Mexx to just over 4% of sales. And two of our global retail platform requires greater operating and staffing expenses during the holiday season.

Lastly, the net of these adjusted sales, gross margin and SG&A assumptions remained a second half improvement in operating income of approximately $80 million versus last year. All of our efforts to date rightsizing the portfolio, increasing our retail capabilities, building powerful brands and teams and re-baselining our global cost structures are beginning to pay off. Driving our significant actual third quarter adjusted operating income betterment and our forecasted fourth quarter improvement as well. Importantly we are forecasting continued sequential operating income improvement from the fourth quarter, as a result we expect adjusted operating income to exceed the $8 million, we reported today to Q3 resulting in a positive mid single digit adjusted EPS excluding the impact of any potential changes in foreign currency.

Remember, once we achieve positive adjusted net income to share count to be used to calculate diluted EPS needs to be increased to reflect the impact of the convertible notes that we issued in June of 2009. That’s it; I will now turn the call back over to Bill to discuss our segment results.

Bill McComb

Okay before I provide more specific commentary on the actual segment level performance, I would like to address some of the market place noise about sourcing cost. We addressed this issue in full on our last conference call in early august. Back then we acknowledged the cotton prices were spiking and the factory relocations and closings in southern and eastern china on top of the spiraling labor cost there would create a situation that would pressure going in margins for 2011 in fact our teams have been encountering these pressures since the first half of this year.

I am not going to reflect on how this has affected our third quarter 2010, I firmly believe that for the entire second half of this year the bigger issue affecting gross margin is marketplace inventory levels relative to demand and the competitive promotion activity that, that triggers.

As per sourcing cost, back in August I talked about a number of things our teams were doing working together to manage these pressures going forward. They include ongoing reconsideration of our country of origin strategy; Li & Fung has been particularly helpful with this giving us access to more geographies for production than we had as a sourcing group internally.

Taking grace positions in fabric as a group in advance were possible and were smart, committing to production of some items like sweaters off season and value engineering trade offs, sourcing, merchandising and design teams coming together to make trade offs where possible to deliver the most compelling item from a consumer’s perspective while keeping the input pricing in line with their willingness to buy.

We believe these pressures are equally burdening the industry overall. Nearly all of the key players are confronting the pressures in China which frankly will outlet this spiraling cotton price issue.

So to recap, we have been focused on these issues all year. There are no going in margin surprises for our third or frankly our fourth quarter. Margin pressure in the fourth quarter will come from market place inventory levels in the promotions that they inspire or not. Our own forecast and outlook account for some level of this, but it is unclear how we will play out over the next eight weeks.

Turning now to International-Based Direct Brands. Here we see some very positive signals of change taking place of Mexx Europe. July, August and September all posted sequential direct to consumer comp sales improvement with the first positive monthly comp in my tenure coming in September. Accounts across all regions have reported strong sell-throughs in some important locations even stronger then our own comp trend. Then in October comp was down 4% showing the up and down volatility that we are also seeing at Lucky brand as the product in marketing initiatives unfold against the backdrop and still erratic traffic patterns.

We will begin showing director consumer comp data for all points of distribution where we earning inventory, this means our own retail stores concession stores and the e-Commerce this chart provides the bridge. Wholesale forward orders for next year had improved with each selling period, this week we are in market for the April-May delivery and we anticipate an increase in orders versus year ago.

Today these accounts have been cautious about the Mexx brand and have been waiting to see a trend break in their own data as they test our fall inner products in a few stores. As these results come in positively these accounts are getting more bullish and they are showing that by placing higher orders year-over-year. I can see that there are only a few weeks really into the market place with new product in marketing but we are believers that Thomas Grote and his team have the right product positioning, the right product quality and the right price value and are preceding by executing the plan that we expect will return the business to growth and profitability.

For the third quarter adjusted operating margin was slightly improved, posting a negative 6% adjusted gross margin rate was up 588 basis points to 55% with the 57% margin rate in Canada and 54% in Europe.

Next Canada posted comp stores sales growth up plus 3%.

So what's working at next Europe? Fashion and other way are checking out at full price and merchandising and buys are very different then what the consumer have seen for quite some time. They are seeing share per price points on key items and visibly discernable quality improvements. We see strengthen conversion but still we traffic proving that we take time to re-attract laps consumers particularly in the core home countries of Benelux. In Eastern Europe the consumer has responded very quickly resulting in forward order increases in Russia for December through March a plus 40%. A business in Germany is also checking well. The team is working store by, region by region to identify and share elements of success.

But the overall story is definitely one of product and merchandize success. Flipping over now to partnered brands you can see the segment reported up positive adjusted operating profit with an adjusted operating margin of plus 3% on the sales base a $164 million. These numbers now reflect licensing revenue from JCPenney in QBC.

Most of which flows into the operating profit line effectively swinging the Liz Claiborne wholesale brand franchise from the meaningful adjusted operating loss in 2009 to adjusted operating profit in 2010. We are moving quickly and successfully out of the Liz Claiborne outlet operation and at the same time we are exceeding the traditional wholesale and concession business model on Liz Claiborne international as well.

We have notified our partners and we will be not be shipping spring 2011 design. We are actively pursuing the kind of model that we have established in Canada and the US for the brand. And we are meeting with candidates in Europe and China right now to license the brand in those markets. Stay tuned for details. We also improvements in the quarter in DKNY Jeans versus second quarter.

In Domestic-Based Direct Brand sales were up over 7% operating margin increased to 5% from 2% last year and gross margin was up 38 basis points. Going forward we will be including E-Commerce in the comp direct to consumer data that we report. So today we will show a bridge in each of our retail businesses like one you see here on page 21.

With e-Commerce Lucky brand a negative eight, a major improvement from the last two quarters and Kate Spade delivered an increase of plus 32%. Juicy reported a plus 1 comp. E-Commerce for Juicy is not comp since it was previously operated for us by the Neiman Marcus Group and was reported as a wholesale transaction.

Flipping to page 22, you can see how these comps built over the quarter and importantly have a look at the October results as well. We saw softness in all the brands in the middle of two weeks of August. It was a traffic issue and then we saw very strong traffic in conversion in the more than of September. Overall Lucky brand showed steady improvement but in October the sales trend was very inconclusive. With some days showing very high spikes and some days showing very low lows. And that Kate Spade their comp sales growth has gotten stronger each month even as we lap higher and higher a year ago numbers with the anniversary of the apparel launch.

Juicy continues to grow low single digits in comp sales in our retail stores. We anticipate the trend you see here will continue through the fourth quarter, we have introduced more folding tables and hanging fixtures and were emphasizing more apparel looks with these fixtures. The tracksuit and logo tees are core business remain strong accounting for 65% of the apparel business. We have gained further traction in the fashion classifications with good selling and outerwear, wovens and denim, a classification that we reintroduced in third quarter and had been successful a few years ago.

Our accessories business is 40% of our total business and have seen mixed results lately. Handbags continue to sell well especially in our own stores, core jewelry is also selling well but fashion jewelry has not performed to our expectations.

The international business continues to be a strong sales were up 49% internationally. We are specially pleased with our China business where the brand is known and sell through are very strong. Our distributor will have 38 stores open by year end in china. The major milestone in third quarter for the brand was the integration of the e-Commerce business. Going forward the e-Commerce side will be reported as direct to consumer sales with our own retail stores. We now control the buy and the merchandizing and the dedicated e-Commerce team will run it as the largest Juicy store on the planet with exclusive merchandise and synergistic marketing with the retail historically. To give you a sense of comparison our fifth avenue store sees about 400 visitors per day out of which 60% are international customers. Our e-Commerce side reports 50,000 visitors a day with 30 coming from international market.

I would also like to make a comment on the arrival of Leann Nealz, our new President and Chief Creative Officer at Juicy couture. Leann has set out to realize three critical goals; one, updating the look and feel of the brand in store and in marketing with some important initiatives breaking in the first half of 2011, two, improving the price value and quality of the line and three, bringing a high level of innovation of news back to the brand. I am not only confident that we do. So I am incredibly excited about our vision and our clarity in approaching these goals already. In the meantime there are important new product ideas in the pipeline for spring 2011.

The brand remains very profitable and our consumer remains loyal and responsive. Turning now to Lucky brand, we continue to feel very good about the Lucky brand jeans and the direction that they have taken with this turn around. Virtually every aspect of the business has been touched and we think improved in some significant rate. Having said this we realize the turnaround will take time to unfold and the path will be bumpy until the consumer fully embraces the new point of view and positive momentum takes hold. The message frankly has to get out. We are on the bumpy part of the path right now and learning a lot as you saw from the comp trend from July through October.

As I indicated at the beginning of the call traffic is and will be the most challenging metric to turn. Our conversion, however, remain solid. Starting with the product, the teams goods are now in our specialty stores and we have seen some good results for both women’s and men’s fashion goods specifically fashion tops. In September women’s fashion was up 18% a number that defies a full 12 month trend of decline while men’s has been more consistent throughout the year. We have also seen a steadily improving trend from the men’s fashion segment.

For both genders woolen tops have been the driver with strong up-ticks in non-denim bottoms, jackets and outer wear. While fashion goods are clearly heading in the right direction, denim has been more challenging with the slowing trend into September that continued in October, a trend that you heard consistently from other specialty retailers in department stores going back all the way to July.

Notably, we have seen some slow in the fashion in October which we attribute to warm weather and a price sensitive consumer environment. For example, we found that the consumer was opting for clearance denim over new arrivals. In response beginning late last month after the first markdown, goods are now being transferred to our outlets for an additional markdown. Thus eliminating self-inflicted price competition in the specialty stores. This change and approach has definitely helped our full price specialty stores sell better priced denim while also helping the outlet stores.

Lastly, I would point out that accessories which has historically been about 10% of Lucky brands business are undergoing a complete repositioning. Jewelry only started flowing in September, and the results have been encouraging. We sold that inventory very quickly. New planning values for all stores have been put in place and the full jewelry opportunity will be seized beginning later this month.

Handbags are a different story. We have just begun to redesign and that product won’t flow into the stores until second quarter 2011. Because of this inventories have been running very low in accessories and coupled with the elimination of kids this is holding back same stores sales and our full priced stores by several percentage points. These are the types of learning's that drive the changes necessary to bring about a turn around in sales and ultimately positive momentum in sales and profitability. Beyond product there are numerous initiatives underway and marketing individual merchandising.

The team has moved quickly to update and refresh the look of stores with a new in-store visual package in fix stream that is now represented in all of our specialty stores. Our outlets are also quickly taking on a new look as we roll out a new layout in merchandising strategy there as well.

In mid august we mailed the 24 page catalogue to 400,000 Lucky consumers. Thos that responded drew over 50% higher transaction value then our average. In November we will mail our second catalogue with 32 pages also to 400,000 customers. We think these mailers are extremely important to communicate our new brand image showcase the product and stimulate traffic to either a retail store or to e-Commerce.

We'll continue to market this way throughout 2011 with eight to 12 catalogues during the year. In addition, we launched a Denim print campaign that was in September and October magazines and a holiday campaign will run in December in select books.

Finally, e-Commerce is currently our biggest success story for Lucky brand with large increases out be it office small base. Our catalogue and print campaigns are helping to drive traffic while strengthening the brands image as a Denim authority with new and exclusive Denim. Expanded links online are also stimulating demand quarter-over-quarter.

We are very excited by the possibilities for this business as the new creative product in online marketing efforts take hold. As far as the outlook for Lucky brand we do believe that we will see continued comp improvement. We will continue to read and react to learning. But expect that the brand will be an active promoter this holiday. On November we will likely be volatile in terms of daily comps. We do expect an improved comp profile in December.

Turning to Kate Spade as we shown in the comp chart everything is going right in Kate Spade and Jack Spade. Apparel continues to do very well copying itself by plus 42% for the quarter versus last year. The consumer is passionate about the brand and very loyal. Our store managers and associates have delivered a service proposition that is working with extensive client telling.

And this year we have increased average store productivity by plus 34% in outstanding metrics. The core hand bag in accessory business is performing very well to. In bag comps we are up 25%. Average unit retail prices are up across the board. We launch the new fragrance called Tauro which is beating plan to date and we launched Denim this quarter and it became the number one consumer choice item in apparel almost immediately.

The brand is promoting less at outlet and E-Commerce where margin and average daily transaction are up significantly. Our international businesses are growing up 10% during the quarter. We just launched our first store in South America last week in Sao Paulo and the London pop up is now paying wave for flagship entry there very soon as well.

We have a great team, they an outstanding vision in brand positioning and they are now chasing all of these opportunities. This is how I see all of these direct brands playing out.

Okay so there you have it, we remain cautiously optimistic on the whole. You heard a lot of detail on the brands and you heard a full review of the third quarter. We all know the weeks remaining are the most important profit making weeks of the whole year. And even though we are hearing and feeling the competitive pressure in terms of promotional activity we are still confident that we can post meaningful improvement in profit versus last year. So, let's move on now to answer some of your questions.

Question-and-Answer Session

Operator

(Operator Instructions). Your first question comes from Edward Yruma of KeyBanc.

Edward Yruma - KeyBanc

I just wanted to ask a little bit about the performance in Partnered Brands, specifically as it relates to JCPenney. Obviously putting up very good results there. How do we think about the level of improvement as you start to cycle full quarters with the JCPenney transaction embedded in the Partnered Brands performance?

Bill McComb

I'm not sure that I can shed any specific light given the nature of the agreement that we have. I know that some of you would like to have the math broken down between what the minimum royalty is and what the performance part is that we are not able to provide that and therefore I can only give you an answer that’s not going to help you with your modeling which is that it is checking extremely well, I think that Mike Ullman made some comments this morning as it related to their own October conference support that. So, what I will tell you is that we have got a plan that’s aggressive, that is going to continue growth in terms of more new product categories being launched et cetera and Andy, do you have anything that we can help aggregate? Its other than its doing well and I think its going to keep doing well.

Andy Warren

Edward we are not going to quantify its absolute impact on us, but we can clarify that in the quarter we only have two months of that royalty rate from both JCPenney and QVC. In the fourth quarter and beyond, obviously we will have three months per quarter. So, from modeling perspective two months in Q3 and three months in Q4.

Bill McComb

The next three quarters will benefit in terms of gross margin dollars. So as we lap the year ago model comparison.

Andy Warren

Impact on both our profitability and gross margin in the first half. As there is none of this royalty rate obviously in January to August.

Edward Yruma - KeyBanc

Got you. And could you give us even a little bit more specific quantification as to how that business built during the two months that you did have it within the P&L?

Bill McComb

No. Any specific comments I’d have to leave to our partner because its his business I would be reporting on to do that.

Edward Yruma - KeyBanc

Got you. You talked a little bit about good conversion in Mexx, but then a little bit weaker traffic. How are you planning on combating that, and how complete is the merchandise transformation that you have been undertaking?

Bill McComb

The merchandise transformation is complete with the exception that a certain percentage of the store on a declining basis has what you call merchandise. But I am not going to hold that up as an excuse or not an excuse or just say that the transition is, the product is freely flowing, its turning and sooner then later will be out of business on the old merchandise. This is the story that I told is the story of what happens in a turnaround of a business like this which is the conversion comes first and then comes traffic. I think it’s a very important point of emphasis as .we look at and resource our marketing campaign and efforts. Marketing is the answer and marketing in retail starts with windows and product display and visual merchandising in the store. And then secondarily is what we do direct to the consumer to drive traffic. But what you will see at both Mexx and Mexx Europe and Lucky right now, our efforts in magazine, bill boards in key cities and very importantly using e-Commerce to actually build the traffic profile in retail stores. One of our key success metrics at Lucky Brand catalogue that I mentioned was the success that it triggered in driving people into the stores. Consumes came in with their catalogue and had pick new items and ask for that item. We have a, what I call a hot new model in Germany that at Mexx Europe that actually has been very eye opening in terms of converting peoples’ interest and we did the same in Russia and the idea of regional celebrity models at Mexx seems to be something that’s working,. And its just now, its early days so the answer is, we just got to build this up. But word of mouth will get out there that Mexx is back and that they have got great product and the same at Lucky and my point on calling that traffic as a metric that will lag on that, is I just think that’s a very realistic expectation. And like I said, its exactly what we saw 14 months ago at Kate Spade. We went through a long period, it took us a while to refresh, revitalize and restore that business. And went through a period of doing well with conversion but still the call out from my team was traffic and marketing. So I see it’s going the right way. It is just I think we are right where; we are right at the starting point.

Operator

Your next question comes from Kate McShane of Citi Investments.

Alfred Chen - Citi Investments

It is Alfred Chen on behalf of Kate McShane. We were curious about your comments related to your plans to become more promotional in fourth quarter. Could you share with us some details in terms of characterizing that? Also regarding the current season inventories being higher than you would like them to be, what’s your expectation going forward. Do you think that and could you talk a little bit about the current inventory composition and how you would have liked it to have been different?

Bill McComb

Yeah, Andy and I will share this answer, I guess I will just point out the promotions have always been a part of our holiday selling strategy for a retailer for us and for everybody else. What I was pointing out was that we will be both adapted in responses to our own inventory trend and to the competitive environment. And there are two separate points there, and this is not news. This is, frankly, how we would approach any quarter and any good retailer would. I think that the call out was as we see inventory building Juicy and Lucky faster in September and October then we would have liked and as a result we've gone into the promotion plan, including what you see in stores right now and we've made some twist, some of them are just for the e-Commerce, our part of the business and others are for the retail store. So we have factored into the outlook that we described this morning a moderately competitive environment in terms of promotion activity.

But, in the last week we've heard people talking as they begin to characterize their third quarter earnings they talked about inventory levels and that’s to us implies promotional activity, we saw some very high mid season markdown rates from some important competitors and that to us was a bell whether is it will probably accumulated a lot of inventory on September and we've heard comments from other retailers on their earnings calls going back to August and September that they probably were two bullish back in March when they were committing to follow an holiday inventories. So all that taken together, I don’t want to signal that we have hunkered down and said okay, we are going to get very promotional I don't I don't think that's the case but what we're telling you to be very clear on November the fourth that our view of the remaining week is that go going into it we are prepared to respond the competitive environment for our own inventory levels. Andrew why don't you put some color on the question specifically as it relates to the inventory levels in the brands.

Andy Warren

For Kate, it seems like in particular there is few comments one about two thirds of increases what we call a justified and really good increase. It is to support store growth expected known fourth-quarter comp increases. To two see E com re launch etc. So I feel very good about two thirds of that increase.

Another possible comment to make this a profile that inventories very different historical you talked about this restoration to Asian inventories levels we feel much better about the current nature of that inventory. Even the stuff you would say excess so we are keenly focused on Brightside inventories by year-end. It is one of call of for why respecting the significant gross margin growth in the fourth quarter the less improvement in the third quarter. We do want to make sure on 2011 with right levels inventory both current and size.

And lastly just to point out we gotten very good at using at our outlet business the factory outlets to clear at good margins and across the board on all of our business that channel is performing very well and more consistently frankly than the mall business. So we feel good about our ability that get some good margin there and stuff.

Alfred Chen - Citi Investments

Thinking forward for 2011, how are you thinking regarding potential price increases and the ability for the marketplace to weather having that kind of appetite for potential price increases in light of the outlook for continued increases on the product cost side in '11?

Bill McComb

Given the wide breath of price range that our brands occupy, I will tell you that it is on a very specific basis, I think that our brands in general following to the category of more premium brands that might have some legal room to do some of the things that I named during my sourcing discussion without having to increase price.

At the same time that Lucky and Juicy, we continue independent from the sourcing and input cost pressure, we continue a value rationalization. Our both teams, I know it’s a huge focus of Leann walking in the door at Juicy to take quality levels up and to improve overall on a value proposition and that doesn’t mean taking price up, it actually means doing more at the prices where we are. That doesn’t mean that our teams have their head in the sand, it’s a given proposed item, if its going to pop out of what the normal price range would be, did take a look at that from a value engineering perspective to say, are their fabric trade-offs they should make and as fabric trade-offs that they should look at, is there a factory mix change, changing the overall category mix and every now and then some price points may go up but I think that some fourth these other tools are how mix is really the way that we are managing it.

Operator

The next question comes from Bob Drbul of Barclays Capital.

Bob Drbul - Barclays Capital

A couple of questions on the Juicy business. You talked about wholesale being down in the third quarter and likely down for the fourth quarter. Could you just maybe collaborate a little bit more in terms of the segments or the categories that are hurting the business there when you look closely at the high-end businesses at retail today, and how big is the wholesale business as a percentage of the total Juicy business now?

Bill McComb

The first thing I should do is clarify when I say the wholesale business, I should have clarified inside the domestic departments tore wholesale business because I don’t want to confuse that international receipt which flows through Juicy as wholesale. As I indicated those are going up, we don’t give percentages I will tell you that there is a trend that began in January of 2009, I have spoken to it t think on every conference call form maybe actually fourth quarter 2008 but I know first quarter 2009 I did the adjustment of the amount of inventory at retail and even the number of point of distribution that wholesalers are using Juicy as an important resource. It is on the decline, it is on the decline in a strategically right way for us as we look at our channel mix and probably for them, the best example right is our fifth avenue stores across the street from Saks.

It is no wonder that the Saks has seen incredible dilution in sales at their stores at the number of pink bags walking up the front door across the street have gone up dramatically as we put more emphasis on specialty retailing this has put more pressure in the post recession era on the business that we do on a per point of distribution basis in department stores. What you see is after eths e part of your question it’s a pink label classic core business that is decreasing in Tier 1 department stores. Its not decreasing in our retail stores, declaring there because as we expand like I said, it’s our specialty retail businesses volume diluting there. Bird is growing.

You could call it black label, but the Bird line is seen by the department stores as the next real line of Juicy in department stores. I won’t speak for them. I know it’s just getting started. We need to expand our design resources there and put more energy into really tapping the size of the opportunity.

What we know is that Juicy is still a very important contemporary brand. They are waiting for more new ideas and innovation. I think if you went and you did an interview with one of those retailers, they would say that they want to see more innovation and more newness. And frankly, Leann will lead the team there. In the meantime, Erin Fetherston has done a beautiful job for us for our retail stores in the capsule that she put together for holiday, and the revenue for the brand internationally is just it’s never been better.

So there you go. It’s a channel evolution, a channel mix evolution inline with the strategy we’ve been talking about for a long time.

Bob Drbul - Barclays Capital

And then, just a quick question, on the Mexx business, when you look at the plan that you have in place and I think breakeven for 2012, have there been any major surprises on the turnaround thus far under Thomas?

Bill McComb

Any major surprises? I guess, no. I mean I’ve tried to be as clear, if there were major surprises I would have said it. I would have put it out there. I think that, I don’t know, you tell me. The immediate, the strength and speed of the turnaround in Eastern Europe has been I think very important, and maybe not surprising, but it’s been standout.

Also, the level of excitement that I think is building is it’s measured, and it’s inline with early successes. But I think some of you would characterize that as surprising. But listen, it’s a team that’s worked very hard. They know exactly what they are doing, and all the emphasis is on product, great merchandizing and quality distribution, and Andy do you have any thing that you’d call out?

Andy Warren

Yes Bob, we were as you know very grounded about this turnaround. We knew that wholesale sell-in would follow better sell-throughs and we are starting to see that. We knew that as Bill said, traffic would follow conversion at the retail stores. So, I think we went in with a very grounded view, and really we are seeing that the chain in click on the bike and hold in the right way and in the right areas. And so, there’s really no negative surprise. It’s right on track with what we knew it’d be, a longer but yet very real turnaround.

Operator

Your next question comes from Mary Gilbert of Imperial Capital.

Mary Gilbert - Imperial Capital

Following up on the wholesale versus retail strategy for all the brands, could you talk about growth opportunities for 2011 for each one of the brands since, for example, it sounds like Bird might become more of a wholesale strategy. Do you see that as being the case? And then what the outlook is for Lucky and Kate on that front, if anything, or is it going to stay more of a specialty retail direct to consumer that way?

Bill McComb

Okay. At Juicy, definitely an expansion in department stores of Bird, and it’s frankly the onus is on us to broaden the line and to feed the trend that’s now there. And I think that they’ll increase, the number of doors carry it will go up. I don’t want to separate that, we aren’t selling Bird in our retail stores. We are in a small handful of stores. It’s not for every store, it’s not for the typical average mall store, it is right for some of the street locations, the North Madison store which was really impaired during the worst parts of the recession has been actively restored and it really is sort of a bird store the first floor at least and it makes a lot of sense for that demographic and that is really it has re-vitalized the store a lot. Singles for the bleaker show in New York will do no wonderful business at Burton there. So what I will tell you this that as Leon’s team I think that vision for wholesale we want to be a great vender and want to deliver something new and fresh to the consumer and for us we want to be an incremental business you want to be able to reach the consumer that we don't reach with our own capital dollar in retail stores or geography of white space that would that do not have capital dollars or that he E-com is standing alone not sufficient enough of the grand presence so look I think that the I think it's a very healthy saying the amount of tracksuit business I said on these calls before one of the things I think is with this in 2007 that frustrated us in an acting for both the declining department store business that juicy was that the department stores and had been reticent on the apparel side to follow us with fashion.

And they used us for tracksuits and related graphic and that type of business and you know that business that we do incredibly well within our retail stores the increasingly our business is growing in apparel of the fashion items and since the department stores have involved as their you know they missed out on perhaps the most important segment of growth. And I think for them I think that they want to department stores are in the business of delivering to the consumers units. And I all the more reason to say that bird is this a great hook for them. So that's what I think you will see Juicy, I think it is reasonable to say that the department store business in the US but the way US total wholesale grew in third quarter but the department store business like you said on a per point of distribution basis and in terms of total distribution points has declined in rolling fourth quarter. At Lucky Brand, Dave DeMattei's team, they are in the proves of restaging the wholesale and what I mean by that is they stepped back, they have worked with, they are working closely with Dillard's and with Belk's and with Macy's and saying, what is it that they need from us as a brand as a recourse and in the context of the repositioning of the brand, they are bringing some great items to them. But we said two calls ago that a restage of wholesale of Lucky brand is a 2000 and it’s a really back half 2011 phenomenon.

I think it will decline for probably two or three more quarters and I think it will level out in a healthy way and in a good way and in the meantime we have a lot of retail stores and our focus on specialty retail store productivity, it is where the profit expansion will come in the next year from Lucky as well as e-commerce. As Kate Spade wholesale is growing that in a very, very careful strategic way, so there are doors that we think its brand right to be in with either apparel or accessories, either jewelry ort handbags and small leather goods or footwear and the request is the tier one department stores are very interested but we are going very carefully, if anything I would say overall global strategy is on Kate Spade more inline with what you see now, we have an incredible focus on domestic specialty retail and outlet on e-Commerce and on international and the department store business they are very important partners to us, they help us reach and grow the brand with a very important customer segment but I am not going to call it out as an area for a significant amount of growth.

Mary Gilbert - Imperial Capital

Okay. And then finally, on Partnered Brands when we see the 3% operating margin in Q3 and that was largely related to JCPenney and QVC to a certain extent, what does that say about the rest of the Partnered Brands in terms of the profitability of those brands and the outlook?

Bill McComb

Well you’ve got the DKNY jeans license which is a big part of it and what we’ve said is that license goes to the end of 2012. In our last call I said our aim is to take the business that make frankly great money for Liz Claiborne Inc. and its shareholders on 1997 through the fall of 2008. The dislocation of every date pricing in that zone in the Tier 2 department stores has not come back. We however making changes to business that impacted a better and actual small profits in area of our third quarter and we intend to mange the business very carefully so that we don’t lose money on it but it is from a margin rate perspective zeroing in on what you are getting at is very dilutive because call it near breakeven sale. Our new breakeven operating profit with the high sales level, so there you have it. The Kensie business is a nice and healthy business and has opportunity to have some profit expansion improvement in 2011 tied to success that we are seeing at Macy’s. The Monet business is a very stable and high gross margin rate business. It is one that has small costs associated with and carries on. I think the biggest difference that you are going to see our quarters go on in actually not so much tax quarter. But a quarter after that in my call I called out that we have as of this call they announced to partners that we are exiting Liz International. So that was the last piece, other than outlet that we announced on the last call we were exiting and at the end you indicated those results would be adjusted out of adjusted earnings on an ongoing basis. Liz International we are in the business to February 2011 because that's the period were current shipments will clear from and after that we will be out of it.

And that again very margin diluting. So you can see built into the actual percentage number is some dilution DKNY jeans situation. And Liz International is good to come out of those numbers after first quarter of next year and that rate will then go up and you have got Kensie and Monet with actually an opportunity to improve the Monet international situation as well.

Operator

The next question comes from Chi Lee from Morgan Stanley.

Chi Lee - Morgan Stanley

Bill through talk about I think it was March and April period seeing higher wholesale increases in Mexx. But can you talk about the breath of those increases? I know about three months ago when you updated us, there were still some countries that you were seeing declines. Others were growing. So a better understanding of the composition of that growth would be great.

Bill McComb

Yes and guessing, cause guess what they had in market this week but the singles that we got from Amsterdam are that they think that it will it is for April may that in total orders will aggregate into the positive range. I don’t want to put a number on it yet we are probably about a week and a half away from having a secure number on it. But we are sure enough about it that its not flat, its positive. Again it wont be homogeneous the increase, you'll find that the core region of Benelux would be lumpy. Belgium has been down, The Dutch or Holland business, Netherlands is coming back. So, it’s a regions two and three which are, which include Germany and then Eastern Europe will be very class significantly up and the core markets will be either, it will probably be in the flat area but I wont know for sure until next week.

Chi Lee - Morgan Stanley

Great. And then just to follow-up on the inventory question, if I look at the one third of the inventory that you guys would consider I guess not good, just to get clarity, is it a function of the retail stores not necessarily comping to where you guys had expected, or is it more of a wholesale inventory buildup within the Direct Brands that leaves you a little bit uncomfortable?

Andy Warren

Its really bit of both actually. We were a little overzealous perhaps and some of our ordering. We had some good trends and still do. So there is a little bit access there again news is that this current season access. But it is access base on really both of those factors for retail comp and in-house sale order expectation.

Chi Lee - Morgan Stanley

Got it. And then just on the wholesale side, are you guys finding that your retail partners are not necessarily taking in the amount of units that you had originally expected? Again, Bill, you had alluded to the fact that maybe everybody got a little bit overzealous back in the March/April period. Is that a function of what is going on here?

Bill McComb

Absolutely, absolutely they have managed their inventories very carefully and that’s good but that also put some pressure on this.

Chi Lee - Morgan Stanley

Got it. And then none of this is really associated with any shipping delays or cancellation of the result of any supply chain issues.

Bill McComb

We go that in the first half and we don't have it now. We are really we are in good shape there.

Operator

The next question comes from Jim Chartier of Moness, Crespi, Hardt.

Jim Chartier - Moness Crespi Hardt

The first question I had was on JCPenney. What is your guidance based on? Are you assuming just guaranteed minimums on the royalties are you seeing with some gross profit sharing component?

Bill McComb

We as a matter of policy we have only talked about their only planned into guidance minimum

Jim Chartier - Moness Crespi Hardt

Okay

Bill McComb

And that is to set a matter of policy

Jim Chartier - Moness Crespi Hardt

Right, and then on the Lucky, last quarter you talked about top 60 focused program can you talk about how those doors are performing

Bill McComb

Actually very mixed its very mixed you got there is a wide range of performance variance in them some have responded with the changes with from very high and sustained increases and others have seen a modest or very variable in general lucky as gone up and come down it's like a blinking comment it really flies month of October there were 2, 3 tough weeks and then they were two those were flanked by some very good weeks. We are happy with the race at you happy with our pair the response one product categories like the fashion business in women and men’s we think it's coming from both the visual merchandising research on the product itself

Jim Chartier - Moness Crespi Hardt

Okay and then

Bill McComb

Denim is compounding lucky right now, its not killing us but its slow and its been a denim consumer and its been a denim store and so its one of the things that makes us feel very encouraged and very happy is at a time when denim is really soft, we have really gotten, maybe you could call it unfair share of fashion dollar from the consumer that was probably walking into buy jeans. So we are happy about that.

Jim Chartier - Moness, Crespi, Hardt

And then it sounds like the direct-mailings have been very successful for you. Are you guys planning to increase circulation or maybe the frequency going into next year?

Bill McComb

Both, our second mailing goes out at the end of next week and all of the metrics in the first one show that it not only paid for itself but it brought in some new and very important consumers ort not necessarily new, I should say. But it restored some of the value in our highest value shoppers. But we have a broad database and so expanded circulation and more hits and so we are going back and forward in the brand team in terms of whether we are setting up to go for 12 or eight. I think we are going to skew towards more than less as long as they perform.

Jim Chartier - Moness, Crespi, Hardt

And then on the commentary on the wholesale shipments, is some of this timing do you think where people are just accepting shipments later, or do you think it is going to be outright cancellations?

Bill McComb

I don’t know that there are cancellations, I think that with that point that Andy just spoke to was with that when they come signed, they actually confirm orders that they don’t confirm as high as what we had paid for and maybe plan in order for them and that’s different than cancellation. I don’t think we are sitting on top of the cancellation problem on any of the businesses but that we built inventory for a higher confirmed order base. And like I said the good news is we have got a profitable and well built outlet taking under this at good margin dollar and that is a blessing built in to our structure now.

Jim Chartier - Moness, Crespi, Hardt

Right. And then finally, DKNY, have you guys seen sell-through data on how your fall shipments have performed?

Bill McComb

Yes we are and its improved.

Operator

Our next question is from the line of Robin Murchison of SunTrust.

Robin Murchison - SunTrust

I wanted to piggyback off of your Lucky comments. Embedded in that business is the surplus collection, and I just wanted to ask you how you feel about that part of the business, especially since it does seem to capitalize on khaki, twill, whatever. Some of that is I think slicing off denim demand. Do you wish you had more, or are you happy with where it is? If you could provide any commentary, thanks.

Bill McComb

Well hindsight would say I wish that we had more I think Dave was really smart and really careful when introducing that Lucky something that we only had on an item basis hit or miss here and but the non Denim bottom have actually performed very well just like what I called about jury is we now know in that September collection where we introduced it had we had more, our comp would have been that much better and its sure on a hindsight basis we would have distorted denim down that much more. But we learnt something very interesting that novelty versatility, femininity, uniqueness to Lucky, areas like woven tops, skirts and outerwear to cores and dark denim, the lace and embroidery, the print, things that have versatility and use and ease that we are doing absolutely great and its very interesting we had, had 18 months ago, we had experimented and done had more commodity or more basicness to them at Lucky and all we continue to learn in this last round is that it’s a special and unique brand and the consumer is willing to pay full price and top dollar for great unique things and novelty and the surplus collection did well, it did well, all of it was in our bestsellers. On the men side it was masculine, it was authentic and American inspired the military, the western, the work wear.

So, out of that learning in addition to inventory adjustments and responding overall to what's going on with denim, by the way if the holiday denim has all of the things that I just talked about, there are some wonderful things with patches and some wonderful, I'll call them embarrassment to the jeans that are going well, so surplus was good, we wish we had more and we will going forward and these guys have other interesting, there is a lot of sparkle in the current holiday collection now and if its doing now. So, this trend continues. I was going to show pictures but decided it was too down in the weeds to demonstrate this in terms of the items that really we blew out of.

Operator

We have time for one more question, next question comes from Roby Ohmes from Banc of America.

Lana Si - Bank of America

A couple of quick questions related to Mexx Europe. I know you guys spoke about the Mexx Europe wholesale bookings for spring by region. Would you be able to break it out by maybe the traction that you're getting from new customers plus doors versus trends in your existing wholesale customers? And then secondly, I don't know if I have missed this, but if you can comment on any old inventory levels in the Mexx channel right now and how it looks entering fourth quarter? And then very lastly would be in terms of AURs that you're seeing at Mexx as you look at your product assortment, and also just relaying the price value equation, how do you look at just in general AURs trends going into the fourth quarter and then also maybe spring?

Bill McComb

Okay wait I am going to make sure that I understand all three components of your question. The last part was inventory, lets go to the first question. On the next call we'll actually help by talking about the regions a little more clearly and forward orders and the different business models that we shipped to, one real point of saliency is that they have signed up new franchisees and some key markets and they are some of the best retail operators as franchisees in some of the key markets, in Belgium even. In Germany, and I don’t have any other distinction that we want to put like I said especially talking about the April-May market but on the next call we'll probably bring a little more clarity and we may even have Thomas here available after that call.

Andy why don’t you talk about inventories, the inventory question.

Andy Warren

Sure, on the inventory side we've really a this point we are clean entry position, we have inventory down 27% year-over-year we felt great about both the current nature of it and the size of it. So, inventory to us is very healthy both in Europe and Canada as we look forward.

Bill McComb

Great and then just a general question in terms of how you are thinking about your AUR trends for Mexx.

Lana Si - Bank of America

And then just a general question in terms of how you are thinking about your AUR trends for Mexx. Because I know that you mentioned higher ticket outerwear is checking out well in full price. Can you maybe comment in terms of how you're thinking about price lines as we go forward?

Bill McComb

Well AUR is up because we have for the first time some very healthy full price sales through. But having said that I will tell you that in terms of how they manage their mix, like I said there are areas where and Thomas said they were away to a pricing was way too high and he has value engineered the line differently and is coming in with better opening price points. Even within the general pricing tier that they are at. I don't know that we have on this call any more clarity than those particular points and something that we can look at, like I said generally speaking in terms of the net mix AUR is up. Even though the consumer would find some of the values to be significantly improved.

And so the AUR, have suggested retail in some of the most important categories are down, but full-price sell-throughs are up. So on what is averaging now slightly higher.

Okay thank you all for your participation today and we would look forward to good fourth-quarter and talking in again next year.

Operator

Thank you this concludes today's conference you may now disconnect.

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