Tumi Holdings' (TUMI) CEO Jerome Griffith on Q2 2014 Results - Earnings Call Transcript

Aug. 7.14 | About: Tumi Holdings, (TUMI)

Tumi Holdings (NYSE:TUMI)

Q2 2014 Earnings Call

August 07, 2014 4:30 pm ET

Executives

Peter L. Gray - Executive Vice President, General Counsel and Secretary

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

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

Randal J. Konik - Jefferies LLC, Research Division

Oliver Chen - Citigroup Inc, Research Division

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

Rick B. Patel - Stephens Inc., Research Division

Operator

Welcome to the Second Quarter 2014 Tumi Holdings Inc. Earnings Conference Call. My name is Jeanette, and I will be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to Peter Gray, General Counsel. Mr. Gray, you may begin.

Peter L. Gray

Thank you, Jeanette. Thank you for joining us today for a discussion of Tumi Holdings Second Quarter 2014 Earnings Conference Call. Hosting today's call will be Jerome Griffith, Tumi's Chief Executive Officer and President; and Mike Mardy, Chief Financial Officer and Executive Vice President.

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

With that, I will turn the call over to Jerome Griffith. Jerome?

Jerome Squire Griffith

Thanks, Peter, and thanks, everybody, for joining us today to discuss our second quarter 2014 results. I will start by giving you an update on the quarter, as well as our growth initiatives for 2014. And then, turn it over to Mike for a more detailed review of the financials and outlook. As expected, we saw healthy acceleration in our sales performance in the second quarter. We are executing well on our growth initiatives and we're on track to deliver our full year revenue and earnings guidance.

Sales for the quarter were $124.6 million, up 15.2% for the second quarter of 2013, led by double-digit growth in each of our segments, with particular strength at our Direct-to-Consumer businesses. Gross margin percentage for the quarter increased 30 basis points to 57.9%, driven primarily by a mix shift to our higher-margin retail businesses. In addition, we ended the quarter with inventory up 13.9% from the second quarter of 2013, and are well-positioned for the fall selling season. Mike will provide more detail in a minute but let me quickly walk you through the segment results for the second quarter.

Our Direct-to-Consumer business had a great quarter with overall comp store sales growth of 12.9% across all of our channels. These comps were driven mainly by strong e-commerce sales and increased conversion in both our full price and outlet locations. We opened 5 new stores, renovated 3 stores during the quarter and are pleased with the performance that we have seen from these locations thus far.

In addition, we closed 1 store in the second quarter. In our Indirect-to-Consumer segments globally, we saw double-digit growth across both our Domestic and International businesses. The growth in our Indirect-to-Consumer North America segment was driven by solid performance in our wholesale e-commerce and Canadian wholesale businesses. This was partially offset by softness within our specialty store channel, which as we have said in the past, we do not view as a long-term growth driver for our business.

In addition, we made a decision to moderate sales in our special markets or B2B channel to mitigate transshipping and gray market issues. Internationally, we saw a nice rebound in our Asia Pacific business from the first quarter as we sorted through the inventory rebalancing issue. Sales in our Latin America region also grew in the quarter as we continue to gain traction across new geographies and markets.

On the product front, Alpha 2 continues to resonate well with our consumers who turn to Tumi for high-quality, innovative pieces that are also functional and stylish. During the quarter, our women's and accessories categories continue to see steady growth, with women's being the fastest-growing product category. We believe that we're making progress, evolving into a lifestyle brand, as women's and accessories continue to gain traction and appeal across all of our distribution channels.

Overall, we saw momentum grow in the second quarter and remain confident that we will achieve improved top line growth in earnings for the full year. Let me briefly touch on the 3 factors that are driving this confidence.

First, we continue to introduce unparalleled new products. On the heels of a very successful launch of our Alpha 2 luggage, we introduced our new Alpha 2 business cases in the beginning of the third quarter, redesigning our signature ballistic nylon bags to be more functional and more durable.

We also delivered updates on our lightest and strongest product line, Tegra-Lite, with Tegra-Lite Max, which features new expansion capabilities and a double recessed wheel system. We continue to focus on driving our women's businesses, which has really paid off. We introduced a new business collection called Sinclair, as well as an accessories program called Journey, that we believe will further enhance our women's offering.

Finally, we're launching CFS [ph], a new premium carbon fiber collection in the fourth quarter. Secondly, we are increasing the number of stores that we are opening this year, and the majority of these openings will come in the third and fourth quarters. We expect that the new store openings will be a significant contributor to our sales results in the second half of the year. But expenses, while these stores sales mature, will have a short-term impact on our operating margins.

Thirdly, our current e-commerce platform continues to see strong business performance, and we're excited to have the opportunity to better connect with our consumers globally with updated capabilities and enhanced functionality on our new e-commerce platform. We anticipate that the new platform will launch later in the third quarter. Note that the rollout of the site has been pushed back slightly in order to ensure a seamless transition and flawless user experience. As often happens in projects of this nature, technical glitches arise in the final end-to-end testing, and we're working to resolve these issues.

We feel good about the increased momentum in our business in the second quarter, and we believe that we're well-positioned as we head into the back half of the year. As we said in the past, our commitment to regularly introducing new and compelling product is integral to our success.

As part of this strategy, we also remain focused on managing our inventory to optimize our product presentation in our stores, as well as the indirect channel.

On our first quarter call, we discussed the successful transition to a less promotional strategy in order to maintain brand integrity. We're also now implementing additional measures to improve inventory turnover efficiency in clearing through seasonal and discontinued product to optimize the quality and quantity of our inventory. The initial implementation will have an impact on the Q3 gross margin but we expect to enter the fourth quarter with clean inventory and for gross margin to normalize. Longer term, we believe these measures will improve the quality of our inventory. Overall, we're well-positioned to continue driving long-term growth as we successfully execute on our growth initiatives.

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 our second quarter 2014 results, and then review our outlook for 2014.

Net sales for the second quarter increased 15.2% to $124.6 million compared to the $108.2 million in the second quarter of 2013. We are pleased to see a rebound in the business from our sales performance in the first quarter of 2014.

Gross profit in the second quarter of 2014 increased 15.7% to $72.1 million. Gross margin percentage increased by 30 basis points to 57.9% as a percentage of net sales when compared to the second quarter of 2013, due mainly to channel mix shift. Sales in our higher-margin Direct-to-Consumer business represented approximately 51.1% of the total business in the second quarter of 2014, compared to 49.2% in the second quarter of 2013. Total operating expenses were $52.2 million for the second quarter of 2014, compared to $44.5 million in the second quarter of 2013.

As we have previously discussed, the increase reflects additional investments in marketing, as well as the incremental investment required to support the transition of our Web store to an in-sourced model, which we expect to improve functionality and efficiency. We have continued to invest at a similar pace throughout the first half of the company's logistics capabilities, design resources, product management and aftersales service capabilities, IT infrastructure and human resource base. The operating expenses also reflect higher retail operations expenses related to new stores opened in 2014, and the wrap effect of stores opened in the last 2 quarters of 2013.

As a percentage of net sales, operating expenses were 41.9% in the second quarter of 2014, compared to 41.1% in the second quarter of 2013. We believe that all these investments will benefit long-term growth.

Operating income for the second quarter of 2014 increased 11.2% to $19.9 million for an operating income margin of 15.9% compared to an operating income margin of 16.5% in the second quarter of 2013.

In our Direct-to-Consumer North America segment, net sales increased 19% to $57.4 million, driven by comparable store sales growth, including e-commerce sales of 12.4%. Excluding e-commerce sales, Direct-to-Consumer North America comparable store sales increased 8.2%.

In the second quarter of 2014, we opened 5 new stores, renovated 3 stores and closed 1 store in the quarter. As we've previously stated, our store opening cadence is heavily weighted towards the back half of the year.

Operating income in this segment increased 11.8% to $16.2 million, and the operating margin was 28.3% compared to 30.1% in the same quarter last year. This reflects increased cost related to 3 new stores opened, 2 stores renovated, the continued costs related to the in-sourcing of our e-commerce platform, and the wrap effect of the new domestic full price and outlet stores opened in the last 2 quarters of 2013, and the first quarter of 2014. Historically, company-owned store operating margins generally strengthen after their first year of operation.

In our Direct-to-Consumer International segment, net sales increased 25.3% to $6.4 million for the second quarter compared to the same period last year. In U.S. dollars, comparable store sales rose a healthy 18.1%, including e-commerce sales, and 19.3%, excluding e-commerce. In local currency, comparable store sales including e-commerce increased 12.5%, and 13.6%, excluding e-commerce.

Operating income in the segment was $0.2 million compared to operating income of $0.5 million in the same quarter last year. Operating expenses in this segment predominantly increased versus the prior year as a result of increased retail operations expenses related to 2 new international store openings on Regent Street in London, and Marseille, France, and also due to the Saint Honoré renovation during the second quarter of 2014.

In our Indirect-to-Consumer North America segment, net sales in the quarter increased 10.5% to $26.7 million compared to the same period last year. Within this segment, we continue to see strength in our wholesale e-commerce business, which were in high double-digits compared to last year, in addition to growth in our Canadian wholesale business. This was partially offset by the expected softness within our specialty store subsegment and an intentional moderation of special markets for B2B sales to mitigate transshipping and gray market issues that we have talked about in the past. Operating income increased approximately 13.8% to $10.0 million, as a percentage of net sales, was 37.3% in the second quarter of 2014 as compared to 36.2% in the same quarter last year.

Finally, net sales in our Indirect-to-Consumer International segment increased 11.1% to $34.2 million in the second quarter. Our wholesale businesses increased in both the Asia Pacific and Latin America regions, partially offset by a temporary slowdown in sales growth in Europe, Middle East and Africa region, which was temporarily impacted by our transition to an expanded warehouse in Western Europe.

Operating income increased approximately 2.5% to $9.7 million. As a percentage of net sales, operating income in this segment was 28.5% in the second quarter compared to 30.8% in the same quarter last year. Non-allocated corporate expenses increased $0.8 million to $16.3 million in the second quarter of 2014, which was predominantly driven by increased product management, marketing and aftersales service capabilities investments.

Total other expenses in the second quarter of 2014 were approximately $0.2 million compared to expenses of $0.1 million in the second quarter of 2013. Provision for income taxes for the second quarter of 2014 was $7.5 million, effective tax rate was 38% versus 36.8% in the second quarter of 2013. The change in the effective tax rate was largely driven by the change in the apportionment percentage of state tax -- for state tax purposes during the period ended June 29, 2014.

GAAP net income for the second quarter was $12.2 million or $0.18 per diluted share based on 67.9 million diluted weighted average shares outstanding. This compares to net income of $11.2 million or $0.16 per diluted share in the second quarter of 2013, based on 67.9 million diluted weighted average shares outstanding.

Adjusted for the onetime charge in the second quarter of 2013 relating to the early termination of our Web services provider of $0.9 million after tax, net income in the second quarter of 2013 would have been $12.1 million or $0.18 per diluted share.

Turning to the balance sheet. As of June 29, 2014, cash and cash equivalents were $24.2 million compared to $25.6 million at the end of June 2013.

In the second quarter of 2014, the company paid down the remaining $2 million on its revolving credit facility, and as of June 29, 2014, has no outstanding balance in long-term debt.

Inventory balance was $91.9 million compared to a balance of $80.7 million at the end of the second quarter 2013, and we believe the increase is to be in line with our sales growth and future needs.

I would now like to review our outlook for fiscal 2014. We are maintaining our revenue and earnings guidance for 2014, which we provided on our first quarter conference call. And we continue to expect net sales to increase between 12% and 15% for the full year. The estimate assumes total comparable store sales growth in the mid single-digit range. As previously discussed, 2014 will be a year of higher than normal investment and expenses driven primarily by transitioning e-commerce in-house.

As Jerome mentioned, the launch of the new e-commerce platform has been slightly delayed, and we now expect to pay between $4 million and $5 million in operator fees to the old platform provider, in part because of strong Web performance, and in part due to the delay.

We anticipate leveraging certain operating stresses to mitigate these additional costs. We are continuing to test our new website and anticipate that it will be up and running towards the end of the third quarter.

We continue to expect diluted EPS for 2014 to be between $0.88 and $0.92. This estimate assumes diluted weighted average common shares outstanding of approximately 68.1 million, and a revised weighted GAAP tax rate of 38%. We are increasing our store openings and now expect to open 20 to 25 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 to begin Q&A.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question comes from Brian Tunick of JP Morgan.

Bilun Boyner - JP Morgan Chase & Co, Research Division

This is Bilun Boyner on for Brian. I wanted to ask about your very strong Q2 comp drivers. Maybe can you talk about how traffic conversion in AURs track through the quarter? And then, my second question is on marketing. It's been increasing steadily last year and clearly working. What's the longer-term view on marketing expenses? Do you plan to continue to invest towards levels some of your larger peers are at or do you think where you're at right now is a good level?

Jerome Squire Griffith

Thanks for the questions. Concerning comps, as consistent from the last few quarters, the big driver for our comps still tends to be conversion rates. We tend to convert more and more consumers as they walk into the stores and that's the major reason for increased comps. We did see slightly improved traffic in our outlet businesses throughout second quarter. The full price businesses are more or less flat throughout the second quarter, as have the rest of that KPIs. There's been very little movement in averaging our retails or dollars per transaction. The big driver continues to be our ability to turn customers that walk into the store to buying customers. Concerning marketing, we think that the levels where we are right now are still under-serving what our long-term brand awareness targets are. We think that, from a brand advocacy rate, we have incredibly loyal consumers. In fact, when we look at our brand advocacy rates compared to any of our competitors, we outrank everyone in our categories that we compare ourselves to. But when it comes to brand awareness, we still feel like we're very much underserved and under-penetrated in our home market and in international markets, so I think, you should expect to see, over the long-term, increased investment in advertising, whether that be digital advertising or traditional.

Bilun Boyner - JP Morgan Chase & Co, Research Division

Got it. And then, as you look towards the back half of the year, are there any timing shifts that you may want to call out maybe in terms of your promotional calendar or the product launch, or even maybe anything you're getting from your wholesale partners in terms of the order -- timing of orders?

Jerome Squire Griffith

At this time, no. If you look at promotional calendars, one of the things that we really tried to do was walk away from scheduled promotions or planned promotions that we advertise and we really just -- and take any stock that's either not performing super well for us or what we're going to just recycle through at the end of the season and run it through an end of season sale. So from quarter 1 of this year, when we walked away from our last promotion that we advertised, which was Invest In Quality, we're complete with having to anniversary any major promotional activities in the marketplace. Some know we don't have any changes in calendars to that. The only thing that I would mention is that T-Tech, which has been a sub brand of ours, and I've talked about this a few times, we're phasing out of T-Tech this year, so it will be gone by the end of this year. T-Tech was a brand that was really only sold through wholesale, we didn't sell it through our own retail channels, and that will be replaced with a Tumi product going into next year to make up for those sales.

Operator

And our next question comes from Ed Yruma of KeyBanc Capital.

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

I guess, first, on the shift in new store openings exploration, I guess, kind of what gave rise to that? Were these stores that shifted out at '15, are there implications to the '15 opening plan given the greater number of openings in '14?

Jerome Squire Griffith

These are stores that we kind of had slated but really didn't think that we were going to get them opened this year. A couple of opportunities also came up. This will not affect the 2015 store opening schedule at all. We haven't really given guidance yet for 2015. I have mentioned that we'll probably be opening more stores next year than what we opened up this year because that seems to be like what we have in the pipeline so far. But we just had the opportunities that were good locations, so we're taking them.

Michael J. Mardy

This is Mike. We're very happy with the stores we've opened and the stores we have slated to open, they're performing very well. We think there's a symbiotic relationship between those stores we opened [indiscernible]. And frankly, I think, we're just on a -- we're just trying to get as many locations opened as we possibly can. They all performed -- they were all performing pretty well.

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

Excellent. And as a follow-up, on the change in the way that you're clearing out your seasonal product, I know you said that would impact third quarter gross margin, I was wondering if you could maybe be a little bit more explicit into how much the drag will be for 3Q, and then, kind of how you think about this benefiting kind of the longer-term economic model?

Jerome Squire Griffith

The thought process there is that -- you guys have probably seen this in the numbers as you've been looking at how we grow the retail business. Retail for quarter 1 and for quarter 2 now represents over half of our business, whereas we used to be years ago, very much oriented towards wholesale business. We've moved away from that for a large owned retail business plus a very large partner store network. One of the things that we have done in the past is been very slow sometimes on reacting to merchandise which has been slowing down as far as churns have gone. And at the beginning of the year, we put into place a new merchandising group here called corporate merchandise planning in order to improve our churns. So as you can see, our total inventory numbers are very much in line and actually even less than what our sales increased numbers are. However, I think, we needed to up our cadence with how we clear product through stores and through our inventories in order to keep our inventories exceptionally clean. So we were taking the end of Q2 and the beginning of Q3 in order to do this. So you'll see us clearing some more merchandise through our outlet in the first part of this quarter.

Michael J. Mardy

I think, what happens there is as we do that -- go through that process, I think, even though retail is becoming a significantly bigger portion of our business, as you can see, I think, what you'll see is our gross margins comparable to what we experienced last year as a result of that inventory clearing process. And then, that would benefit future periods tremendously as we have a balanced -- really a good balance to our inventory needs.

Operator

And our next question comes from Randy Konik of Jefferies.

Randal J. Konik - Jefferies LLC, Research Division

Quick questions. I guess, first, a lot of moving pieces this year, so maybe can you just give us some help on just where the normalized kind of gross margin, you think, sits within the business? And where you think the normalized SG&A type of rate sits within the business as we move beyond kind of moving pieces into fiscal year '15? Can we just get some help there first?

Michael J. Mardy

Sure, Randy. This is Mike. Thanks for the question. I think, as we become increasingly a bigger -- a bigger portion of our sales is retail, I think, you see that gross margin starting to expand, especially next year as we -- as a significantly greater portion of our sales becomes retail. From an operating expense perspective, we're looking at somewhere between 38% and 40% of sales as a spend rate. And that includes all of the sales that we identified, our selling, marketing and retail operations and G&A expenses. Most of the expenses at the end of this year or in the second half of this year relative to the Web investment will be behind us. And I think, we'll see a more normalized rate of investment and SG&A. Is that helpful?

Randal J. Konik - Jefferies LLC, Research Division

Great. Yes. I guess, the only question would be, when you say that more normalized rate of SG&A, is that -- could that be significant next year as a pullback as a rate of sales? Or how should we be initially thinking about that?

Michael J. Mardy

I think, we're going to be -- I think, in the future, we'll be leveraging our SG&A a little bit better than we've leveraged this year simply because the heavy investment that we've made in the Web, the heavy investment we've made in design resources, the investment we've made in distribution resources and aftersales service resources, really, it will accommodate the growing business on a greater number of stores we have. So I think, we're looking at a level of investment that will kind of back down to a more normal level when you consider the Web store will be up and running. In fact, all of our Web stores in international will be up and running as well without heavy up investment spending that we've done this year.

Randal J. Konik - Jefferies LLC, Research Division

Great. Then, I guess, my last question is around gender and geography. So I guess, on the women's, just on the women's opportunity, can you just give us some perspective on what's the women's penetration today? You sounded very happy about the growth in the women's business. Where could you see that penetration going over time? And then, any perspective you can give us on how Manhattan trended versus the overall business in the quarter and how did you see the U.K. business relative to the broader European business in the quarter would be very helpful?

Jerome Squire Griffith

Okay. Let me start with women's. And when I talk women's, I'm also going to talk accessories because that's also a big growth initiative for us. Women's and accessories have both been picking up over the last 5 years, about 1 point a year going from -- they're both around 8 points to total 5 years ago. Last year, they ended around 12 points to total. This year, I'm expecting them to be somewhere around 13 points to total. And the growth of that has been coming mainly through our own stores and partner stores and somewhat through wholesale, depending on where we've been getting traction in wholesale. So -- and last year, I think, I had mentioned, on the women's side, we did a test at Nordstrom's with women's, we put it online, we were in 1 store. This year, we've expanded women's in fall to 6 stores in Nordstrom's, we've expanded the collection online. And for holiday, we'll have 1 group which is part of the Journey group that will go into all Nordstrom stores. Our U.S. -- sorry, let's say North America, North America wholesale business is around, in department stores, around $20 million, between $20 million and $25 million. We expect that there's about an $80 million women's opportunity in just North America department stores. Women's as a total, the best penetration that we have in the world is in Asia where it represents between 18% and 19% of sales. We think that, over the long haul, women's will be well over 20% of our total. And I really don't know how high high is, if it really catches on. As you guys know, women's generally represents 4x as much as the men's business. Just look at coats as an example, you've got much larger women's business, better than men's. But that will be a very long road for us to get to. I think, accessories will probably end of topping out around 18% to 20% of total. I don't think you're going to sell a lot more accessories than that. As far as geographies go, Randy, Manhattan has had generally a better quarter. As you know, a year ago, Manhattan was a little slow. This quarter, it's been pretty decent. It's been out-trending the rest of the areas by just a couple of points. So slightly better than everybody else. And London, as an example, has been doing quite well since we've opened up Regent Street, we're really pleased with what the bills have been since the store opened its doors a couple of months ago. And London is one of our key cities and we have this key city strategy and we always compare everything back to New York and we look at GDPs per cities and populations per cities, and London today could be about, minimally, 5x to 6x the size of what it is today. We'll continue to open stores in the London area and we'll continue to increase wholesale accounts in the London area as well.

Operator

[Operator Instructions] And our next question comes from Oliver Chen of Citi.

Oliver Chen - Citigroup Inc, Research Division

Regarding the quarter, how were your merchandise margins and your Direct-to-Consumer channel relative to your expectations? Also you have an impressive comp this quarter, so -- and you've reiterated your mid single view for the year. So is your expectations that comps will decelerate in the next few quarters?

Jerome Squire Griffith

As far as the margins go for Direct-to-Consumer this quarter in full price, we've been pretty happy, we saw decent increases in our full price margins. And outlet was a little bit more depressed because I ran some more clearance through the outlets and a little bit less DFO, and that's what I'm kind of alluding to for quarter 3, I ran that for another few weeks and then bring the DFO levels back up to where they normally are. But overall, once you add in the Internet sales, plus outlets, plus full price, our margins look pretty strong in Direct-to-Consumer for this quarter. There was a second part to that question, too...

Oliver Chen - Citigroup Inc, Research Division

Yes. The second part was just about the comp in the next few quarters. The implied comp for the next few quarters is...

Jerome Squire Griffith

We had a great quarter with great comps in Q2. We're glad to see them. Early reads on full merchandise look pretty good. But from a planning standpoint, we're still going to plan single-digit comps into the back part of the year. We're up against decent comps from quarter-to-quarter as well from last year.

Oliver Chen - Citigroup Inc, Research Division

Okay. And Mike, on your comments regarding gross margin, is it flattish on a year-over-year basis for 3Q and 4Q? Or should we be more conservative?

Michael J. Mardy

I think, the gross margins, even though we don't give guidance on a quarterly basis, Oliver, the gross margins will be comparable to what they were last year based upon our plans to work through our inventories. And again, we're very happy with our inventory levels, with the emphasis on probably 3Q being where we work through most of those inventories. So I think, you're looking at flattish types of margins there. And hopefully, beyond the third quarter, they'll accelerate once we have clean inventories.

Oliver Chen - Citigroup Inc, Research Division

Okay. And the detail, is that just a technical blip that's over now? Or do you feel like there's potential risk just because these are very complex projects?

Jerome Squire Griffith

Well, it's similar to what we did a few years ago when we implemented GSI, that got implemented in August 2010, and it ended up being a little bit late than what we earlier anticipated because of same thing, finding bugs and end-to-end testing. That's not anything that's new to the industry, that's relatively normal. I would tell you that this is a much more robust website than what we have today. So the potential to have more bugs in there is obviously bigger. But as we're tracking right now, we're still tracking towards end of quarter 3. I mean, original plan is the first part of quarter 3, now it's in the second part of quarter 3. So that's where we are as of today.

Oliver Chen - Citigroup Inc, Research Division

Okay. And the last question we just had. On the women's Journey and the -- all of the tweaks and all the innovation we're seeing in our channel checks looks really great. So where do you think you are? Are you happy with the way your product portfolio looks? And where is the most opportunity as you kind of innovate the brand?

Jerome Squire Griffith

The biggest opportunity is being the brand of choice for women in business and travel. So if you look at the long-term, and when I say long-term, I'm thinking 5 years and beyond, bringing more and more and more women into the brand is where you've got the biggest opportunity for revenue. We're happy with where we are today, but I would expect to be a lot further along in a year and much further along in 2 years. We add on product and we add on innovation, particularly on our women's and accessories area each season. And we already have early results in and early feedback for spring of '15 because we're in market right now. And we're getting great reviews. In fact, women's is the first thing that people are raving about. But I can't tell you that that's translated into sales because I don't have the orders in my hand.

Michael J. Mardy

Oliver, part of our investment in design resources has been women design resources, and we're pretty pleased with what we're seeing coming out of it.

Operator

And our next question comes from Faye Landes of Cowen and Co.

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

I just want to make sure I understand the comp guidance for the year. I'm sorry, this is a follow-up to the previous question, which is -- actually, I have 2 questions, but this is the first one, which is, Jerome, you said that the compare is hard in Q4. The U.S. compare looks very easy, am I missing something on that?

Jerome Squire Griffith

No, I don't think so, but that's a very large portion of our business gone into quarter 4, Faye, and it becomes bigger and bigger, particularly as e-commerce ends up becoming a bigger part of our business. I mean, if you look at last year from a dollar standpoint, about 20% of our total business was done in that back quarter in e-commerce, and we're anticipating again a very large...

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

What percent -- I'm sorry, I just didn't hear it, 20% did you say?

Jerome Squire Griffith

No, 40%.

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

40%. Okay. I mean, that makes sense, it's a huge number, but just because something, I mean, is big, I mean, if you're saying that the -- an easy compare on a big business is harder, then you're implying some kind of change in seasonality?

Michael J. Mardy

We're not implying that, Faye...

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

So what does that mean? That just because...

Michael J. Mardy

Faye, I think, the short answer here is we plan on these mid single-digit comps, we hope to get better. We watch our expenses on the basis of the fact that we're going to -- we may have been single-digit comps and we're trying to manage our expenses on that basis. It's very possible they may be better than the mid single-digits, but we're trying to plan conservatively here.

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

Okay. And also, just on the e-commerce transition, you said the cost there, there's 2 dimensions, there's the volume, strong volumes, and then just the duplication, can you just break that out?

Michael J. Mardy

Yes, it's about $1 million of extra in the release script, we just referenced about $1 million of extra cost. Roughly half of that is due -- well, 3 quarters of that is due to higher volumes and the fact that we're not switching over to the site and we're paying on the basis of the fact that we have much better performance in the Web without even flipping the switch. And had we -- a little bit theoretical here, had we not -- had we flipped the switch, we wouldn't have the 20% rev share on a much higher volume basis. So we kind of like just foregoing the opportunities. So the Web business is doing very, very well. I mean, we had in a quarter a domestic Web almost of 40% comp. And frankly, would there have been -- if we decided to switch, we would've saved all that money. So it's a little bit of the fact that the site is doing great, that even though it's in the process of being switched, and the fact that we're paying rev share on that at the same time is making the investment in the...

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

Wait, so that's $1 million? I thought you gave a -- I heard a different number on the script, so I just want to make sure, is it $1 million?

Michael J. Mardy

No, it's a little -- the delta is about $1 million versus what we said last time.

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

Wait. So what -- I just want to make sure I've got it, so $1 million...

Michael J. Mardy

The delta is like 1 5 based upon what we have said in the first quarter and what we're seeing now.

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

So this is incremental because of the delay?

Michael J. Mardy

Yes. And it's -- well, it's not just because of the delay, it's because of the...

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

And the volume?

Michael J. Mardy

Part of it is because of the delay and part of it because the Web is doing so well.

Operator

And our next question comes from Rick Patel of Stephens.

Rick B. Patel - Stephens Inc., Research Division

Can you talk about Asia? It seems like your sales did very well there based on inventory restocking. But can you give us a pulse for this market in general? Certain luxury retailers have called out China as showing more signs of weakness in the second quarter, so I'm curious what you're seeing over there?

Jerome Squire Griffith

I think, this will be only slightly anecdotal, Rick, but at the end of the day, we look at our sellouts on a monthly basis, and we've been extremely pleased with all of Asia on sellouts on like-for-like basis. We have really strong countries like in Indonesia or like in Malaysia, which have been strong, high double-digit comps. But even in China, which is on the lower side, China is still in like low double-digits. So we've been pleased with the sell-throughs that we've seen in Asia and all of our countries. In fact, we don't really have a weak country there right now.

Michael J. Mardy

And Rick, the visibility that I have in the financial world to that sell-through is the fact that the customers are paying us very quickly. So they wouldn't be paying me very quickly if they had bad sell-through.

Rick B. Patel - Stephens Inc., Research Division

All right. Good to hear. And then, on the website, when you do switch over from GSI, is it -- is the new website going to have a completely new look and feel in user experience or is it going to be more or less the same which is gradual changes coming with some of the new features you've talked about?

Jerome Squire Griffith

No, it will be a completely different look and feel. I mean, we spend a lot of time out front designing what we thought really went with the brand and where we can make improvements for the user experience. So the first thing that you'll see is the look of the Web. And over the course of the few months, we'll still roll out new features on that. We'll add new features when things will be opened up and there will be additional features that will be added over the course of the first few months.

Michael J. Mardy

And Rick, it's a scalable site, meaning, we'll be able to take it internationally very quickly. Over time, we'll be able to roll out over 40 countries.

Rick B. Patel - Stephens Inc., Research Division

Great. And then, just lastly, can you just talk about any initial reads from sort of the newer products you've rolled out? The new carbon fiber product looks really great but also has premium prices, so I'm curious if consumers have been receptive to that or if there's anything to call out there?

Michael J. Mardy

Well, carbon fiber is not out in stores yet, so I have no read on that other than what people have said from being in the showroom. What we have delivered over the last 2, 3 weeks has been Tegra Max, which is a much higher price point than Tegra, but has been extremely well-received in stores. In fact, we've had people with kind of pent-up demand based upon the features that we put into the bags with the front pocket and the expansion, the dual wheel carriage. We've also got some early good reads on Alpha 2, which has been in the stores now for a little over 2 weeks. Women just kind of come in now, we've got some decent reads on early colors but it's too soon to tell because it's not in all stores yet and those have been the big deliveries so far. We still have more product coming in between August and then into the beginning of September. But early results, pretty good.

Operator

We have no further questions at this time.

Jerome Squire Griffith

Okay. Thanks, guys. Thanks for your attention, appreciate it.

Michael J. Mardy

Thanks, everyone.

Operator

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

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