Carter's (CRI) Q4 2016 Results - Earnings Call Transcript

| About: Carter's, Inc. (CRI)
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Carter's, Inc. (NYSE:CRI) Q4 2016 Earnings Call February 23, 2017 8:30 AM ET

Executives

Michael Dennis Casey - Carter's, Inc.

Richard F. Westenberger - Carter's, Inc.

Brian J. Lynch - Carter's, Inc.

Analysts

Susan K. Anderson - FBR Capital Markets & Co.

Ryan Wallace - Citigroup Global Markets, Inc.

Stephanie Schiller Wissink - Piper Jaffray & Co.

Samantha Lanman - Oppenheimer & Co., Inc.

Robert F. Ohmes - Bank of America Merrill Lynch

Jay Sole - Morgan Stanley & Co. LLC

Jim A. Chartier - Monness, Crespi, Hardt & Co., Inc.

Steven L. Marotta - C.L. King & Associates, Inc.

John Kernan - Cowen and Company, LLC

Ike Boruchow - Wells Fargo Securities LLC

Rick Patel - CLSA

Janet J. Kloppenburg - JJK Research

Operator

Good day, everyone, and welcome to the Carter's Fourth Quarter 2016 Earnings Conference Call. On the call today are Michael Casey, Chairman and Chief Executive Officer, Richard Westenberger, Executive Vice President and Chief Financial Officer; Brian Lynch, President; and Sean McHugh, Vice President and Treasurer.

After today's prepared remarks, we will take questions as time allows. Carter's issued its fourth quarter 2016 earnings press release earlier this morning. A copy of the release and presentation materials for today's call have been posted on the Investor Relations section of the Company's website at www.carters.com.

Before we begin, let me remind you that statements made on this conference call and in the company's presentation materials about the company's outlook, plans and future performance, are forward-looking statements. Actual results may differ materially from those projected.

For a discussion of factors that could cause actual results to vary from those contained in the forward-looking statements please refer to the company's most recent Annual Report filed with the Securities and Exchange Commission and the presentation materials posted on the company's website.

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

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

Michael Dennis Casey - Carter's, Inc.

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

Earlier today, we reported exceptionally good growth in our fourth quarter, and a record level of sales and profitability for 2016. This was our 28th consecutive year of sales growth and a significant year of progress for our company.

In 2016, we outperformed the macro trends in the retail apparel industry. We strengthened our eCommerce capabilities and tested a more productive retail store model. We established a direct relationship with Amazon and launched new wholesale operations in China. We expanded our direct sourcing capabilities in Asia and negotiated lower product costs for 2017.

We're also announcing today the acquisition of Skip Hop, one of the fastest growing and most recognized global brands for families with young children. We believe Skip Hop will provide a meaningful source of growth for us in the years to come.

We expect 2017 will be another good year for us. We are planning good growth in sales and profitability. Our domestic and international wholesale sales are planned lower this year given the challenges faced by our wholesale customers and international partners. We expect our retail businesses will drive the growth in our company this year.

As we begin a new year, it's good to reiterate that our vision is to be the world's favorite brands in young children's apparel. To achieve that vision, we are focused on three key strategic priorities: The first is to provide the best value and experience in young children's apparel. The second is to extend the reach of our brands, and the third is to improve profitability.

Last year, Carter's was, once again, the only apparel brand, exclusively for young children, ranked among the Top 100 brands preferred by Millennials. Carter's is the #1 brand chosen by new moms, with the highest rankings in fit, comfort and value. We believe we continue to outperform our competitors because our brands have a well-earned reputation for quality and value with multiple generations of consumers.

We believe we made good progress last year strengthening our brand presentation with our top wholesale customers, in our stores and online. We're seeing a good return on investments in our mobile experience, with mobile traffic and conversion rates up significantly last year. Across all channels, on a global basis, our eCommerce sales grew 24% last year to nearly $500 million.

The young children's apparel market, ages newborn to seven, grew about 1% last year to $20.7 billion. We continue to have the largest share of this market, twice the share of our nearest competitor. In the young children's apparel market, eCommerce sales grew 9% last year and represented 16.5% of total market sales. The brick and mortar component of the market declined 2%.

Our eCommerce business is our fastest growing, highest margin business. According to NPD market data, our eCommerce business was the second largest contributor to the growth in online sales of young children's apparel in 2016, second only to Amazon.

To extend the reach of our brands we plan to strengthen our eCommerce capabilities, open smaller, more productive co-branded stores closer to consumers and expand in international markets. In 2016, we invested in technology which provides consumers the convenience of shopping online and picking up their purchases in a store close to their homes. Last year, about 10% of our online transactions were picked up in stores. Nearly 30% of those transactions led to additional in-store purchases. We've also invested in technology that enables in-store purchases of products available only online. This "save-the sale" initiative was tested in 2016 and is planned to rollout to all stores this year. Given the success of our eCommerce business, and the secular shift to online shopping, we expect our domestic eCommerce sales to contribute $350 million to our growth over the next five years. That is expected to be the largest contributor to our billion-dollar growth plan.

Store openings will continue to be an important component of our growth strategy. To improve the convenience of shopping for our brands, we have been reducing the mix of outlet stores by opening stores closer to consumers. In 2016, over 40% of our stores were located in outlet centers. These are some of our largest most productive stores. But given the decline in international shoppers and the preference for convenience, these stores posted the weakest comp store performance last year. By 2021, we expect the mix of our outlet stores to be less than 30% of our store portfolio.

Given the success of our co-branded store test in 2016, we plan to open 240 stores in this format over the next five years. We believe this smaller, more productive store model provides a better experience for consumers presenting the best assortment of our Carter's and OshKosh B'gosh brands in one convenient location. It's one stop shopping for a newborn to a 10-year old child. Last year, the co-branded stores had the best traffic and comp store sales performance relative to our other store models. We expect these store openings will be the largest contributor to our store sales growth plan of $250 million over the next five years.

With respect to our wholesale segments, we had growth in our Carter's brand last year and lower sales of OshKosh. I think it's fair to say, many of the major retailers underperformed their growth plans for 2016. Kids apparel, however, was one of their better performing product categories. It's a less discretionary purchase and a more affordable purchase. That said, we believe retailers will continue to plan cautiously for 2017.

We now have visibility to fall 2017 bookings, which we expect will be down mid-single digits, the same decrease we saw for spring. We saw good growth in our replenishment sales in the fourth quarter and, we expect our replenishment business will help offset some of the lower seasonal bookings this year. We also expect to benefit from sales to Amazon. We had our initial shipments of our Carter's brand to Amazon last year and, we expect this will be a good source of growth for us in the years to come.

We saw good demand for our brands outside the United States in 2016. International sales grew 12% last year, and represented 11% of our total sales. Canada continues to be the largest component of our International business, representing two-thirds of total International sales. In local currency, sales in Canada grew 16% last year strengthening our position as the market leader with 19% share of this $2 billion market. We expect our sales in Canada to grow by over $100 million in the next five years driven by 50 store openings, and eCommerce sales, which we expect to more than double by 2021.

We believe China will provide the next largest source of growth in our International business. The young children's apparel market in China is estimated to be $12 billion, and forecasted to double by 2025. The annual births in China are 4 times that of the United States. We had our first full year of sales on Alibaba's Tmall website last year. And last October, we announced a new wholesale relationship with Pou Sheng, a $2 billion publicly-traded retailer of popular brands, including Nike, Skechers and Levi's. In 2016, Pou Sheng opened 9 Carter's stores and plans to open 40 stores this year. If the performance of these stores meets their objectives, we expect 200 or more stores to be opened in the next four years. We believe our relationship with Pou Sheng, together with Tmall, will enable us to extend the reach of our brands to more consumers in China. We expect China to contribute $80 to $100 million in sales by 2021.

With respect to improving profitability, we made good progress improving our operating margin last year, which was driven by a higher mix of eCommerce sales, improved price realization, expanded direct sourcing capabilities, and lower product costs. The outlook for product costs continues to be good. We now have visibility to fall 2017 product costs, which we expect will be lower than last year.

In terms of business trends, we saw sales improve as we moved through the fourth quarter. We had strong demand for our brands over the Thanksgiving and Christmas holidays. Interestingly, in the week leading up to Christmas and the week that followed, over 90% of our retail sales were in our stores. December was the best month of the quarter, and one of the best months of the year. That favorable trend, however, has not continued into the first two months of this year. To date, our U.S. retail sales are comping negatively.

We believe we're seeing a meaningful impact from the delay in tax refunds to families with young children. Beginning in 2017, the IRS has delayed refunds to millions of families claiming earned income tax credits, to enable more time to review their tax returns. The tax refunds are expected to be largely distributed by the end of February.

It is important for you to know that January and February typically represent the lightest part of the year for us. Historically, March is the largest month in terms of sales and earnings contribution in the first half. We expect to see better performance in the weeks ahead, and we'll have a better read on spring selling when we update you again in April.

We're excited to announce today the acquisition of Skip Hop. We believe Skip Hop provides an opportunity to expand our product offerings to include complementary essential core products for families with young children. Skip Hop is an innovative leader in the baby durables product category. It meets all of our acquisition criteria; it's a logical adjacent product category, it's led by a strong management team; it has a strong track record of growth, and we believe it will be accretive to earnings beginning this year. Its key product categories include diaper bags and backpacks, baby activity centers and bouncer seats. Skip Hop also designs and markets bath, feeding and travel accessories for young children.

Our research confirms that Skip Hop is a strong brand, has a unique design aesthetic, and is a well-known and well-liked brand by Millennials. It operates in a stable $9 billion market. Its products are ideal for baby gift registries and online purchases.

Today, it's largely a wholesale business with customers that include Babies R Us, buybuy BABY, Target and Amazon. Given our relationships with these and other retailers, we see an opportunity to help strengthen their wholesale business. We also plan to leverage our direct-to-consumer capabilities to reach more consumers with the Skip Hop brand through our stores and eCommerce businesses. We plan to double Skip Hop's sales and earnings over the next five years.

In terms of our long-term outlook, we plan to grow our sales to over $4 billion by 2021. We believe our multi-channel business model enables growth of about 6% a year, on average, over the next five years, that's our planning horizon. With respect to profitability, we're planning our earnings to grow by more than sales over the next five years. Our current forecasts reflect average annual earnings growth of about 10%, including the benefit from Skip Hop and continued share repurchases.

In summary, we made significant progress last year strengthening our position as the leader in young children's apparel. We own the largest share of the $21 billion young children's apparel market in the United States, and we believe we have many opportunities to achieve our growth objectives.

The outlook for our business is good. We have a very talented organization that has demonstrated its ability to deliver exceptional performance in this highly competitive market. We're well positioned to grow and gain market share. We own two of the best known and best performing brands in young children's apparel. To the best of our knowledge, no other company in the world has our brand reach or success in young children's apparel.

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

Richard F. Westenberger - Carter's, Inc.

Thanks Mike. Good morning, everyone. I'll begin my comments on page 2 of this morning's presentation materials with some highlights of the fourth quarter and fiscal 2016.

We had a strong fourth quarter. Our performance was above our expectations, largely due to stronger top-line net sales. Consolidated net sales grew 8% over last year and adjusted EPS grew 28%. Fourth quarter capped off another good year for us. Full year net sales grew 6%. We made continued progress in growing our adjusted operating margin and adjusted EPS grew 11% to $5.14.

We also had a solid year of investment in the business, which we believe will strengthen the company over the coming years, and we returned a meaningful amount of capital to our shareholders.

On page 3, we've recapped our year-over-year sales performance in the fourth quarter. Our Carter's businesses in the U.S. grew 7%, reflecting growth in each of the stores, ecommerce and wholesale channels, with particularly good performance in our retail businesses.

Net sales of the OshKosh brand in the U.S. grew 8%, driven by higher sales in our stores and online. International posted another strong quarter of growth at plus 13%. Canada led the way with very strong sales in both stores and online. I'll speak to our business segment results in more detail in a moment.

Turning to our fourth quarter P&L on page 4, building on the 8% growth in net sales was an expansion in consolidated gross margin of 190 basis points to 43.9%. This performance reflects favorable channel mix and product costs versus a year ago. Adjusted SG&A grew 9% in the fourth quarter. I'll provide some additional color on SG&A in a moment. Royalty income was comparable year-over-year, largely a result of recent initiatives to in-source formerly licensed product categories.

Our weighted average share count declined approximately 5% compared to last year, reflecting our share repurchase activity. So, again, on the bottom line, fourth quarter adjusted EPS was $1.79, up 28% from $1.40 last year.

Moving to page 5 and SG&A, consolidated SG&A was up 9% reflecting the ongoing growth of our U.S. and Canadian retail businesses and additional marketing spend focused on driving consumer traffic to our U.S. stores and website and higher distribution and freight expense.

Page 6 summarizes a few balance sheet and cash flow highlights. We ended the year with very good liquidity, cash on hand of nearly $300 million and significant availability under our credit facility. Year-end inventory levels were up about 4% better than we had planned given the strength of sales as we finished the year. Overall, inventories were in very good shape entering 2017.

2016 was a record year of operating and free cash flow for the company. We were able to return a significant amount of cash to our shareholders in 2016, distributing $66 million in dividends and completing $300 million of share repurchases. Our total return of capital to shareholders since 2013 now exceeds $1 billion.

As we announced in this morning's press release, our board has authorized an increase to our quarterly dividend of 12% to $0.37 per share. Our next dividend will be paid in March.

Now turning to page 8, with a summary of our business segment performance in the fourth quarter, tracking with the strong overall growth in earnings we delivered, every business segment posted higher year-over-year operating margins. Our Carter's businesses contributed the most to our improved profitability with increased operating margins in both the wholesale and retail segments. International segment profitability also improved and corporate expenses were lower than a year ago.

I'll cover our individual business segments, beginning with Carter's wholesale on page 9. Our U.S. Carter's wholesale business delivered stronger operating margins on net sales, which increased 1% over last year. Our fourth quarter sales in wholesale were above what we had forecasted with some earlier than planned demand for spring product as well as replenishment results, which were above our forecasts.

Carter's wholesale segment operating profit was $62 million compared to $60 million last year. Segment margin improved by 60 basis points to 21.8%, reflecting higher gross margin driven by a more favorable product mix than a year ago as well as supply chain efficiencies.

Full year sales for Carter's wholesale were up 2%. As we mentioned on our last couple of calls, seasonal bookings for 2017 are lower than a year-ago. We attribute this, in part, to the ongoing challenges of several of our customers, particularly those operating in traditional shopping malls. In general, we're seeing most of our wholesale customers working to constrain their inventory commitments in an effort to improve their sell-throughs and margins.

We remain focused on partnering with our wholesale customers to grow their businesses. We have new initiatives with several customers underway intended to drive strong Carter's results in-store and online.

Turning to page 10 and the Carter's retail segment, total Carter's U.S. retail segment sales increased 12% versus last year. Our total retail comp in the quarter was 5.4%. This reflected a roughly even store comp and a significant eCommerce comp of 21.7%. Business in our stores and online was very strong as we ended the year, similar to our yearend performance in 2015.

Segment operating income in the quarter was $74 million, up $10 million from last year. It was an important objective for us to show improved operating margin in this part of our business in the fourth quarter and we were pleased that Carter's retail operating margin increased 60 basis points to 18.9% in Q4. We saw improved operating margins in both the stores and eCommerce components of Carter's retail resulting largely from improved pricing and lower product costs.

On page 11; the trend of international consumers shopping in our U.S. stores and on carters.com continues to be meaningfully better than in late 2015 and in the first half of 2016. After improving in the third quarter, comparable sales to international consumers declined slightly in the fourth quarter. We saw a particular, negative inflection in our stores near the U.S.-Mexico border after the Presidential election in November. Sales have continued to be soft in these stores to date in 2017.

Demand from international consumers increased nicely online in the fourth quarter, led by higher demand from consumers in Brazil, Argentina, Russia, and Ukraine. On pages 12 and 13, we've provided excerpts from some of our Carter's spring direct marketing. This marketing is for our semi-annual Baby Sale and features our iconic Sleep and Play products along with some of our spring seasonal outfitting collections.

Turning to OshKosh retail on Page 14, OshKosh had another good quarter. Total sales increased 14% with a retail comp increase of 5.8%. Similar to Carter's, our OshKosh stores comped roughly evenly with last year while we saw significant comp growth in eCommerce of nearly 26%. We saw good performance in particular in our dual brand stores where we combine the presentation of Carter's and OshKosh product. Segment operating income increased to $11 million in the quarter with segment operating margin increasing 100 basis points to 8.2%.

Pages 15 and 16 are from our OshKosh spring direct marketing materials. These two pages highlight product from Baby B'gosh, which has proven to be extremely popular with consumers and complementary to OshKosh's traditional focus on playwear for somewhat older children.

On page 17, we have provided some additional information on our U.S. retail store portfolio. This data represents the combination of our Carter's and OshKosh stores and we'll be moving to present information more on a combined basis going forward. I'll mention more on that in a moment.

At the top of the chart, you can see that going back five years, all of our stores were single-brand locations, the majority of which were in outlet centers. Today, we have the dual-brand format stores, which pair Carter's and OshKosh and our projections are that this format will grow to be over 40% of our store base by 2021.

We believe that retail stores will continue to be an important element of our company's growth strategy. As we've told you in prior calls, we've developed what we believe is a more productive, lower investment model with our co-branded format store. In general, we expect our future store openings to occupy a smaller footprint and we've tasked our teams to identify additional ways to reduce CapEx spend where possible.

Our focus, however, is not just opening new stores but also driving improved productivity from our existing store base. To this end, we have a number of key initiatives underway, some of which are summarized at the bottom of page 17.

The customer experience in our stores is obviously very important which is why we have been investing in a number of areas such as our omni-channel initiatives. As the online and stores channels continue to converge, we want to provide our customers with the seamless experiences and capabilities which they expect.

Under the heading of productivity, we have several current technology-based initiatives focused on areas such as labor management, assortment planning, and pricing effectiveness. On the next couple of pages we have photos of two new stores, a co-branded store in Kentucky and a side-by-side format store in California.

Turning now to our International results for the fourth quarter on page 20. The International business had a very strong quarter with total sales up approximately 13% on both a reported and constant currency basis, which builds on nearly 16% constant currency sales growth in last year's fourth quarter. Our Canadian team continues to execute at a very high level with strong comp performance both in stores and online.

As Mike mentioned, the latest market share data in Canada indicates we grew our share in this market by 280 basis points to nearly 19%. Our wholesale business outside the United States was comparable year over year. While we had growth in certain markets like Canada and China, demand in other markets was down, we believe, in part due to the stronger U.S. dollar versus many currencies around the world in the markets where our partners operate. Operating income and margin both increased significantly in the International segment in the fourth quarter, driven by strong top-line and profitability growth in Canada.

The next few pages highlight new international retail stores, a new cobranded store in Canada on page 21 and a new Carter's store opened by our wholesale partner in China on page 22. We expect our partner in China will open approximately 40 new stores in China in 2017, the majority of which we understand will be in the Beijing area.

On the next several pages we have summarized some highlights of our full year 2016 performance. 2016 was another good year for the company. We reached nearly $3.2 billion in net sales while expanding our operating margin and growing adjusted EPS by 11%. We also made good progress on our commitment to return excess capital to shareholders repurchasing $300 million of our shares against the new, $500 million authorization approved by our board at this time last year and distributing $66 million in dividends.

On page 29, we're very excited to be adding Skip Hop to Carter's. Mike has already told you about this terrific brand, which we believe will provide us another avenue for future growth as we strive to become the world's favorite brands in young children's apparel. We've always been very selective and rigorous in evaluating external opportunities, as we have been in the case of Skip Hop.

From my perspective, Skip Hop represents a unique opportunity to add an additional, high-quality brand, one which our research confirms resonates well with consumers, especially Millennial Moms. This acquisition adds new product categories, which complement our market leadership and success in young children's apparel. Also very attractive is the significant business Skip Hop has established outside the United States.

We've been very impressed with Skip Hop's management team and their record of innovation and product development. We believe the combination of Skip Hop and Carter's supply chain and distribution capabilities, along with Carter's substantial consumer reach, will allow for significant growth of the Skip Hop brand in the coming years.

On Page 30, I wanted to briefly highlight some planned changes in our financial reporting. We have reevaluated our reportable business segments and believe it's appropriate to make some changes going forward. In our retail operations, we have increasingly begun to present the Carter's and OshKosh brands together, such as in the cobranded and side-by-side stores. Our eCommerce site has actually been a cobranded model with a single check-out since its launch nearly seven years ago.

Beginning with the first quarter 2017, we will combine Carter's and OshKosh domestic retail results into a single U.S. retail segment. Similarly, we will combine Carter's and OshKosh domestic wholesale operations into a single U.S. wholesale segment. This aligns with how we currently manage our wholesale customer relationships. Our International segment will be unchanged. We will layer Skip Hop results into the appropriate segments going forward. Skip Hop's current business would largely fall into the U.S. wholesale and International segments today. Going forward, we will continue to comment on the performance of our individual brands, as appropriate.

Finally, a few words on our outlook for first quarter and fiscal 2017 on page 31. For the first quarter, which is the smallest quarter of the year, we're expecting that net sales will be down low-single digits compared to last year. We're expecting revenue growth from our U.S. retail business and lower sales in U.S. and International wholesale. An additional factor affecting our first quarter forecast is the later Easter holiday, which will occur in April this year versus falling in March in 2016.

Adjusted EPS for the first quarter is forecasted to be in the range of $0.80 to $0.85 per share compared to $1.05 in the first quarter last year, reflecting lower net sales and increased investment spending to support our growth agenda. For the full year, we are expecting good growth in sales and earnings. Net sales are expected to grow 4% to 6%, driven by our U.S. retail businesses and the benefit of the Skip Hop acquisition. Adjusted EPS is forecasted to increase approximately 8% to 10% compared to $5.14 in fiscal 2016.

From a pacing perspective, we expect the second half to contribute more meaningfully to earnings growth than the first half. We expect to see higher sales growth in the U.S. wholesale and International segments as well as lower year-over-year growth in spending in the second half. Also, as our retail businesses continue to grow, our sales and earnings have become a bit more weighted to the second half, like many retailers, than previously.

We expect to open approximately 60 new retail store locations in the U.S., with most of these in the co-branded and side-by-side configurations, and approximately 15 new co-branded stores in Canada. We expect to close a dozen or so store locations this year, mostly in the U.S.

We are forecasting another strong year of cash generation, with operating cash flow in the range of $325 to $350 million and CapEx of approximately $100 million.

With these remarks, we're ready to take your questions.

Question-and-Answer Session

Operator

Thank you, sir. And for our first question, we go to Susan Anderson with FBR Capital Markets.

Susan K. Anderson - FBR Capital Markets & Co.

Hi, good morning. Congrats on a very nice quarter.

Michael Dennis Casey - Carter's, Inc.

Thank you. Good morning Susan.

Susan K. Anderson - FBR Capital Markets & Co.

Good morning. So I was wondering if maybe you could just give a little bit more color on the guidance, just kind of your thoughts around, I guess, driving the pickup in wholesale in the back half. Is it mainly replenishment that – so are you seeing the department stores kind of order less and then replenish, so they don't have to basically manage the inventory? And then also the switch to just more sales in the back half, does that mean that you're just becoming more levered to like back-to-school and holiday?

Richard F. Westenberger - Carter's, Inc.

I think those effects (31:05) in our retail business; retail is becoming a bigger proportion of the pie and those businesses have always been more weighted towards the second half, Susan.

On wholesale, one of our assumptions certainly is that replenishment trends will help us as we get to the back half of the year and also our assumption for pre-ships for spring 2018. And in some cases, I think we're resetting the base with some of these wholesale customers and we're expecting to grow from this lowered base in 2017. So the year-over-year comparisons become a bit more favorable in the second half of the year.

Susan K. Anderson - FBR Capital Markets & Co.

Got it. That's helpful. And then if I could just throw in one more on Skip Hop. It looks like a very nice acquisition, looks like a very nice brand. Maybe if you could give any color to some of the margins, the accretion and just kind of where the biggest opportunity of distribution is, where you guys overlap now, and then just longer-term what the sales opportunity could be?

Richard F. Westenberger - Carter's, Inc.

Sure. On the first part of the question, it's about a $90 million contribution to net sales this year. They have plans to do more than that in fiscal 2017 but obviously our benefit is only for a portion of the year. It's a nicely profitable business, I'd say, double-digit EBITDA margin. We expect that will improve over time as well. The profit contribution to us this year won't be that meaningful. Two factors there, just the partial year contribution, as well as some integration and transition expenses that we're expecting for the year. But, going forward, we think it will be a nice contributor both to the top line and to earnings.

As it relates to overlap, it is mostly a wholesale business today. We certainly have wholesale relationships with a number of their existing wholesale customers. We intend to both help them grow and develop those relationships. There's likely additional accounts that they are not in today that they would look to enter over time. They have a very nice international business as well and I would say most of those relationships are not relationships that Carter's has today. So we think that's an opportunity to perhaps introduce Carter's and Oshkosh in some of those wholesale accounts overseas. But, clearly, there is a very significant direct opportunity with our stores as a channel distribution and on carters.com. I think those will be early areas of emphasis for us.

Susan K. Anderson - FBR Capital Markets & Co.

Great, sounds good. Good luck next quarter.

Richard F. Westenberger - Carter's, Inc.

Thank you, Susan.

Operator

And for our next question, we go to Kate McShane with Citi Research.

Ryan Wallace - Citigroup Global Markets, Inc.

Hi, this is Ryan Wallace on for Kate. Just talking a little bit more about the 2017 top-line guidance, understanding you are getting a little bit of contribution from Skip Hop there but could you just talk about any of the potential drivers that you think could sort of bring sales in closer to the higher end of guidance?

Richard F. Westenberger - Carter's, Inc.

I think in broad strokes, Ryan, we're planning the U.S. wholesale business down in the low single-digit range. International is in the low single-digit range as well and most of the growth coming from our U.S. retail operations, which is a combination of stores and eCommerce that will be in the high single-digit area. I think a lot has to do really with consumer traffic in the stores, that has been a key variable in past months. We expect if the consumer comes out then that could trend us towards higher comp performance in our direct businesses. And certainly if things start to run in wholesale we have that opportunity with our wholesale replenishment business as well that we could eke out a bit more revenue there. That certainly would be our hope.

Ryan Wallace - Citigroup Global Markets, Inc.

Thank you.

Richard F. Westenberger - Carter's, Inc.

You're welcome.

Operator

And for our next question we go to Steph Wissink with Piper Jaffray.

Stephanie Schiller Wissink - Piper Jaffray & Co.

Thanks. Good morning, everyone. Just a couple of questions. Richard, if you could just remind us the productivity of the co-branded and the side-by-side versus your traditional legacy retail model that would be really helpful? Thank you.

Richard F. Westenberger - Carter's, Inc.

Sure. The new co-branded store format is about 5,000 square feet. The side-by-side model, which we've been opening in the last couple of years is something close to 7,000 square feet. CapEx investment is a little north of $400,000 with the co-branded store and it's $650,000-ish in the side-by-side model. So a very, very productive model. We target something like about $1.5 million on the top line for a co-branded store. It would be close to $2 million for the side-by-side location. Both generate good returns, we would target four-wall margins in the, I would say, low 20% range with higher returns on investments in both boxes, with the co-branded box being an ROI well above what we're seeing in the side-by-side format.

Stephanie Schiller Wissink - Piper Jaffray & Co.

And just a follow-up on Amazon, it sounds like you started shipping that in the latter part of last year. Can you give us any early reads on what types of products, if it's similar to your wholesale or retail businesses, or if there are expanded basket opportunities in that online format?

Brian J. Lynch - Carter's, Inc.

Yes, Steph. We typically try not to comment on specific accounts but here is what I would say. Our strategy has always been to have a good presence of our products wherever mom wants to shop and Amazon owns about 3% of the market share right now and growing quickly, as we define it. So we're excited about the relationship. We see Amazon as a good component of our very profitable $1.2 billion wholesale business but we're really in early days on this one. We began selling unique configurations of existing core products on the site in the fourth quarter. We had good performance, not unlike a lot of other retailers, things like sleepwear outperformed online, but it was a small part of our business and we're really happy with the response to date.

We're going to ship more later this spring. We have plans for mid to late spring additional products going to Amazon, which would be differentiated experience from what we currently have with other customers in terms of configurations, and we'll share a little bit more about that on an upcoming call.

Stephanie Schiller Wissink - Piper Jaffray & Co.

Thank you. Good luck, guys.

Michael Dennis Casey - Carter's, Inc.

Thank you.

Operator

And we go next to Anna Andreeva with Oppenheimer.

Samantha Lanman - Oppenheimer & Co., Inc.

Hi. This is Sam Lanman on for Anna. Thanks for taking our question, and congrats on the quarter.

Michael Dennis Casey - Carter's, Inc.

Thank you.

Samantha Lanman - Oppenheimer & Co., Inc.

A question on the 1Q guide. In addition to later tax refunds, how do we think about later Easter impact to both retail and wholesale? Do you expect trends to improve in retail, as the quarter goes on, and are there any timing shifts in SG&A that's driving down earnings during the quarter?

Brian J. Lynch - Carter's, Inc.

A couple of things. We'll chunk this up, a lot of different questions. As far as the Easter shift, we think it's about a 1.5 to 2-point impact on our direct business for the first quarter because as you know, you've gotten Easter shifting out and moms, they need to shop for that. But we've also got movement in spring breaks, which impacts our tourist doors. So that clearly has an impact in the quarter.

Richard F. Westenberger - Carter's, Inc.

Say, on spending, there is a few things. I don't know if it's so much timing as an affirmative decision to invest more in the business. Certainly, marketing is an area of emphasis. So we're spending or allocating more on the marketing front in the first quarter.

You have the ongoing effect of new stores, which has the effect of driving up SG&A. And then I'd say additional investments in technology, particularly in the retail area that we've been continuing to invest behind, omni-channel, some of the additional systems capabilities around assortment planning, pricing and those capabilities. And then you have the ongoing ramp-up of operations in China. All of those are negatively affecting SG&A in the quarter.

Samantha Lanman - Oppenheimer & Co., Inc.

Okay. Thanks. And if I could just sneak in one more? On gross margins, there were really strong results there, and inventories look clean. Can you talk about the puts and takes on the gross margin line as we go through the year? Thank you.

Richard F. Westenberger - Carter's, Inc.

I think, overall, in the fourth quarter, the contribution to improved margins was kind of evenly split between improved pricing, lower product costs, the ongoing mix shift to our higher gross margin retail businesses and those effects are anticipated to continue in 2017. The big drivers are favorable outlook on product cost. We are assuming that we will have some modest amount of improved pricing across our businesses in 2017. Those are the significant contributors.

Samantha Lanman - Oppenheimer & Co., Inc.

Thank you so much.

Richard F. Westenberger - Carter's, Inc.

You are welcome.

Operator

And we go next to Robby Ohmes with Bank of America Merrill Lynch.

Robert F. Ohmes - Bank of America Merrill Lynch

Good morning, guys. I was wondering if you could give us a little bit more detail on Skip Hop and sort of what the synergy is going to be with the Carter's business. How will you distribute that product? I'm expecting it will go in your stores, etc.? And also maybe sort of the impact to gross margins and SG&A, how it looks versus your Carter's existing business? Thanks.

Michael Dennis Casey - Carter's, Inc.

Good morning, Robby. So we started taking a look at Skip Hop last year, terrific brand, well known to a lot of people here in our office as we got to know a little bit more about the brand and the owners, the management team, we liked what we saw. If you were to go into our stores or on our websites now, you would see some of the products that Skip Hop sells. I would actually say Skip Hop does a very nice job on some key product categories that I would say are essential products for families with young children.

So, as we put Skip Hop through the acquisition screen that we've had over the years, it met all four of the acquisition criteria. It's a logical product adjacency. It's got a first-class management team. It's got a very nice track record of growth, and we expect it to be accretive in its first year. So, we plan to double its sales and earnings over the next five years. As Richard said, we'll make some investments this year to help integrate it into Carter's. I'd say the big opportunity is marketing their brands to our 12-plus million consumers. And so, I think, what attracted Skip Hop to us is that we've developed a first-class retail business over the years. Their business is largely a wholesale operation. They have a little bit of eCommerce but certainly nowhere near the capabilities that we've built over the years.

So my hope is later this year you'll see some of the beautiful Skip Hop product in our stores. We plan to add another tab to our website to show the full scope and beauty of the Skip Hop brand online. And then we're going to help them. They have good initiatives underway to strengthen their wholesale business. They are pursuing two major retailers. We will do what we can to help them do business with those retailers. And then the International business, as Richard said, they actually have a higher mix of international sales than we do. So when we looked at the scope of their international operations and the relationships they developed, we felt as though that was an opportunity perhaps for us to learn a little bit more about some opportunities for our brands outside the United States.

So we're excited about it. We just completed the transaction yesterday, and next week we'll be meeting with all of the Skip Hop employees and welcoming them to Carter's and getting to know them better and understand some of the opportunities a bit better. So we'll keep you updated as we go through this year but it's a nice addition to our business.

Robert F. Ohmes - Bank of America Merrill Lynch

Sounds great. Thanks.

Michael Dennis Casey - Carter's, Inc.

Thank you, Robby.

Operator

And we go next to Jay Sole with Morgan Stanley.

Jay Sole - Morgan Stanley & Co. LLC

Great. Thank you. I just wanted to ask about China. You mentioned that with your partner you opened about 40 stores just in Beijing. Can you maybe talk about your long-term goals for China? What kind of store potential you see on the big picture basis? What kind of market share you think the Carter's brand is capable of taking in China?

Michael Dennis Casey - Carter's, Inc.

Sure, so just to be clear, the plan is for Pou Sheng to open 40 stores this year and the focus is on Tier 1 cities. We've seen with the 9 stores that they opened last year we were seeing better performance in the Tier 1 cities versus the Tier 2 cities. That makes sense to us. I think the brand has – the Carter's brand has more recognition in the Tier 1 cities. So they are focusing their efforts to open stores in and around Shanghai and Beijing.

I'll be heading over there next month to see the new store opening but Pou Sheng is a first-class company. They know how to open up stores that represent great U.S. brands and the potential if these early store openings meet their investment objectives, the plan is to open up 200 or more stores over the next five years. So we think it's going to be a nice source of growth. We think it's probably somewhere in the range of $80 million to $100 million. Our goal was to have it be at least $100 million but it's early days. We're trying to figure out what's important to the consumer. It's clear based on the selling we've seen to date both on Tmall and in the Carter's stores that they love the baby product offering. That's by far the best performing component of the product offering.

Some of the opportunities – they clearly have a need for more cold weather gear than we offered last winter, so that's an opportunity. And then the other thing is the Chinese government imposed new regulations on children's apparel last summer. So we're working to make sure that we comply with those standards. It's a huge market. It's a wonderful opportunity for us. But, suffice it to say, it's not an easy market. So we're going to build the business thoughtfully and over time. But we think it's a good $100 million opportunity for us over time.

Jay Sole - Morgan Stanley & Co. LLC

Great, thanks. And if I could ask one more. The tax refund situation is interesting because in a few weeks, the tax refund checks will come and, obviously, there will be a makeup from what maybe is being lost over the last few weeks. Would your expectations be that people will spend what they would normally spend in March and then on top of that spend also their tax refund check? So essentially you recover whatever you are losing in the last few weeks, or are the sales being lost in February simply gone and then you will just have to – people have their normal spending patterns going forward?

Michael Dennis Casey - Carter's, Inc.

No, more the former. We think there's going to be some good pent-up demand in March. March is, in terms of sales, is larger than January and February combined. So there was no shortage of articles in January talking about the IRS intentionally delaying refunds to families with young children claiming the additional child tax credit and it's tens of billions of dollars that have been delayed. And then, we had a good President's Day weekend and the closer we get to the end of February, business trends have improved. And so, we're expecting a good March and the closer you get to spring, we've got a beautiful spring product offering, so we're expecting a good March. And by the time we update you again at the end of April, we'll have Easter selling on the books and so we're expecting that we'll have a good first four months of the year.

Jay Sole - Morgan Stanley & Co. LLC

Got it. And then, if I can just ask one last one. Just on Skip Hop, do you plan on re-branding any of the Skip Hop portfolio to Carter's and OshKosh?

Richard F. Westenberger - Carter's, Inc.

No.

Michael Dennis Casey - Carter's, Inc.

No. Not currently. It's a great brand. I think it's got strength on a standalone basis.

Jay Sole - Morgan Stanley & Co. LLC

Okay. Thank you so much.

Operator

And we go next to Jim Chartier with Monness, Crespi and Hardt (sic) [Monness, Crespi, Hardt].

Jim A. Chartier - Monness, Crespi, Hardt & Co., Inc.

Good morning. Thanks for taking my questions. First, on Amazon, do you expect the contribution will be bigger in the second half of the year than the first half of the year?

Brian J. Lynch - Carter's, Inc.

Yes, we do.

Jim A. Chartier - Monness, Crespi, Hardt & Co., Inc.

Okay. And then, on product costs, Richard, can you give us a sense, is the favorability similar to what you saw in 2016 or greater or less?

Richard F. Westenberger - Carter's, Inc.

I'd say it's similar in terms of percentages.

Jim A. Chartier - Monness, Crespi, Hardt & Co., Inc.

Okay. And then, the systems you mentioned to improve the store productivity, the pricing and store labor, what's the timeframe for when those systems will be fully rolled out and what kind of benefit do you think you'll get from them?

Richard F. Westenberger - Carter's, Inc.

Well, ultimately, we hope that sales and margins improve in our retail operations. That's why we're making these investments. And this has been an area that we've been investing in. I'd say, a good portion of our omni-channel agenda we invested in 2016. Some of those capabilities will come online over the course of 2017. I'd say around assortment planning, pricing, inventory management, those are capabilities that we will be building over the course of this year for an intended implementation in 2018 so that the benefit will really come probably more next year than this year. But these are complicated implementations and we have the teams working on those this year.

Jim A. Chartier - Monness, Crespi, Hardt & Co., Inc.

Okay. And then on Skip Hop, any categories that are currently licensed for Carter's or OshKosh that you think Skip Hop has the capability to help you bring that in-house now?

Brian J. Lynch - Carter's, Inc.

Yeah, Jim, we will take a look at that. There are some things they do a very good job of that we have traditionally had licensed, so we will take a look at that. We do have existing license agreements that we certainly expect to honor and our partners we work with have done a good job. So we'll take a look at what the best decision is for the company overall but they have some unique expertise that we're excited about.

Jim A. Chartier - Monness, Crespi, Hardt & Co., Inc.

Great. Thanks and best of luck.

Michael Dennis Casey - Carter's, Inc.

Thank you.

Operator

And we go next to Steve Marotta with C.L.K. King and Associates (sic) [C.L. King & Associates].

Steven L. Marotta - C.L. King & Associates, Inc.

Good morning, everybody. Thank you for disassembling in a detailed manner how comps have trended year to date and why you think it's going to improve. Have you heard anecdotally similar dynamics within the wholesale channel for similar reasons? And as a follow-up, are you expecting, on a net basis, a positive comp at company-owned retail in the first quarter?

Michael Dennis Casey - Carter's, Inc.

So on the first; we have visibility to how our brands are doing at wholesale every day. So, at least, once a week we do a deep dive to understand how their performance has been trending and I would say they've had – that we've seen similar effects of the delay in tax returns in their business that we've seen in ours in terms of children's apparel. And I would say, based on what we see right now, my guess is for the first quarter we'll have negative retail comps because of what we've seen in January and February and the delay in Easter. Our plan is by the time we update you again in April, with Easter behind us, that we will have positive retail comps.

Steven L. Marotta - C.L. King & Associates, Inc.

That's very helpful. Thank you.

Operator

And we go next to John Kernan with Cowen.

John Kernan - Cowen and Company, LLC

Good morning, everybody. Nice quarter.

Michael Dennis Casey - Carter's, Inc.

Thank you.

John Kernan - Cowen and Company, LLC

I guess, one of the bigger picture questions I've had is, Carter's wholesale operating margin I think is up nearly 500 basis points the last two years in the face of a lot of disruption in the U.S. wholesale channel. Can you talk about the drivers of this and how durable the expansion is here? How much higher margins can get in Carter's wholesale? Is it product costs? Is it mix? Is there some type of supply chain efficiency? What pushes Carter's wholesale operating margin higher at this point?

Brian J. Lynch - Carter's, Inc.

Yeah, John, a couple things. It's been a very good business for the company and we always say, when you get the wholesale business right, it's a beautiful thing. So the drivers of the margin, it's basically a leverage model, where we sell more into the accounts, but we're not adding a lot of SG&A in wholesale.

We do invest on the floor for presentation, and in the eCommerce sites with our customers to make sure that we look great wherever mom wants to shop for our products. There has been product cost favorability, so that has also helped the models. But I would say in totality it's really a leverage model and some favorability on the product cost side that has driven the profitability.

John Kernan - Cowen and Company, LLC

Okay, thank you. And then, I believe in your guidance you are excluding some of the one-time acquisition costs related to the acquisition. Can you talk – is there any contribution from an EBIT or EBITDA perspective this year?

Richard F. Westenberger - Carter's, Inc.

We believe there will be, but very modest. If it is more significant than we are anticipating, we'll share that with you.

John Kernan - Cowen and Company, LLC

Okay, thank you.

Richard F. Westenberger - Carter's, Inc.

Sure.

Operator

And we go next to Ike Boruchow with Wells Fargo.

Ike Boruchow - Wells Fargo Securities LLC

Hey, good morning, everyone. Thanks for taking my question. Very nice Q4. I guess, Richard, my question was, can you just help us reconcile the commentary you made around the U.S. wholesale, spring and fall books? I think you said down, order books down mid-singles but you are guiding the U.S. wholesale down low singles. Just what are the puts and takes there, just so we can kind of get a better understanding of what's going on there?

Richard F. Westenberger - Carter's, Inc.

Well, the comment on down low-single digits is a combination of Carter's and OshKosh together for the full year, and there is some fiscalization, if you will, of our bookings numbers so there is some portion of spring bookings, for instance, for 2017 that went in the fourth quarter of 2016. The same is true for the following seasons as well. So all of that kind of boiled together with what we recognize in terms of our shipments, a combination of Carter's and OshKosh, we think that's down in the low-single digit range for fiscal 2017 revenue.

Michael Dennis Casey - Carter's, Inc.

We're also expecting the replenishment business to help bridge it up to low-single digits. Replenishment business was particularly strong in the fourth quarter and we'll re-launch the Little Baby Basics brand in the second quarter and we expect to see a good lift in sales from that launch. That's the high-margin baby replenishment business.

Ike Boruchow - Wells Fargo Securities LLC

Got it. Very helpful. And then just in terms of what's driving the order book down, I think you mentioned the department store – I'm sorry, the mall-based partners you have. Is it really just that channel or is it also – when we think about mass versus department store, I'm just trying to understand the different channels within your wholesale business and kind of what your outlook is there?

Brian J. Lynch - Carter's, Inc.

Ike, there's a lot of moving parts, we try not to comment on any one customer. But I would say in totality, the vast majority of the decline has been with the mall-based department stores. Without the decline in that component of the business, our Carter's wholesale sales would actually be up this year. But we've got a number of different customers, a number of different channels, people with different strategies and some are growing and some aren't, obviously. And I think it's fair to say overall in the market, it's been a struggle for a lot of folks out there. So you put it all together with the things that Mike and Richard commented on, we have that going for us. We have also got some licensed products that we now sell direct, our replenishment businesses and, of course, the new Amazon relationship. So, our goal is to, long-term, continue to grow that wholesale business low-single digits this year. We're under a little bit of pressure, so we're expecting to be down low singles.

Ike Boruchow - Wells Fargo Securities LLC

Got it. Thanks. And this is the very last one. The $90 million is what you are recognizing for Skip Hop this year. What would that – if you did own it for the entire year, can you tell us what that revenue number would be?

Richard F. Westenberger - Carter's, Inc.

North of that. I think we will share the full year number when we have owned them for a year.

Ike Boruchow - Wells Fargo Securities LLC

Okay. All right. Thanks, guys. Congrats.

Michael Dennis Casey - Carter's, Inc.

Thank you.

Operator

And we go next to Rick Patel with CLSA.

Rick Patel - CLSA

Thank you. Good morning, everyone, and congrats on a nice holiday quarter. I was hoping you could provide more granularity on the impact of Skip Hop. So it's adding about 3 points to your sales growth this year and it has pretty healthy margins. So, I would expect it to have a more material impact to earnings versus what's being implied. Are there certain timing elements or seasonality that are coming into play here that are holding down the benefit this year? And is it safe to assume that the benefit of this deal will accelerate as we think beyond 2017?

Richard F. Westenberger - Carter's, Inc.

I think more of the contribution will come in the second half of the year and, as we said previously, Rick, it's a bit of investment and integration spending there early on. So building the capabilities, for instance, to offer their products in our stores and on our websites, there is some investment that's required. There is some additional investment around making them a division of us as a public company and adding them to our financial system, all of which we will have that investment spending that will mute a bit there the profit contribution. But we think it certainly will be solid once we're through some of that investment.

Rick Patel - CLSA

And can you provide some more details on the drivers of comp during the quarter? As we think about DTC as a whole, how much of your growth is driven by traffic versus ticket and conversion? And, as we think about 2017 comps, what do you expect will be the biggest drivers and is there any lumpiness to look out for this year aside from the Easter shift?

Brian J. Lynch - Carter's, Inc.

No. So, we don't normally parse out the details of conversion and comp. I would say that performance drivers, we always look at the fact that we expect our product to perform better. We have improved product offerings with our seasonal transitions, our inventory management, our omni-channel efforts. We're really excited about our new co-branded model, which is more efficient. We're working on things like price optimization and then we have – we've increased our marketing spend significantly. We are growing marketing much faster than we are the rate of sales which we think provides a good benefit and a real nice lift in the fourth quarter. So all those things together we think are drivers. Obviously, we become more of a retail business, so you're going to see performance better in the second half of the year when there is more demand and you've got the weight of the new store openings and the costs associated with them in the first half. So that mix is affecting us as well.

Michael Dennis Casey - Carter's, Inc.

Yeah. Two things we are keeping an eye on. We are very pleased with the comps from the co-branded and side-by-side stores. And so we continue to see better traffic to those stores relative to the outlet stores. Within the outlet stores, we're seeing a return of performance to the big Florida stores, Orlando, Miami, Sawgrass. Those stores are doing better. Where we are not doing better is on the border stores. So that has been a source of weakness. Those stores are comping down and given the issues between our country and Mexico, the devaluation of the pesos, we're seeing weakness on the border stores. So those are the things that we are keeping an eye on. Whether or not the international consumer starts coming back and that improvement in Florida is sustained and whether or not the border stores bordering Mexico improve or further deteriorate, so we're taking those things into consideration.

Rick Patel - CLSA

Thank you for the color. You know, Mike, as I think about the other side of the equation on wholesale, how much of your business represents the mall stores versus the mass channels, as I think about which side is healthy versus the one that's struggling a bit.

Michael Dennis Casey - Carter's, Inc.

Well, we don't refer to mass separately. It's one wholesale segment right now, but if you're referring to Walmart and Target, those are two of our largest customers. Target, Walmart, Kohl's, those are our three largest customers.

Rick Patel - CLSA

Great. Thank you very much.

Michael Dennis Casey - Carter's, Inc.

You're welcome.

Operator

And we go next to Janet Kloppenburg with JJK Research.

Janet J. Kloppenburg - JJK Research

Good morning, everyone and congratulations. Just a couple of quick questions, given the picture on the international customer, maybe you have always said but I'm not sure what your outlook is for that for the outlet business in the International segment in fiscal 2017? And then, lastly, your SG&A grew about 10% last year. I believe your guidance assumes that operating margin will be up in fiscal 2017 year-over-year, but I'm just wondering, if we'll see more of that from gross margin as close to SG&A or if there will be some contraction in the growth rate of the SG&A. Thank you.

Richard F. Westenberger - Carter's, Inc.

Janet, on the dynamics of the P&L, we are expecting very good gross margins expansion. I would say, healthy SG&A growth in 2017, but really driven by our investment agenda. Boil it all together, we are hoping for some moderate expansion in operating margin in the core business and we will see what the impact is with Skip Hop over time, but in the core business we are planning for operating margin expansion.

Brian J. Lynch - Carter's, Inc.

In terms for international customers, we have seen a nice rebound in international customers on our websites, improved in Q4. It's actually been up of late, so we feel good about that. We feel that's come back and just to reiterate what Mike had said, in our stores it's a little bit of a different story, primarily still down but primarily in the southern border stores, bordering Mexico. Our Florida stores are doing better. Those are very big stores and are performing well. But the border stores – bordering Mexico have been declining and we're going to continue to keep an eye on that.

Janet J. Kloppenburg - JJK Research

Thanks so much.

Operator

And with that, ladies and gentlemen, we have no further questions on our roster. Therefore, Mr. Casey, I will turn the conference over to you for any closing remarks.

Michael Dennis Casey - Carter's, Inc.

Well, thank you all for joining us on the call this morning. We appreciate your questions and your interest in our business and look forward to updating you again on our progress in April. Goodbye, everybody.

Operator

And ladies and gentlemen, this will conclude today's conference. Thank you for your participation. You may now disconnect.

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