Earnings Call Transcript - CRI Q3 2021

Operator, Operator

Welcome to the Carter’s Third Quarter 2021 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’ll take questions as time allows. Carter’s issued its third quarter 2021 earnings press release earlier this morning. A copy of the release and presentation materials for today’s call have been posted on the Investor Relations section of the company’s website at ir.carters.com. Before we begin, let me remind you that statements made on this conference call and in the company’s presentation materials about the company’s outlook, plans and future performance are forward-looking statements. Actual results may differ materially from those projected. For a discussion of factors that could cause actual results to vary from those contained in the forward-looking statements, please refer to the company’s most recent annual and quarterly reports filed with the Securities and Exchange Commission, and the presentation materials posted on the company’s website. On this call, the company will reference various non-GAAP financial measurements. A reconciliation of these non-GAAP financial measurements to the GAAP financial measurements is provided in the company’s earnings release and presentation materials. Also, today’s call is being recorded. And now, I would like to turn the call over to Mr. Casey.

Michael Casey, CEO

Thanks very much. Good morning, everyone. Thank you for joining us on the call. Before we walk you through the presentation on our website, I’d like to share some thoughts on our business with you. We’re in the final week, so the much stronger year in recovery than we had forecasted earlier this year. Our fourth quarter is off to a good start, whether it’s turning cooler, Christmas shopping’s underway and we’re seeing strong demand for our brands across all channels of distribution. For the past 20 months, we’ve worked our way through a hopefully once-in-a-lifetime global pandemic. We were faced with store closures and school closures, travel restrictions and lockdowns, high unemployment and shipping delays. Like other challenges in years past the financial crisis back in 2008, the Great Recession that followed, and the cotton crisis in 2011, Carter’s employees used these periods of disruption to strengthen our company and emerge stronger from them. Forecasting sales this year at about 98% of the pre-pandemic level in 2019. Over the past two years, we’ve intentionally edited out lower margin sales. We focused our product offerings on fewer, better and higher margin choices and reduced SKUs by about 20%. We then increased the mix of higher margin, longer lifecycle products, including our new organic brand Little Planet and our Bold Basics product offering. We ran leaner on inventories and reduced low-margin clearance and off-price sales. Relative to 2019, our sales forecast this year reflects the closure of over 100 low-margin retail stores, a $50 million reduction in clearance sales, a nearly 50% reduction in low-margin off-price sales and lower demand from international guests who were historically drawn to our low-margin clearance sales. By focusing on higher margin products, closing low margin stores, running leaner on inventories and focusing our marketing investments on brand building versus promotions, we significantly improved price realization and margins this year. Given the collective benefit of structural changes made to our business over the past two years, we are raising our earnings guidance this morning and projecting a record level of profitability for the year. We believe the fundamental changes made to our business are producing earnings and margins that are sustainable. Earlier this year, we shared our longer-term growth objectives with you. Those projections are now being revised based on the progress we’ve made this year. We’ll firm up our revised growth objectives in the balance of the year and share them with you early next year. Those projections will reflect the benefits from improvements in our business, any emerging macro factors that may be helpful to us. There are multiple signs of a robust recovery in the post-pandemic period. Americans at all income levels have more savings than the pre-pandemic period. Wages are rising, not from government mandates, but through supply and demand. There are more job openings today than people seeking jobs. In Carter’s, we are seeing a favorable trend in job applications. The latest CDC data reflects an increase in births in the second quarter. Growth trends are far better than projected this year. And weddings, many postponed during the pandemic, are projected to increase to a near 40-year high next year. It is expected that some portion of the spending plan proposed by Congress will be approved. A meaningful portion of that proposed legislation is focused on helping lower and middle-income families, including enhanced child tax credits, childcare and universal pre-K for three and four-year-old children. This proposed legislation is focused on reversing a 13-year decline in U.S. births, which would be good for our country and our company. An improvement in birth trends could be a catalyst for Carter’s. Like every year, there are challenges we will continue to work our way through. We expect to be challenged by the lingering effects of the pandemic in the months ahead, including supply chain disruption and inflation. Production and transportation delays have increased since we updated in June and July. In recent years, we reduced our exposure to China due to tariffs and other rising costs. We shifted production to Cambodia and Vietnam given their higher capacity for growth and lower costs. Cambodia and Vietnam now produce over 50% of our unit volume. By comparison, we source less than 10% of our products from China. We believe that this shift in production will serve us well in the years ahead. That said, Cambodia and Vietnam have lagged China in terms of vaccination rates and on-time production. With broader access to vaccines in the months ahead, we expect on-time performance to improve next year. Transportation delays have weighed on the growth that was otherwise possible this year. Bottlenecks in the U.S. ports affected our third quarter sales and have increased the risk of wholesale order cancellations in the balance of this year. We’ve reflected that risk in our fourth quarter forecast. To put the current challenge in perspective, we’ve seen up to 20-day delays getting our products through the West Coast ports. There’s been a 30% increase in shipping container volume this year, by comparison, trucking capacity is up only 8%. Thankfully, jobless claims are at a pandemic low. With more people getting back to work, backlogs at the U.S. ports and on-time deliveries are expected to improve. In recent months, we’ve invested an unprecedented level of airfreight to expedite the receipt of essential core products to serve the needs of families with young children. We focus that effort on product offerings for our largest wholesale customers who supported our brands during the most challenging periods of the pandemic. With only eight weeks ago before Christmas, the selling windows are shortening. We are proactively engaging our wholesale customers and together deciding what products to ship in the balance of the year, which products should be packed and held over to next year and what orders should be canceled. Transportation delays may moderate in the months ahead. Historically, the peak shipping volume is from July to October. The post-holiday shipping period may give the dock workers and truck drivers time to catch up as we head into the spring season next year. Transportation rates will be higher heading into 2022; we have negotiated and locked in higher but very favorable freight rates with our suppliers and have largely avoided the abnormally high spot market rates for ocean containers. Inflation will impact our product cost next year. Our suppliers are raising their prices to help offset higher cotton and polyester prices. We’re planning a mid-single-digit percentage cost increase for our spring and summer product offerings. We’ve raised our prices by a similar percentage and our wholesale customers have agreed to those increases. To put it in perspective, a mid-single-digit wholesale price increase is about $0.30 per unit. Based on our market analysis, we believe we will be competitive on pricing next year, and we’ll continue to offer a compelling value to families with young children. For the year, we expect our retail business will drive nearly half of the growth in our total sales. Our stores are expected to be the highest contributor to our annual revenue this year with store sales projected to exceed $1.1 billion. So a very strong recovery and back-to-school sales and good demand for our older age segment product offerings. The profitability of our stores is forecasted to grow by over 30% relative to 2019 on nearly $150 million less revenue, driven by our reduction in SKUs, closure of low-margin stores, leaner inventories, fewer clearance sales and improved price realization. Carter’s has the largest e-commerce platform focused exclusively on young children’s apparel. Our U.S. e-commerce penetration is forecasted to be nearly 40% this year, up from less than 32% in 2019. Relative to 2019, our e-commerce business has been our fastest growing and highest margin business. We’ve invested significantly in technology in recent years that has provided consumers with the convenience of shopping online, the ease of same-day pickup of those orders in our stores and access to the full scope of our product offerings with easy online shopping in our stores. With our investment in RFID capabilities, we’re expecting higher productivity of inventory and faster shipping by leveraging over 70% of our stores to fulfill online orders. Increasingly, our stores are providing a higher service level to our margin-rich online customers. Year-to-date, nearly 30% of our online orders were fulfilled by our stores. Consumers who shop both online with us and in our stores are our highest value customers. They spend nearly three times more a year than our single-channel customers. Carter’s is a traffic driver for shopping centers. Given the consumer staple nature of our business with children rapidly outgrowing their outfits in the early years of life, our brands drive frequent visits by families with young children. We’ve seen the benefit of a more favorable rental market in our lease negotiations this past year. Our average remaining lease term is less than 2.5 years, which gives us the flexibility to negotiate better rates or exit the site. We renegotiated over 25% of our leases this year and over 70% of those renewals were at a lower cost. Given the more favorable rental market, our real estate team is pursuing opportunities to open more stores than previously planned. Our focus will continue to be exiting low-margin stores upon lease expiration and opening higher-margin stores in centers located in densely populated areas with good co-tenancy, a high return on investment and the flexibility to exit if our investment objectives are not met. We’ll firm up our store opening plan in the balance of this year and share the revised growth plan with you in February. Our wholesale business is forecasted to be the second largest contributor to the sales, to our sales this year. The largest component of our wholesale sales and earnings growth is expected from our flagship Carter’s brand, which was affected by store closures last year. Demand from our wholesale customers this year exceeded our ability to support that demand and because of supply chain delays. That said, we believe we’ll have the inventory needed to support our growth objectives this year. Our total wholesale sales this year are not expected to be back to the 2019 level. Some of our wholesale customers were more conservative with inventory commitments due to pandemic-related uncertainties. That said, with leaner inventories, these retailers are experiencing higher sell-throughs and margins this year. Relative to 2020, we’re forecasting higher wholesale margins and nearly 20% earnings growth for our wholesale segment this year. Our wholesale margins will be affected by higher airfreight costs in the second half. Going forward, our annual freight costs are expected to be a fraction of the nearly $40 million investment we’re planning this year. We are the largest supplier to the largest and most successful retailers in North America. No other company in children’s apparel has the scope of distribution we’ve built over the past 20 years with our brand sold in over 19,000 store locations and on the largest, most successful online platforms. Together with our wholesale customers, the online sales of our brands this year have exceeded $1 billion, up over 50% compared to 2019. We’re also seeing a strong recovery in our international sales and profitability. International sales are projected to exceed 13% of our annual sales this year, which would be a record level of sales and profitability. Our operations in Canada are expected to contribute the largest component of our international sales and earnings. We have the largest share of the children’s apparel market in Canada, more than twice this year our nearest competitor. Despite extensive COVID-related store closures in the first half, our sales in Canada are projected to be up 16% this year, including over 10% growth in store sales and nearly 30% growth in e-commerce sales. In Mexico, we are executing the same strategy that served us well in Canada and the United States. We are converting all of our stores in Mexico to the more productive and more profitable co-branded model with the very best of our Carter’s, OshKosh and Skip Hop brands. Like Canada, we built a multi-channel model in Mexico with e-commerce and wholesale distribution capabilities. Wholesale distribution is an important component of our international growth strategy. Our brands are sold in over 90 countries through wholesale relationships, including Amazon, Walmart, and Costco. We expect our international e-commerce sales to exceed $100 million this year, more than double the pre-pandemic period. In summary, we’re emerging from the pandemic as a stronger and more profitable company. We’ve made substantive and sustainable structural changes to our business, which we believe will enable us to build off a higher level of profitability in the years ahead. Carter’s is best-in-class in the young children’s apparel. Our brands have withstood the test of time in many market disruptions over the past 100 years. We’ve served the needs of multiple generations of families with young children and believe we’re well-positioned to benefit from the post-pandemic market recovery. I want to thank our nearly 20,000 employees worldwide who have made our strong recovery possible this year and their commitment to ensure that Carter’s continues to provide the very best value and experience in young children’s apparel. Richard will now walk you through the presentation on our website.

Richard Westenberger, CFO

Thank you, Mike. Good morning, everyone. I’ll begin on Page 2 with our GAAP income statement for the third quarter. Net sales were $891 million, up 3% from last year. Reported operating income was $124 million, up 9%, and reported EPS was $1.93, up 4% compared to $1.85 a year ago. Our third quarter results for 2021 and 2020 included unusual items, which we summarized on Page 3. We’ve treated these items as non-GAAP adjustments to our reported results to enable greater comparability and insight into the underlying performance of the business. The adjustments were not meaningful in this year’s third quarter. Last year’s adjustments totaled $6 million in pre-tax expenses. As I speak to our results on an adjusted basis today, these unusual items are excluded. Page 4 summarizes our third quarter performance over the past three years. As Mike noted, while we saw a strong demand for our brands in the third quarter, top-line sales performance was constrained by delays across the global supply chain. These delays had a particular impact on our U.S. wholesale business, where we’ve estimated we achieved about $70 million less in sales than we had planned. Despite this challenge, better than planned gross margin and expense management enabled us to exceed our earnings objectives. For the third quarter, we posted a record gross margin rate and gross profit dollars. Our adjusted operating margin was also strong at nearly 14%. As shown in the chart, despite lower revenue, we exceeded our 2019 pre-pandemic profit performance in 2021. Given our strong liquidity and improved profitability, we resumed share repurchases in the third quarter. When including dividends paid, our cumulative return of capital to shareholders through the third quarter was $145 million. Moving to Page 5 and our adjusted P&L for the third quarter, building on the 3% growth in net sales, gross profit grew 7% to $409 million, and gross margin improved by 150 basis points to 45.9%, both records as I’ve mentioned. Our gross margin expansion was driven by strong consumer demand and less promotional activity, which resulted in improved price realization. These benefits were partly offset by higher freight charges, particularly air freight and the unfavorable comparison to last year’s third quarter release of inventory reserve. Royalty income was down about $1 million. Last year’s third quarter was particularly strong as shipments of licensed products surged as stores reopened. On a year-to-date basis, royalty income has grown by 13%. Adjusted SG&A increased 7% to $293 million. Compensation provisions, which were significantly curtailed a year ago in response to the pandemic, were higher, as was spending on brand marketing and technology initiatives. Spending was lower than we had planned and was well controlled. The organization did a good job cutting back and deferring spending where possible, especially as the outlook for delays in the receipt of inventory became more pronounced. Adjusted operating income was $124 million, up 4% compared to last year, and adjusted operating margin improved 10 basis points to 13.9%. Below the line, there were a couple of factors which reduced the flow-through of year-over-year growth in operating income. First, we had a modest FX-related loss in the quarter compared to an FX gain a year ago. Second, our effective tax rate was higher than last year, 21.6% compared to 19% in last year’s third quarter. This increase reflects a greater mix of U.S.-based income and higher non-deductible compensation expense relative to last year. For the full year, we’re forecasting an effective tax rate of approximately 23% versus around 19% last year. Our average share count was consistent year-over-year; while we executed meaningful share repurchases in the quarter, it takes some time for that benefit to be reflected in the average share count used in calculating EPS. So on the bottom line, adjusted earnings per share were $1.93 compared to $1.96 in last year’s third quarter. Moving to Page 6 with a recap of our balance sheet and cash flow. Our balance sheet and liquidity remained very strong. We ended the quarter with nearly $950 million in cash and total liquidity of $1.7 billion when including available borrowing capacity under our credit facility. Quarter-end net inventories were 12% higher than last year. At quarter-end, we had $272 million of in-transit inventory, an increase of over 100% versus a year ago. As we’ve said, production and transportation delays in the supply chain have been extensive in our business, as they have been for many others as well. We believe our inventory quality is very good, and we’re well-reserved for known issues. We’re projecting that year-end inventories will also be up low double digits, reflecting plans to bring in product earlier to offset potential transportation delays and given good demand planned in the first half of next year. Year-to-date cash flow from operations was $7 million compared to $319 million last year. Last year was a very unusual year, given the significant extension of vendor payment terms and rent deferrals. This year’s cash flow is benefiting from our growth and earnings, but the changes in working capital, including higher inventory, are working against us. As the business continues to recover from the pandemic, we expect to return closer to our historical profile of generating significant operating and free cash flow. As a reminder, our operating cash flow in 2019 was nearly $400 million. We resumed share repurchases in Q3, buying back $110 million of our stock. Share repurchases under our current trading plan have continued in the fourth quarter, bringing cumulative repurchases in 2021 to just over $190 million. This brings our cumulative return of capital year-to-date, including dividends to over $200 million. Turning to Page 8 with a summary of our business segment performance in the third quarter. Our U.S. Retail and International segments delivered top-line growth and good margin expansion, particularly our U.S. Retail business. Our U.S. Wholesale business was disproportionately affected by the late receipt of product and higher freight costs, both of which weighed on sales, and especially segment operating income. The increase in corporate expenses is largely attributable to higher compensation expense, given our strong performance this year and the comparison to last year when many aspects of compensation had been curtailed. All in all, our consolidated adjusted operating margin improved to 13.9%. Our year-to-date performance is summarized on Page 9. We’ve had very strong growth in book sales and earnings in 2021 as the business has rebounded. Year-to-date sales are up 19%, and our profitability is up significantly with adjusted operating income growth of 171% and our adjusted operating margin expanding to 15%. Year-to-date profitability in all of our business segments is up meaningfully.

Brian Lynch, President

Our retail team did a great job managing through the quarter, delivering sales growth and even more significant profit improvement. Delays in inventory receipts also affected our retail business. The team was able to creatively and effectively manage with the inventory available to them and create compelling product presentation and promotional strategies that drove these great results. Net sales in our U.S. Retail segment grew 4% with comparable sales growing nearly 6%. With schools resuming in-class instruction this year, we saw a nice recovery in back-to-school demand. We achieved double-digit comp growth over the Labor Day selling period, with strong growth in our Big Kid sizes and playwear product categories. U.S. Retail profitability improved meaningfully in the third quarter. Our Retail team continued to make good progress in expanding gross margin through more effective pricing promotion and inventory management. Additionally, the strong retail comp sales performance in the quarter allowed us to leverage the fixed costs of the business. Regarding fixed costs, our store optimization program has allowed us to eliminate about $30 million of annual costs related to low-margin stores, which we’ve now closed.

Richard Westenberger, CFO

On Page 11, we have several significant technology initiatives underway in Retail currently, two of which we’ve summarized here. First, we’re in the process of replacing our point of sale system in the stores. This initiative includes both new software and the replacement of legacy hardware in the stores. This new POS is expected to drive a number of benefits, including a significant reduction in checkout times. Our initial experience has indicated it is as much as 50% faster. The new POS will also better integrate the store and e-commerce experiences for consumers and ultimately enable some of the innovative initiatives we’re planning and marketing, including personalization. These marketing personalization capabilities are intended to drive stronger, more enduring and more profitable relationships with our customers. On our last call, we told you about our RFID initiative. We’ve completed the initial deployment of RFID tagged inventory to our stores and have conducted extensive training with our Retail team. It will take until next year for all of our store inventory to be tagged, but we will start to realize some of the benefits of this technology right away, including improved visibility to store level inventory, which will enable greater store fulfillment of online orders. Our Retail field team is very excited about this new technology and what it will mean in terms of better serving customers, in addition to the numerous operational and profitability benefits we believe it will drive over time.

Michael Casey, CEO

Now turning to Page 12 and some of our Carter’s marketing in the third quarter. One of our core strategies is to win in Baby. Baby is the core of the Carter’s brand and we enjoyed significant credibility with consumers, having served generations of families with young children, especially those with new babies. We understand the challenges that come with welcoming a new baby. Our research has told us that most new parents are looking for reassurance that they’re on the right track. Our marketing team recently created the Made For This Carter’s brand campaign. This highly emotional spot features a mother, now a grandmother, speaking to her daughter who has just had her first child. We’ve received great feedback and engagement from consumers so far. We’ve included the link to the video and encourage you to watch it. Our marketing team recommends that you have some tissues nearby when you do. Our Carter’s marketing also increasingly speaks to consumers shopping for older children. Our objective is to meet the needs of parents shopping for up to about a ten-year-old child and to increase the lifetime connection and value of our customer relationships. Sales of these older age range products have driven meaningful sales growth in our Retail business in recent quarters and we’re our fastest growing product segments in the third quarter. Turning to Page 13 in the OshKosh brand, back to school is a key selling period for OshKosh. As expected with the return of in-person learning in most of the country, we had planned for a good back-to-school season and that’s what we delivered, especially with OshKosh. As we told you on our last call, we kicked off back to school with a new OshKosh brand campaign, Someday is Today featuring icons, Mariah Carey, Muhammad Ali, and Outkast. This campaign resulted in $2.5 billion earned media impressions and a strong lift across all key brand metrics. As a fast follow to the campaign, we’ve partnered with leading fashion house Kith to present its first-ever kids’ brand collaboration, blending OshKosh’s iconic heritage and timelessness with Kith's modern aesthetic and edge to reintroduce the brand to parents in a whole new light. Turning to Page 14, holiday is underway and we’re pleased with early demand so far. Given the challenges of last year, including the COVID surge late in the year, which kept many families apart for the holidays, we think consumers are in a celebratory mood this year. Our holiday messaging this year will emphasize families celebrating together. And this spirit on Page 15, in addition to beautiful holiday products, we’re continuing to develop new and innovative ways to draw consumers to our stores and to our award-winning website. Throughout the holiday season with exclusive giveaways and child and parent-focused experiences. First up is a one-of-a-kind collaboration with Vistaprint, where customers can order their annual holiday cards with a backdrop showcasing Carter’s signature PJ prints. Family dressing, especially in Carter’s iconic Christmas pajamas, has been a very strong trend in our business for the last several years and this Vistaprint collaboration is a new way to extend and enhance this touchpoint with consumers. On Page 16, we’re continuing to leverage social media as a key way to connect with parents. We’ve recently expanded into new social channels, such as TikTok, and we’ve increased our video content as we continue to increase our relevance to and connection with today’s parents, especially those from Gen Z. This strategy continues to pay dividends as we captured over 70% of kids’ apparel social engagement on Instagram in Q3 and continued to grow our community of parents.

Richard Westenberger, CFO

Moving to Page 17, in our U.S. Wholesale business. Wholesale segment net sales were $294 million compared to $302 million in last year’s third quarter, a decline of 3%. We’ve talked a lot about late inventory receipts and wholesale was our most affected business in this regard. The baby category is heavily penetrated in our Wholesale business, and much of this product is manufactured in Cambodia and Vietnam. Two countries heavily affected by COVID. As such, inventory availability was particularly acute in this part of our business. Because of these inventory issues, we realized about $70 million less in Wholesale sales in the third quarter than we had planned, with these orders rolling from Q3 into the fourth quarter. Fortunately, the majority of this $70 million has now shipped. Our customers remain hungry for inventory. And today, we’ve not seen any meaningful customer order cancellations. The risk of order cancellations remains elevated though, particularly if delays of fall, winter, and holiday products persist or worsen, as we move deeper into the fourth quarter. Relative to our previous forecast, we have increased our estimate of shipments previously planned to occur in the fourth quarter, which will be affected by late arriving products. We’re expecting fourth quarter Wholesale sales to be up mid to high single digits over last year. Our supply chain and Wholesale teams have worked around the clock for many months now in very adverse circumstances to serve our customers in the most complete and efficient manner possible. Bright spots in the third quarter included good overall sales growth with our exclusive brands and strong replenishment demand for our core My First Love baby products under the Carter’s brand and the replenishment components of the exclusive brands businesses.

Michael Casey, CEO

I think we’re making assumptions on, obviously, what’s going to move into the fourth quarter and what’s going to ship versus cancel. And as I said, we’ve got a really good order book for Q4, but in our guidance reflects that we may have some additional cancels or products that we end up packing and holding for next year. For the full year, we were not planning on getting all the way back to 2019’s level for wholesale. And some of that is by design in terms of not driving as much off-price channel activity that we had back then. So it’s a little dated the comparison to 2019. We are going to have good growth year-over-year over 2020. So this will be a multi-year recovery as Mike described it in the past. It gives us more opportunity to build back over time. We view 2021 as a new base to grow off of. So the models we’re putting together show good growth in sales and profitability off the 2021 base. A lot of these changes were accelerated. We always envisioned there was an opportunity to run leaner on inventory. And some of those initiatives were well underway before the pandemic hit. Our retail team was buying about 90% of their forecast for memory for fall 2019. So some of these disciplines were in place, but running leaner on inventory, editing out low-margin clearance sales, and improving price realization. That’s been one of the more significant changes that we’ve made in our business and that our merchandising design team edited out lower margin SKUs focused on longer life cycle products that don’t wind up on the clearance rack after 13 weeks. So a number of those structural changes we’ve made in the business, which I would say are substantive and give us a benefit in the years ahead.

Tom Nikic, Analyst

I wanted to follow up on the gross margins. I think it sounds like a lot of the gains that you expect to keep. I kind of want to talk about the seasonality of it. I think this year, 2021, 1H gross margins were really exceptional. And I think 2H is going to be a little bit more modest, more like in the mid-40s. Do you kind of think, like, you get back to a more normal seasonality in future years, where it’s a little more evenly spread between first half and second half? Or do you think that, if you look out to 2022, you’ll hold some of those exceptionally strong gross margins in the first half of the year.

Richard Westenberger, CFO

I would say there’s certainly a seasonality in the business. And the comparisons for the last 18 months have been really challenging because you have things moving around. You have ordered timing differences between the quarters; wholesale orders can move significantly between quarter-end dates and create issues. I guess, the way I’d answer your question is we expect to build on the progress that we’ve made this year. These are, as we’ve turned to structural, fundamental changes we’ve made the business. We think we’re running a stronger business.

Michael Casey, CEO

Thank you, Tom. I appreciate your insight.

Operator, Operator

That concludes today’s question-and-answer session. Mr. Casey, at this time, I will turn the conference back to you for any additional or closing remarks.

Michael Casey, CEO

Okay. Thanks very much. Thanks for joining us this morning. We appreciate your interest in the company. Look forward to updating again on our progress in February. Until then, best wishes to all of you and to your families over the holidays. Goodbye, everybody.

Operator, Operator

This concludes today’s call. Thank you for your participation. You may now disconnect.