Good day, everyone, and welcome to Carter's Third Quarter Fiscal 2013 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 of Investor Relations and Treasury. [Operator Instructions] Carter's third quarter -- Carter's issued its third quarter fiscal 2013 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, and 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 quarterly report on Form 10-Q filed with the Securities and Exchange Commission. Also 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. Please go ahead, sir.

Thank you very much. Good morning, everyone. Thanks for joining us on the call this morning. Before we walk you through the presentation on our website, I'd like to share some thoughts on our business with you. In the third quarter, we continued to outperform the market. We achieved a record level of sales and profitability, saw a higher demand for our Carter's' brand in all channels of distribution, meaningfully improved the profitability of OshKosh and gained market share. We also improved our capital structure in the third quarter by adding low-cost leverage, which funded an accelerated share repurchase plan. Our Carter's wholesale business drove the largest portion of our growth in the quarter, with sales up 16%. We saw higher demand in all 3 product markets: Baby, Sleepwear and Playwear. The core of our Carter's brand, our Baby business, continues to be our best performing product offering. Our wholesale growth in the quarter reflects high-single-digit growth in fall bookings, variable replenishment trends and the timing of shipments. Year-to-date, our wholesale sales are up about 6%, and we're expecting about 5% growth for the year. We continue to partner with our largest wholesale customers to invest in brand presentation. We view these investments as an important component of our brand marketing. Our objective is to help drive traffic to our wholesale customer stores with the best presentation of young children's apparel in the market. Spring bookings provide visibility into the first half of next year. We currently plan mid-single-digit growth in Carter's spring wholesale shipments. On our next call in February, we should have visibility on fall demand and product costs, which will enable us to firm up our plan for 2014. We also saw strong demand for our Carter's brand in our retail business, with sales up 16% in…

Thank you, Mike. Good morning, everyone. Today's presentation materials are available on the Investor Relations portion of our website. I'll provide some highlights of our third quarter results and then comment on our expectations for the fourth quarter. Beginning then on Page 2, we delivered very good performance in the third quarter with strong top line results and solid growth in adjusted earnings. Net sales grew 14% compared to last year. This growth was led by the Carter's brand across all of its channels and our international business. Overall, unit growth drove our top line in the third quarter, with unit sales up 13% and average pricing up about 1%. Our adjusted earnings per share grew 10% to $1.12. This was ahead of our expectations, and we've estimated $0.03 to $0.04 of the outperformance to our forecast reflects favorable timing of some net sales and expenses favorability, which we expect to give back in the fourth quarter. Page 3 summarizes the drivers of our third quarter sales growth. Total Carter's domestic sales grew 16%, driven by good growth across our wholesale, retail store and eCommerce businesses. We had a great quarter at Carter's wholesale where sales growth was also at 16%. Third quarter sales benefited from approximately $4 million of volume that we had previously forecasted to fall in the fourth quarter but occurred in the third quarter due to strong customer demand. Third quarter OshKosh domestic sales were comparable to last year. eCommerce sales were strong at plus 39%. Retail comparable store sales grew 1%, which represents our best performance in several quarters. International sales increased 21% in the third quarter, driven by solid growth across the wholesale, Canadian retail and eCommerce components of this segment. Our new Japanese retail business contributed nearly $4 million in net sales in…

[Operator Instructions] And for our first question, we go to Scott Krasik with BB&T Capital Markets. Scott D. Krasik - BB&T Capital Markets, Research Division: Richard, can you just update us on where you are in terms of using third parties to facilitate any of your eCommerce business? And you referenced that the operating margins have been running about 20%. Where do you think that goes once you are fully in-house and you get the sales growth you expect next year?

Well, the most significant components of supporting the eCommerce business that were outsourced have now been insourced, and that includes the fulfillment function and now the order management system. That was a big transition that we effected in the third quarter. We have taken direct control of some of the other relationships, the website platform and such. And that -- while that is still a third party, we're managing it directly, which we think brings some efficiencies and some cost savings. I think the outlook for margins in eCommerce are good. I won't be precise about where they're going to go, but we expect them to go higher, certainly, as the business continues to ramp in its top line. The next step function of opportunity in terms of the cost structure is the more automated solution in our distribution center. Right now, it's a fairly manual approach to the fulfillment activities for eCommerce. And once all of the great automation and conveyor equipment, sortation equipment and such comes online in the new distribution center, that should meaningfully lower the fulfillment cost even further. So we're bullish on the outlook for the margin structure of the eCommerce business. Scott D. Krasik - BB&T Capital Markets, Research Division: What's the time frame then in terms of automating the system within the distribution center?

I'd say the middle part of next year. Scott D. Krasik - BB&T Capital Markets, Research Division: Okay. And then in terms of the OshKosh margin improvement, I mean, is this something that even though your modeling, especially wholesale sales, negative in the first half of next year, we should see similar margin improvement next year as well?

I think it's too early to comment on specifics on 2014, Scott. We're still working through those plans. I think OshKosh and Carter's, both have some headwinds as it relates to product cost. As Mike said in his comments, we're cautious on the outlook for labor inflation in Asia and working through what the net effect of that will be on our results for '14. Scott D. Krasik - BB&T Capital Markets, Research Division: Okay. And then Richard, you just left out -- you mentioned performance comp will be down in Q4. Was it up or down in Q3 year-over-year?

We had a slight benefit in Q3.

And for our next question, we go to Taposh Bari with Goldman Sachs.

I had a question about the revenue guidance. So you're taking out your revenue guidance for the fourth quarter, yet it seems like you're reiterating the Carter's and OshKosh wholesale estimates for the fourth quarter. And you spoke to a choppy start to the quarter on the retail front. Just trying to get a better sense of what's driving that revised revenue guide for the fourth quarter.

Well, we do have some timing issues as we referenced, Taposh. There is some volume that shifted into Q3 from the fourth quarter. On balance, I think we're bullish still despite the kind of soft start to October. We're bullish on the contribution that will come from our direct-to-consumer businesses, eCommerce, Retail, International. Those should contribute nicely. And so just more confidence, I'd say, that we'll be at the higher end of that full year range that we talked about.

Okay. And then Richard, this $0.03 to $0.04 timing shift, can you help me better understand that? I'm just trying to get the -- trying to do the earnings math run. At $4 million, wholesale shift doesn't seem like -- it seems like it's maybe $0.01 at that, so what else contributed to that timing?

Sure. That was some expense favorability and timing as well, Taposh. So that will move forward in the fourth quarter as well. So some expenses that we had planned to happen in Q3 will now, from a timing perspective, fall into the fourth quarter. That's the balance of the $0.03 to $0.04.

Okay. And then I wanted to ask you, just in terms of the way you guys disclose your store or your same-store sales, I think you're one of the last companies in retail to actually not include eCommerce. I think if you would actually include eCommerce, your comps would've been closer to, I think, 7%, if you can correct me on that figure, and just curious to see where you guys stand in terms of how you're going to, I guess, provide that disclosure going forward.

Well, we track both metrics. And certainly, to the extent investors find that helpful, we're happy to share. We gave you the components so that it's possible to put the pieces together. I think you're right in your math. The direct-to-consumer comp, if you will, for Carter's would be something on the order of 7% and 5-ish or so for the OshKosh. So both brands continue to gain a lot of traction in the direct channels with consumers, and we're happy to see it.

Okay. And just one more for you, Richard. In just the fourth quarter guidance, if you could help me reconcile -- if I take the midpoint of your revenue guidance, I guess, a, what kind of share count assumption are you using for the fourth quarter? I'm assuming, I think, 54.5. But it looks like you're embedding roughly a 50 basis point -- 50 basis points of compression to operating margin. I'm just trying to get a better handle of the components there. I know there is a lot of noise in the third quarter in terms of the marketing shift and also the airfreight. If you can help us kind of parse out those line items, that would be helpful.

Well, I'm not sure how much parsing I'll do. We expect good growth in net sales. I think gross margin, we're starting to see a bit more of the headwinds from product cost being a bit higher. So that's a bit of a change between Q3 and Q4. So we start to ship that spring '14 product, so expect little bit of pressure there. You do have the timing issues that I referenced, which are pressuring the previous forecast on spending, in particular in the fourth quarter. So on balance, we're expecting good revenue growth, good earnings growth for the fourth quarter. I wouldn't say it's meaningfully different than our previous outlook. There are some timing shifts between quarters, but on balance, we expect it to be a good quarter. Share count will be somewhat of a benefit. There's probably $0.01 or $0.02 net benefit from the capital structure work in the fourth quarter that's embedded in our guidance as well.

In the fourth quarter, we're starting to see a little bit of the spring -- impact of higher spring product costs. I think the last forecast I saw, I think the product costs are going up a little over 4% and our pricing is going up some portion of 4%. So I think there's a spread between pricing and unit cost in the fourth quarter.

And we go next to Susan Anderson with FBR. Susan K. Anderson - FBR Capital Markets & Co., Research Division: So I guess, I just wanted to touch a bit on OshKosh. Good job on the profitability there. But maybe if you could give a little bit more color on kind of how the malls are performing and the dual format, if you have any numbers around that yet, and just kind of any thoughts on -- for the brand going forward. It seems like wholesale is declining. So is it going to be more of a retail or online format? Just any thoughts you have there.

It's mostly a retail business. I think we're making good progress. The outlet stores showed good progress in the third quarter. This new side-by-side store initiative is showing promise. So a much more productive model -- store model than we saw with the mall store test. So we're -- you'll see us moving forward with the side-by-side store initiative as we roll into next year. I think by the end of this year, we'll have some portion of 24 of those new stores. If we hit the performance metrics on the first 24, it's likely we'll open up some portion of another 24 next year. I think we've had an opportunity to see the spring '14 product. We're selling that in -- shipping that out now in the fourth quarter. We've signed up on the fall '14 creative concepts within the last week or so. And so the thing that's been driving the performance is better product. We've got a talented merchandising and design team on it. And so we're optimistic about the future of OshKosh. I think we've made good progress this year. Our focus was improving profitability. I think we've achieved the objectives that we've had for improving profitability, so the arrow is pointing up on OshKosh. We're encouraged by the progress that we're making with it. Susan K. Anderson - FBR Capital Markets & Co., Research Division: Okay, great. And then on the comps. So I think you said that October had started off negative, but it sounds like over the past week it's improved. Is it now turning positive? I guess, I'm just trying to get a sense because you are up against a tougher compare in the fourth quarter, your expectations for the quarter, given the environment out there is pretty tough.

Yes. Look, for the quarter, we're expecting positive comps for both brands. We typically model to be low-single-digit comp store growth. I think, as of this morning -- we've seen this morning's results. I think as of yesterday, we're just still slightly negative for both brands, slightly negative. Susan K. Anderson - FBR Capital Markets & Co., Research Division: Okay. Great. And then just one housekeeping item. Is the accelerated share repo in the guidance or is that like something that's additional?

That's included in the guidance, Susan.

And we go next to Stephanie Wissink with Piper Jaffray.

This is actually Maria Vizuete on for Stephanie Wissink. We're just wondering if you can provide a little bit of color maybe on the OshKosh brand at Target and how that's trending.

Good question. We were out with Target within the past month. They're very pleased with the Genuine Kids brand, its performance. It looks great on the floor. And we structured a new arrangement with them this past year, and I think they're seeing better performance with the brand. We're seeing higher profitability from that new model.

Great. And then if you could just talk a little bit about the inventory from a perspective at retail and kind of how that reconciles with your current quarter-end inventory levels?

It's Brian. A couple of things. In our stores on direct channel, our inventories are in good shape. Within the quarter we were down low-single digits in inventories. So we feel like, we're in good shape going into Q4. Out there in Wholesale, I would say the accounts are pleased with our performance thus far in fall. There's modestly slower over-the-counter selling based on some of the traffic slowdowns in September and early October with the macro factors that we mentioned before. I wouldn't say inventories are a concern at this point. However, there's a good amount of selling still to come for holiday, so that's always a risk out there. But we're monitoring it closely. We feel good about the opportunities for holiday, and we have accounted for any order movement or discount needs within our guidance in Q4.

And we'll go next to Anna Andreeva with Oppenheimer. Anna A. Andreeva - Oppenheimer & Co. Inc., Research Division: I had a follow-up on the fourth quarter guidance. I guess, are you expecting gross margins to be up for the quarter, just given some of the comments on higher sourcing cost? And then just looking out to 2014, obviously, we've had 2 very strong gross margin years for you guys. Maybe talk about some of the puts and takes on the gross margin line. I guess, do you think the magnitude of the eCommerce and supply chain initiatives offset some of the higher sourcing next year? And then also, maybe also talk about some of the initiatives in retail looking into the fourth quarter, just to ensure positive comps and, obviously, difficult landscape out there. And how should we think about your promotional activity in the fourth quarter?

Okay, Anna. Fourth quarter margins -- the gross margins, typically, we see a step up sequentially from the third quarter to the fourth quarter. We expect that will occur again this year. That's largely the benefit of the mix shift occurring that, in the fourth quarter, the direct-to-consumer businesses are a bigger piece of the pie than they are in the third quarter. So sequentially, I do see some improvement. In terms of year-over-year performance in the fourth quarter, I'd say gross margin's expected to be flattish to down slightly, and the difference would be the effect of the higher product cost that we're starting to see for the spring '14 product. I think for 2014, we've already sourced the spring assortment where product costs are up. Fall 2014, we're still in the process of sourcing those products. I think we have an indication that we're seeing a continuation of the trend towards product cost inflation, but we don't know with precision yet what those costs are going to be. So for full year, I think probably too early to comment in a lot of detail around 2014 gross margins. But we are concerned a bit around the trends towards product cost inflation. We'll do what we can in terms of pricing and other margin initiatives. We have a lot of good things underway to manage the supply chain, to drive improved productivity. This distribution center that we're standing up here in Georgia is an enormous investment for us, but we think it's worth it given the efficiency opportunities that will come with it. So that, along with other inventory management opportunities, pricing initiatives, promotional strategies, we feel pretty good about what the long-term outlook will be. But short term, we're facing some headwinds on the product cost front.

In terms of the holiday marketing plans for our stores, I would first -- well, I think we're in a great inventory position going into the season, particularly in OshKosh, a better inventory position than last year. We've got strong promotions for Q4 to drive traffic and communicate that we've got the best value in young children's apparel. I would say the promotional activity will be comparable to last year. We've got beautiful holiday catazines. OshKosh is hitting homes this week. Carter's is going to hit the homes next week. We've all been out as a management team and have seen the holiday store sets. They're beautiful. I think the stores are going to look spectacular for holiday. We're going to continue some of the things with last year's successful holiday rewards program and leveraging our database to target consumers with the great offers that we do have. We're going to be also looking at some local marketing where we have stores clustered in certain regions. So we're going to do some targeted local marketing to make sure that we can drive traffic. But we feel good about the holiday season and our chances to do well. Anna A. Andreeva - Oppenheimer & Co. Inc., Research Division: Okay, great. No, that's very helpful. And just a quick follow-up. On Carter's wholesale, I think excluding the shipments forward, sales were still up 14%. Obviously, very robust number. I think you guys guided for high-single digits previously. Just anything to call out there.

The third quarter was up about 16%. If you recall in the first half, the growth was much less than that, and we're expecting about 5% growth for the year. Year-to-date, the third quarter performance takes us up 6%. We're expecting about 5% growth for the year, which is fully in line with our growth objectives. We expect the Wholesale business to grow for us on portion of 3% to 5% a year on average. And so their performance this year is fully line with what our growth objectives are.

[Operator Instructions] We go next to Carla Casella with JPMorgan. Carla Casella - JP Morgan Chase & Co, Research Division: My question relates to the side-by-side stores. How many stores ultimately do you see you could get to the side-by-side format?

We're taking it a step at a time. We've got some portion of about a dozen of them open right now, and we're not in a sweat to open up stores that don't provide good returns to our shareholders. So we're pleased with the early progress, the response that the consumers were having to the stores. I'd encourage all to go out and see these stores. We're happy to give you the locations. And -- but we've been out in the stores, and we've spoken with the store associates, with the consumers and we're seeing a good response. Typically, the response that you hear when the consumer comes into the Carter's store is they say, "Geez, we didn't know OshKosh even had stores." Because most of the stores we have for OshKosh are in outlet center locations and only about 5% of young children's apparel is bought in outlet centers. So the whole objective is to bring the brand closer to the consumer in a beautiful format, attach it to Carter's. Carter's has natural traffic to its stores and enables us to offer them an assortment for the older child. So Carter's has a beautiful product offering for very young children. OshKosh product offering skews to the older child. So the side-by-side store initiative enables us to support what the original investment rationale was for OshKosh to acquire a wonderful, complementary brand to Carter's. And now we're making that product offering more convenient for the consumer. So we'll do 24 this year. And as I said, if we're happy with that performance, our guess is that we would do some portion of 24 stores next year and then we'll walk it up for them. What the ultimate potential is? Too early to say. We'll see how they perform, and we'll keep you posted on our progress. But we're very pleased with the store economics, much more profitable store format than we had been seeing with prior models. Carla Casella - JP Morgan Chase & Co, Research Division: And then is it -- are you having good opportunities on the real estate side? Or is the real estate market getting any tighter in terms of finding good locations?

Yes. Good question. There's plenty of real estate. It's actually become a significant point of interest with the property owners. They see it as a traffic driver to the centers. They see it as something that's unique, it's different. The consumer can come into one store and easily cross over to the other store and then have one convenient checkout. So they think it's a traffic driver for the centers, and we're seeing a lot of interest from the property owners. Carla Casella - JP Morgan Chase & Co, Research Division: Okay. What percentage of your stores now are mall versus strip versus outlet?

I think -- probably best to think we have outlet stores, and the lion's share of our stores are outlet stores. Of the 170 stores we have, probably some portion of maybe 25 to 30 are outside the outlet. So think of it as outlet stores versus brand stores. We have -- we probably have a half a dozen stores in malls, but there's not a significant difference between that format from the typical brand stores we'll open up in strip centers. Carla Casella - JP Morgan Chase & Co, Research Division: Okay. And then I just have one question on the promotional environment in department stores. And with JCPenney returning to promotions, can you just comment on what you're seeing there?

I would say the retail environment continues to be highly promotional. Many of the retailers, particularly in the specialty markets, are offering strong deals that work through their inventory based on those macro factors we said before, warmer fall, traffic declines during the situation in Washington. Q3, we were comparable with the exception of, I'd say, Carter's late September. We did take some additional steps to make sure that we were going to Q4 cleaner than the past. Consumer spending is always a point of risk, and I think consumers' confidence was clearly impacted during the shutdown. If you look at shopper traffic, the traffic has improved recently. But overall, the promotional activity, I think, is going to be at least as impactful as last year given what folks have gone through. We do feel good about our plans for the balance of the year and we're moving forward.

And we go next to Steve Marotta with CL King & Associates. Steven Louis Marotta - CL King & Associates, Inc., Research Division: Regarding the slippage in on-time deliveries in Q3 and that spilling a bit into Q4, can you quantify the differential there? Can you quantify the improvement in Q4 and also comment on preventative measures for the first half of next year and beyond? And a quick follow-up to that is interest expense expectations in the fourth quarter.

Sure. On the last question, Steve, interest expense is probably going to be something around $6.5 million. So we have the additional financing that's driving that. On airfreight, we had previously called out that we expect to spend $4 million to $5 million on airfreight in the third quarter. We came in at the lower end of that range for the third quarter, but I'd say our performance from the factories continues to be less than what we would like it to be. We've seen a trend towards some improvement, so likely to still have some additional airfreight expense that comes through the fourth quarter. There's been a lot of very good work on the part of the supply chain to work with our vendors, work with our factories in Asia. Our head of sourcing just returned from a fairly comprehensive summit meeting with those folks, and it's all about how can we take complexity out of our business. We do have a very complex business model with the channels and the wholesale business and retail, growing direct-to-consumer business, all that factors into how we efficiently get product from the factories back over here to the U.S. And there certainly have been some issues with some of the newer factories that we've added in terms of their ability to keep up with our demand. So it's a comprehensive effort, continues to be underway and we're on top of it. Steven Louis Marotta - CL King & Associates, Inc., Research Division: Would you expect that headwind to slip into next year as well?

Well, we're certainly hoping for improved performance going into end of 2014.

And with a follow-up question, we return to Taposh Bari with Goldman Sachs.

Just had a couple kind of housekeeping items. So first is, as we anniversary, I guess, Hurricane Sandy in November, if you could just give us some context or if you could just address what your comparisons look like through the rest of the quarter given that you're implying an acceleration? Two is, I thought I heard a lot of -- obviously, a lot of commentary around inflation, but I thought I heard, Mike, you say that price and costs are going to be up 4%. So wouldn't those neutralize each other? If you can just correct that.

I would say cost in the fourth quarter, we expect it -- unit cost in the fourth quarter are projected to be up more than the average prices.

Okay. And then the last question, so I guess the Sandy question, and the other question I have is just kind of philosophically. The composition of your operating margin has changed meaningfully over the past couple of years. The past, I'd say, 2 years, is really driven by cotton deflation and somewhat, I'd say, masked by a period of over investments. So as the cotton tailwinds go away, help us understand how you're approaching operating margin. I'm not looking for a guide for '14, I'm just trying to get a better handle on how you're just approaching that line item.

Brian, why don't you comment on Sandy and I'll...

In terms of Sandy, last year, we talked about that was worth about 1 point of comp loss last year. I would say we're hoping for no big storms this year. So that would be helpful.

They're rare around Halloween.

Exactly. But our comps last year, in Q4, we were down 6 in OshKosh, we were up 5 in Carter's, but we think that Sandy was worth about a point.

With respect to cotton inflation, cotton, I would say, has stabilized. Cotton prices are still higher than last year, but we feel as though at $0.80 a pound, the cotton market is fairly stable. I shared with you that earlier this year, we met with our largest suppliers and they told us not to expect much impact based on what they saw at the time, to see much inflationary pressure because of cotton. The price -- the farmers are planting plenty of it and there would be adequate supply. The focus is on rising labor cost. So you've read plenty of the articles in terms of demand for higher wages, living wages. And our view is we actually think those things are good because it'll provide a more stable workforce and more people will come back after Chinese New Year and you won't see as much turnover and there'll be more consistency in execution. But it does put some pressure on product cost. So it's largely driven by labor, we're keeping an eye on it. We feel as though, to Richards point, we feel as though we have plenty of good margin driving initiatives. We're focused on great product and the best margins on product that's selling well. We've got direct sourcing capabilities, and the analysis that we have seen would suggest that, that has been a net benefit to us relative to sourcing everything through agents. We'll start to see more of a benefit, we believe, from the new multichannel distribution center that will go fully online, full automation, sometime middle part of next year. We'll get the full benefit of that, we hope, in 2015. We're seeing progress with OshKosh profitability, which is weighed on our earnings in recent years. So there's no shortages of ways to improve our margin structure. We're committed to margin expansion. This year, we're on track to have a 12% operating margin. We're working hard to make sure that we can make improvement on that. We just don't know enough about what the fall costs will be. Fall '14, the second half of our year, is the more significant portion of our year. We've got -- we just finished developing the line. We've got the teams in Asia now starting to negotiate prices. So we'll see how that comes back. Just don't have enough visibility on the second half. But we're hopeful that, on a net basis, we have enough initiatives to offset the rising input costs.

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

Okay. Well, thank you all very much for joining us this morning. We appreciate your thoughtful questions. We hope this call has been helpful to you, and we look forward to updating you again on our progress in February. Goodbye.

And again, ladies and gentlemen, this will conclude today's conference. Thank you for your participation.