Good day, everyone, and welcome to Carter's Third Quarter 2014 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. [Operator Instructions] Carter's issued its third quarter 2014 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 quarterly report 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.

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 announced a record level of sales earnings for the third quarter. As expected, our gross profit margin was a bit lower than last year due to higher product costs, but we controlled the growth in SG&A, improved our operating margin and continued to return excess capital to our shareholders. Given our progress this year with our growth strategies, we are reaffirming our growth objectives for the year. As a reminder, we're focused on 3 key strategic priorities for our business. 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. We believe we've strengthened our market position this year by focusing on the things that matter most to consumers. In a recent survey, millennial moms said good value is the most important characteristic when shopping for brands. There are a lot of lower-price alternatives for our brands. We believe we continue to outperform our competitors and gain share because our brands have a strong reputation for quality and value. We are competing in a highly promotional environment. Despite the heavy discounting, we improved price realization in the third quarter. As you know, we raised prices this year to help absorb higher product costs. Consumers supported most of our price increases. Even with these price adjustments, our brands continue to provide great value, with average unit prices under $10. In terms of brand experience, we've done a good job this year strengthening our brand presentation with our top wholesale customers in our stores…

Thanks, Mike. Good morning, everyone. Today, I'll cover our third quarter and year-to-date results, followed by our expectations for the fourth quarter. My remarks will track with the presentation materials which are posted on our website. I'll remind you that our materials present our business results on an as-adjusted basis, which we think provides a meaningful comparison of the company's results. A reconciliation of this adjusted basis to our GAAP results is provided in the Appendix of today's presentation. I'll begin on Page 2 with some third quarter highlights. As Mike noted, we achieved our sales and earnings objectives in the third quarter with top line growth of 5% and solid earnings growth. Our growth continues to be led by our U.S. Carter's and OshKosh direct-to-consumer businesses, which each delivered double-digit sales growth in the quarter. Our international segment was also a strong contributor to revenue growth. One of the key themes of the third quarter was expense management. Despite spending more than we had anticipated on our DC transition, overall spending was very well controlled. This focus on spending has been an important element of managing what continues to be a very challenging retail and consumer environment. We saw solid expansion of earnings in the third quarter with an adjusted EPS result of $1.27. Moving to Page 3 and details of net sales in the third quarter. Total Carter's brand sales in the U.S. grew 4%, driven by our retail store and eCommerce businesses. Our Carter's direct-to-consumer comp increased 3%, reflecting a down comp in our stores and continued solid growth in eCommerce. Net sales in the Carter's wholesale segment were down about 3%. As we told you on the last call, we planned this part of the business down in the third quarter due to lower fall seasonal…

[Operator Instructions] And for our first question, we go to Taposh Bari with Goldman Sachs.

Mike, I was hoping you could just talk more about the retail environment. You're one of the first big retailers to report, so I know you have pretty direct relationships with some of the big retailers out there. So I was hoping you could just speak more to what's happening out there in retail, your own stores. Is it a [indiscernible] issue? Is it online migration? Is it competition? Is it macro?

I think I'd say -- if I had to say, I think consumers are waiting a little longer to shop for their fall apparel. I'll speak to only our retail business. Our wholesale business has been good. I have more insight in terms of what our stores are doing. We had good, I'd say, consistent comps, July, August, September. And on average around 3.5%, thereabout. And we've seen a decline in comps in October. And October is not the biggest of our months in the fourth quarter, but it's a change in traffic that we did not see in the third quarter. And it's -- I've been in the stores. The product has never looked more beautiful. The marketing is terrific. The level of engagement of our store associates has never been higher. So it's a mystery to us. Usually, when you see the cold weather arrive, you start to see a significant increase in business. We simply just haven't seen that yet. And so we're hopeful that, as we approach the holidays as we move into November, we'll start to see better trends. And the insight we have on wholesale, generally, I would say, is mixed. It's mixed. But our retail business, we've seen a decline in comps in the month of October, which is -- it's unclear to us actually why. Only -- we believe that consumers are waiting a bit longer for their fall outfits.

Is that a store comp comment or a total comp comment?

Total.

Total, okay. And do you have any insights into what's happening kind of over-the-counter at wholesale in October in your business?

I'd say generally good, generally good.

Generally good. Okay. And then quickly on gross margin. Can you give us some context around how the quarter shook out versus your plan for 3Q? If you can give us context around how much product cost and price increased and how that will look in 4Q?

First, I'd say, in general, our gross margin results came in for the third quarter right on top of our internal forecast. Product costs were up on an average basis per unit about 7%. Our pricing was up about 5%. So that gap continues to be a bit of an issue, and that's versus the overall gross margin that we're seeing year-over-year. I'd expect that to continue in the fourth quarter. The gross margin rates will be still under some pressure year-over-year for the same reason. But on balance, our gross margin results in the quarter were in line with our forecast.

And does the gap narrow at all in 4Q? And how does that gap look in -- I don't know if it's too early to talk about this, but I think your product costs are locked into place for spring. How does that gap look like in the first half of next year?

I'd say that the product cost increases, again on an average unit basis, that we're expecting in the fourth quarter moderates a bit. It's something more like 5% or so in the fourth quarter. I won't comment specifically on our pricing. We're certainly hoping to have pricing realization be higher in the fourth quarter, but I'll tell you, we do start to ship spring 2015 product in the fourth quarter, and those product costs should be lower than what we experienced here in the fall.

And we go next to Susan Anderson with FBR Capital Markets. Susan K. Anderson - FBR Capital Markets & Co., Research Division: I was wondering if you could give a little bit more color on wholesale now for spring. It sounds like it's a bit better than you expected. Is it the one customer that's improving further? Or are you seeing other benefits from the other customers? And then in Canada, on the Bonnie Togs products, when do we start to cycle, I guess, clearing out that product?

Brian, why don't you take the wholesale?

Susan, it's Brian. On wholesale, spring has improved. I think we have a broad assortment in our stores, and our wholesale customers take a subset of that. And as we've worked toward more Wear Now product and continue to flow fresh goods in, I would say that we've got a more strategic approach to that late spring, early summer deliveries. So our original bookings, we felt good about. We did talk to our customers about some of the rich offerings we had for late spring, early summer, kind of a transitional, and picked up additional bookings both in Carter's and OshKosh, which raised the bookings in Carter's to, I think it was, plus low single digits and then OshKosh up to comparable to last year. So we feel better about that improvement. As far as the one customer, we've talked about it incessantly. We have a really good relationship with that customer. They planned us down for fall. That was manifested primarily in Q3 shipments. And now we'll be growing off a lower base. But the sales of our products at that customer's account are very good thus far this fall.

The other question, on Bonnie Togs, we'll -- we had sales through the first quarter of this year. So once we get into the second quarter of next year, it'll be behind us. Susan K. Anderson - FBR Capital Markets & Co., Research Division: Got it. And one last question on the retail stores. I guess the comps have been kind of spotty, one quarter up, one quarter down. I mean, are you guys sitting there thinking, yes, that maybe you should slow the store growth just given the migration to online or anything?

No. We're seeing very good returns from these new stores. As we bring the brands closer to the consumer with these brand stores, I think it's understandable to us that consumers may be making fewer trips out to the outlet centers. Instead of driving 30 or 40 minutes out to an outlet center, you can go right up the street. So we're keeping an eye on it. It's a level of cannibalization that's understandable. And we're seeing some level of 4% to 5% cannibalization, but the returns -- as long as the returns on these new stores continue to be as good as they are, we'll continue to open up stores.

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

This is actually Dan O'Hare on behalf of Robbie Ohmes. I just had a quick question. I know you've touched on it. But for the customer who dropped in the quarter, is that just a temporary drop, if you could just remind me? Or is that something that's going to be ongoing for the foreseeable future?

Yes, Dan, it was primarily a fall '14 reduction in bookings. They made a decision to reallocate some of their businesses, and we -- from time-to-time, with a broad portfolio of customers, that can happen. The vast majority of our customers, their business continues to be up and continues to be strong. And this was more of a, I would say, a fall '14 issue and primarily a Q3 issue in terms of shipments. So our business is good with that account. It continues to stabilize, and we feel good about the growth prospects with them going forward.

Great. And just lastly, can you talk about the competitive environment inside wholesale? Have you seen an uptick in promotions or any new entrants from either private label or other competitors who are entering that space?

Yes, Dan, I wouldn't say there's any new competitors. The environment continues to be very promotional. You've got everyday low-price retailers offering couponing. The specialty retailers in the malls are certainly more aggressive with percent-off entire store sales. It was really aggressive at back-to-school for a few weeks, and we would anticipate a competitive environment holiday when you look forward. So we were a bit more promotional. We had to pull some free shipping from time to time, and our coupon penetration was up slightly. Primarily, it was playerwear-based. Playwear is certainly the most competitive category that we play in, but we're proud that our brands were up. Our AURs were up in the quarter, even inclusive of all the promotional activity, and our inventories are in real good shape going into the holiday season. So it's going to continue to be promotional. That's the way retail is right now, and I think the strongest brands with the best strategies and solid execution are the ones that are going to continue to perform at a high level.

We go next to Stephanie Wissink with Piper Jaffray.

We have a couple of questions as well. Richard, I just want to follow up on one of the comments you made. I think you indicated that August and September maybe had come in a bit below what you would have liked to see. But -- and then I'm thinking of the conversation around the lag in October. Just curious around your perspective on any pent-up demand that you might expect to come through late in the fourth quarter. And then how should we think about the margin comparisons in more of a promotional holiday versus what would have typically been kind of a seasonal conversion period? So that's question one. And then I also wanted just some clarification. I think you indicated a shift of expenses into Q4. Is that just the Braselton facility? Or are you also shipping some of your seasonal marketing into the fourth quarter as well?

Sure. Well, as it relates to comp performance, comps were -- store comps were negative in August and September, but to Mike's point, our total direct-to-consumer comps were a much more favorable result, and -- so we've increasingly started to look at that on more of a combined basis because we think that's how the consumer's interacting with us. To Mike's earlier point, we think the consumer is shopping later. I think that probably also applies to the holiday shopping cycle as well. We've seen that over the last number of years, that volume seems to be coming later and later each year into the holiday season, so we're certainly hoping that there's pent-up demand and we'll start to see that in November and December. Those are the 2 most significant months in the fourth quarter for us. With regard to SG&A, there was about $4 million I think I mentioned that moved into Q4. That was across a range of spending categories. There may have been a small marketing component of that, where we delayed or deferred some activities into the fourth quarter, but that was not the biggest driver. It was a lot of different spending in discretionary categories, that we just pushed that spending out later in the year. So on balance, that's how we're thinking about it. We have layered in some additional spending for Braselton, as is reflected in our forecast.

And we go next to Rick Patel with Stephens.

Can you provide a little bit more color on the challenges you're facing with the new DC? Are you investing in people, systems? How do we think about that? And any way to quantify the pressure the DC will have on SG&A in the fourth quarter and your level of confidence that things will be on track once we enter spring?

We believe things are improving. So just as a reminder, we completed the last phases of the new material handling systems this summer. And as the unit volume ramped up in the third quarter, we saw some disruption in the flow of goods. Most of the time, the systems are working as they're designed to work. And at times they didn't. And that caused some unproductive downtime and higher labor cost to process the units. So we have 2 issues. We have to improve the new systems performance, and we have to improve labor productivity. More of the issue is on labor productivity. So we have hundreds of new employees at that facility working hard to understand how to make the most out of the new systems. We've got good internal and external resources helping us work through it, and we were expecting some portion of about 30 basis points of deleverage -- pardon me, 30 basis points of leverage in the third quarter, and we had deleverage of about 20 basis points year-over-year. So 20 basis points on the $800 million business cost us about $1.5 million in the third quarter. We're expecting the fourth quarter to be better. To Richard's point, we even included some additional spending to make sure that the workforce has the proper training, and -- but we're expecting, as we move into next year, with time and experience, we'll see better performance, better productivity. And we're hopeful that the leverage that we expected in the second half of this year, we'll begin to see next year.

And then a question on eCommerce. Very strong growth there. Can you just provide some color on what's driving that? I'm curious how many of your -- how many of those customers are new to Carter's versus existing ones. And then secondly, in terms of where the geographical distribution is of sales, how much of the sales are being generated from locations where you already have stores versus those that are white space, where you have no physical presence?

A couple of things. Our eCommerce, we're really happy about the performance in the quarter, up almost 30%. We had strong gains in traffic and conversion. The international demand on the sites, the sales are about 45% of the sales coming from outside the United States. So we don't get into the specifics of how the demand's relating to where we do and don't have stores. I do think that when you put together -- when you look at our business from a direct-to-consumer basis, it only helps strengthen our brand experience when we have consumers that have the ability to shop online and in our stores. We've had good growth in mobile traffic, about 50% increase in mobile also on the site, so that's something that we're really focused on. And our experience -- and our strategy is to continue to further link the store experience and the online experience for her. We're finding about 40% of the customers do research our products online before they head to the store. And if we can convert folks to buy in both channels, that's about 2.5x more revenue that we generate from those customers than if they were just a single-channel customer.

For our next question, we go to Steve Marotta with CLK & Associates. Steven Louis Marotta - CL King & Associates, Inc., Research Division: What's total marketing spend in 2014 versus 2013?

I don't think we share that. I don't think we typically share that.

The marketing spend is higher but for the TV advertising we ran last year.

Steve, I would say that we're moving more toward digital, so digital's about 50% of our spend now. We have migrated the plans more toward digital marketing.

Yes, and that's up about 25% this year. Steven Louis Marotta - CL King & Associates, Inc., Research Division: Okay, that's helpful. And can you quantify raw cotton costs within Togs? It's probably another question that you don't normally discuss. And -- or even just try to quantify a little bit more the pricing cost relationship in the first half, which I believe you said that the costing's expected to moderate off of the 7% realized in the fall. Can you get a little more specific on that?

Well, raw cotton, to the best of our analysis, is something like 15% or so of the cost of a finished good. Fabric costs in total are about 40% of the cost of the good. So we're certainly pleased to see the reduction in market prices for cotton, although Chinese cotton has continued to be relatively expensive. That certainly should help our margins over time, but it's not the most significant component of our costing. For the first half, from memory, costs were up about 5% and pricing was up about 3%. So that's where we came out for the first half.

We go next to Howard Tubin with RBC Capital Markets.

Can you just remind us where you stand on your ramp-up of direct sourcing, what percentage of the business it will be this year and where you expect it to be next year?

Yes, we expect it to grow to over 30% this year from 25%. Last year, we're planning to grow the mix to about 50% by 2017.

And we go next to Anna Andreeva with Oppenheimer. Anna A. Andreeva - Oppenheimer & Co. Inc., Research Division: A follow-up on the price realization. I think you mentioned the customer accepted most of AUR increase. Any callouts where you may have seen some pushback, whether by category or by division? And just a follow-up on the slower start to the fourth quarter. Are you guys seeing that at Carter's or OshKosh? Any regional differences in the business so far?

On the pricing, it's -- Anna, if you recall, we took steps where we thought there was strong value to offset some of the cost increases, primarily in multipiece sets and those things. We planned about 6.5%. We realized the vast majority of that. I think we're up about 5% in AUR. So we came up a bit short of our goal, but we were successful with a majority of the actions. I would say, in terms of item base, there was very few things that we had concerns on, just a few that didn't work quite as well as we had planned. The biggest causal factor to the variance we had was really the intense promotional activity and what we thought we needed to do to compete from a total store or an overall promotion, not necessarily on item level. So overall, we felt good about that for spring '15. We've got selective increases planned to cover the low single-digit cost increase, some carryover for fall, but overall, we felt good that we were able to achieve the vast majority of the AUR plan. Anna A. Andreeva - Oppenheimer & Co. Inc., Research Division: Okay, that's helpful. And just on the quarter-to-date trend, Carter's versus OshKosh, if there are any regional differences in the business?

I would say we're probably better in the West, tougher in the Northeast and Mid-Atlantic in terms of regions.

We go next to Evren Kopelman with Wells Fargo.

Can you talk about, historically, what kind of correlation you've seen with your business and lower gas prices? And kind of maybe what's your expectation for Q4?

It's a good question. It's a good question. Gas prices are trending lower. When they -- in years past, when they went up, we saw a temporary decline in traffic to our outlet stores, and so we're not planning any improvement in traffic in the balance of the year, but that's a possibility. But typically, when they go up, traffic temporarily slows. When the prices have come down, traffic improves.

Okay. And then secondly, can you talk about in your -- within your guidance range for the fourth quarter, what's embedded at maybe the low versus the high end regarding both comps in your stores and pricing? Or what do you expect to realize for pricing?

Well, I think we're not going to be precise on our expectations for price realization for the fourth quarter. I would say that the range is created by differing levels of consumer demand. Pricing would be a component of that. And if we are at the higher end of the range, that means that consumers are coming more aggressively and comps are higher generally.

And we go next to Susan Anderson with FBR Capital Markets. Susan K. Anderson - FBR Capital Markets & Co., Research Division: Just a couple of follow-ups. Not to continue to beat on pricing, but in the first quarter, I guess, since you have some incremental price increases, it seems like that relationship would be where pricing, if you realize what you want, would be higher than cost. And then also, in terms of the comps in October, just wondering if it fell off more towards the midmonth. Wondering if, as you compare it against the government snapback from last year from the shutdown, is that is kind of what made things difficult? And then last one on the Stockbridge. Do you see any thoughts there on potentially closing and consolidating?

No, there are no -- let me take the Stockbridge question. That facility is a critical part of our growth strategy, and so that, that's going to continue to be an important component of our total distribution capabilities. Your other questions with respect to price in the first quarter, Richard?

Yes, first quarter seems like a million years ago. Susan, I think, if you recall, we indicated that we did not take as aggressive a pricing action in the first half, really, first quarter included, as we're taking in the second half. As we saw the cost increases were going to be a bit more permanent in the second half of the year and they were going to continue throughout all of 2014, we became more aggressive with pricing. To Brian's earlier points, we did it in places where we thought we had the most license from the consumer in terms of the product and the features and benefits and such. That said, while the gap has narrowed, there is still a gap between the price increases that we're achieving and the costs that are coming through. We do have, I think, a favorable outlook as it relates to product costs for 2015. The increases for spring, which is really what we have line of sight to, are much more modest than we've seen in 2014. So we're hopeful that, that trend continues then in the second half. And as we cost the assortments for the fall, we'll share that information with you on the next call.

Just on the comps. The government shutdown -- the bounce-back that we realized last year from the government shutdown was we are against -- up against some tougher comes here, a big month in April -- or in October, I'm sorry.

And we go next with Taposh Bari with Goldman Sachs.

Just a quick follow-up, Richard, for you on capital allocation or the capital return framework. I think, earlier this year, you set out a 50% of free cash flow target. It looks like you're running ahead of that through the first 9 months of the year. So are you -- is that still kind of the long-term target? Are you going to be in a position to update that potentially at some point?

I think the framework is still the framework that we laid out last year. I'm comfortable that the 50% of free cash flow is, on a go-forward basis, what we're targeting. We have some accumulated cash on the balance sheet. We felt it was a good use of that capital to deploy that more aggressively, above what the framework would have indicated to share repurchases. So if our framework changes, we'll update you.

Okay. And then just quickly on eComm margins. I know you made some efficiency tweaks in the DC at some point in the later part of this year. So can you tell us where eComm margins are today and if there's still an opportunity for them to further expand?

I'd say north of 20% today, and certainly, we see improvements over time to improve them.

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

Great. Thank you. Thank you all very much for joining us this morning. We appreciate your interest in our business. We look forward to updating you again on our progress in February. Goodbye.

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