Good day, everyone, and welcome to Carter's third quarter 2017 earnings conference call. On the call today are Michael Casey, Chairman and Chief Executive Officer; Richard Westenberger, Executive Vice President and Chief Financial Officer; Brian Lynch, President; and Sean McHugh, Vice President and Treasurer. After today's prepared remarks, we will take questions as time allows. Carter's issued its third quarter 2017 earnings press release earlier this morning. A copy of the release and presentation materials for today's call have been posted on the Investor Relations section of the company's website at www.carters.com. Before we begin, let me remind you that statements made on this conference call and in the company's presentation materials about the company's outlook, plans and future performance are forward-looking statements. Actual results may differ materially from those projected. For a discussion of factors that could cause actual results to vary from those contained in the forward-looking statements, please refer to the company's most recent annual report filed with the Securities and Exchange Commission and the presentation materials posted on the company's website. On this call, the company will reference various non-GAAP financial measurements. A reconciliation of 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. 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. Despite the impact of three major hurricanes, we achieved good growth in the third quarter. Our sales and earnings exceeded the estimates we shared with you in July. Our growth was driven by our retail and international businesses, including the contribution from our new growth initiatives with Amazon, Skip Hop and China. Traffic to our brands was up in the third quarter. e-Commerce demand was strong and our co-branded stores continue to be our best-performing stores. We're also announcing today a new growth opportunity with the acquisition of our largest international licensee based in Mexico. We believe this investment, together with our investments in Amazon, Skip Hop and China, further strengthen our business model, enable us to extend the reach of our brands globally, and provide new ways to build on our long track record of growth. Given the contribution of these new growth initiatives, together with the strength of our fall and holiday product offerings, we are forecasting a strong fourth quarter and expect to achieve our growth objectives this year. Sales trends improved as we moved through the third quarter. September was the largest month in terms of sales and earnings contribution this year. Through mid-September, our comparable retail sales quarter-to-date were up about 5.5%. We view this as very strong performance, given the impact of hurricanes that impacted our sales in August through mid-September. Some of our largest and most productive stores are located in Florida and Texas. In total, we lost over 500 days of store sales due to the storms in the quarter. In the latter part of September, into…

Thank you, Mike. Good morning, everyone. I will begin on page two of today's presentation materials. On page two, we've included our GAAP P&L for the third quarter. Most of my comments today will speak to our results on an adjusted basis. Today's earnings press release and this presentation include a number of important reconciliations of our GAAP results to the adjusted basis of presentation. I encourage you to review these reconciliations as you review our performance and listen to our discussion of the business. Turning to page three and some of our highlights of the third quarter. As Mike noted, it was an eventful quarter for us. Despite the meaningful effect of hurricanes and warmer weather, our multichannel business model allowed us to deliver good top line growth. Consolidated net sales grew 5% over last year, driven by solid growth in our U.S. Retail and international segments, as well as the contribution from Skip Hop, which we acquired in the first quarter of this year. Adjusted earnings per share grew 6% in the quarter. While we continued to invest in growth and infrastructure initiatives in the quarter, earnings benefited from some favorability in our effective tax rate as well as from favorable movements in foreign currency exchange rates. We've estimated that approximately $0.04 of our third quarter results may represent favorable timing of wholesale shipments and spending, which we'd expect to give back in the fourth quarter. Turning to page four with a summary of our sales performance in the third quarter. Sales in our U.S. Retail segment grew nearly 8%. U.S. Retail comparable sales grew nearly 3% despite the significant negative effect of store closures related to the hurricanes in Texas, Florida and Puerto Rico. International segment sales grew significantly across all channels, with sales growing about 17.5%…

Thank you, sir. [Operator Instructions]. And for our first question, we'll go to Jay Sole with Morgan Stanley.

Great, thank you. My question is on the wholesale order book. It sounds like the growth rate in the order book has improved sequentially quarter-over-quarter. Can you give us a little bit more detail on why that is taking place? Is it the sell-through rates are improving or is it just inventory normalizing? Any more color there would be helpful. Thank you.

Yeah. Look, the booking season has now completed. We gave guidance on the last call. I think we were down modestly. And not all the accounts are booked and we're showing the product and people are reacting to the product performance. So, that's improved. It's not going to be comparable to last year since our last update. We are excited about the fact that that's a meaningful change from the down mid-single-digit rate we had consecutively for spring 2017 and fall 2017. So, there's still some softness in that mall-based wholesale piece, which is about 13% of our wholesale business, but we're seeing real good growth in the Amazon portion of the business. So, the key accounts and – I'm sorry, the e-commerce portion of business and with Amazon as well. But, in totality, we're really happy as we just finished up the bookings in spring and we had some accounts that decided to book more than our original forecast. So, we were pleased with that.

Terrific. And maybe, just on the guidance for 4Q, 10% sales growth, you mentioned some timing of shipments in Skip Hop. Can you maybe quantify those pieces and maybe just give us a little bit of a bridge toward how you build up to 10% growth for the quarter?

Sure. The wholesale shipment piece is probably a more minor piece of the guidance overall. We just have very good orders planned across the wholesale base, including good growth with Simple Joys, which is a new program with Amazon. We have good comps planned in the retail business, a bit above what our year-to-date experience has been. We have got contributions from Canada, with the new stores that they've brought online as well as significant e-commerce growth in that market. And then, obviously, the contributions of the new businesses, Mexico and Skip Hop, which tend to be more second half and fourth quarter-centric businesses, particularly. Those are the big building blocks.

Got it. And then maybe one more. Just on China, you mentioned continuing to grow in China. Can you give us a sense of where you're in terms of developing a store format that can be scaled in terms of having just a go-to-market strategy that really is going to resonate with the Chinese consumer the way you want?

We're going to have good growth this year with China. That said, I would say it's still early days. The e-commerce business, the business we have with Alibaba's Tmall website is more developed. We're in the early days of the store rollout. We expect Pou Sheng will have about 50 stores opened for us by the end of this year. But those stores are ramping up to profitability. Pou Sheng is learning how to execute a young children's apparel store model. We're helping them. We're learning about China. They are learning about our business. But I'd say it's early days. That's why we just caution, if these stores continue to ramp up to a nice level of profitability, Pou Sheng has the ability to open up hundreds of stores for us. But I'd still say the store model is in its early days.

Okay, got it. Thank you so much.

You're welcome.

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

Good morning. Thanks for taking my question. With regards to the improved product margins in U.S. Wholesale, can you highlight what that's driven by primarily? Are you seeing more full-price sell-through or is it less clearance year-over-year?

Let's say, in part, it's the ongoing benefit of product costs. I'd say we've been able to maintain our pricing across the channel as well.

Okay, great. And I know the Amazon relationship is still somewhat new and building, but a question that we get a lot is just how your brand is positioned on a search basis. So, can you walk us through any of the mechanics or how it would work with regards to the Carter's brand if someone was searching more for baby or baby apparel versus just the Carter's brand when they search on Amazon?

Amazon, as you know, has several different algorithms. I'd say that the Simple Joys brand is really our lead brand on Amazon at this point. It was developed strategically in conversations with their team. They are interested in private label business. We talked to them extensively about the power of the Carter's name when it comes to young children's apparel and we decided to work with them on the Simple Joys brand to position as a prime exclusive for growth. So, there is a good amount of marketing behind it. There's a good amount of search enablement and power behind it. We've worked with their teams on that. That being said, their algorithms change based on in-stocks, based on demand, based on marketing programs and what have you. So, we feel real good about the business overall. We watched that brand in April, as you know. It continued to ramp up through Q3 and into October. And the sales are driven by baby and sleepwear product. We've been on a chase mode in that all along, but we are really in good stock, right now, position going into Q4. And we've also had positive reads on the OshKosh brand and our Skip Hop business remains strong with them. So, we're excited about the business with Amazon. We're going to launch our toddler size ranges for spring 2018 and we are also evaluating international opportunities.

Great, thank you.

We go next to Susan Anderson with FBR Capital Markets.

Hi. Good morning. Nice job on the quarter and the top line growth.

Good morning, Susan.

Good morning. I was wondering – and it was nice to see good gross margin growth despite the headwinds also. I was wondering if maybe you can talk a little bit about your longer-term op margin goal of 14%? Especially as you guys continue to get closer to that, do you guys think you could do a little bit better longer-term or how should we think about that? And then, with that, also, maybe if you could talk about Mexico and just margin differences versus the current business and your thoughts around growth over the next five years, both from a store and ecommerce perspective.

So, Susan, 14% operating margin is still the goal for us over the next four to five years. We'll update you in February what we think is possible through 2022, but the plan that we had through 2021 still reflects, say, our goal of approaching 14% operating margin. The new businesses that we've added this past year, Amazon, Mexico, Skip Hop, China, these businesses are lower margin today. We'll see margin improvement. We are forecasting margin improvement for next year and over the long term. That will put some pressure on the margins that we would have otherwise achieved near term, but we believe they will contribute to the 14% operating margin goal over time. I think we did some high-level math. If we're forecasting this year closer to a 13% operating margin, but for some of these new initiatives, we would have shown meaningful progress on the 13.5% we reported last year. But these are good long-term investments. We've made some good investments this year with integration and helping bring these new brands and new initiatives on board. But 14% is still the operating margin goal for us over the next four to five years. With respect to Mexico, this is an opportunity we've been evaluating for the last three years. We saw a good growth profile when we looked at it a few years ago and we monitor it. We've stayed close to the opportunity. We know the management team extremely well, lovely family down in Mexico. It's a $2 billion market. It's a market equivalent to the size of Canada. If we can do in Mexico what we accomplished up in Canada, we're going to have good growth in Mexico. And so, it's largely – today, largely a wholesale business. The mix is probably two-thirds wholesale, a third retail. They've got very good-looking stores. So, we see opportunities to expand the wholesale distribution, to open more stores. There is no e-commerce business today, but that's an opportunity based on the success we've seen in the United States and up in Canada. So, it should be a nice source of growth for us. It's some portion – about a $30 million business this year. It should be at least double that over the next five years or so.

Great. That's very helpful. And, lastly, just on Amazon, I know it's still early days, but how should we think about the growth impact. Is it material yet to the wholesale growth or is that still kind of yet to come as you ramp up that business?

Yeah. We haven't commented on the volume. The business is very good. And I think, as we look to where mom wants to shop for young children's apparel, we've got a lot of millennials on Amazon. Most people are on Amazon. And we think that, as the growth continues to move online, that's where we're putting investments. We've got beautiful creative assets that we're using to support Amazon as well as the rest of our wholesale customers. So, it's good growth. It's early days. We think it can be, as Mike said in opening remarks, a top customer for us long-term and we're putting meaningful efforts behind that from a marketing standpoint, distribution and branding standpoint. We've got a terrific group of folks that work on that brand. And we think it's a good complement to everything else we do in the wholesale business, and will enable us as the consumer shifts continue to occur to long-term in our apparel business have – return to that modest growth in the core wholesale business.

Great, thanks. Nice job [indiscernible] and good luck next quarter.

Thank you.

And we go next to Bill Schultz with Goldman Sachs.

Hey, guys. How are you doing?

Good morning, Bill.

So, it was a pretty dynamic quarter, I guess, in terms of retailer store closures and sort of other related announcements. I'm kind of just curious what your thoughts are on each. So, my first question is, did you feel any impact from sort of major competitor store liquidations that hit earlier in the quarter? And as we tilt into holiday, do you anticipate any tailwinds from share recapture there?

Hey, Bill. A big question we've been asked in recent months is the impact of the Gymboree store closures. We would say that's been a non-event for us. So, we will continue to monitor it. We've been able to target consumers in areas where those stores are closing, but we would say it has not had a meaningful positive or negative effect on our business. Outlook for our business is good. We're forecasting a strong fourth quarter. Last couple, few years, we've had a very strong finish to the year, even in what I would say tougher economies and in more uncertain times. Over the holidays, people are out shopping, and particularly shopping for their kids, so we think we will benefit from that. So, we feel good about the business. We feel very good that we were able to weather all those storms in the third quarter and still achieve our growth objectives. That's the beauty of our business. There's lots of ways to grow. We lost some portion of about $7 million in sales during the third quarter due to those hurricanes and with those store closures, and yet we have other ways to grow. That's what I love about the new businesses we're adding to the brand portfolio, is that we will have new ways to grow and deliver good performance for our shareholders.

Thanks, Mike. And if I could ask just a quick follow-up, there were some announcements made during the quarter with some of your bigger retail partners – Toys 'R' Us in the US and Sears Canada and one of your big retail partners up in Canada. How should we be thinking about sort of the go-forward impact to your business? Is that sort of something you're monitoring? Do you have any sort of near-term expectations of what that might mean?

Sure. So, Babies 'R' Us has been a very good customer for us for many, many years. Good relationship. But, again, going back to the business that we've been fortunate to build over the years, Babies 'R' Us probably represented less than 3% of our total company sales. So, a good customer. It's going to continue to be good customer. We resumed shipping. We had been beefing up receivable reserves in anticipation of some concerns that we have with certain accounts. I would not say the charges related to the Toys 'R' Us bankruptcy had a material impact on our results in the third quarter. Sears Canada, a very small component of our business. So, if those stores liquidate, we don't think that's going to have any impact other than perhaps a possible positive impact on our Canada stores and our Canada e-commerce business. Our Canada e-commerce business is growing significantly faster than what we had envisioned. So, the beauty of our – wherever people are shopping for young children's apparel, they're likely going to see a very strong presentation of our brand. So, when Sears Canada goes out, it's not like the consumer says, my gosh, where am I going to shop for Carter's and OshKosh now. So, we have beautiful stores up there, a beautiful website. So, we will capture the traffic that will go away when those Sears stores close.

Thanks for your thoughts and we appreciate it.

Pleasure.

And we go next to Anna Andreeva with Oppenheimer.

Good morning. This is Sam on for Anna. Thanks for taking our question. Congrats on a good quarter. On retail comp for the quarter, we are just curious, did trends change in outlets sequentially? Were there any regional differences? And as far as quarter-to-date, what are you seeing?

Is your question specific to the outlet stores?

Quarter-to-date, I guess, generally for retail?

Oh, Quarter-to-date. Fourth quarter comps for the retail – total retail business are positive. I would say that the quarter got off to a slow start with unusually warm weather. A little over – it's just short of 40 degrees here in Atlanta today. We're going to be selling more blanket sleepers in Atlanta than we will be selling in Los Angeles, given the hot weather out there. There is an impact. When people are – when it's usually warm weather, people aren't thinking about fall and holiday product offerings. So, as cooler weather is coming into more parts of the country, we're seeing a meaningful change in sales trends. So, retail comps quarter-to-date are positive.

That's great. Thank you.

You're welcome.

And for our next question, we go to Stephen Albert with Bank of America.

First question I have is on the co-branded store comps. You gave some color on that, which I think is very interesting. I was wondering if you could maybe give some color on overall kind of strip center store comps versus outlet, just to kind of get a sense for how much of a headwind that outlet segment is posing on the overall figure.

Let's say, best analysis we've seen is about 80% of the comp decline in the stores came from the outlet centers. So, the outlet centers – going forward, as those leases expire, we're more inclined to exit those outlet stores. We're seeing a nice benefit in outlet stores where we are combining the Carter's and OshKosh brand stores. The old model, years ago, you'd open up a 5,000-square-foot Carter's store and a 5,000-square-foot OshKosh store in the same center. That model has changed. So, we've made this nice evolution out of the outlet stores over the years. If 2010 is, say, the base year when we launched e-commerce, nearly 70% of our store portfolio was in outlet centers. By the end of this year, it will be less than 30%. By the end of 2021, my guess is it will be less than 21%. We will keep only the best outlet stores long-term. So, as the legacy outlet stores in some of these more remote locations come offline, we're less inclined to open them up. So, we are seeing a nice benefit from combining stores with this wonderful co-branded strategy the consumer is responding so positively to. And if that opportunity does not exist, where we close an outlet center, we're seeing a nice lift in sales and particularly profitability in stores in adjacent markets.

That's interesting. And the second question I have is on the – on FX and potential boost. Some of the currencies, some of the border currencies, US dollar has kind of weakened a little bit against a wide variety of currencies. Are you seeing any sort of reversal in the trend with international customers returning to your US stores and US websites? Or is it too early to tell?

I would say it's too early to tell because we had some disruption in the third quarter with all those hurricanes rolling through Florida. So, I think that – we expect that we'll start to see a benefit. We haven't seen it yet.

Okay. And my last question is on SG&A dollar growth rate in the fourth quarter. You talked a little bit about moderation. I guess how should we think about it with acquisition of the Mexican licensee and Skip Hop and just magnitude relative to year-to-date in 3Q.

Yeah. I would say it's a slight reduction relative to our year-to-date trend. Our guidance does contemplate the addition of the Skip Hop and Mexico costs into the cost structure.

Thank you.

You're welcome.

And we go next to Jim Chartier with Monness, Crespi, Hardt.

Good morning. Thanks for taking my question. I just wanted to follow up on the last question. So, how many stores do you think could be converted into co-branded stores and what kind of pace would you expect on pursuing it?

Well, I think well share more with you when we – we're going through an evaluation now. We're going to see how these stores perform through the holidays. We'll have more to share with you on the next call when we share with you our 2018 growth plan and the longer-term growth plan through 2022.

Okay. And then, Brian, clearly, the introduction of Skip Hop seemed to be positive in the retail stores. I mean, what kind of lift did you see? And then, do you think there's opportunities to expand the Skip Hop assortment within the Carter's stores into 2018 and beyond?

We had a really good performance, certainly outperformed anything we put in that space before in the 50 doors that we tested. So, we're excited about that. And we scrambled to make sure that we could get in a position to have Skip Hop in all of the stores where we sell Carter's. So, our Carter's stores and our co-branded stores by Black Friday. So, that's all going to be in place for the holiday season. We're excited about – it's a smaller assortment because we wanted to execute it very quickly. So, as we go into 2018, we are planning a more meaningful assortment. I think we've got three tiers of assortments based on store type in the Carter's stores in the US. So, that will be a more meaningful part of the experience. We're growing the website quickly. Our business is really good. We launched a tab next to carters and oshkosh.com in July. Pleased with the results. I think we've doubled the sales over last year at the same time period with good engagement. And then, as Mike had shared, there's a Canadian opportunity that's good too. We don't have the product in the Canada stores yet, so we plan on doing that in spring. All the Canadian stores will have Skip Hop brand as well as our Canadian website. So, it's a good opportunity. The consumers are responding well to it. We've got a lot of customers in our database that are familiar with our brands and not everyone is familiar with Skip Hop. So, as were able to tell them the wonderful story about the brand, the sales are accelerating.

Great. And then, finally, Richard, the slide with all the investments and growth opportunity is really helpful. It looks like a lot of the investments are ending in 2017. So, just curious about the pace of investments beyond this year and if there's some initiatives that maybe weren't on the slide that you foresee in the future.

Jim, we're in the middle of the planning cycle now. So, I think we'll have more to say early next year around what the investment agenda looks like. The biggest use of capital continues to be new stores. We do have good growth plans for continued expansion of the retail store base next year. I think the open question would be on the technology front. Are there other initiatives that would be meaningful for us? I don't think there's really anything on the horizon that's as significant as what we have completed in recent years, but we'll share more early next year once we've rolled up all of our plans.

Great. And then, just in terms of the timing of the benefits from a lot of these IT initiatives, inventory planning and the inventory management assortment planning, how much, if any, benefit have you seen in 2017 and what amount of benefit do you see in 2018 and beyond?

I'd say we've had a good amount of spending around the omni-channel initiatives, the last couple of years. I'd say we're starting to see some fairly significant benefit of those already just in terms of consumer behavior. So, those are rolling through the P&L. I think the investments in new systems and tools around pricing, inventory management, those are going to be a much stronger forward benefit, but it's probably going to take some time for that to work through. That's probably a late 2018, into 2019 benefit for us.

Okay, great. Thanks. And best of luck.

Thank you.

And we go next to Laurent Vasilescu with Macquarie.

Good morning. Thank you very much for taking my question. I want to ask about the recent update on the revolver. Can you parse out the priorities for the increased revolver? And if you chose to pursue another acquisition, how much leverage would you be comfortable taking on?

Well, the revisions to the revolving credit facility were really borne out of just being a much larger company when the original facility was put in place several years ago. So, as the company has grown and expanded, it was just prudent and a good time in the marketplace to redo our existing facility and add some additional capacity. Also, we are increasingly global. And so, the new facility has some features and provisions that facilitate us to have some additional liquidity outside the United States. So, that's a positive. If we were to buy something significant from an M&A point of view, we believe that we would be well received by the capital markets. We would probably look to finance as opposed to using the facility specifically for that. There's really not a pegged leverage ratio that we've identified as being the maximum or the optimum. We have substantial flexibility, given our balance sheet, to pursue almost anything that would be of interest to us. The business has been extremely highly levered in the past, given its strong cash flow and cash flow generation. That's not to say we would necessarily want to run the business with a lot more leverage, but we have the capacity to pursue lots of different options if the opportunity presented itself.

Okay, thank you very much. And I think in the prepared remarks, correct me if I'm wrong, but I think there was some comment around some expenses shifted between the third and fourth quarter. if that was the case, can you possibly parse that in dollar terms and what those expenses were for the various channels?

We've estimated it to be probably between $2 million and $3 million of spending really across the business. I don't know that I would isolate it to one specific segment.

Okay, thank you very much. And then, lastly, I wanted to ask about the International EBIT margins. They've been down for several quarters. How much of that is driven by investments like China? And where do you think the EBIT margin will go for that business over the next few years?

The margin is weighed down by a couple of things this year. The start-up losses in China, we'll probably lose some portion of about $4 million in China this year. Those losses will lessen over the next couple of years. We hope to be breakeven by 2019 in China. And then, thereafter, it should be a good margin business for us if we're successful with the growth plan. The other thing that weighed on us, we have these wonderful retailers throughout the world. We probably have some portion of a couple dozen very good retailers opening up beautiful stores – Richard showed you some of them this morning – on our behalf. Beautiful Carter's and OshKosh stores. But with the stronger dollar over the past year, their business got much more difficult and then there's unique challenges in different parts of the world. Lower oil prices in the Middle East, terrorism in Turkey. So, there's a variety of reasons that their businesses have been difficult. All of these partners are coming in to meet with us in December. We'll have more insight on what they think is possible going forward, but that part of the International business, what we call, our wholesale partner, very, very profitable business. So, we're working with them. There's indications that we'll start to see some stabilization in demand and some improvement going forward. And so, we'll have more to share with you in terms of what the margin potential is, but we're hopeful that some of the things that have weighed on us this past year from a margin perspective will start to lessen and, hopefully, improve going forward.

Thank you very much. And best of luck.

We go next to Ike Boruchow with Wells Fargo.

Hi. Good morning, everyone. And congrats on the quarter. I guess, Richard, on the gross margin, sorry, if I missed this, could you comment on what you saw of pricing promotion in Q3 and then what's baked into your plan for Q4 on that front?

Yeah. In the third quarter, we had some modest improvement in our realized pricing across the business. I'd say the promotional environment continues to be intense and that's our expectation going into the fourth quarter as well. Certainly, the third quarter was affected by the storms. And I would say the warmer-than-seasonal weather around the country has caused us to be perhaps a bit more promotional as we manage our inventory position. And I'd say our competition is probably doing the same thing right now.

As we go into fourth quarter, we have noticed – to echo Richard's comments, what happened in Q3, agreed. As we go into fourth quarter, we would know most retailers have been planning inventories leaner and they're trying to run a better business. So, we hope going into Q4 that the promotional activity would be similar to last year and that is how we're planning our business as well.

Got it. So, just in that guide, are you expecting gross margin expansion, but just to a lesser degree than what you saw in Q3?

It's actually – our guidance reflects an assumed expansion of gross margin above what we saw in Q3.

Got it, okay. And then, just one more model question is the tax rate we should be using for Q4.

For the fourth quarter, tax rate probably declines about 100 basis points or so versus last year.

Got it. Thanks so much. Good luck, guys.

Thank you.

And we go next to Steve Marotta with C.L. King and Associates.

Good morning, everybody. Richard, you mentioned – excuse me, in the press release, corporate expenses down $5 million in the third quarter this year versus last year to roughly $20.4 million. Can you talk about the puts and takes there and what the expectations are for that line item in the fourth quarter?

I would say we had some favorability related to – last year, we were spending on implementing SAP. The SAP financial system was a fairly considerable project. We had some discrete consulting projects a year ago. And I'd say, this year, we're seeing some good favorability in our healthcare expenses. Those are probably the primary benefits to the line. For the fourth quarter, we'd expect reasonably comparable year-over-year spending.

Okay. And I know you're reticent about speaking about fiscal 2018, but I can't help but ask. From a net store opening and closure standpoint, can you give a 40,000-foot view of what your expectations are for next year there?

It will be net store openings. Again, we've shared with you, we hope to open up some portion of 200 co-branded stores. That will be the model going forward. Consumers are responding very positively to it. Best traffic, best comps relative to the other store models. And I think the last model we had would probably envision some portion of 50 or more closures. So, a net of 150 and we're taking a closer look at whether or not there's an opportunity to close more stores where there is a profit, meaningful profit opportunity by doing so.

Thank you very much.

You're welcome.

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.

Well, thank you all for joining us this morning on the call. We look forward to updating you again on our progress in February. Goodbye.

And again, ladies and gentlemen, this will conclude todays conference. Thank you for your participation. You may now disconnect.