WSM
#From the shipping and fulfillment related cost side, it is where we thought it would be.
The part that's a little bit of a surprise is the higher franchise revenues, which is a great surprise to have.
Which, as I mentioned, is dilutive to the gross margin but it's accretive to the op margin.
So optically it looks quote/unquote worse but on the gross margin line but everything else was within our expectations.
I mean that's what our expectations are today.
Also in Q3, the new West Elm stores contributed to that delta between the comp and the revenue growth.
But obviously, we'd love to see that not be the case but given the size of Q4, it's likely that the outperformance on the international revenue side will not be as pronounced relative to the comp.
We haven't quantified the exact basis points of how much of the gross margin was associated with the higher franchise revenues.
I however, did list it first and so we do put things in order.
So you can tell it's very material.
Also, when you look at the SG&A, there has been occupancy and employment leverage and a leverage across the board.
Specifically, even in the retail channel, you see it materially from the other side of the franchise equation because basically, you have the hit to gross margin and you have essentially no SG&A.
So, the profit drops to the op margin.
Presumably, yes.
We're not disclosing the incremental shipping and fulfillment related costs except to say, similar to what I said to Matt, that it's one of the main drivers of our lower gross margins, the second thing I listed.
And we did indicate in our call last time that we'd expect this would continue into the back half of the year.
It did continue as we expected and we expect that it will continue into Q4.
It's important that ---+ where we're incurring these out of market shipping in multiple deliveries on a single order to ensure high customer service levels and especially throughout the holidays, we think it's important to continue to do that.
Longer-term, once we have completed the regionalization of our distribution centers and we have implemented the necessary technology, which includes inventory tools that will allow us to better forecast our inventory flow and space capacity requirements by DC, brand and channel, as well as future system enhancements that will give us better customer order visibility, we will see a reduction in our supply chain costs.
But even more importantly on this point, we believe further developing our supply chain today to be more agile and adaptable will enhance our sustainable competitive advantage.
So it's going to put an even greater distance between us and our competition and enable us to provide the best customer service experience in our industry.
And we're excited about the future.
I think it's important to think about the higher levels of inventory required to be sufficiently in stock regionally.
This is a competitive advantage as longer-term it not only obviously, minimizes being out of stock but it lowers our delivery costs and improves our delivery times to the customer.
Our primary objective has been to be in-stock to serve the customer and so we've been increasing inventory levels from a position that we thought was negatively impacting sales.
And we also want to get our merchandise, particularly our larger items, to our customers more quickly and so we're accomplishing this through regional distribution.
Over the immediate-term, this increases our inventory levels but longer-term, once we have implemented the necessary demand planning tools that I mentioned, we'll be more effective at inventory allocation between the distribution centers allowing our inventory levels to moderate over time.
Thanks.
Thank you for the question.
We have been really focused on our product pipeline and in the last call I mentioned that we're going to have a lot of new introductions in Q3 and we did and they are working.
And we have what I think is a very exciting holiday assortment combination of great entertaining and also gift giving ideas and across a wide range of categories where I think our customers have grown to love us for the nostalgic candies that we sell but also always want to see the new things that we have.
We've seen strength both in our proprietary product but also in our branded product and we've developed incredible relationships with a lot of these key brands and really are the place that people want to buy gifts in the holidays.
So we have equal optimism around branded as we do our around proprietary products for this holiday season.
I always think there's more room for improvement in everything.
We're very self-critical.
The assortments that we have coming, I think are gorgeous and really differentiated.
There's a lot of people watching what we do and getting into these business and that competition makes us better and makes us differentiate.
And also, there's not a lot of people that have our supply chain.
We're vertical so we can get better cost and our scale allows us to deliver better value cost quality relationship.
So as we look at next year, we see some clear opportunities.
Highly competitive, so I don't want to go through the details of such, but we see some clear opportunities quarter to quarter for PB Teen.
That's a great question.
Thank you for that.
Customer service is our primary objective and our goal is to build a capability that delivers the most convenient and damage free experience in the furniture industry.
And over the past three years, our Pottery Barn furniture sales have grown tremendously.
We are going to deliver a ton of furniture into our customers homes this year.
We've always done this better than most but we see opportunity to take our capability to the next level, much like we did in e-commerce five years ago.
So we've been investing as we talked about in advance our delivery platform beyond the current state-of-the-art.
Every customer piece of feedback that we get we not only fix with the customer but we root cause it and learn from it and make sure that we don't have a bigger opportunity.
The customers are very demanding and they are going to continue to expect more.
And that is why we are making this such a focus because we believe we have the opportunity to totally disrupt the furniture business with our world-class delivery.
It wasn't a factor at all.
It's not an issue from more free ship or lower shipping income levels.
It's 100% due to higher shipping costs from our decision to provide the best level of customer service by shipping out of market and having multiple deliveries on a single order.
Thank you.
Thank you all for joining us today and we really appreciate your time and your continued support and we look forward to speaking with you again in March.
Happy holidays everyone.
