KIRK
#Okay, as far as traffic through the quarter ---+ and if you'll recall from our first two quarters, we haven't had large traffic gains to speak of, but we've been right around flat, slightly negative.
And that was the case at the beginning of third quarter as well.
Always coupled with strong conversion; we've had strong conversion throughout the year.
October, there was a little hiccup there.
Traffic dropped off another few points in that month and there were a lot of things going on, to your point.
We do have a concentration in Texas.
I think there was a general slowdown in retail generally during that time frame.
As we've come into the early part of the fourth quarter, we're not seeing quite that level of decline in traffic; it's a little better.
I think I alluded to that in the November commentary.
As far as Texas goes early this quarter, it's a little better than it was in October as well.
There's a lot of diversity in our markets in Texas.
We do have some very strong stores that are out in the more oil-producing areas, and along the border as well, that are weighing it down maybe more than what you might think just in the metro areas of Dallas and Houston.
So there's a lot of things going on there.
I think to answer your question, it's a little better in the fourth quarter so far than it was in third.
Well, like Mike said in his comments, we are at an elevated level but not to the point where we are concerned.
A lot of that inventory is seasonal.
The halloween, harvest selling through as successfully as it did is an indicator, typically, of how our Christmas assortment will perform.
I think you couple that with the fast-turning nature, the fact that we have reduced receipt to account, we feel like it's completely manageable.
There's not an aging issue, it's current.
It's got a lot of the stuff that we want for this time of the year.
Like I said, that clearance mechanism we have in January is also there to help us move through any items that are non-seasonal in nature to start the year fresh.
And also obviously, <UNK>, it reflects the growth in the store count and the growth in e-commerce.
Those are natural increases that we have baked in there.
Well, I would say a little more than half of the overall increase is growth driven.
Then there's a component, and I think that if you looked at the end of the quarter we would be ---+ on Christmas seasonal ---+ we would be about $3 million higher than we were last year, and that was planned.
That's what we wanted from this year.
We saw opportunity in last year's assortment to go deeper on some classes of SKUs that were selling really well last year, so we did that.
So that's a piece of it.
And then the other, I think, is just some overhang from softer sales in Q3.
That would be the component that we're planning for through a stronger promotional expectation for the balance of the year, and relates to what Adam just mentioned in terms of what we need to work through.
And it is manageable, given our turn rate.
Thank you, <UNK>.
I think it gets into some of the other areas of assortment, <UNK>.
Wall decor hasn't been performing as well as we would like to see.
I think we're on top of that.
I think the mix there was in a shift mode and we're working through that.
I'm not worried about anything content-wise in the assortment.
So wall decor has been a little soft.
Lamps have been a little soft.
That's a very competitive category right now and we have been reducing that assortment a bit as we work through the year.
There are some things, yes, that we're having to work through but nothing that I see is really holes in the assortment that we can't fix.
Well, I think it's more traffic driven, <UNK>.
I mean yes, some of the core product is a little higher in terms of how much we have on hand simply because we haven't had the foot traffic that we need that we would have to normally move through it at the rate that we planned.
I think it's more that and it's just adjusting some of those core buys going forward to make sure that we're matching pace with sales trends.
<UNK>, I'll just add that the conversion metric is one of the barometers for the health of the assortment.
The conversion was still up in Q3, so I think that just bolsters Mike's point that the traffic is the reason for any level of inventory overhang.
It's better than, certainly, what we called out related to Texas and that Gulf Coast area.
California has been a strength.
The Midwest, there's pockets of the Midwest that were doing really well, that Upper Midwest Michigan, Ohio area.
And then we're doing really well in the Southeast, Georgia, Alabama, Florida has been good traffic.
It's mixed but strength throughout the country in different areas, but for that concentration there in Texas.
Yes, for this year we are basically complete with our schedule.
We will have 42 stores open going into the holidays.
We may have one more pop up in January we're working through.
And as we walk into 2016 we, as we've said before, anticipate that pipeline to come earlier in the year.
We are well positioned to have a good chunk of the opening schedule open in the front half.
Even beyond saying the front half, spread across the front half so that we're not so concentrated which is what we had this year.
Next year's class should be very much more front-loaded than you saw this year.
Sure.
Just shy of 70%.
And that's not customers, that's revenue.
So the amount of revenue that we had generated through the site, 70% of that was shipped to store.
Hey, Dave.
That's obviously hard to do, but yes, I think it would be.
We were running, before we got a little more heavy in the way of promotion, we had a nice conversion gain.
If you go back into the prior quarters, you had it too.
So yes, when we get them in the store, they're buying, whether it's promotional or not.
It's hard to confine conversion to the category level.
We are seeing early strong results out of that assortment so that's part of the conversion gain.
I think that is a component of it, yes.
That's right.
We've got some planned percent offs and things that we do.
But yes, we are pleased so far with the progress in that assortment, so that's a good sign.
I think it is; it's not seasonal.
We're heading into the seasonal period here with that and we just talked about it and its early performance.
It's more every-day product in some of the core categories that we carry and letting that come back in line over a few months here should be all we need.
I think we'll wait on being really specific there.
The one thing I would say is as you start to go in to the end of the year, we're going to start being up against the effect of the port slowdown which held our inventories levels low beginning, really, about this time last year and continuing on through April.
That's something to keep in mind when you look at year-over-year compares as we go forward.
We will do that when we get to the comparison and we talk about it.
Thanks, <UNK>.
<UNK>, I would call it out as we're softer in the western part of the state.
Some of the markets like San Antonio along the border, Austin and further west, it's offset a bit by Dallas and Houston being a little stronger.
Then we're also seeing some weakness in Oklahoma and Louisiana.
<UNK>, this is Adam.
For what we experienced in Q3 and what's going to bleed over into the margin in Q4, these inbound charges that were very, what I would call, discrete items to the quarter, should not happen again next year.
We've had planned measures in place for awhile to avoid those type of charges.
The plan from earlier in the year was to get our second facility up and going in Jackson to defray some of those charges.
As Mike mentioned, we weren't able to get that facility up and going fast enough and created a bit of an inbound backlog which caused these per diem and demurrage charges that we saw.
For those charges, yes; those should be leverageable next year.
But overall supply chain, I think, you're probably not going to see the leveraging effect until we get a more robust chain all the way back to the port which could include a form of a West Coast bypass as well as a second facility outside of Jackson.
But I think next year we do have the opportunity to hold the line on supply chain costs given the measures that Adam mentioned.
So that discrete component should not occur.
One thing is it's line by line, as we look ahead.
If you are talking about the fourth quarter, there's not a lot we can do.
We can control some of the marketing spend but I think it's important that we maintain activity there to continue to drive traffic.
As we go forward, I think we're past a lot of the fixed cost investments that we've made.
Holding the line on corporate expenses is going to be really important and we certainly intend to do that going into next year.
Beyond that it's looking at every line item and seeing what you can control best and putting that into place.
Thanks.
It's a competitive space.
I think there are a lot of promotions going on but it's hard to really pinpoint by retailer.
We've certainly baked that into our fourth-quarter plans and we think the season is going to be a little more promotional, given the slowness overall that was in place toward the back end of Q3.
So we planned for that.
I think it's the systems have really helped us achieve the string of positive comp quarters that we currently still have in place.
A big part of that is being able to identify core merchandise which now makes up almost 40% of our total sales, every-day products that have a steady sales rate.
That was a big win as we implemented a lot of those systems and processes and we've benefited from that.
I think going forward, the core, now that it's in place, I think we need some maybe deeper scrutiny as to knowing when to pull back on some of those items and know when to inject the new, to make up for that volume.
I think the bigger opportunity going forward system-wise is regionality.
We're doing a little bit of that now.
It's an initiative that we've really been working on with our merchants and planners to get more store-specific with our assortment.
We've got a long way to go there but we do have the tools in place to help us with that.
So those are all sales and margin drivers as we look ahead that we really haven't fully experienced yet.
It would be somewhere in the range of ---+ it's a wide range ---+ but say mid $60 millions to maybe $70 million.
We had ---+ of course a lot of that depends on the fourth-quarter operating performance, but you'll recall we did pay out at $26 million dividend earlier in the year.
We'll have some more share repurchases ahead of us which will use some of the cash.
We've got a slightly higher CapEx number really due to that end-of-year timing issue that I mentioned.
So still a very healthy cash balance and we feel like we're well positioned to make the investments we need to make going into next year.
It's early, <UNK>, and we're going to give a lot of color on that the next time we speak.
But I think that we can, with a modest comp, achieve that.
I mean there are some roadblocks, potentially, to that for all of retail, particularly when you talk about labor costs.
For us, I think supply chain's going to be a focus but something I think we can hold pat.
And if we can comp and continue this growth plan and it be more front-ended, we do have the opportunity, I think, to generate leverage at a 3% comp range.
Thanks, <UNK>.
Thank you, everybody, and we appreciate your attention and time on the call today.
We look forward to talking with you next quarter.
