Columbia Sportswear Co (COLM) 2012 Q3 法說會逐字稿

Greetings and welcome to the Columbia Sportswear Company's third-quarter 2012 financial-results conference call.

At this time, all participants are in a listen-only mode.

A brief question-and-answer session will follow the formal presentation.

(Operator Instructions)

As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Ron Parham, Senior Director of Investor Relations and Corporate Communications.

Thank you, Mr. Parham, you may begin.

Thanks, Bob, and thanks to everyone for joining us on today's call.

Earlier this afternoon, we issued third-quarter financial results and raised our full-year 2012 outlook.

In addition to the press release, we also posted a detailed CFO commentary to our investor relations website, which we hope you've had a chance to review before the call here today.

With me on the call are President and CEO, Tim Boyle; Senior Vice President and Chief Financial Officer, Tom Cusick; Executive Vice President and Chief Operating Officer, Bryan Timm; and Senior Vice President and General Counsel, Peter Bragdon.

I'm going to ask our Chairman, Gert Boyle, to cover the Safe Harbor language.

Good afternoon.

This conference call will contain forward-looking statements regarding Columbia's business opportunities and anticipated results of operation.

Please bear in mind that forward-looking information is subject to many risks and uncertainties, and actual results may differ materially from what is projected.

Many of these risks and uncertainties are described in Columbia's annual report on Form 10-K for the year ending December 31, 2011 and subsequent filings with the SEC.

Forward-looking statement in this conference call are based on our current expectations and beliefs, and we do not undertake any duty to update any of the forward-looking statements after the date of this conference call to conform these forward-looking statements to actual results or to change in our expectation.

And with that I'll turn things over to Tim.

Thanks, Rob.

Welcome, everyone, and thanks for joining us this afternoon.

As our press release and CFO commentary explained in greater detail, third-quarter results came in well ahead of the guidance we provided in July.

I'm very pleased with how our team managed the business to achieve higher gross margins and expense leverage, which resulted in increased operating income and expanded operating margin to 16.1%, compared to 15.3% in last year's third quarter.

Earnings per share of $1.88 came close to matching $1.98 we generated in last year's third quarter, with the difference primarily attributable to a higher effective tax rate in the current quarter.

As expected, we saw a 4% decline in net sales, with half of that decline attributable to currency, and the remainder due primarily to weakness in our Europe direct markets, along with timing differences in shipments to our distributors.

The decline in our Europe direct markets came against an increase of more than 70% in last year's third quarter, which included a tripling of Sorel sales.

Last year's warm winter and persistent macroeconomic weakness across the region have weighed on both the Sorel and the Columbia brands this year, creating headwinds against our ongoing efforts to revitalize the Columbia brand in those markets.

Sorel Footwear was the hardest hit and accounted for a majority of the third-quarter sales decline in our Europe direct markets, while at the same time, we posted mid-teen growth in Sorel sales in the US.

In addition, as we discussed last quarter, it is important to note that approximately 45% of the decline in the EMEA region was attributable to timing differences in shipments of fall orders to our EMEA distributors, which were heavily concentrated in the Columbia brand.

Adjusting for those timing differences, year-to-date fall 2012 shipments to EMEA distributors were actually up 7%, compared with fall 2011 shipments in the comparable period.

Our stronger-than-expected third-quarter performance allowed us to raise our earnings outlook for the full year.

We remain cautious, based on macroeconomic conditions in Europe, as well as recent deceleration in Asian markets that have been solid growth engines for us for the past several years.

We feel our revised full-year outlook strikes a prudent balance between our year-to-date performance and how economic and weather uncertainties may affect the remainder of the year.

I'll share initial thoughts about the first half of 2013 in a moment.

But first, I want to look further ahead to 2014 to make sure analysts and investors understand and appreciate the strategic and financial significance of our recently announced China joint venture with Swire Resources.

As we noted in our August announcement, Swire Resources is a subsidiary of Swire Pacific Limited, one of Hong Kong's leading listed companies, with over 140 years of history operating in the greater China region.

Swire Resources has served as our exclusive distributor in China since 2004 and has done an excellent job establishing the Columbia brand.

They currently sell directly to consumers through over 70 Columbia branded store fronts in seven cities, and through a network of wholesale dealers who own and operate more than 530 Columbia locations and 45 Mountain Hardwear locations in 135 cities.

Through our combined efforts, Columbia currently ranks as the number-one outdoor brand in China.

In 2011, Swire generated revenues of $123 million from Columbia brands in China and achieved a low double-digit EBITDA margin.

The most important factor we want to communicate is the financial impact of the joint venture.

Beginning in 2014, Columbia's 60% share of the joint venture's net income will be included in and incremental to the profit we currently recognize under the existing independent distributor model.

We are looking forward to working closely with our Swire colleagues to build on our leadership position in a market that represents a substantial long-term growth opportunity.

Now, I would like to turn your attention to the global business for 2013.

Based in part on global spring 2013 advance wholesale orders and the anticipated impact of our expanded direct-to-consumer platform, we currently expect low single-digit net sales growth through at least the first half of 2013.

Our pinnacle innovation for 2013 spring is Columbia's Omni-Freeze Zero and Mountain Hardwear's Cool.

Q ZERO cooling technology.

Spring 2013 wholesale advance orders for these exclusive technologies came in as expected, representing a mid single-digit percentage of bookings.

Some of our most important brand-enhancing retail partners around the world have committed to help us launch this revolutionary technology.

One other product group I want to highlight is Columbia's Performance Fishing Gear, or PFG, line, which, as a product group, was the largest single contributor to growth in spring 2013 wholesale orders in the US and Latin America.

Together, we believe Columbia's Omni-Freeze ZERO, Mountain Hardwear's Cool.

Q ZERO, and PFG represent important pieces of our long-term strategy to build our global spring business into a larger contributor to our annual financial results.

Shifting to fall 2012, Columbia's marketing campaign is centered around our patented Omni-Heat Reflective platform through a comprehensive integrated TV, print, online, and in-store campaign.

We believe Omni-Heat remains the best visible warmth technology in the market and provides a critical point of differentiation against competitors.

For Sorel, we are driving demand with our new Get Your Boots Dirty advertising and social media campaign, celebrating women who are living out their passions and making a mark on the world.

Despite the impact of last year's warm winter, which stalled demand for cold-weather boots, Sorel's brand position is solid, and we believe it holds substantial growth potential.

Mount Hardwear's fall '12 brand campaign is led by the Ghost Whisperer Down jacket, the lightest full-featured down jacket on the planet that is best described as wearing warm air.

Mount Hardwear is also the proud sponsor of Matchsticks Productions 2012 Ski Film Tour, which will be featured in 120 cities around the world this fall and winter.

I want to close by reiterating our strategic direction here at Columbia.

As you are aware, Mick McCormick, who was a great champion of our brands over the last six years, departed in August.

While we do not plan to replace that specific role, we are continuing to shape our organization around the strategic tenets that have been the keystones of Columbia's heritage -- creating innovative solutions that keep people warm, cool, dry, and protected to enjoy the outdoors longer; focusing on product design; utilizing our innovations to differentiate our brands from competitors; ensuring that our products are sold through brand-enhancing distribution partners around the world; increasing the impact of consumer communications to drive demand for our brands and products; making sure our products are merchandised and displayed with excellence in every retail environment; and continuing to build a world-class direct-to-consumer business.

We have built a strong go-to-market team and approach, and I have been actively working with that team to make sure that we continue to drive this agenda, which is fundamentally about delivering compelling products to consumers and driving consumer demand for those products every season.

At the same time, we will focus on improving our operational performance and efficiencies that enable us to improve our profitability.

Our commitment to operational excellence is evident in the substantial, multi-year investment of time and money that we're making in our new ERP system and in modernizing our global business processes.

As you know, we launched an initial SAP implementation in Canada in April.

Over the past six months, our team has been applying key learnings as they develop the plan for our US implementation, currently scheduled for late 2013.

We believe this investment is critical to position Columbia Sportswear for growth and improved profitability.

As I said earlier, our team has done an excellent job of handling the difficult task of managing costs and improving operating margin in this slow-growth environment.

We are confident that our brand portfolio holds substantial growth potential, and we're working together to reach our long-term goal and profitability objectives.

That concludes my remarks.

I would now like to open the call to questions.

Operator, can you help us with that?

Thank you.

(Operator Instructions)

Our first question comes from the line of Joan Payson with Barclays.

Please proceed with your question.

Congratulations on the quarter.

Thank you.

I guess just to start off, if we could talk about the US business and the difference in growth between the direct-to-consumer and wholesale channels.

It sounds like wholesale in particular accelerated from last quarter, and maybe if you could just talk about the drivers there?

Yes, our business in the US is obviously where we are closely focused, and it is an area where we have seen that probably the largest change in the nature of our channels, also changing from a two or more brand-enhancing sporting goods and specialty operation business.

But at the same time, we have had a number of stores open in the US, and so our direct-to-consumer business has responded nicely.

Maybe I will ask Tom just to be more specific about that, how that breaks out.

From a retail perspective, we operated 7 more stores in the US; 58 versus 51 a year ago.

So the growth there was driven by a combination of both new stores and in-comp store growth on the retail side of the business.

And then on the wholesale side?

Yes, so as we noted, I believe in my commentary, the contribution of growth from both a wholesale and a retail perspective was pretty equal in the single-digit millions of dollars range.

Okay, thank you.

And then in terms of the dynamic of gross margins in the third quarter and the benefits you saw there, maybe you could talk about the shift in dynamics going into the fourth quarter and which drivers are reversing into that?

Well the fourth quarter, as you might remember, is going to be impacted significantly by weather.

And so our basket of -- gross margins will be a function of how well we have done positioning ourselves for that.

But the outlook we have given you basically contemplates what we believe the results will be.

And maybe I can just add a little bit more color there.

When we look at Q3 and Q4, obviously Q3 came in, from a margin perspective, better than we had planned 90 days ago.

And Q4 has come off a bit.

And I think overall, we are guiding margin up roughly 10 bps for the year.

And so when you get inside the numbers for Q3 and Q4 at the gross margin really, the constants are we've got currency benefit of equal proportions in Q3 and Q4.

We got a little bit more air freight benefit the we'd planned in Q3, but we expect to see a continuation of that benefit in Q4.

And then the real movement is really a function of we shipped a higher proportion of full-price product in the third quarter, which helped the margin.

And that was really a result of earlier receipt of inventory.

So we were in a better position, and we had a much better assignment from an inventory and order standpoint, as compared to the third quarter of last year.

And then really, the real shift is the promotional and closeout activity, and we will see a little bit more of that in the fourth quarter, at the expense of the third quarter.

So again, that's why the margin is coming off a little bit in Q4, relative to the prior guidance.

Okay, that's helpful.

Thanks.

Our next question comes from the line of Kate McShane with CitiBank.

Please proceed with your question.

Tim, can you just remind us, I think this did come up on the last quarterly call, but can you remind us how nimble you are to chase, if weather does turn much colder this year than what's built in your expectations?

And is there any difference in flexibility with apparel versus footwear?

Well, nimbleness, we're not very nimble.

We have basically made our bet and we have our inventories in place here.

The real delta will be what the pricing we will be able to get based on the weather.

I think there is relatively low -- let me put it this way.

I think that retailers were cautious in their purchases, so there may be some openings if the weather gets cold.

But it's really going to be a function of what we are able to charge for our residual inventories.

Retail will have a certain component as well, just in terms of how well the stores do, our own stores.

But I think it terms of being able to chase inventory, both in footwear and apparel, we are locked and loaded with what we got.

Okay, thanks.

And if I could just ask one more question on average selling prices or average price for product this winter versus last winter.

Is it flat, or is it up versus last year?

It is up.

It's up.

And that's from mix primarily or absolute price increase?

It's a little bit of both, actually.

We have had some cost increases in our more basic merchandise, as well as the mix is tilted a bit towards more expensive product.

Thank you.

Ladies and gentlemen, our next question comes from the line of Andrew Burns with DA Davidson.

Please proceed with your question.

A couple of quick ones here.

First, on the Swire commentary, I was hoping you could just clarify.

Some of the cash investments you're making in '13 and '14, is that, thinking about it from an investment standpoint, strictly CapEx?

Or when we go into '14 is there some investments that are being made to step up SG&A to facilitate growth?

Thanks.

Hi, Andrew.

This is Tom.

Really, the vast lion's share of the funding will be to fund working capital and operating expense.

The CapEx plans are actually quite small.

Okay.

Okay, thanks.

And the second question is just getting into your outlet stores.

There is a lot of carryover product, and it strikes me as an amazingly good value to the consumer.

So I would think looking at the stores and the discounts in the outlets that you would be planning for some strong comps in the fourth quarter, given that compelling product.

Is that in guidance?

Yes.

That is factored in, obviously without much of a winter the fourth quarter of last year, we feel like we have a pretty easy comparison relative to Q4 2011, and that is factored into our Q4 '12 retail guidance.

Last one, in terms of the first-half order book shaping up, can you give us any update on the retail response for Omni-Freeze and how you think that launch is progressing?

Yes, this is Tim.

So the reception was really very gratifying.

It is a relatively expensive product from Columbia.

It's a bit of a complex story, and our retailers have really responded well.

And they are anxious to help us tell the story, because it adds a significant amount of theater to their selling floor.

And we think that there is a big opportunity here for the Company, especially in the southern tier and in periods of time when their stores are maybe not as robust from a sales perspective as otherwise would be.

But people are cautious, because this is new technology.

Again, it's a complex story.

It has to be explained.

So, I think we've sold the right quantity, and we have sold it into the right places.

And now, we're going to see how it works from retail -- from a consumer standpoint.

But we're very excited about it.

I think it's going to be really good for us.

Thanks and good luck.

Thank you.

Ladies and gentlemen, our next question comes from the line of Christian Buss with Credit Suisse.

Please proceed with your question.

This is actually Darla Shay on for Christian.

Can you give us some detail on your third-quarter SG&A?

It came in much better than we expected.

And also where you see further improvements for fiscal '13?

Yes, so as it relates to the third quarter, we came in mid-single digit millions of dollars under the outlook 90 days ago.

And that's really a function of both discretionary spend and currency, in pretty equal contributions there.

And as it relates to 2013, obviously, we are not providing an outlook there today.

We're still working through our 2013 plans, but we are certainly committed to managing the expense side of business diligently in '13, similar to how we've done this year.

Okay, great.

And then from your conversations, how do you think retailers' inventory levels are shaping up for the fourth quarter, and then also early '13?

And then what impact does this have in terms of your near-term outlook?

Well I think, as I said earlier, I think retailers were relatively cautious when they purchased fall product from all of their vendors.

They had carryover, in some cases, and they were concerned that weather patterns would be a repeat of '11.

So it really is a function of what happens on the weather standpoint for the balance of the year, in terms of how that, for us, how our margins stack up.

We've given you what we think will happen, and we hope that it's colder and more dramatic than that.

As it relates to '13, I think retailers have also been cautious.

The underlying economic news is not robust, especially in Europe, and so retailers are maintaining that cautious outlook for '13.

(Operator Instructions)

Our next question comes from the line of Eric Tracy with Janney Capital Markets.

Please proceed with your questions.

Tim, for you I just want to try to think about -- you're not going to get specific in terms of marketing spend next year, but how are you thinking about potentially ramping that to try to catalyze sales growth, relative to trying to contain the cost there?

It seems like, and you talked about the difficulty in communicating some of the new innovation.

Is there an opportunity to ramp that up to help drive the top line?

That's -- we have really had several key initiatives in the Company here.

One is obviously to grow our operating margins.

We want to get ourselves to at least average.

That's not even really an aspirational point, but we have got to get ourselves to at least average.

And we frankly think we need to make larger investments in marketing.

So those are both underway.

But it is an equation that has to be diligently managed.

We will have a very significant investment in Omni-Freeze ZERO in the first half of the year, together with some of our retailers in terms of their promotions of the product inside the store, as well as marketing efforts around the initiative.

And so, we have plans for those.

We really think though it's, over the long term, is where we will see a growth in our marketing spend.

It is going to be important to make the brand stronger and to tell consumers the stories of these rather complicated innovations.

So we understand that, and we know we need to do it, and that is part of the plan to get ourselves bigger.

So is there an opportunity then, it sounds like -- I think you said against the Omni-Freeze, an up mid-single digit order book for spring cost so an opportunity then if in fact the marketing investments do in fact drive some sales there -- a greater ability to chase in-season for the spring business?

I would characterize the beginning of '13 as really our launch season here.

I think, from my perspective, frankly, we'd rather have consumers -- have it a little bit more difficult to find than having it over exposed.

Our plan will be to take a cautious approach on the inventory levels and really make it sell like crazy.

And if we sell out, we'll probably celebrate.

Okay.

And then just lastly, for Tom, again you don't have to get too specific, but just in terms of broad strokes, gross margin next year, the puts and takes.

Again, I know you were as impacted by product costs, but maybe just walk us through the different pieces and maybe cadences of how we should think about that?

Yes, so obviously are not guiding for '13 today, but as it relates to spring '13, we believe we've priced the line in a very surgical manner.

We think the sourcing environment is, obviously, more favorable for spring '13 than it was for spring '12.

We will have some tailwind in the front half of the year relative to currency and expect some headwind in the back half as it relates to the euro.

That is really about all I can say on the margin at this point.

I think, as we look at first half, it's going to be really a function of fall '12 weather and sell-through and what degree of off-price business we're pushing in the first part of 2013.

Our next question comes from the line of Robbie Ohmes with Bank of America.

Please proceed with your question.

Couple of questions, first, Tim, you mentioned the recent deceleration in Asia.

Can you give us a little more color on what's going on over there?

Is there -- obviously, we've heard a little bit about macro, but tell us what the promotional environment looks like, and if you feel that that's pressured the business.

Or is it an excess inventory situation for the industry, overall?

Maybe a little more color on what's going on over there and when you think it could improve.

And then I have a few other questions.

Yes, my comments were mostly macro in nature.

I think our business is strong and that we're going to have a good year in China.

But I think the high teens are better growth rates that were present for many of us in the business there will be dampened, and so the expectation is that this is just a more cautious year.

I think -- so in terms of my view of the future, when it will change, I think China is obviously significantly dependent on exports.

And there will have to be a robust demand from Europe as well as the US and other places in the world before we see a significant change in the demand there.

But keep in mind that the growth rates there are still -- even at a depressed level, more significant than they have been in Europe or the US.

And this Swire transaction in 2014, is that -- is there a change of strategy in approach to China that accompanies that transaction, or doing the joint venture?

Or just you will be booking more of the profit on the income statement?

We are often looking at these markets where we have independent distribution businesses, and where we think we can do -- we have something to offer in terms of making the business bigger.

And together with Swire, we think there's an opportunity to this significant market bring some of our special product characteristics and knowledge.

And together with the people at Swire who know that market so intimately, we think that this can be really an enormous business for us.

That is the primary reason for focusing on China.

I think it is a great investment for the Company.

It's going to be very good for our shareholders.

And we are very excited about the potential there.

Thanks, and then Tim, I wanted to ask you about Sorel.

Sorel is up in the US and down in Europe.

Is there anything more to it than just a macro difference?

Or is there actually a difference in the way Sorel is positioned in Europe or the competition versus Sorel?

And maybe, I don't know if you've looked at -- Merrell's business, I know with footwear has come under pressure in Europe.

Is there something similar to what they have been seeing and what Sorel is seeing versus your ability to grow over in the US versus Europe?

No, I think the positioning is the same globally, frankly, on the Sorel business.

And where our growth has been has been with the women's business, which has been good for us in many markets.

If you look at the Sorel business over a period of a couple years, last year it grew 70% in Europe, and that just may have been too explosive.

So maybe averaging the years together, I think we have the right approach.

It's a solid brand; it's very strong in some markets.

In others, it has been more difficult.

Frankly, I think we're on the right pace there, and the product is in demand.

We need some weather to make sure this winter footwear stuff sells.

My last question, and I'll let guys move to the next person.

In the US right now, when you walk your key customers and you look at the outerwear on the floor, and you look at the carryover that has been placed back on the floor this year, do you think that it is more your brand that got carried over than other people?

Or can you just give us a sense of who's got a lot of last year's styles out on the floor in retail right now from a competitive perspective?

It's hard to know.

I know there were some competitors that had heavy mark downs at the end of last year, two retailers.

Well, I know that several retailers took advantage of buys from competitors that loaded up on last year's stuff.

I don't know whether or not they carried it over, but I think there was certainly some discounting late in the year, or early first quarter last year.

I think based on how our relationships with our retailers go, I think we have a good position, which would be on par to slightly better than our competitors.

Other than that, I can't really help you.

(Operator Instructions)

Our next question comes from the line of Corbin Weyer with Robert W. Baird.

Please proceed with your question.

Calling in for Mitch Kummetz.

Thanks for taking my question.

Tom, just looking at the inventory, I'm hoping you could help us out there breaking that composition out into different buckets.

Yes, so inventory really came in as we planned.

As we stated for the last couple of quarters, what we are anticipating inventory to -- exiting the year, to come back in line with first-half '13 sales growth.

So up 10% following and up 24% and 21% growth in Q2 and Q1, respectively.

We feel pretty good about where inventory is trending.

And similar to last quarter, if we look at just fall '11 through our current inventory, including what we intend to carry over to spring '13, that represents 95% of the total inventory.

From and unsold perspective, we're at about 70% apparel and 30% footwear, so we think we are in pretty good shape.

And again, average unit cost is driving that growth on a mid-single-digit unit decline.

So, I think that's important to note as well.

Okay, that's helpful.

Thank you.

And then, just looking at the spring order books, I know you guys don't want to get specific on the number there at all, but just maybe some color and maybe how that breaks out geographically and what you are seeing there?

Yes, so the spring book is up slightly, as we mentioned, in our first-half outlook for '13.

And I would say the area of probably the biggest challenge, as would be expected, would be our direct business in Europe, just given the challenges we have there.

Okay.

And then last, I don't -- if you guys be able to give a sense of what you're planning for door count in 2013?

From a US retail perspective?

Yes.

Yes, so we are still in the middle of our '13 planning globally, but we are currently planning for 10 additional outlets in the US, and similar expansion to historic levels in Japan and Korea.

And that's about all we can tell you at this point.

We can give you certainly more color on that in the February call when we provide a little more detail on 2013.

Sure, I appreciate that.

Very helpful.

Thanks for taking my questions.

Our next question comes from the line of Liz Dunn with Macquarie.

Please proceed with your question.

Congrats on the quarter.

Most of my questions have been answered.

I just had a quick point of clarification on the Swire thing.

The investment spending that you will do, does that mean that we might see operating margins retreat from the low-double digit level that was mentioned in the CFO commentary on the web, or how should we think about that?

I think when we get to 2014, we should expect operating margin expansion from that investment.

Okay, relative to the amount quoted in that CFO statement, that's what your saying?

Yes.

So currently Swire is operating at a double-digit EBITDA, north of our current EBITDA.

And assuming that trend continues, that would be incremental to our EBITDA.

And the earnings from that joint venture are incremental to the earnings we currently generate selling into Swire via the distributor model.

So we will preserve that profitability, as well as our majority share of the earnings from the JV.

Okay.

And did I understand correctly that that business is currently growing at a mid-teens level, or did I mistake that?

Yes, I think Tim had mentioned that, that business has grown in the last few years at a higher rate than that.

And, it's too early to comment on what the growth rate is for 2012.

Liz, we wanted to make sure investors knew we have a long history with Swire, obviously, and they have an extremely long history in China, north of 140 years.

So we have a great deal of confidence in their ability, and, frankly, they have shown they have the ability to manage the SG&A growth well in a rapidly growing and changing environment.

So we think this is literally one of the best investments that the Company has ever made and will make.

So we are really excited about it, and we are anxious to get in there and continue to learn more.

Thank you.

Our final question comes from the line of Michael Blasi with Voyant Advisors.

Please proceed with your question.

Could you just clarify for me the inventory guidance.

I thought I had you guys guiding for fiscal '12 inventory to be in line with fiscal '11?

Yes that comment -- the comments that we have made over the last few conference calls, that has been exiting the year.

We have indicated that we expected inventory to trend down in the back half of the year and come in line with spring 2013 sales growth exiting the year.

And the only caveat there would be any abnormal timing around spring 2013 inventory receipts at the end of the year.

So is growth of about 1.5% is the number that I should be looking at now, does that sound about right?

Yes, I think we indicated low single digit first-half growth in my and Tim's commentary today.

Okay, great.

Thank you.

And has there been any shift or way to quantify the shift in the mix between direct-to-consumer and also the wholesale revenue in the quarter?

Maybe just a step back and take that one from an annualized perspective, consistent with what we indicated 90 days ago, we are anticipating the direct-to-consumer business to represent about 29% of our total business for 2012.

And that compares to roughly 25% last year.

Is this something that's helping out the receivables a little bit?

Certainly to some degree, yes.

Okay.

And then the final one here is there was a decline in payables, it seemed fairly sharp.

Could you give some color?

Yes, that's really almost entirely a function of the earlier inventory receipts towards the latter part of Q2, early Q3 that would have been settled by the end of September.

That's all the time we have for questions today.

I would like to turn the floor back over to management for closing comments.

Thank you very much for listening in today.

We're looking forward to talking to you in February about our fourth-quarter results.

Thank you.

This does conclude today's teleconference.

You may disconnect your lines at this time.

Thank you for your participation.