Zumiez Inc (ZUMZ) 2015 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Zumiez Incorporation's third quarter 2015 earnings conference call.

(Operator Instructions)

Before we begin, I would like to remind everyone of the Company's Safe Harbor language. Today's conference call includes comments concerning Zumiez Incorporation's business outlook and contains forward-looking statements. These particular forward-looking statements, and all other statements that may be made on this call that are not based on historical facts, are subject to risks and uncertainties. Actual results may differ materially. Additional information concerning a number of factors that could cause actual results to differ materially from the information that will be discussed is available in Zumiez's filings with the SEC.

At this time, I will turn the call over to Rick Brooks, Chief Executive Officer. Please go ahead, sir.

Thank you, and welcome, everyone. Joining me today on the call is Chris Work, our Chief Financial Officer. I'll begin today with a few brief remarks regarding our third quarter and then touch on the start of the fourth quarter, including our November comps and Black Friday weekend performance. I'll wrap up my remarks with discussion of our broader strategy, then I'll hand the call to Chris, who will take you through the numbers. After that, we'll open the call for your questions.

Our third quarter sales performance was disappointing. Net sales for the quarter came in within our guidance range of $204.3 million, down 4.2% from the same period a year ago, and included a negative 7.3% comp. In response to the top line headwinds we are experiencing, we pulled back on some of our discretionary spending. These profit protection measures pushed our diluted earnings per share to $0.36 in the third quarter, ahead of the top end of our guidance, at $0.31 for the quarter.

We, like many retailers in our space, continue to be negatively affected by several factors. These include weak consumer traffic in absence of a clear fashion trend driver that we can capitalize on; the impact of foreign exchange, particularly in our border and more tourism-oriented locations; a highly promotional retail environment, particularly over Thanksgiving weekend; and other broader shifts in consumer spending. These pressures on consumer traffic impacted our November results as well, and we posted a negative comp of 13.8% during the four weeks ended November 28, 2015. And while trends slightly improved over the Black Friday weekend, Thanksgiving through Sunday, we continue to see negative results.

While these results are certainly not what we would have hoped for, we also recognize that during periods when faced with headwinds our ability to capitalize when the environment turns around is predicated on the fundamental strength of our strategy, knowing and understanding our customer. Our core lifestyle customer is one that seeks out highly differentiated products and an authentic brand experience. To meet these expectations, we have to be nimble enough to offer on-trend product assortments that leverage the breadth of our relationships with emerging and growing brands and deliver a consistent brand experience, no matter how or when customers engage with Zumiez.

This approach to serving our customer is the foundation of our operating philosophy, and while we believe the investments we made and continue to make in our business will enable us to grow market share over the long term, in a moment I will update you on the investments we are making to drive our long-term results. But before I do, I went to reiterate our comments from our second quarter earnings call around some of the numerous tactical and short-term initiatives we are pushing to help drive the business.

These include, but are not limited to, continue to launch new brands and working closely with our product teams to highlight emerging brands that we believe will resonate with our customer; revisiting promotional strategies and the strategic use of off-price product; pushing forward trending items to a larger number of stores on an accelerated basis; continue to focus on development and recognition of our people, which we believe will be imperative for our long-term success; and adjusting our spending in the near-term, where possible, to protect profitability and overall shareholder return.

From a long-term results perspective, we continue to invest in initiatives that we believe will consistently deliver the merchandise and brand experience our customers expect from us and allow us to reach new customers. Let me take a moment to update you on the each of these.

During the third quarter, we opened 12 new stores in North America, bringing our year-to-date total to 45 out of the 51 new stores we projected opening during the FY15. Our focus here consists of optimizing the long-term productivity our physical store base by strategically leveraging our omni channel capabilities to maximize our impact within each geographic area. So while we continue to see opportunity for further physical expansion within North America, we remain strategic in our approach towards opening new stores and are diligent in our consideration of both short-term trends and long-term potential.

We ended the quarter with 629 stores in North America, including 42 in Canada. In Europe, we have now opened all 6 stores we projected opening during 2015. Our business in this region continues to perform well, though it remains a small percentage of the overall business. We're investing to build on our positive momentum in Europe, all the while being vigilant to ensure that our unique culture, brand, and approach to serving the customer remain consistent on both sides of the Atlantic.

From a technological perspective, we continue to invest in capabilities to promote a seamless brand experience between our physical and store presence in the digital space. These improvements are not only done in tandem with our physical expansion, but they're playing a key role in driving growth and identifying new growth opportunities. This seamless omni channel approach further enables us to provide the convenience and consistency our customer seeks by providing unique, on-trend product assortments they desire.

In summary, with a backdrop of a clear fashion trend driver that we can capitalize on, the impact of foreign exchange, the promotional retail environment, and other broader shifts in consumer spending, we remain confident in our long-term business model. With our strong culture, unique brand position and tact, we believe we are well positioned to capitalize on the many growth opportunities ahead, once these retail headwinds abate. With that, I'll hand the call over to Chris for his review of our financials. Chris?

Thank you, Rick. Good afternoon, everyone. Let me take a moment to briefly review our third quarter results, then I will outline how we're thinking about the balance of the year.

Third quarter net sales declined $9 million year-over-year, to $204.3 million from $213.3 million a year ago. From a regional perspective, North America sales decreased $10.5 million, or 5.3%, to $188.1 million, while our European sales increased $1.5 million, or 10%, to $16.2 million. Included in these numbers is the negative impact of foreign currency translation in the quarter of approximately $4.6 million.

Consolidated comparable sales, inclusive of our e-commerce business, declined 7.3% this quarter, driven primarily by lower transaction volume, partially offset by an increase in dollars per transaction. Dollars per transaction in the period were impacted by an increase in average unit retail and, to a lesser extent, an increase in units per transaction. In terms of category performance, men's, accessories, footwear, hard goods and juniors posted negative comps. Our store count at the end of the quarter was 653, consisting of 587 stores in the US, 42 in Canada, and 24 in Europe.

Third quarter gross profit was $70.1 million, a decrease of $7.8 million, or 10%, compared to the third quarter of 2014. Gross margin was 34.3% in the quarter, down 220 basis points compared to 36.5% a year ago, driven largely by deleveraging of our occupancy costs from negative comps.

SG&A expenses during the third quarter of 2015 were $54.8 million, or 26.8% of net sales, compared to $52.9 million, or 24.8% of net sales in the third quarter of 2014, reflecting deleveraging of our store operating expenses in the year-over-year comparison. SG&A for our 2015 third quarter did not include any Blue Tomato acquisition charges, compared to the charges of $0.6 million in the third quarter 2014. As a reminder, beginning this quarter, these charges will no longer have an impact on our financial results.

Third quarter 2015 operating profit was $15.2 million, or 7.5% of net sales, down from $25 million, or 11.7% of net sales in the year-ago third quarter. However, as Rick mentioned earlier, we made a concerted effort to manage costs and reduce discretionary spending during the 2015 third quarter and, as a result, we saw a 100 basis point improvement in operating margins when compared to our guidance laid out in the quarter. These cost improvements were evident in both gross margins and SG&A, but were more impactful within SG&A.

Net income for the 2015 third quarter was $9.7 million, or $0.36 per diluted share. This compares with net income of $15.7 million, or $0.54 per diluted share, in the third quarter 2014, inclusive of $0.02 per diluted share of charges associated with the acquisition of Blue Tomato.

Turning to the balance sheet, we had cash and current marketable securities of $51.1 million as of October 31, 2015, down from $108.7 million as of November 1, 2014. This decline was driven primarily by stock repurchase activity and capital expenditures for new store growth and remodels, partially offset by cash flow from operations.

During the quarter, we repurchased 0.7 million shares on the open market for a total of $16.7 million, which completed the $50 million share repurchase authorization that the Board approved in June. Year-to-date through October, we have purchased 3.0 million shares on the open market for total of $77.7 million. We are pleased to announce that today we announced authorization from the Board of Directors to repurchase an additional $70 million worth of our common stock.

As of October 31, 2015, we had $133.6 million in inventory, in line with our 2014 third quarter inventory levels. On a constant currency, inventory was up approximately 4% compared to the end of our 2014 third quarter, primarily as a result of our increased store footprint compared to this time last year.

Now to our November sales results. Total net sales for the four-week period ended November 28, 2015 decreased 10.6%, to $62.8 million, compared to $70.3 million for the four-week period ended November 29, 2014. Our comparable sales decreased 13.8% during the four-week period ended November 28, 2015, compared to a comparable sales increase of 6.3% for the four-week period ended November 29, 2014. Similar to the third quarter, lower transaction volume drove these year-over-year declines, partially offset by an increase in dollars per transaction.

Dollars per transaction in the period were driven by an increase in average unit retail offset by a decline in units per transaction. During the four weeks ended November 28, 2015, accessories, men's, juniors, footwear and hard goods posted negative comps. Our comp over the Black Friday weekend, defined as Thursday through Sunday, decreased 12.6%. Year-to-date, through November 28, 2015, comparable sales have decreased 4.5%.

Turning to guidance for the fourth quarter. I'll start off by reminding everyone that formerly in our guidance involved some inherent uncertainty and complexity in estimated sales, product margin and earnings growth, given the variety of internal and external factors that impact our performance. With that in mind, we are currently planning fourth quarter comparable sales results in the range of negative14% to negative 16%, with total sales in the range of $226 million to $231 million.

We anticipate gross margins will decrease 320 basis points to 370 basis points compared to the fourth quarter of 2014, due primarily to deleveraging of our store occupancy costs and distribution costs on a lower sales comp and a decline in product margin of approximately 100 basis points. Consolidated operating margins are expected to be between 7.5% and 8.5%, with diluted earnings-per-share between $0.40 and $0.46. This guidance contemplates no additional Blue Tomato acquisition charges in our 2015 fourth quarter, compared to $6.9 million, or $0.20 per diluted share, in the fourth quarter of 2014.

A few other thoughts regarding the balance of the year. Through November 28, 2015, we have opened 57 new stores in the year, including 7 in Canada and 6 in Europe, and do not plan to open any additional stores during FY15. We now anticipate capital expenditures for the full year will be between $35 million and $37 million, down from our previous estimates of $39 million to $41 million, with depreciation and amortization of approximately $31 million for the year. We are planning our annual effective tax rate at approximately 37.5%.

Lastly, our weighted average shares used in the calculation of diluted earnings-per-share for the full-year 2015 is projected to be approximately 27.8 million shares, which includes the impact of share repurchases through October 31, 2015. Our weighted average shares using the calculation of diluted earnings-per-share for the fourth quarter of 2015 is projected to be approximately 26.6 million shares, which includes the impact of shares repurchased through October 31, 2015. The difference between these two amounts is related to the timing of share repurchases throughout the year. These share counts, as well as our Q4 earnings-per-share guidance, do not include any further share repurchases under our new program announced today. And with that, operator, we'd like to open up the call for questions.

(Operator Instructions)

Dorothy Lakner, Topeka Capital Markets.

Thanks and good afternoon. Or good evening, everyone. Rick, I wondered if you could -- you've been through tough periods before, you've talked about obviously the merchants are hard at work looking for trends. But are you seeing anything? Is anything working? And what more can you do on the off-price, as you called it, side? You've been through periods where you've offered more package deals and so forth, more value to get that peripheral customer in the door. So I just wondered what you're seeing and what you think you can do until you get back onto a trend that you can really capitalize on?

Thanks, Dorothy. Let me take a shot at that. And you're right, we have been through tough periods in the past. But this is a new world we're all working in. I would have to just tell you that we have to think about this new world relative to this really fundamental change in consumer behavior we've been all working our way through over the last few years. So let me start maybe with that kind of context, with maybe giving you, Dorothy, maybe giving you a little bit more context around our current challenges. And then maybe a little bit more thoughts around what we're doing and then a little bit more color there. And then of course, you know me, I have to link it to some of the more longer-term thinking about how we're dealing with this new consumer world as we do this.

So first let me start maybe with some of the current challenges a bit more in color about what we're doing and how we're thinking about these things. I'll harken back to a year ago, and we had a couple of really key sales drivers, large volume drivers for us last year. In the fourth quarter, as you all know, we comped up approximately 8% in the fourth quarter a year ago. And also, Q1, some of those drivers continued in Q1 of 2015, when we comped up 3%, approximately 3% for the quarter.

Now I will tell you, Dorothy, again by way of color here, that these tough category comparisons are going to start to ease as we move through Q1. We also, in Q4 of this year, are anniversarying a significant appreciation in the US dollar relative to the euro and the Canadian dollar. And while we expect that the US dollar, that we're probably going to see further appreciation yet in the US dollar, we do not expect that it will be near the magnitude of what we experienced year-over-year last year in the fourth quarter. In fact Chris, maybe you could add a little bit of color about the Q3 impact, as we think about tourism and border stores.

Absolutely. The foreign exchange has gone against our favor here domestically. We have been tracking our domestic stores that have a higher penetration of tourism-like activities, either on the borders or in large cities or areas of the coast, where we see a big tourist [influction]. And so what we've seen here is approximately 10% of our stores are represented in this group and they represented about 22% of our comp loss during the third quarter.

So we are going to be anniversarying that, Dorothy, and so hopefully, we're going to see some relief in that regard. The other thing I'd call out that is kind of new, actually, in November is the discount environment. And in particular, the discount environment over Thanksgiving weekend and Cyber Monday. It was particularly aggressive in our retail niche. I have to tell you, I expect that to continue in the peak periods here through Q4. And I'll be clear that we have not participated in that broad level of discounting that's been taking place in our niche quarter-to-date.

I could see that.

Yes. It's pretty obvious.

It's pretty obvious.

And then the last thing I'd say about our current situation is -- and I think you're hearing this from a lot of retailers -- there is just a lack of a fashion direction. And I think this is particularly difficult for us, because of the nature of our consumer. Because our consumer tends to lead fashion cycles, in many ways. And I think that because of that, we're being disproportionately impacted by this lack of a clear fashion cycle. Of course, when you have a lack of a clear fashion cycle, consumers tend to revert to value. I think tends to be where they go. And as you know, we are not a value player. We're a lifestyle retailer.

So what are we doing? And I'll try to give a little bit more color here about the things we highlighted in the script, Dorothy. So what are we doing in the short term? As I said in the script, we continue to feature and launch new brands. And I will tell you that the ones we're doing with them, as we look at the launch of new brands and year-over-year gains in these brands as we continue to push them forward, we're having year-over-year growth in sales growth with them. We're seeing that it's working. It's just not working at a large enough scale to offset the significant drivers we had a year ago.

And we're also continuing our promotional, and I'd also add our incentive strategies and how we use the strategic use for our value offerings and in particular, private label. And as I said a moment ago, we haven't participated in the level of discounting, at this point. This would hopefully be the way that we will do it, because we do not want to offer, if we can avoid it, we do not want to offer discounts on brands that have equity. And I think that's an area that some of our competitors have gone, which I don't think is healthy for our industry or a sustainable retail business.

We continue to push forward on trending items to a larger number of stores. You're going to see us continue to do that throughout in the fourth quarter. We have number of things we're working on. But I would tell you same thing in third quarter, that we have been successful year-over-year at these items, but not at a scale that's been enough to offset the prior-year trends.

And lastly, we're going to continue in the short term here, really looking at how we manage costs -- and I just have to add, without sacrificing our commitment to our training and recognition programs, because those are really all about our long-term people development objectives and that we can't relent from.

So that gives you a little bit more color, Dorothy. But now let me to connect it back to the long-term nature of what we're trying to do here. And I have to tell you that you're so used to probably hearing this, but I'm going to say it again, because it's just so important, that I continue to believe that our cultural strength and brand positioning have never been stronger. Those are the two things, unique culture, unique brand, that are required for long-term success. I continue to feel very, very good, Dorothy, about where we're at on those two fronts.

Next, in the long-term perspective, we are going to continue to invest in building this seamless, channel-less retail brand experience for our customers, the omni channel experience. And we believe we're leading the way in these efforts. We're one of the leading retailers in doing this. This is really critical. As consumer technology has been and will continue to drive these fundamental changes in consumer behavior, shifting more shopping behaviors to the digital channels and reducing mall visits. Now again, I would tell you that we're seeing that even in the third quarter and in the first part of November, we continue to see shift towards the digital channels. We are just being overwhelmed by these negative trend cycles in that regard.

And then I guess lastly, I'd say that we believe that long-term, the unique culture and brand positioning combined with building this new omni channel, or channel-less retail model, is going to be what allows us to win our retail niche. And the reality, I'd have to say, that in this new consumer world, there is still way too much physical retail. And so that's why I think we see the high level of discounting that takes place on a niche-by-niche basis in the marketplace.

And we've been working through this capacity issue. We've seen some players go out, some people, some players really struggle, a lot of stores being closed. But we still have a long ways to go here, I guess in this, as we think about the long-term view here. But I'm convinced, at least for our niche, that we're going to win our piece of this retail segment. We're going to win the share consolidation game.

So wrapping all that up, Dorothy, I'd just say that despite all the challenges, despite what we're trying to do to fix it, we believe we're still doing the right things. And we're not going to compromise short-term tactical strategies that are going to be in conflict with long-term brand positioning, long-term cultural strength. We're not going to do things tactically in the short term that compromise either of those. And we think that with patience, we're doing the right things, we're going to win the omni channel battle in our niche.

Great. Thanks. That's helpful.

Thank you.

Next question comes from Sharon Zackfia from William Blair.

Hello. Good afternoon. I guess a couple of questions. Rick or Chris, I'm not sure which of you mentioned it, seeing the development pace going forward or the way you think about bricks and mortar, can you expand on that and maybe contrast, if you can, what you're seeing in the US versus Canada and Europe and how you think about the growth potential in those three regions, at this point?

Sure, Sharon. I'll take the question. From a growth perspective, we continue to stay on what we have said in the past regarding the number of units. Geographically, our Canadian business and our European business are trending ahead of the consolidated trend lines. So we feel really good about what we're doing there. And more of our challenge is here domestically.

So we continue to evaluate. As we mentioned on the call, we've opened our 57 stores that we have planned to open as of the end of November. And we'll continue to review our opening cadence for 2016 and we'll provide some more color on that in March. But as Rick mentioned, this is an omni channel focus that we're using here to capture the capacity in each trade area. And we believe that these work together with both the stores and the web. So we're going to continue to monitor that and as we push forward through this challenging time.

And I'd just add, Sharon, that obviously when we're struggling like we are, everything's on the table. We're not going to -- our practice is not to discuss what the next year's plan here is in our third quarter call. I would just tell you that we'll revisit everything that we need to revisit to make sure we're doing the right things in the right time for the current situation.

I guess just -- and maybe adding on to that -- in Europe, you've doubled the number of stores over the last few years. I don't know how you feel at this point about your foundation there to accelerate the growth even further. It's not, I don't think, come up a lot, but you've been doing well in Europe. So I don't know how to think about that as a potential growth driver to help offset some of the sluggishness in the US?

Yes. Let me respond to that, and then Chris can add on as he thinks he needs to here. But Europe is, again, as Chris said, we're really pleased with how things are going in Europe. And again, I'd just say thanks to our European team, because we have put them through tough, tough few years in bringing them up to speed with our requirements as a public company and getting them up to speed in everything, in addition to essentially going from what really was 3 stores to where we're at today, with 24 doors.

So they have achieved a tremendous amount, Sharon. And at this point, we are really optimistic about what we're seeing. We still want to see the maturation process take place in these stores so we can really understand it. We still need to see ourselves working -- we want to try a new country. So far we've been focused on Germanic speaking countries and growing stores in those markets. Now I'll remind you, Gerfried and the Blue Tomato team, their website is doing business in many languages across the continent. We have good road map for where to go and how to open stores, based upon the quality of their web business. But I think there are a few things we need to do here. But there are no red flags, I would say, at all in our European business. We feel very good about where we're at.

Now that being said, I'm not going to probably suggest to you that we're going to ramp up growth outside of a rate. We asked them to basically essentially double and double stores over the last few years. We want to get to a more normalized growth rate. Because as you know, controlling the cultural strength of an organization is very, very important and we need to grow at a rate that we can do that. Now that we've established a baseline, I think you're going to see us really focus on those training and development efforts within the country, growing our own talent -- within the Company -- growing our own talent to fund that new store growth. We need to be disciplined about what we're doing here. So while you may see marginal increases in unit count, you're not going to see substantially large increases, because to build with good quality, we have to go at a measured pace.

Okay. And then the last question. You've obviously curtailed SG&A growth a lot this year and even more so in recent quarters. You don't have a very fat organization to begin with. It runs pretty lean, at least that's my perspective. Can you talk about SG&A and the cadence of growth and how much further that could possibly be curtailed from what you've already done?

Yes. I'll take the question, Sharon. And obviously, you're right. We have cut this quite a bit. You can factor in our fourth quarter guidance with the actual three months, and we are well below the levels that we laid out in March of this year, when we were trying to give some color for all of 2015, in which we said we thought SG&A would grow consistent with our 2014 growth. So I'm pretty proud of the team for their efforts they've made in controlling costs here. Obviously, some of this does come in the form of variable costs around our store network, but there's really meaningful costs here we've taken out of the model, from managing through this tough time.

I think going forward, we're really trying to continue to balance what's right for the long-term with the short-term results. And that is the tight rope that we walk here. We're continuing to work on areas that are flexible, whether it's store management around payroll and how we manage those hours through these tough times, looking at our home office spending while being real cognizant of the importance of the long-term growth initiatives that we are continuing to work on, looking at all areas within the business, be it marketing or IT or other areas where we think there's opportunities.

And then lastly, you know as well as anyone that this is a performance-based group here. And so when we perform well, we all share in that. And when we have more challenging times, there's a reduction there. You're seeing that today. You're seeing it in the 2015 results and also our Q4 guidance here with pretty significant amounts. Q4 will benefit by about $1.1 million as compared to the prior year. And overall, looking at those discretionary programs, it's closer to about $2 million. So we are cutting back as we look into 2016. We're going to continue to balance the results with what we see today.

Next question comes from Tom Filandro, Susquehanna.

Rick, just given what you said, the nature of the business is clearly shifting to these peak selling periods. We know it's promotional during these periods. I thought maybe you were suggesting that you're going to try to maybe utilize private label goods to participate during these periods more aggressively. And I really have a question, is why not participate in a different way, like GWPs or PWPs? Heck, you could give the kids an energy drink to walk through the threshold. I just want to get your perspective on why you wouldn't think about other ways of participating that would not necessarily hurt your brand positioning. Thank you.

Sure, Tom. I appreciate that. And you know, of course, know that we are experimenting with all sorts of things all the time on these fronts. But here's what's so tough about the modern world. When someone is 30 off everything in the world, the gift with purchase idea, those kind of things, they don't resonate very well with customers in that type of world. So we will, as you would guess, experiment with all sorts of things, package deals, I think someone mentioned that earlier. We are trying all sorts of things. We're going to try new types of incentive arrangements for our teams. Because you're right, the peaks are what matters in this game now. Because everything, particularly in the physical world, is focused around a few days of high volume.

So don't get me wrong, we're trying these things, Tom, and many more things in terms of new ways of thinking, like you say, around incentive programs here for ourselves. But when everyone else in the market is doing something far more radical in terms of delivering value, now I have to tell you, I don't believe it's sustainable. Particularly in our business model, where we're reselling branded products, it's just not a sustainable strategy. So this is where I link it to the longer term issues of share consolidation needing to take place in the market. And to some extent, the longer term view is just about rationalizing this retail world for a new kind of consumer experience.

So I think we'll find these trend cycles are going to be particularly for each unique retailer's position. If you have a unique retail position, I think we're going to see the speed of this world, the speed of trend cycles expose more retailers relative to the trend cycles, and then your game is about how do you not compromise your brand positioning and still compete. And so a lot of the things you suggested, we have tried. But it's very difficult to overcome someone who's essentially operating at very, very low margin or no margin, no profitable margin.

I wish you guys the best of luck and happy holidays.

Thanks, Tom.

Next question comes from Paul Alexander from BB&T Capital Markets.

Rick, could you talk a little bit about what you're seeing out in the marketplace? You've talked about taking share from independents and seeing market consolidation. With the dynamics in the marketplace you're seeing right now, are you seeing a wave of bankruptcies? Are the independents being burdened to the same degree as you by what you're seeing? And then outside of that, are you seeing any other sources of disruption, whether it be brands going direct to consumer or going to other channels, like Amazon?

Sure, Paul. Let me take a shot at that for you. And I'll try to put this in a bit of historical perspective. Yes, small shops have tremendous difficulty competing in this world. And there continue to be closures, but that's nothing new. That's really been going on for a long time. And I think it's accelerated since the great recession. And that is part of the share consolidation that's taking place in the world.

We've also seen it in our niche of lifestyle retailing with some of the pure play guys, who have either gone through bankruptcy or been shut down. And now they've been relaunched, but their relaunched form is not nearly as robust or aggressive as their previous incarnations. And I think they're going to have a tough time in this world, because I think in lifestyle retail, the omni channel retailer with a high-quality brand and cultural experience is going to be -- and the power that you need of scale that you need to invest to serve customers -- is going to be the winning format.

So we have seen a lot of consolidation. But again, what we're really dealing with is a rapidly moving consumer changes in consumer behavior. And I don't think we're done with that evolution. And this is why the investments in the omni channel world are so important. And these are going to be what will continue. It's he consumers' behavior that's driving the share consolidation.

So we're going to really push forward, Paul, on this omni channel and what it means for our consumer. And I'd be happy to talk a little bit more about that, if you'd like, about what it means from our perspective. But that's my answer to your question. We've seen actually a lot of share consolidation to date in both the pure play, as well as the physical world. And I think we have a lot more to come over the next few years.

And any comment on brands going direct to consumer or finding other channels?

Yes. I think -- again, this is part of the nature of, I think, the modern consumer world -- brands must be direct to consumer. I don't think they have a choice. I think if they're not, they're making a mistake. I think consumers expect to find that as part of their omni channel experience.

Now am I worried much about our brands going direct and selling direct on their own sites? I'm not too worried about it. In fact, I think it's been proving our niche that brands don't make very good retailers. I think there's some pretty good evidence of that over the last few years. And it's because they have to be about their brand. And they have to be about brand first, where retailers are about sales first and a good sales experience first. Fundamental differences.

So I think brands have to be direct. If you would have talked to me 10 years ago, I'd be telling you how that upsets me so much, that brands go direct. But in the modern world, I know they have to be there and I know that's where consumers go, but I'm really comfortable that they come to us to buy. Because again, the scale and reach that we have to serve that a brand, in the omni channel world, they'll just never be able to replicate.

So this is where brands and retail partners have to be closer and tighter together than ever before. And I talk a lot with our brand partners about fewer but better partnerships. Because this is the nature of the modern world, that we have to be linked more closely between what their job is as a brand and what our job is as a premier retail partner for them.

Now Amazon is a different case. I think Amazon is obviously a great retailer. They have a very strong brand position around the biggest selection, probably the best technology in retail, and low prices. So I think brands have to determine whether or not should be in the Amazon world direct. That's a determination of brands have to make on their own.

Next question comes from Richard Jaffe from Stifel.

Thanks very much. If you could spend a little time on Europe and what's happening there. Obviously, pretty rapid expansion and it sounds like some good numbers coming out of there. Could you provide any additional color on how they're performing, I guess on a comp basis, on a per square foot basis relative to the US, and what you think the outlook there could be? How optimistic should we get about Europe?

Yes. Thank you, Richard, for the question. Obviously, I'll ask Chris if he has anything to add here. Again, as I said a moment ago, I'm really optimistic about where we're at in Europe. And I'd tell you the foundation of great transactions acquisitions always comes down to cultural alignment. And we have, we are so -- if you talk to the Blue Tomato team, it's like you're walking around the Zumiez building her about cultural alignment. These guys are -- they see the world the way we do. And they might put a little different spin on it relative to the European culture, but the values that we share are fully in evidence in Blue Tomato and its why they've been successful over the years.

Now we've really pushed them hard. And again, I'll say how much I appreciate what they've achieved and what they've done. And we've added a lot of units. I can tell you the Blue Tomato team believes in the omni channel model. That's why they selected to partner with us, because they thought we were a good partner to help them in this regard of executing against the strategy, why they've gone from 3 to 24 stores, really in about a two-and-a-half year window of time.

So as we think about the future in Europe, Chris has already said in his comments that it's clearly outperforming our numbers here in the US in terms of on a relative comp basis. It's just small relative to the US. As we think about the future, we're really encouraged. Now I'm not ready to quantify what that opportunity is yet. I will be, I think here in the next 12 to 18 months, where we'll have the opportunity, I think, to sit down with analysts and really talk about whether the scale of Europe can be.

The reason I want to wait, Richard, is I really want to be able to show you when we do that what the maturation of the unit economics of stores are in Europe. You know it's a little bit more complicated in the US, because there is going to be a different mix on a country by country basis as to what's mall-based and what's street-based. And each country, like I said, will have this different assortment of types of stores. And we have been experimenting with that and the idea of flagship stores, of street stores and of malls stores and what those three kind of things look like, to try to understand the right unit economics, to try to set it up for the right growth profile and then apply that appropriately as we learn about each country. Because each country will have a different mix of those.

So as we get more comfortable with what those unit economics look, as we can really quantify for you the omni channel impact of adding stores to their digital world, that's when we're going to go on and sit down with you and the rest of the analyst community and say, this is what it looks like for us and this is how the sizing and scaling of it, we believe. All that being said, I think it can be really big, in terms of where we're at and just to give you a sense of where that is. But I want to be able to deliver facts when we sit down and talk about what we mean and how we get to the number.

The only thing I'd add there, Rick, is when we talk about the comp, it is meaningfully better and well in the positive range. But to think about scale, this is still less than 10% of our business in relation to the third quarter. As you know, Richard, it does increase from a penetration perspective in the fourth quarter, as they still have a higher penetration of their business focused on the snow goods. So here, as we really moved into October and now November, December, January, and even into February, they over index on their percentage of the business as compared to the rest of the year.

And from a unit economics perspective, just to add a little bit to Rick's comments, this is still a market that's not as heavily malled as we are here in the US. So we do expect them to be slightly higher top line performance, but with a higher cost structure that comes with doing business there. And we are seeing that. We're seeing that in the business model, but we're also -- we've invested a lot behind this business. We continue to have investments there ahead of us. But we're also looking to really grow our operating profits here as we continue into the coming years, and we're starting to see that today and will continue to push that. So while small, we think it has good potential, both on the top line and the bottom line.

And just a follow-on, how many countries do you have the omni channel or the e-commerce site established?

Again, Gerfied's team in Europe and the Blue Tomato team, they've been one of the leaders in Europe for a long time in internationalizing their website. So their website is pan-European and actually does business in 14 languages and has done that for quite a long time, as a matter of fact. And the omni channel aspect, this is the reason, as we focus on building markets, that's another unique thing about Europe, we're going to have to turn omni channel on on a country-by-country basis. So that's why you've seen us really focus store growth on their home market of Austria, and then a new market for physical store growth, Germany. And we need to build those markets. And then as we do that, Richard, we can then turn on omni channel functions. You have to build some scale in the physical world to be able to turn on the omni channel capabilities.

Got it. Thanks so much.

Thank you.

Next question comes from Jonathan Komp from Robert Baird.

Thanks, guys. Maybe the first question, if I could just ask about the category performance. I know all or most of the categories have been negative for the last five or six months now. And with overall comps running down in the low teens, I was hoping you could give a little more color on the magnitude of the declines that you're seeing in recent months across some of the categories.

Again, you've got the headline already, Jonathan, which is, when you run these kind of losses, you're negative everywhere, because again, for me, it's these, at least on a department basis. Now we have categories. What we've given you is departments that are running negative. We have categories that are running not within those departments. They're just not running up enough to offset the big negative down trends in the business versus a year ago.

So I'm not going to get into detailed category performance on a department by department basis, because there is stuff -- there's always stuff we're running gains in. And in this case, there's just not enough to offset the bigger categories within those departments are running declines in.

And Jonathan, I'd just add, when we do talk about them both on a monthly basis and a quarterly basis, as you know, we do order them from most significant to least significant, just so you do get some color on how they're trending within the bucket.

Got it. Okay. And maybe a broader question then. I understand you don't want to give 2016 guidance for unit growth or anything like that, but maybe just a broader question about how you're thinking about managing the business. And I guess the context I'm coming at is clearly the comps declines have been deeper and longer lasting than I think any of us, or even you would've thought even a few months ago. So is there any thought to managing the cash flow in the business more conservatively until you have a better read on the sales trends? And I'm thinking about, does it make sense to be putting any new bricks and mortar in the ground in North America or to be spending cash on some of the share repurchases, which you've been more aggressive with the last few quarters. But any thoughts more broadly on how you're managing the business?

Yes. We obviously, we're managing it very tightly, right? In relation to what we've seen here recently, but we also want to make the right investments. So in relation to the unit count, you've seen us even here in 2015 pull our CapEx down, as we announced today and talked about where we're at. We're thinking about what the right investments are. The declines in our CapEx in 2015 are primarily tied to some remodels and, to a lesser extent, some of our home office capital expenditure projects that were out there. So we're trying to be smart about those in light of where we're at.

I'm not going to give color into 2016. But these are active discussions we're having with our Board about the right use of cash. And as we announced today with the buyback, certainly the capital, maintaining the capital structure is an important component of our structure and has always been a big piece of our balance sheet and how we manage. But at the same point, these are really low trading levels for us. And we believe, as we look at the capital that's on the balance sheet and as we've sat down with the Board and discussed this amongst the team, that this is a really good opportunity for us to bring value to our shareholders and bring confidence into how we're feeling about the business long-term.

So the strategy here has really not changed. But we are thinking about the capital allocation real closely and will factor that in as we start to plan for 2016.

And I would just add, Jonathan, that we are, of course, going to take a look at everything, as I mentioned earlier, relative to capital expenditures, expense management. This is the kind of environment where we'll scrub everything. So you should expect some changes, to be clear. As we look into 2016, just as Chris said, we're not prepared today to say exactly what those are, but you will see us do some different things relative to our capital structure and how we're spending dollars.

I guess the last thing I would to add on this topic is, there is this macro shift of consumer behavior towards digital shopping experiences and digital experience in its whole. And I said earlier, we're still seeing that. We see it in Q3. We see it in Q4. It is just being overpowered by trend cycles. And the one thing I know about being in retail for a long time and I can tell you, our team here, we've spent a lot of time on this, feels comfortable with, is that trend cycles are just that. They are trend cycles. They will move, they will adjust. The question is over what time period and how far will they go. And will they move in our favor?

And this is where I look at a year ago in Q4, and we had a great Q4. And the speed of those changes in trend cycles just haven't moved in our direction, but they will. And that's the nature of good retail. That's the other overlay I think that we have to have out there is we have to have out there, as Chris said, we have to continue to make the right long-term investments to live in this new consumer empowered world. And we have, I think, to this point. We need to continue to be selective and appropriate about that, by managing the other capital expenditures that may not be quite as important at this point in time.

Next question comes from Pam Quintiliano from SunTrust.

Thanks so much for taking my questions, guys. Just had a few for you. You didn't mention weather specifically, even though a lot of talk surrounding mall traffic, so how are you thinking about the weather impact? And then if you could remind us, obviously it's come down over the year, specifically the hard goods, but what percent of goods do you have domestically that are colder weather related?

And then when we think about omni channel -- and we've all spent a lot of time talking about this on the call today -- but is there any way to quantify the performance or any way to frame the performance of online versus in-store for 3Q and November?

And then the last question, very commendable not to be reactive to the heightened promotional activity out there, especially because it seldom leads to a good longer term path. But that said, as we think about the remainder of this year and that heightened competitive environment, should we expect you may flex some more promos, or not asking what you're doing, but do something different other than the say, hey, BOGO 50 or what the consumer is more used to seeing to get them in the stores? Thank you.

Great. Thank you, Pam. Let me start again, and I'll ask Chris to add. So let me just say first on the inventory positioning and the offering is, you know us well enough to know that we're not we're going to -- we're going to do our absolute best to make sure we come out of this cycle with clean inventory positions. And we've been really good at that in the past, and I have confidence in our team here of merchants that we'll continue to perform at a high level in that regard.

So no, we are not going to do blanket promotions. I have to tell you that. It's just such a dumb thing. Because we have things in our business that are working well. We're not going to mark down the things that are working well. In fact, we're going to buy more of the things that are working well so we have them to sell at full price, whether that be fashion, trend categories or that be brand driven or item driven. So those things that aren't working, we're going to be targeted in our mark downs. We'll be aggressive in our mark downs. And we will clear through them. And we will do whatever the promotional strategies are that we need to do to clear through them.

And we're constantly, as you would guess, testing what those strategies are around the country all the time in small ways to determine what the best way is going to be to approach that by type of product. But they are targeted, focused. When we mark things down, we're marking down things because they're not working and moving through them. We're not doing blanket mark downs. So you're going to see no change in our position from that regard, other than we're going to do our best to come out of this cycle this quarter with as clean an inventory position as possible.

As it relates to mall traffic and weather considerations, we don't like to talk about weather, because it's always a weather issue somewhere. We have seen, though, as you would've guessed, where the weather has been colder and we've seen some snow, we are doing much, much better in our winter categories, whether that be the hard goods -- and I'll let maybe Chris talk about that in terms of magnitude -- whether it be the hard goods in our winter business or the outerwear jacket side, or even hoodies of our winter business.

And as you know, in large parts of the country, particularly in the middle part of the country, in the eastern part, it's been much warmer than normal, particularly relative to a year ago. So California has been disproportionately a strong performer for us through third quarter and here in November. It's had a pretty, relative for them, a colder winter and snow in the mountains. So that's part of it is that weather-related factor there.

But again, I could call out, as we already have, the currency factors. There's oil and gas factors in parts of the country. There's all sorts of issues we could talk about. We just have to find trend drivers, Pam, that are going to have a bigger impact for us than they're having today.

And then lastly, on the online performance, calling out the web business. I'll let Chris talk a bit about that. But I don't want to go there, because I can tell you that the consumers don't see the channels the way we used to. And as we spend our time, it's almost like we get trapped in thinking about these channels and they don't see them at all. And again, I want to really go back to this idea that everything is integrated. And when we run down, we run down online, particularly when it's trend-driven like this, just like we are in stores, maybe not as much online, but there's this overriding trend factor that drives all of it.

And yes, direct channels are gaining. They're going to. They've been gaining. They're going to continue to gain over the next number of years. It's about, though, building this world in which we don't see channels, because the customer doesn't see channels. And again, work with them in all new ways. That's what omni channel is about. And again, I'd be happy to spend a bit more time on that, if you'd like me to. But that's what it's about. Chris, you can add any color you'd like.

Just to wrap up on the omni channel piece of it, I just echo what Rick says. And when you think about this as all as one and one inventory pull and available to everyone through every channel in every way, it is hard to separate these channels from what is web and what is stores, because they are working in tandem together. But we do try. We do recognize sales on a demand basis. So where the customer originated the transaction, which can get murky, but as we look at it for Q3, the web was about 12.5% of our penetration compared to 11.3% last year, and for November, the web was about 17.9% compared to 15.7% last year. So we would expect that, as we move into Q4, especially in the weeks leading up to Christmas, that the web will over penetrate, and then the stores turn on as we get closer to the holiday.

For your other question, around hard goods spend. As you know, we've had a few winters here that have been pretty challenging. So over the last three years, we've seen this percentage come down. And I don't have -- I won't talk about what the forecast is for the fourth quarter. But as I look at last year, our true hard goods, as far as the boards and bindings and boots and things of that nature, was about 6% of our overall sales in the quarter, in the fourth quarter. So if you include the outerwear and the coats and some of the accessories that go along with it, it's about twice that. But some of those things are not just for up on the mountain. They're related to weather and some of the trends of that Rick talked about.

Okay. Thank you very much. Best of luck.

Thank you.

Next question comes from Betty Chen from Mizuho Securities.

Thank you. Good afternoon. I know, Rick, you mentioned that you'll be providing a more comprehensive strategy for 2016 in the later call, but I was curious if you could remind us, because I think you and the team have been very nimble in terms of looking at store leases, I think pursuing shorter term leases, when possible. Can you just remind us what percent of the fleet may have leases up for renewal in the next few years? Or what percent of the store base has these shorter term, more flexible leases?

Yes, I'd be happy to address that for you, Betty. And you're right, we have given some color around that over the last year or so in terms of our thinking about what we're doing. And as Chris said in our prepared comments, that our goal here is really about thinking about again a channel-less world and thinking about business within trade areas. And again, we could have a long, long discussion about how you define what a trade area is and looking at what total volume that takes place and how we interact with customers across multiple touch points in each trade area.

So this gets back to, as we think about the physical, again, this integration of the digital and physical touch points. This idea that what we're trying to do is optimize our portfolio stores to maximize volume in a trade area. And again, we're thinking about all new ways of measuring what that is and how we think about year-over-year gains in a trade area. And so you're going to see us -- we've been closing a set of stores every year. We're trying to evaluate and test some things as we do that, understanding impacts on trade areas.

And so rather than talk about what leases are going to come up in what time frames, we think about this a little bit differently. We're looking at a group of stores that tend to be the stores we are more concerned about their long-term role in a trade area. And most of those really function around volume sales at those stores. So what we're trying to do is drive those stores that we're most concerned about, those locations we're most concerned about, into very short renewal periods, anywhere from one year to two years, basically. And we're keeping a significant portion of our store portfolio that we're concerned about their long-term position relative to the trade area demand within that short-term realm of giving us the ability to look at what we need to do within markets.

Now in new stores, as you would guess, we also in our lease negotiations, we're also giving ourselves positions, and likewise, in many cases, our landlords that mutual option to reevaluate where we're at in terms of volume and locations within a certain number of years post opening of a location. Which is addition to this group of stores we're trying to risk manage in terms of our ability to exit, should we see, over the next five years, trade area the way we're adapting and as volume moves into the digital realms, that we need fewer physical stores to maximize volume in the trade area.

So it's really about us evaluating in a market, where is each center at, each location at, and determining whether or not -- what our comfort level is on the long-term sustainability of that location. If we're not comfortable with it, then we're keeping it in the shorter term group of stores.

Okay. That's very helpful. I was also curious, I know in the omni channel world, there's also been quite a bit of discussion regarding the shift between mobile and desktop in the digital world. Can you talk to us anything that you may see differently, specifically we've been hearing that mobile traffic is increasing even more rapidly, but then there are some concerns in some occasions on the conversion for mobile traffic. Any sort of insights you can help us in terms of what you're seeing and where do you also expect that pace of change to occur going forward?

Great. I will give that a shot, Betty. I will tell you first off that we are no different than pretty much every company out there. The mobile traffic is growing vastly faster. In fact, desktop traffic is declining. What you see is mobile traffic, defined primarily as phones, secondarily as tablets, but primarily phones.

Let's talk about why that is, in phones. It's because in an omni channel world, what's the one device -- we talk about digital contact points that lives with all of us every day. It's our mobile device. We have it on us all the time, usually in our hands at all times. I don't right now. I'm actually paying attention to this conversation. I hope you're paying attention to me now, Betty, and not on your mobile device. But it is about centering in on the mobile device.

I can tell you, this is a lens we use for everything we're doing is what is our consumer doing in the mobile world and what are their actions? And this is one of the reasons conversion is low in the mobile world, is there will be different ways that they engage with us in a mobile device than they would on a tablet or a desktop. Particularly for our consumer who are at the younger end of our range, where they don't have a credit card. So this is where, I think particularly for us, mobile conversion rates look low, because they might do the shopping or do the surfing or social network media networking with us on the mobile device which will tie them back into our digital web business, but then it might be mom and dad who come back later to make a purchase, whether it's on a mobile device or a desktop.

So one of the reasons conversion looks low is that I think a mobile device, is because it's an integrated shopping experience, again, across multiple devices, including the physical store. And we know that for a fact through our loyalty program. We can see these connecting points for what we're doing and how we drive activity out there that stores close a lot of those sales, because they're very targeted in what they do. So you have to think about this not only relative to the digital world, but relative to the physical world, too.

So our goal is what are our consumers using mobile devices for and then how do we attune what we're doing for their specific needs in our mobile world? And so there will be lots of evolution around this. We have, like everyone else, I think a lot to learn in this area. But the mobile traffic is growing at amazing rates.

Okay. Great. Thank you. Best of luck for the holidays.

Thank you.

Next question comes from Jeff Van Sinderen from B. Riley.

Just a follow-up, since we've been talking about, a lot about omni and digital. And just wondering how you're thinking about what the key incremental things are that you'd need to put into place to moved your omni digital position further forward? And then as another thing, is there anything you're seeing as you look at spring that makes you more optimistic about fashion trends emerging in your favor? Thanks.

Thank you, Jeff. I'd be happy to spend a few minutes with you on omni channel here. And let me even back up a little bit further and then we'll talk little bit about what we're doing in omni. And I'm not even going to be very specific, because I think this is a competitive advantage for us. I think we are one of the leaders in omni channel retail in the specialty retail world. So let me back up a little bit, and then I'll talk a bit more about some of the things we've done.

But for me, omni channel retail, I just want to be clear about this, is not just about technology. It's really also about people and a fundamentally different way of thinking about your relationship with your customer. It gets back to what we were just talking but a few moments ago, about thinking about, we don't think about stores or digital channels, we think about a trade area and all the engagement touch points we might have with a customer in the areas that they live. That's a whole fundamental mind shift that has to affect everything, for example, incentives and how we think about incenting teams in this world. So omni channel, again, it isn't about technology. This is as much about people, both customers and our own internal people, and this fundamental mind shift in how you think about engaging with your consumer.

And the consumer, to be clear, is driving this experience. And I think the best retailers have been, including ourselves, have really spent the past six years running as fast as we possibly can, just trying to keep up with consumer behavior. And I will tell you, this is the one area that I feel tremendous pressure is that I always feel like we're never going fast enough. Because the consumer is still evolving at such an amazing pace here.

So for me, omni channel is really about this idea of bringing your brand alive at every consumer touch point, digital, physical, it doesn't matter, every touch point. And if you have a strong band position, then what omni channel's really doing, another way of saying it is what omni channel is really doing is amplifying that brand experience for you across all these touch points, again physical and digital. Our people are a huge part of that. I'd just really like to make that clear, because that's one of our historical strengths is the quality of our sales team.

Omni channel is another way of unleashing the power of our great sales team that we have out in our stores. And the majority of contacts are still taking place in our physical stores. And it's also about leveraging what's been a 30-year investment for us in the training and development and recognition programs that we have in place. And as you can believe, we are evolving those programs for this new world.

So let me tell you a little bit about our chasing of omni channel over the last few years. For me, this really started in the fall of 2008, when Troy, who runs our omni channel platforms here and leads our web team, showed me his first Google Nexus phone. And with the shopping app, I remember this so vividly, we scanned a UPC code on a jacket we had in the office on one of our brands. And of course, it did what a shopping app does, it shows you who got it digitally, who has it physically, and what the price is on a comparative basis. And that moment, in the fall of '08, we pretty much knew that the whole world had just changed.

We spent 2009 planning and really think about omni channel strategy. 2010 really began our execution point, Jeff, for saying, okay, we've got to go now. We've got a lot of work to do. And from 2010 to 2015, that work included a lot of new systems and new processes. For example, and you've heard me talk about this for years, but the importance of micro sorting planning tools, of thinking about planning in all new ways. And the investments we made here and from a technological point of view have been hugely important. And I think we have some of the best micro assortment tools in specialty retail today. They've been finely attuned, essentially custom developed, at this point, for our business. Because we're very unique in the number of brands we handle and how we micro assort, literally location by location for what we do.

So a new web platform is part of it, a new order management system is part of that. We, of course, have all new sales programs. And we refer to them -- we have acronym -- we refer to them on, but it's effectively about unleashing the power of our sales teams. And so we are through our fourth version of those incremental sales programs in omni channel, in the omni channel world. We have many more to come, as we've laid out our road map going forward, again, about how does omni channel unleash the power of our sales teams.

We also are completely revisiting our training for internally stored, to make sure that our training and our sales training reflects the need for a new kind of integrated digital physical experience for our customer. So we're in the process of doing that right now. Last few years, we've also had a major project in the way about reevaluating our brand positioning and making sure that our brand definition was aligned with this new consumer empowered world that we're working in. And I tell you, we feel very good about that process. We've deeply socialized it throughout the whole Company.

So those are a lot of the big things we've done over the last four and five years. Now e have really clear road map, Jeff, going forward for omni channel. Very clear, discrete objectives that we need to achieve. The efforts in front of us include more sales opportunity through more sales programs that we believe we can roll out in the omni channel world to serve our customers better. We intend to be faster and more locally aligned in terms of absolutely every aspect of our business for our consumer. We talk about everything we need to do needs to be same-day and next day product availability or experienced driven for our customer.

So as I said we're better aligning the brand experience through training in the omni channel world. I mentioned earlier, we're rethinking all of our incentive programs to live in this new kind of world. And you're going to see us roll out more technology. I mentioned the importance of assortment planning and investments we made there. New order management systems, our new web platforms. You're going to see us, again, incrementally roll out more technology in support of this omni channel world. It will include things like enhancing our assortment planning tools, continuing to be able to plan in different ways for this customer. We'll plan for all sorts of new types of inventory buckets. We're going to have so many additional views of inventory. We already have a lot today. You're going to see us have a lot more and to be able to serve the needs of the customer. And again, under that premise that we're going to be same-day, next day on everything we own.

All new process improvements. You're going to see a lot along those lines. I can guarantee you, we're going to lead the way in a lot of this, in a lot of things we're doing. And as I said, Mike, as I said a moment ago in talking to Betty, we view mobile as a lens that we must see everything through. We're coming up with new lenses, like a mobile lens, that we're going to see our business through that will be applied in this omni channel world.

So I'm not going to get down to specifics of what we're doing, because that gets to be a competitive advantage for us, at this point. And I can tell you, we've driven millions and millions and millions of dollars worth of business over the last five and six years in omni channel efforts. We will drive a lot more over the next five and six years that we do this. I'm very comfortable we're leading the way. And as we think about omni channel here within the specialty retail world. And again, it's this idea of how omni channel is unleashing the power of great brand and great culture. Does that help?

Yes. That helps a lot.

Now regarding spring, I'm not going to get into what we're going to thing about spring at this point, other than I will harken back to the comments made earlier about how we're going to hopefully anniversarying some of these trends that have been really big drags for us. So maybe what I can offer you, Jeff, is maybe we'll find the bottom as we anniversary these really big trends from a year ago when we comped up really strong. But that's not where we're at, to be clear. That's not the goal is to find the bottom. The goal is to move forward on things that we can drive more volume with. And when we find them, this is where the omni channel model will allow us to maximize every trend item that we can drive.

Okay. Great. Thanks very much and good luck for the rest of the quarter.

Thanks, Jeff.

Final question comes from Adrian Yu from Wolfe Research.

Good afternoon. Most of my questions have been asked and answered, but I did have a question on the inventory. I know you've historically been exceptionally good about keeping that inventory nice and tight and clean, especially entering the new year. So when you think about end of fourth quarter, how should we think about that inventory, either per square foot or inventory per store? And then can you remind us, I seem to recall you didn't have much issue with the port last year, but could you remind us if you do have any year-over-year impact from the port that we should model in and consider in Q1? Thank you.

Yes. Thanks. From inventory perspective, you know our historical practice has been to be very clean with inventory and not to hold onto it longer than we need to. So as you saw in the third quarter results, even with our challenging sales results, the team did a really nice job of managing inventory. It was basically flat overall on a GAAP basis and up about 4% on a constant currency, showing the growth was store growth, but even managing it beyond that. So as enter the fourth quarter, we are being very cognizant of our inventory levels. Today, we're more current than we were a year ago, but we've got some work to do with the November results to continue to move through that inventory over the rest of the cycle.

So our goal has always been to grow inventory -- or to grow sales faster than we grow inventory. And we're going to work really hard to doing that as we move through the quarter. From a Q1 perspective, in the port, I would tell you, our brands that we work with did a great job of managing through that last year, but we were not immune. We did have slowdowns in the port that definitely impacted sales at certain parts of the first quarter. So we will be anniversarying that as we go into this year and as we go into this Q1 of 2016. And as we get more clarity around that in March, we will be happy talk about what we think that means.

Okay. Great. Thank you very much. Best of luck.

Thanks, Adrian.

I would like to turn the call back over for closing remarks.

Thank you, everyone, for joining us today on the call and we appreciate, as always, your support and the good quality of your questions today. And we'll look forward to talking to you in March when we report our fourth quarter results. Have a happy holiday.