Good day, everyone, and welcome to the Carter's Fourth Quarter 2016 Earnings Conference Call. On the call today are Michael Casey, Chairman and Chief Executive Officer, Richard Westenberger, Executive Vice President and Chief Financial Officer; Brian Lynch, President; and Sean McHugh, Vice President and Treasurer. After today's prepared remarks, we will take questions as time allows. Carter's issued its fourth quarter 2016 earnings press release earlier this morning. A copy of the release and presentation materials for today's call have been posted on the Investor Relations section of the Company's website at www.carters.com. Before we begin, let me remind you that statements made on this conference call and in the company's presentation materials about the company's outlook, plans and future performance, are forward-looking statements. Actual results may differ materially from those projected. For a discussion of factors that could cause actual results to vary from those contained in the forward-looking statements please refer to the company's most recent Annual Report filed with the Securities and Exchange Commission and the presentation materials posted on the company's website. On this call, the company will reference various non-GAAP financial measurements. A reconciliation of those non-GAAP financial measurements to the GAAP financial measurements is provided in the company's earnings release and presentation materials. Also, today's call is being recorded. And now, I would like to turn the call over to Mr. Casey.

Thanks very much. Good morning, everyone. Thanks for joining us on the call. Before we walk you through the presentation on our website, I'd like to share some thoughts on our business with you. Earlier today, we reported exceptionally good growth in our fourth quarter, and a record level of sales and profitability for 2016. This was our 28th consecutive year of sales growth and a significant year of progress for our company. In 2016, we outperformed the macro trends in the retail apparel industry. We strengthened our eCommerce capabilities and tested a more productive retail store model. We established a direct relationship with Amazon and launched new wholesale operations in China. We expanded our direct sourcing capabilities in Asia and negotiated lower product costs for 2017. We're also announcing today the acquisition of Skip Hop, one of the fastest growing and most recognized global brands for families with young children. We believe Skip Hop will provide a meaningful source of growth for us in the years to come. We expect 2017 will be another good year for us. We are planning good growth in sales and profitability. Our domestic and international wholesale sales are planned lower this year given the challenges faced by our wholesale customers and international partners. We expect our retail businesses will drive the growth in our company this year. As we begin a new year, it's good to reiterate that our vision is to be the world's favorite brands in young children's apparel. To achieve that vision, we are focused on three key strategic priorities: The first is to provide the best value and experience in young children's apparel. The second is to extend the reach of our brands, and the third is to improve profitability. Last year, Carter's was, once again, the only apparel…

Thanks Mike. Good morning, everyone. I'll begin my comments on page 2 of this morning's presentation materials with some highlights of the fourth quarter and fiscal 2016. We had a strong fourth quarter. Our performance was above our expectations, largely due to stronger top-line net sales. Consolidated net sales grew 8% over last year and adjusted EPS grew 28%. Fourth quarter capped off another good year for us. Full year net sales grew 6%. We made continued progress in growing our adjusted operating margin and adjusted EPS grew 11% to $5.14. We also had a solid year of investment in the business, which we believe will strengthen the company over the coming years, and we returned a meaningful amount of capital to our shareholders. On page 3, we've recapped our year-over-year sales performance in the fourth quarter. Our Carter's businesses in the U.S. grew 7%, reflecting growth in each of the stores, ecommerce and wholesale channels, with particularly good performance in our retail businesses. Net sales of the OshKosh brand in the U.S. grew 8%, driven by higher sales in our stores and online. International posted another strong quarter of growth at plus 13%. Canada led the way with very strong sales in both stores and online. I'll speak to our business segment results in more detail in a moment. Turning to our fourth quarter P&L on page 4, building on the 8% growth in net sales was an expansion in consolidated gross margin of 190 basis points to 43.9%. This performance reflects favorable channel mix and product costs versus a year ago. Adjusted SG&A grew 9% in the fourth quarter. I'll provide some additional color on SG&A in a moment. Royalty income was comparable year-over-year, largely a result of recent initiatives to in-source formerly licensed product categories. Our weighted…

Thank you, sir. And for our first question, we go to Susan Anderson with FBR Capital Markets. Susan K. Anderson - FBR Capital Markets & Co.: Hi, good morning. Congrats on a very nice quarter.

Thank you. Good morning Susan. Susan K. Anderson - FBR Capital Markets & Co.: Good morning. So I was wondering if maybe you could just give a little bit more color on the guidance, just kind of your thoughts around, I guess, driving the pickup in wholesale in the back half. Is it mainly replenishment that – so are you seeing the department stores kind of order less and then replenish, so they don't have to basically manage the inventory? And then also the switch to just more sales in the back half, does that mean that you're just becoming more levered to like back-to-school and holiday?

I think those effects (31:05) in our retail business; retail is becoming a bigger proportion of the pie and those businesses have always been more weighted towards the second half, Susan. On wholesale, one of our assumptions certainly is that replenishment trends will help us as we get to the back half of the year and also our assumption for pre-ships for spring 2018. And in some cases, I think we're resetting the base with some of these wholesale customers and we're expecting to grow from this lowered base in 2017. So the year-over-year comparisons become a bit more favorable in the second half of the year. Susan K. Anderson - FBR Capital Markets & Co.: Got it. That's helpful. And then if I could just throw in one more on Skip Hop. It looks like a very nice acquisition, looks like a very nice brand. Maybe if you could give any color to some of the margins, the accretion and just kind of where the biggest opportunity of distribution is, where you guys overlap now, and then just longer-term what the sales opportunity could be?

Sure. On the first part of the question, it's about a $90 million contribution to net sales this year. They have plans to do more than that in fiscal 2017 but obviously our benefit is only for a portion of the year. It's a nicely profitable business, I'd say, double-digit EBITDA margin. We expect that will improve over time as well. The profit contribution to us this year won't be that meaningful. Two factors there, just the partial year contribution, as well as some integration and transition expenses that we're expecting for the year. But, going forward, we think it will be a nice contributor both to the top line and to earnings. As it relates to overlap, it is mostly a wholesale business today. We certainly have wholesale relationships with a number of their existing wholesale customers. We intend to both help them grow and develop those relationships. There's likely additional accounts that they are not in today that they would look to enter over time. They have a very nice international business as well and I would say most of those relationships are not relationships that Carter's has today. So we think that's an opportunity to perhaps introduce Carter's and Oshkosh in some of those wholesale accounts overseas. But, clearly, there is a very significant direct opportunity with our stores as a channel distribution and on carters.com. I think those will be early areas of emphasis for us. Susan K. Anderson - FBR Capital Markets & Co.: Great, sounds good. Good luck next quarter.

Thank you, Susan.

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

Hi, this is Ryan Wallace on for Kate. Just talking a little bit more about the 2017 top-line guidance, understanding you are getting a little bit of contribution from Skip Hop there but could you just talk about any of the potential drivers that you think could sort of bring sales in closer to the higher end of guidance?

I think in broad strokes, Ryan, we're planning the U.S. wholesale business down in the low single-digit range. International is in the low single-digit range as well and most of the growth coming from our U.S. retail operations, which is a combination of stores and eCommerce that will be in the high single-digit area. I think a lot has to do really with consumer traffic in the stores, that has been a key variable in past months. We expect if the consumer comes out then that could trend us towards higher comp performance in our direct businesses. And certainly if things start to run in wholesale we have that opportunity with our wholesale replenishment business as well that we could eke out a bit more revenue there. That certainly would be our hope.

Thank you.

You're welcome.

And for our next question we go to Steph Wissink with Piper Jaffray. Stephanie Schiller Wissink - Piper Jaffray & Co.: Thanks. Good morning, everyone. Just a couple of questions. Richard, if you could just remind us the productivity of the co-branded and the side-by-side versus your traditional legacy retail model that would be really helpful? Thank you.

Sure. The new co-branded store format is about 5,000 square feet. The side-by-side model, which we've been opening in the last couple of years is something close to 7,000 square feet. CapEx investment is a little north of $400,000 with the co-branded store and it's $650,000-ish in the side-by-side model. So a very, very productive model. We target something like about $1.5 million on the top line for a co-branded store. It would be close to $2 million for the side-by-side location. Both generate good returns, we would target four-wall margins in the, I would say, low 20% range with higher returns on investments in both boxes, with the co-branded box being an ROI well above what we're seeing in the side-by-side format. Stephanie Schiller Wissink - Piper Jaffray & Co.: And just a follow-up on Amazon, it sounds like you started shipping that in the latter part of last year. Can you give us any early reads on what types of products, if it's similar to your wholesale or retail businesses, or if there are expanded basket opportunities in that online format?

Yes, Steph. We typically try not to comment on specific accounts but here is what I would say. Our strategy has always been to have a good presence of our products wherever mom wants to shop and Amazon owns about 3% of the market share right now and growing quickly, as we define it. So we're excited about the relationship. We see Amazon as a good component of our very profitable $1.2 billion wholesale business but we're really in early days on this one. We began selling unique configurations of existing core products on the site in the fourth quarter. We had good performance, not unlike a lot of other retailers, things like sleepwear outperformed online, but it was a small part of our business and we're really happy with the response to date. We're going to ship more later this spring. We have plans for mid to late spring additional products going to Amazon, which would be differentiated experience from what we currently have with other customers in terms of configurations, and we'll share a little bit more about that on an upcoming call. Stephanie Schiller Wissink - Piper Jaffray & Co.: Thank you. Good luck, guys.

Thank you.

And we go next to Anna Andreeva with Oppenheimer. Samantha Lanman - Oppenheimer & Co., Inc.: Hi. This is Sam Lanman on for Anna. Thanks for taking our question, and congrats on the quarter.

Thank you. Samantha Lanman - Oppenheimer & Co., Inc.: A question on the 1Q guide. In addition to later tax refunds, how do we think about later Easter impact to both retail and wholesale? Do you expect trends to improve in retail, as the quarter goes on, and are there any timing shifts in SG&A that's driving down earnings during the quarter?

A couple of things. We'll chunk this up, a lot of different questions. As far as the Easter shift, we think it's about a 1.5 to 2-point impact on our direct business for the first quarter because as you know, you've gotten Easter shifting out and moms, they need to shop for that. But we've also got movement in spring breaks, which impacts our tourist doors. So that clearly has an impact in the quarter.

Say, on spending, there is a few things. I don't know if it's so much timing as an affirmative decision to invest more in the business. Certainly, marketing is an area of emphasis. So we're spending or allocating more on the marketing front in the first quarter. You have the ongoing effect of new stores, which has the effect of driving up SG&A. And then I'd say additional investments in technology, particularly in the retail area that we've been continuing to invest behind, omni-channel, some of the additional systems capabilities around assortment planning, pricing and those capabilities. And then you have the ongoing ramp-up of operations in China. All of those are negatively affecting SG&A in the quarter. Samantha Lanman - Oppenheimer & Co., Inc.: Okay. Thanks. And if I could just sneak in one more? On gross margins, there were really strong results there, and inventories look clean. Can you talk about the puts and takes on the gross margin line as we go through the year? Thank you.

I think, overall, in the fourth quarter, the contribution to improved margins was kind of evenly split between improved pricing, lower product costs, the ongoing mix shift to our higher gross margin retail businesses and those effects are anticipated to continue in 2017. The big drivers are favorable outlook on product cost. We are assuming that we will have some modest amount of improved pricing across our businesses in 2017. Those are the significant contributors. Samantha Lanman - Oppenheimer & Co., Inc.: Thank you so much.

You are welcome.

And we go next to Robby Ohmes with Bank of America Merrill Lynch.

Good morning, guys. I was wondering if you could give us a little bit more detail on Skip Hop and sort of what the synergy is going to be with the Carter's business. How will you distribute that product? I'm expecting it will go in your stores, etc.? And also maybe sort of the impact to gross margins and SG&A, how it looks versus your Carter's existing business? Thanks.

Good morning, Robby. So we started taking a look at Skip Hop last year, terrific brand, well known to a lot of people here in our office as we got to know a little bit more about the brand and the owners, the management team, we liked what we saw. If you were to go into our stores or on our websites now, you would see some of the products that Skip Hop sells. I would actually say Skip Hop does a very nice job on some key product categories that I would say are essential products for families with young children. So, as we put Skip Hop through the acquisition screen that we've had over the years, it met all four of the acquisition criteria. It's a logical product adjacency. It's got a first-class management team. It's got a very nice track record of growth, and we expect it to be accretive in its first year. So, we plan to double its sales and earnings over the next five years. As Richard said, we'll make some investments this year to help integrate it into Carter's. I'd say the big opportunity is marketing their brands to our 12-plus million consumers. And so, I think, what attracted Skip Hop to us is that we've developed a first-class retail business over the years. Their business is largely a wholesale operation. They have a little bit of eCommerce but certainly nowhere near the capabilities that we've built over the years. So my hope is later this year you'll see some of the beautiful Skip Hop product in our stores. We plan to add another tab to our website to show the full scope and beauty of the Skip Hop brand online. And then we're going to help them. They have good initiatives underway to strengthen their wholesale business. They are pursuing two major retailers. We will do what we can to help them do business with those retailers. And then the International business, as Richard said, they actually have a higher mix of international sales than we do. So when we looked at the scope of their international operations and the relationships they developed, we felt as though that was an opportunity perhaps for us to learn a little bit more about some opportunities for our brands outside the United States. So we're excited about it. We just completed the transaction yesterday, and next week we'll be meeting with all of the Skip Hop employees and welcoming them to Carter's and getting to know them better and understand some of the opportunities a bit better. So we'll keep you updated as we go through this year but it's a nice addition to our business.

Sounds great. Thanks.

Thank you, Robby.

And we go next to Jay Sole with Morgan Stanley. Jay Sole - Morgan Stanley & Co. LLC: Great. Thank you. I just wanted to ask about China. You mentioned that with your partner you opened about 40 stores just in Beijing. Can you maybe talk about your long-term goals for China? What kind of store potential you see on the big picture basis? What kind of market share you think the Carter's brand is capable of taking in China?

Sure, so just to be clear, the plan is for Pou Sheng to open 40 stores this year and the focus is on Tier 1 cities. We've seen with the 9 stores that they opened last year we were seeing better performance in the Tier 1 cities versus the Tier 2 cities. That makes sense to us. I think the brand has – the Carter's brand has more recognition in the Tier 1 cities. So they are focusing their efforts to open stores in and around Shanghai and Beijing. I'll be heading over there next month to see the new store opening but Pou Sheng is a first-class company. They know how to open up stores that represent great U.S. brands and the potential if these early store openings meet their investment objectives, the plan is to open up 200 or more stores over the next five years. So we think it's going to be a nice source of growth. We think it's probably somewhere in the range of $80 million to $100 million. Our goal was to have it be at least $100 million but it's early days. We're trying to figure out what's important to the consumer. It's clear based on the selling we've seen to date both on Tmall and in the Carter's stores that they love the baby product offering. That's by far the best performing component of the product offering. Some of the opportunities – they clearly have a need for more cold weather gear than we offered last winter, so that's an opportunity. And then the other thing is the Chinese government imposed new regulations on children's apparel last summer. So we're working to make sure that we comply with those standards. It's a huge market. It's a wonderful opportunity for us. But, suffice it to say, it's not an easy market. So we're going to build the business thoughtfully and over time. But we think it's a good $100 million opportunity for us over time. Jay Sole - Morgan Stanley & Co. LLC: Great, thanks. And if I could ask one more. The tax refund situation is interesting because in a few weeks, the tax refund checks will come and, obviously, there will be a makeup from what maybe is being lost over the last few weeks. Would your expectations be that people will spend what they would normally spend in March and then on top of that spend also their tax refund check? So essentially you recover whatever you are losing in the last few weeks, or are the sales being lost in February simply gone and then you will just have to – people have their normal spending patterns going forward?

No, more the former. We think there's going to be some good pent-up demand in March. March is, in terms of sales, is larger than January and February combined. So there was no shortage of articles in January talking about the IRS intentionally delaying refunds to families with young children claiming the additional child tax credit and it's tens of billions of dollars that have been delayed. And then, we had a good President's Day weekend and the closer we get to the end of February, business trends have improved. And so, we're expecting a good March and the closer you get to spring, we've got a beautiful spring product offering, so we're expecting a good March. And by the time we update you again at the end of April, we'll have Easter selling on the books and so we're expecting that we'll have a good first four months of the year. Jay Sole - Morgan Stanley & Co. LLC: Got it. And then, if I can just ask one last one. Just on Skip Hop, do you plan on re-branding any of the Skip Hop portfolio to Carter's and OshKosh?

No.

No. Not currently. It's a great brand. I think it's got strength on a standalone basis. Jay Sole - Morgan Stanley & Co. LLC: Okay. Thank you so much.

And we go next to Jim Chartier with Monness, Crespi and Hardt (sic) [Monness, Crespi, Hardt]. Jim A. Chartier - Monness, Crespi, Hardt & Co., Inc.: Good morning. Thanks for taking my questions. First, on Amazon, do you expect the contribution will be bigger in the second half of the year than the first half of the year?

Yes, we do. Jim A. Chartier - Monness, Crespi, Hardt & Co., Inc.: Okay. And then, on product costs, Richard, can you give us a sense, is the favorability similar to what you saw in 2016 or greater or less?

I'd say it's similar in terms of percentages. Jim A. Chartier - Monness, Crespi, Hardt & Co., Inc.: Okay. And then, the systems you mentioned to improve the store productivity, the pricing and store labor, what's the timeframe for when those systems will be fully rolled out and what kind of benefit do you think you'll get from them?

Well, ultimately, we hope that sales and margins improve in our retail operations. That's why we're making these investments. And this has been an area that we've been investing in. I'd say, a good portion of our omni-channel agenda we invested in 2016. Some of those capabilities will come online over the course of 2017. I'd say around assortment planning, pricing, inventory management, those are capabilities that we will be building over the course of this year for an intended implementation in 2018 so that the benefit will really come probably more next year than this year. But these are complicated implementations and we have the teams working on those this year. Jim A. Chartier - Monness, Crespi, Hardt & Co., Inc.: Okay. And then on Skip Hop, any categories that are currently licensed for Carter's or OshKosh that you think Skip Hop has the capability to help you bring that in-house now?

Yeah, Jim, we will take a look at that. There are some things they do a very good job of that we have traditionally had licensed, so we will take a look at that. We do have existing license agreements that we certainly expect to honor and our partners we work with have done a good job. So we'll take a look at what the best decision is for the company overall but they have some unique expertise that we're excited about. Jim A. Chartier - Monness, Crespi, Hardt & Co., Inc.: Great. Thanks and best of luck.

Thank you.

And we go next to Steve Marotta with C.L.K. King and Associates (sic) [C.L. King & Associates]. Steven L. Marotta - C.L. King & Associates, Inc.: Good morning, everybody. Thank you for disassembling in a detailed manner how comps have trended year to date and why you think it's going to improve. Have you heard anecdotally similar dynamics within the wholesale channel for similar reasons? And as a follow-up, are you expecting, on a net basis, a positive comp at company-owned retail in the first quarter?

So on the first; we have visibility to how our brands are doing at wholesale every day. So, at least, once a week we do a deep dive to understand how their performance has been trending and I would say they've had – that we've seen similar effects of the delay in tax returns in their business that we've seen in ours in terms of children's apparel. And I would say, based on what we see right now, my guess is for the first quarter we'll have negative retail comps because of what we've seen in January and February and the delay in Easter. Our plan is by the time we update you again in April, with Easter behind us, that we will have positive retail comps. Steven L. Marotta - C.L. King & Associates, Inc.: That's very helpful. Thank you.

And we go next to John Kernan with Cowen.

Good morning, everybody. Nice quarter.

Thank you.

I guess, one of the bigger picture questions I've had is, Carter's wholesale operating margin I think is up nearly 500 basis points the last two years in the face of a lot of disruption in the U.S. wholesale channel. Can you talk about the drivers of this and how durable the expansion is here? How much higher margins can get in Carter's wholesale? Is it product costs? Is it mix? Is there some type of supply chain efficiency? What pushes Carter's wholesale operating margin higher at this point?

Yeah, John, a couple things. It's been a very good business for the company and we always say, when you get the wholesale business right, it's a beautiful thing. So the drivers of the margin, it's basically a leverage model, where we sell more into the accounts, but we're not adding a lot of SG&A in wholesale. We do invest on the floor for presentation, and in the eCommerce sites with our customers to make sure that we look great wherever mom wants to shop for our products. There has been product cost favorability, so that has also helped the models. But I would say in totality it's really a leverage model and some favorability on the product cost side that has driven the profitability.

Okay, thank you. And then, I believe in your guidance you are excluding some of the one-time acquisition costs related to the acquisition. Can you talk – is there any contribution from an EBIT or EBITDA perspective this year?

We believe there will be, but very modest. If it is more significant than we are anticipating, we'll share that with you.

Okay, thank you.

Sure.

And we go next to Ike Boruchow with Wells Fargo.

Hey, good morning, everyone. Thanks for taking my question. Very nice Q4. I guess, Richard, my question was, can you just help us reconcile the commentary you made around the U.S. wholesale, spring and fall books? I think you said down, order books down mid-singles but you are guiding the U.S. wholesale down low singles. Just what are the puts and takes there, just so we can kind of get a better understanding of what's going on there?

Well, the comment on down low-single digits is a combination of Carter's and OshKosh together for the full year, and there is some fiscalization, if you will, of our bookings numbers so there is some portion of spring bookings, for instance, for 2017 that went in the fourth quarter of 2016. The same is true for the following seasons as well. So all of that kind of boiled together with what we recognize in terms of our shipments, a combination of Carter's and OshKosh, we think that's down in the low-single digit range for fiscal 2017 revenue.

We're also expecting the replenishment business to help bridge it up to low-single digits. Replenishment business was particularly strong in the fourth quarter and we'll re-launch the Little Baby Basics brand in the second quarter and we expect to see a good lift in sales from that launch. That's the high-margin baby replenishment business.

Got it. Very helpful. And then just in terms of what's driving the order book down, I think you mentioned the department store – I'm sorry, the mall-based partners you have. Is it really just that channel or is it also – when we think about mass versus department store, I'm just trying to understand the different channels within your wholesale business and kind of what your outlook is there?

Ike, there's a lot of moving parts, we try not to comment on any one customer. But I would say in totality, the vast majority of the decline has been with the mall-based department stores. Without the decline in that component of the business, our Carter's wholesale sales would actually be up this year. But we've got a number of different customers, a number of different channels, people with different strategies and some are growing and some aren't, obviously. And I think it's fair to say overall in the market, it's been a struggle for a lot of folks out there. So you put it all together with the things that Mike and Richard commented on, we have that going for us. We have also got some licensed products that we now sell direct, our replenishment businesses and, of course, the new Amazon relationship. So, our goal is to, long-term, continue to grow that wholesale business low-single digits this year. We're under a little bit of pressure, so we're expecting to be down low singles.

Got it. Thanks. And this is the very last one. The $90 million is what you are recognizing for Skip Hop this year. What would that – if you did own it for the entire year, can you tell us what that revenue number would be?

North of that. I think we will share the full year number when we have owned them for a year.

Okay. All right. Thanks, guys. Congrats.

Thank you.

And we go next to Rick Patel with CLSA.

Thank you. Good morning, everyone, and congrats on a nice holiday quarter. I was hoping you could provide more granularity on the impact of Skip Hop. So it's adding about 3 points to your sales growth this year and it has pretty healthy margins. So, I would expect it to have a more material impact to earnings versus what's being implied. Are there certain timing elements or seasonality that are coming into play here that are holding down the benefit this year? And is it safe to assume that the benefit of this deal will accelerate as we think beyond 2017?

I think more of the contribution will come in the second half of the year and, as we said previously, Rick, it's a bit of investment and integration spending there early on. So building the capabilities, for instance, to offer their products in our stores and on our websites, there is some investment that's required. There is some additional investment around making them a division of us as a public company and adding them to our financial system, all of which we will have that investment spending that will mute a bit there the profit contribution. But we think it certainly will be solid once we're through some of that investment.

And can you provide some more details on the drivers of comp during the quarter? As we think about DTC as a whole, how much of your growth is driven by traffic versus ticket and conversion? And, as we think about 2017 comps, what do you expect will be the biggest drivers and is there any lumpiness to look out for this year aside from the Easter shift?

No. So, we don't normally parse out the details of conversion and comp. I would say that performance drivers, we always look at the fact that we expect our product to perform better. We have improved product offerings with our seasonal transitions, our inventory management, our omni-channel efforts. We're really excited about our new co-branded model, which is more efficient. We're working on things like price optimization and then we have – we've increased our marketing spend significantly. We are growing marketing much faster than we are the rate of sales which we think provides a good benefit and a real nice lift in the fourth quarter. So all those things together we think are drivers. Obviously, we become more of a retail business, so you're going to see performance better in the second half of the year when there is more demand and you've got the weight of the new store openings and the costs associated with them in the first half. So that mix is affecting us as well.

Yeah. Two things we are keeping an eye on. We are very pleased with the comps from the co-branded and side-by-side stores. And so we continue to see better traffic to those stores relative to the outlet stores. Within the outlet stores, we're seeing a return of performance to the big Florida stores, Orlando, Miami, Sawgrass. Those stores are doing better. Where we are not doing better is on the border stores. So that has been a source of weakness. Those stores are comping down and given the issues between our country and Mexico, the devaluation of the pesos, we're seeing weakness on the border stores. So those are the things that we are keeping an eye on. Whether or not the international consumer starts coming back and that improvement in Florida is sustained and whether or not the border stores bordering Mexico improve or further deteriorate, so we're taking those things into consideration.

Thank you for the color. You know, Mike, as I think about the other side of the equation on wholesale, how much of your business represents the mall stores versus the mass channels, as I think about which side is healthy versus the one that's struggling a bit.

Well, we don't refer to mass separately. It's one wholesale segment right now, but if you're referring to Walmart and Target, those are two of our largest customers. Target, Walmart, Kohl's, those are our three largest customers.

Great. Thank you very much.

You're welcome.

And we go next to Janet Kloppenburg with JJK Research.

Good morning, everyone and congratulations. Just a couple of quick questions, given the picture on the international customer, maybe you have always said but I'm not sure what your outlook is for that for the outlet business in the International segment in fiscal 2017? And then, lastly, your SG&A grew about 10% last year. I believe your guidance assumes that operating margin will be up in fiscal 2017 year-over-year, but I'm just wondering, if we'll see more of that from gross margin as close to SG&A or if there will be some contraction in the growth rate of the SG&A. Thank you.

Janet, on the dynamics of the P&L, we are expecting very good gross margins expansion. I would say, healthy SG&A growth in 2017, but really driven by our investment agenda. Boil it all together, we are hoping for some moderate expansion in operating margin in the core business and we will see what the impact is with Skip Hop over time, but in the core business we are planning for operating margin expansion.

In terms for international customers, we have seen a nice rebound in international customers on our websites, improved in Q4. It's actually been up of late, so we feel good about that. We feel that's come back and just to reiterate what Mike had said, in our stores it's a little bit of a different story, primarily still down but primarily in the southern border stores, bordering Mexico. Our Florida stores are doing better. Those are very big stores and are performing well. But the border stores – bordering Mexico have been declining and we're going to continue to keep an eye on that.

Thanks so much.

And with that, ladies and gentlemen, we have no further questions on our roster. Therefore, Mr. Casey, I will turn the conference over to you for any closing remarks.

Well, thank you all for joining us on the call this morning. We appreciate your questions and your interest in our business and look forward to updating you again on our progress in April. Goodbye, everybody.

And ladies and gentlemen, this will conclude today's conference. Thank you for your participation. You may now disconnect.