Hamilton Beach Brands Holding Company (HBB) Q4 2019 Earnings Report, Transcript and Summary

Thank you for standing by and welcome to the Hamilton Beach Brands Holding Company Q4 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions]I would now like to hand the conference over to Lou Anne Nabhan, Head of Investor Relations. Please go ahead.

Thank you, Cheryl and good morning everyone. Welcome to our fourth quarter 2019 earnings conference call and webcast for Hamilton Beach Brands holding company. Greg Trepp, President and Chief Executive Officer; and Michelle Mosier, Senior Vice President, Chief Financial Officer and Treasurer will discuss our fourth quarter results and our outlook. Also present for the Q&A will be Scott Tidey, Senior Vice President, North America Sales and Marketing.Yesterday after the market closed, we issued an earnings release and filed our annual report on Form 10-K with the SEC. Both documents can be found on our website at hamiltonbeachbrands.com. A replay of today's call will be posted this afternoon and when available a transcript will be posted. Today's presentation contains forward-looking statements, which are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in either the prepared remarks or during the Q&A.Additional information regarding these risks and uncertainties was included in our earnings release and 10-K. The company disclaims any obligation to update these forward-looking statements, which may not be updated until our next quarterly conference call if at all.And now, I'll turn the call over to Greg Trepp.

Thank you Lou Anne. Good morning everyone and thanks for joining the call. Following the closure of Kitchen Collection's retail operations at the end of 2019, we entered 2020 focused on Hamilton Beach Brands and our strategic priorities of revenue growth, margin expansion and strong cash flow generation. As many of you know, last October we announced, the difficult, but necessary decision to wind down the Kitchen Collection business, the closure of all KC stores by the end of 2019 occurred as planned and Kitchen Collection's results are now reported as discontinued operations.Michelle is going to discuss the details of the wind down, which marks an important turning point. Kitchen Collection's net losses and negative cash flow had been a hindrance to our overall business and we look forward to the benefit of the wind down becoming evident in our market value over time.I'll now review our fourth quarter 2019 results from continuing operations, which included the second highest revenue and operating profit for any fourth quarter in our history and net income was the highest on record and by a significant amount. Compared to the fourth quarter of 2018, we delivered 4% revenue growth, driven by increased U.S. consumer and international consumer sales, partially offset by a modest decrease in global commercial sales.Operating profit grew 46% and net income from continuing operations increased 53%. We were pleased to deliver a strong bottom line even with a top line that was not as robust as expected.As we indicated going into the fourth quarter, our placements and promotions were strong. The main issue impacting customer order patterns in the third quarter was the ongoing adverse impact of tariffs. In the fourth quarter, while we did benefit from that shift in order patterns, the generally soft holiday season most retailers experienced impacted our top line.The late Thanksgiving shortened the holiday shopping season and diminished store traffic. Strong retailer investments in preseason promotions were not enough to get people to shop earlier. As a result, for the industry and our company, peak sales were delayed by several weeks and the reorders that we had anticipated did not fully materialize.As a reminder, tariffs are still in effect despite the trade deal that the U.S. signed with China earlier this year. As part of that agreement, the 15% tariff on List 4A was reduced to 7.5%. However, we are not fully benefiting from that cut. List 4B, which had been scheduled to go into effect on December 15 was canceled entirely certainly a relief. However, the remaining tariffs still impact 25% of our business.And since 4B was not canceled to sort of right before the implementation date, we still experienced a major resource drain, distraction and market disruption all through the second half of 2019, because we had to implement mitigation plans. We continue to pursue exclusions for List 4A, which includes coffeemakers, the largest category in our business.Despite some challenges in the fourth quarter, we were pleased with many positive results. We experienced a strong sell-through of our top promotions. We generated record e-commerce sales. Our revenue growth outpaced the industry. U.S. small kitchen appliance industry, dollar sales grew 2.8%. The mass segment in which the Hamilton Beach and Proctor Silex Brands compete declined 4%. The smaller premium segment in which our only-the-best brands compete increased 12.6%.Looking to the future, Hamilton Beach brands has a lot of great things going on. The key message I'd like you to take away today is that we're a very strong company. We're a leader in our industry, with a strong portfolio of iconic brands ranging from value to luxury and covering more than 50 categories.Let me provide some highlights that illustrate our strengths and momentum based on our performance in 2019. We introduced 80 new product platforms last year. Our products held a top three market share in more than 30 categories and we gained share in 25. New products included a number of air fryers and pressure cookers making us well represented in brands and sizes.Our new Hamilton Beach Sure-Crisp Air Fryer Toaster Oven is being particularly well received. We also introduced new products in traditional categories, such as, blenders, food processors, single-serve coffee, mixers, slow cookers, juice extractors and indoor grills. We plan a similar lineup of new products for 2020.At the consumer electronics show in January, we showcased a Wi-Fi connected coffee maker and slow cooker. In 2020, we're introducing a number of new products in multiple categories across all of our brands and these new items will be launched in time for this year's holiday selling season.We're excited about new items, such as an expansion to our popular FlexBrew single-serve coffee maker line and an egg bites maker both of which enable consumers to create popular coffee shop items at home. I'll discuss more new products in a moment.Innovation is one of our key strengths and one that is deeply ingrained in our culture. Our process for new product development has been decades in the making. We foster deep collaboration across our consumer research, marketing, engineering and quality teams. In fact, our whole approach to innovation relies on cross functional teams working together to bring research-driven consumer needs to market.We value continuous improvement and we are refining our well-honed innovation process that we can be even more competitive with new entrants in our space and some of the disruptive innovation that has occurred in recent years, including a strengthened ability to fast follow.We continue to make progress with our six strategic initiatives. They're working well and are contributing to our strength. Many of you have asked us to provide more specifics about the growth of the individual initiatives and what percent of total revenue each represents. Today we're providing that information for you and we'll update it annually.We performed very well in the e-commerce channel in 2019. Our global e-commerce sales grew 27% and accounted for 25% of total revenue. These amounts were even higher in the more developed U.S. market. The digital space is a strength for us as we focused on this channel early and invested in the infrastructure needed to facilitate online sales and growth.In 2019, Hamilton Beach continued to be the number one brand based on units sold in the e-commerce channel. Our products continued to earn favorable reviews and ratings of four stars and above, and we increased the star rating for every brand in 2019.Our Only-the-Best brands grew 7.4% in 2019 and accounted for 9% of our total revenue. The growth was driven by our Wolf Gourmet and Hamilton Beach Professional brands as well as by the new Bartesian premium cocktail delivery system that we began selling through -- last year through an exclusive multiyear agreement.We were delighted that the Bartesian product and our Wolf Gourmet Precision Griddle were selected as one of Oprah's favorite things for the holiday selling season giving them high-profile visibility with consumers. We expect significant upside in the Only-the-Best business and plan to add new products and potentially more brands.The Wolf Gourmet, we're rounding out our full line of countertop appliances with a stand mixer that we launched last year and a kettle that we are introducing later this year. We also continue to round out our line of Hamilton Beach professional products. The hand mixers that we introduced last year are selling very well.Last year, we launched the Hamilton Beach Professional juicer mixer grinder in India, and this year we'll offer that product in the U.S. for consumers who enjoy preparing Indian cuisine at home. We're also bringing out a new immersion blender, a food processor with a spiralizer and new Sure-Crisp digital oven, all under the Hamilton Beach Professional brand.Our CHI Touchscreen iron that we introduced last year is selling well and this year we're introducing a CHI Handheld Garment Steamer. For Weston, we have a great new sous vide immersion circulator, vacuum sealer dehydrator and smoke infuser.Turning to our global commercial products. After several years of averaging more than 5% revenue growth, we experienced a modest decrease in 2019 mostly due to the unfavorable impact of tariffs on the U.S. business.Commercial products accounted for 8% of our total revenue. We continue to be very optimistic about the potential for this business and expect it to return to growth in 2020. About half of our commercial sales are in the U.S. and the other half in markets across the globe.Our international food service business grew in 2019. Globally, we secured some very nice wins last year with Dairy Queen, Burger King and more recently with the Luckin Coffee chain in China.In 2020, we will be introducing a brand-new line of immersion blenders, which are a very important tool for chefs. We're pleased with the many partnerships we have developed around the world. We have good momentum for new opportunities.Our international markets, in which we have a long-standing presence in Canada and Mexico and Central America and more recent presence in emerging markets in Asia and Latin America, have generated a compound annual growth rate of more than 5% in the past five years.In 2019, virtually all international markets were soft and our revenue declined modestly. Revenue generated in international markets accounted for 24% of total revenue in 2019. We expect to return to growth in 2020.We continue to expand selectively outside of the traditional small kitchen appliance market and some new categories, where we have identified opportunities to leverage our branding, sourcing, distribution and e-commerce expertise. The e-commerce channel enables us to introduce new products quickly and relatively inexpensively and to react on a timely basis to consumer responses to new offerings.In 2019, we established a new brand for personal care products called Brightline and launched our first oral care product a sonic rechargeable toothbrush. We plan to add more personal care products under the Brightline name, including hair dryers and a facial cleaning brush that we developed through our innovation process. We also have a new Hamilton Beach countertop icemaker among other new products.While our new category initiative is in its early stage, we believe it can deliver significant long-term growth. Our sixth initiative is strategic acquisitions we continue to pursue bolt-on and tuck-in opportunities in both the consumer and commercial space that would add revenue in the range of $50 million to $100 million, always considering the right fit at the right valuation.We recently filled a new position that reports to me, the Vice President Corporate Development and Strategy to intensify our focus on acquisitions. In all of our initiatives, the momentum underway gives us the confidence that they have strong potential to drive long-term growth and thereby increase shareholder value.I'll now turn the call over to Michelle.

Thank you, Greg, and good morning, everyone. My initial comments will focus on our fourth quarter results from continuing operations.Revenue increased 4.1% to $207.1 million. Operating profit increased 45.5% to $25.5 million, as a result of gross profit margin expansion and a 19.5% decrease in SG&A expenses. Gross profit increased 8.1% to $44.9 million, or 21.7% of revenue.The improvements in gross profit and gross profit margin were primarily due to the higher sales volume and the sale of higher priced higher-margin products. SG&A expenses decreased to $19.1 million from $23.7 million, primarily due to lower advertising and promotion expense and decreased environmental expenses.Our effective income tax rate was 23.8% for the quarter compared to 22.1% in the prior year. The increase is primarily attributable to deferred tax expense recognized in the fourth quarter for a valuation allowance against certain deferred tax assets of Kitchen Collection.Net income increased 53.2% to $19.4 million, or $1.43 per diluted share compared to $12.7 million or $0.93 per diluted share last year. For the full year, cash provided by operating activities fell short of our expectations due to timing. In 2019, we were near breakeven versus prior year where cash provided by operating activities was $17.3 million.While inventory decreased $13.8 million, trade receivables increased $25.6 million as a result of the late order pattern in the holiday selling season, which shifted the timing of collection of a larger amount of receivables into the first quarter of 2020.As a result, net debt was higher than prior year at $56.3 million compared to $42.2 million. We expect net working capital improved significantly during the first quarter as a result of this timing.Capital expenditures decreased to $4.1 million in 2019 and compared to $7.8 million in 2018, reflecting lower spending for our ERP project. We're very excited to report that we expect to take the new system live during the second quarter.We returned nearly $11 million to shareholders last year including $4.9 million in dividends and $6 million in share repurchases. The Board approved a new stock repurchase program for up to $25 million of stock beginning January 1, 2020 and ending December 31st, 2021.I'll now turn to Kitchen Collection. Last October, the Board approved the wind down of KC due to further deterioration in foot traffic which lowered our outlook for the prospect of a future return to profitability. As Greg mentioned, by the end of the year, all retail stores were closed and operations ceased. KC's operating results are now reported as discontinued operations.For the full year 2019, the net loss was $28.6 million compared to a net loss of $5.4 million in 2018. The 2019 loss included several one-time charges such as the $15.2 million for the estimated cost to terminate lease agreements. We expect the wind down to continue through the first half of 2020 to facilitate the settlement of remaining liabilities.All obligations under the KC revolving line of credit were paid in full in accordance with the forbearance agreement with the lender and the facility was terminated on December 3rd, 2019.As of year-end, KC's current liabilities exceed its current assets by $24.3 million. We expect that once available assets are paid out, remaining liabilities will be reversed and reflected as income from discontinued operations. Neither Hamilton Beach Brands Holding Company nor Hamilton Beach Brands Inc. has guaranteed any of KC's obligations.As a result of exiting Kitchen Collection, our consolidated earnings per share and cash flow will improve going forward. As our financial statements show for the full year 2018, the last year KC was operating as a going concern, KC's impact on earnings was a loss of $0.39 per share and KC used $5.8 million of cash.Next, I'll discuss our outlook for the full year 2020 compared to the full year 2019. As you know our business is seasonal with the majority of revenue and operating profit earned in the second half of the year.For the past five years on average, 60% of our revenue and 85% of operating profit have been earned in the second half of the year. Based on known placements and current market trends, we expect revenue to grow modestly and outpace the industry which is expected to be relatively flat overall. We expect growth in all markets as well as the e-commerce channel and are only the best brands.Given currently no retail plan, operating profit is expected to be in the range of flat to a modest increase. As clarity increases about second half placements our outlook will be updated. We're aiming for modest gross margin expansion as we continue to focus on the sale of higher priced higher margin products.However, the decreases in SG&A expenses in 2019 were one-time in nature and are not expected to repeat. Cash flow before financing activities is expected to increase significantly as we move towards our goal of generating cash in excess of $20 million.Planned capital expenditures in 2020 are expected to be $5.2 million and our effective tax rate is expected to be approximately 25%. This outlook is based on our current understanding of the impact of the coronavirus on our suppliers in China.First, we're very happy to report that all of our employees in China and their families are healthy. The unpredictable nature of the virus makes it very difficult to anticipate the potential impact to our business.We are monitoring our suppliers who are slowly returning to production at varying degrees of capacity. Based on the current situation, we expect a manageable period of inventory challenges and we are taking a number of steps to work with our customers to minimize disruption.As I mentioned earlier, the majority of our revenue and profit occurs in the second half of the year and we do not expect disruption to impact the second half. We continue to monitor the coronavirus situation closely as it remains fluid and highly unpredictable. We'll need to adjust if conditions worsen which could necessitate an update to our outlook.That concludes our prepared remarks and we'll now turn the line back to the operator for Q&A.

Thank you. [Operator Instructions] Our first question comes from Justin Kleber from Baird.

Yes, good morning guys. Thanks for taking the questions and appreciate the additional color you provided as it relates to sizing some of the strategic initiatives. Wanted to just start on the 2020 revenue outlook for modest growth. Can you rank order for us at least how you're thinking about growth across your three primary businesses; U.S. consumer, international consumer, and then global commercial?

Justin this is Greg. So, I think we're going to take -- we're taking the approach that we should probably have -- until we get a better view of the back half promotions given the fact that our North American business is the largest part of our business that we're assuming just up a little bit on that front and a little stronger level of growth in commercial and in international.And I think as we move into the second quarter, we'll start to hear about placements and promotions and those types of things and be able to have a better sense for that. But I think generally speaking in the outlook we gave you we'd count on a little bit of growth in the North American business and a higher rate in international and commercial.

Okay. And then obviously you guys don't provide quarterly guidance, but I imagine you have a pretty good feel for how the first quarter is shaping up, given we're two months into the year, should we expect revenue to grow in the first quarter year-over-year? Or is this 2020 outlook more back-end loaded?

Yes, it's really a full year. Look, Justin, we've got ups and downs by quarter. And but that's really what we're going to stick with the full year guidance.

Okay, fair enough. The impact I guess from the coronavirus. Is there is a specific revenue hit that you're assuming here in the first half of the year that you'd be willing to share? And then I know Michelle mentioned suppliers slowly returning to production? I mean can you frame that? I mean what percentage of your factories that you utilize are back up and running today and at what capacity?

Sure. I'll give you a bit of a background and it was – a lot of people are really flummoxed by the status thing. So first of all, I'll just say as Michelle said, it's really important that we have – as of today, there's no employee or a family member that has been affected by the virus, which is a very important thing. It's also important to remember that the majority of our revenue and our profit occurs in the back half. Also, we – because there's a lot of news coming out from a lot of companies, we have an asset-light business model. So you hear about large expense pressure on companies that owned manufacturing facilities in China and we don't have that pressure fortunately and because – now also just operationally because Chinese New Year happens every year, we have always brought in many weeks of inventory to cover a multiple week shutdown that happens at the time of the year.So we've been receiving inventory all along so far and have containers on the water and coming in as we speak. Also, every year after Chinese New Year, the suppliers have a ramp-up process where the workers come back at a slow pace. And so we have in our model, a slow ramp-up post Chinese New Year that happens every year. Also, it's important to note that Hamilton Beach and our retailers have safety stock or safety time that provides some buffering. It depends on the retailer and the situation. But it could be six, eight, 12 weeks even depending on – when you put those two together.So there's a lot of variables that go into determining, what do we think the gap will be, but a lot of the things that we hear about slow ramp-up and things are happening all the time the issue really here is how much delay in that normal ramp-up is happening from what we expected. And so right now, talking to our suppliers and monitoring their sub-suppliers, we know that the majority of our suppliers are back up and running. All of them are in limited capacity. And it ranges from 10% to 50% capacity. And like I said, there's always a range of ramp up that happens anyways, but all are reporting they expect to be back up at full capacity in the next two to three weeks, and that's what they think. They're all working hard to meet that. The situation is definitely slowed and unpredictable. But if that is, what happens it becomes a manageable situation.We've modeled out all sorts of potential ramp-up periods and delays and all – most of those are very manageable and – what that would happen would be is a likely that gap to what we expected would occur likely in the second quarter. And then, the spike that comes with the refill once everybody's up and running would come either late in the second quarter or in the third quarter. So there's not going to be a large – it could be a very small manageable gap and what refill happens can either be in the same quarter or split a little bit by a month or two, which would push it into different quarters.So – and then lastly, we do have some worst case scenarios which we think have low likelihood, but that would change the situation dramatically. But as of now, they seem to be coming up to speed in a way that those don't seem to be likely. So again, the situation is unpredictable. But hopefully, that gives you some color based on the fact that we think this is manageable. But certainly, every week we'll learn more and see how things are coming along.

That's great color. Thank you for that, Greg. Just maybe shifting to your outlook for margin expansion gross margin expansion, it looks like 2019 you were down about 70 basis points for the full year. Do you think you can claw back all of that degradation here in 2020? Or should we expect something more modest than the decline that you experienced in 2019?

I think we're – we believe we're going to be back in line with our trend line. Things like commercial have a little higher rate as an example. So I think just – and we're projecting where we think in terms of some of our Only-the-Best business growing within our mix. So just based on our view of the year, I think we're back in a -- we'll get back to where our sort of trend line was. And we hope – of course, we're working hard to get to kind of go up a little bit. But I think our goal is to be back up to a better level, which is a huge change but at a little better level in this year.

And then a question just on the ERP system going live in 2Q. Can you help us understand maybe what test or controls I guess are in place to ensure the transition to this new system is seamless and it doesn't have any major hiccups associated with it?

Yeah, Justin. The ERP system one of the greatest benefits is the warehouse management system automating that and we're currently using it for a very small portion of our business the Weston business. So we have been testing it and using it for almost a year now. So we feel pretty good that it's working. There are some unique pieces that Hamilton Beach is a little bit – the bigger business is a little bit more complex, but we've been through – we're going through user acceptance testing right now. We've been through several rounds of end-to-end testing. So we're definitely being very cautious in the go-no-go decision. But today, we're feeling pretty good that, we've done what we needed to do to make sure, it's going to work for us when we go live.

Okay. That's great to hear guys. That's all I had. Thanks so much for the time.

Thanks, Justin.

Thank you. [Operator Instructions] Our next question comes from Michael Fisherman from Zuckerman. Your line is open.

Good morning.

Good morning, Mike.

Could you flesh out or just give a little more detail on the trade receivables in Q4? And how much you've recovered into cash already into Q1?

So yeah, Mike the holiday season was really back loaded. We didn't see as much coming on some of the pre-Thanksgiving activity that we had hoped. So our – typically terms with our customers are net 30. They're our standard terms. Some customers are a little bit longer than that. So as the sales were later in the period, we just didn't get the collections that we had hoped we would. I'm not really going to give a number, but I think working capital at the end of January is definitely much stronger than where we ended at the end of December.

Okay. And then Greg, I don't know, if Scott is there too. But could you just talk about e-commerce whether the full year or fourth quarter and how that differs versus last fourth quarter?

Yeah. Michael, this is Scott. If you look at last year I think as we kind of communicated throughout the year we did get our e-commerce issues that we had in 2018. We felt like we fixed those and corrected those throughout the year. So we actually saw nice growth as we reported particularly in the U.S. and Canada business, but we also saw that across the board in all of our markets.

Could you just give a little more detail on -- did anything change relative to how Amazon and their peers were dealing with your fourth quarter last year versus what transpired through the year?

Well as I think we communicated back in 2018 we had some issues regarding our MAP policy. We also had some issues regarding some of the online retailers who are much more focused on margin. And as a result that changed what we thought was going to be the promotional focus. I would say in 2019, we corrected those issues. We did not have the MAP problems that we had in 2018. We felt like we were very strong and relevant and we're growing share with our larger dot-com retailers and able to get the promotions that we expected.So we didn't have that unexpected concerns that we experienced in 2018 because they were focused on the margin aspect. We were aligned with them and making sure our promotions were going to meet their margin thresholds and their volume thresholds.

Mike this is Greg. Just adding a couple of quick comments on that. In the markets where e-commerce penetration is behind the U.S. like Canada as Scott said, the team's doing a great job there. So we're seeing very strong growth and very -- a larger percentage of our business is being done through that channel. Mexico is further behind Canada as an industry, but it's just taken off in the past year to 18 months and the team has done a great job to be really on the forefront of that market. Commercial is -- globally commercial is a very different business model.So it's having a different impact in there. But in the U.S. there's a couple of players that are pretty strong that we're really doing well with. So I think overall, we feel good that it's a broad-based strength of us and the industry keeps going that way. And so we're going to keep following the customer and the consumer and be there wherever they're shopping from.

Okay. And can you just flesh out why commercial revenue would have been impacted by the tariffs in the U.S.?

Sure. Yes sure. That's a good question. So the -- there's -- I'll give you sort of two examples. One is our amenities business is one where, if there is a reduced -- there's increased costs, what a lot of the operators would say was they've got a set budget for their investments in their business. We're running their hotels with their a 1 or 2 unit chain or a broader one. And when costs went up on a number of the products they were trying to buy, they had to cut back on things maybe that are okay but not -- they would normally would have refreshed up in iron or coffee maker in a room but they're going to put off those refreshments for -- to cover the cost of the things that they have to have.So we saw our amenities business in particular fall off. But also on the food service side equipment went up across number of businesses that the chains purchased not just our industry. And so that just caused them to slowdown. You see what happened with tariffs. As you know the tariffs were going to be on again off again. And so a lot of folks didn't want to pay for something and then have it turnaround and go back down in price.So it just created a lot of uncertainty or tighter budgets. And so we just saw a lot of customers delay decisions and now that decisions have been firmed up it seems like they're back to getting on the business here. Now we'll have to see how the coronavirus impacts some of those things. But right now what we're hearing is -- based on tariffs they're going back to sort of business as usual now and trying to focus on meeting their business needs.

Okay. And the -- are you expecting greater than 5% revenue growth in commercial in 2020?

We are not giving guidance by area, but what we did say is that, we are -- we have a growth rate over the past number of years. That's the 5% number you mentioned and we want to accelerate our growth in the years going forward. So we invested more to do that. So certainly that -- the goal is to get commercial growing as fast as possible.

Okay. And just in terms of line of sight you gave us a comment here anticipated closure of some large pending opportunities. That's in addition to Luckin and Dairy Queen?

Yes.

Okay. I'm sure you're going to say you're not going to want to get in detail, but Luckin has thousands of locations. Is there any way help us understand conceptualize how big of an opportunity these accounts could be?

No. I'll say -- so we'll sort of stick to the guidance, we've given Mike that's a fair question. One thing that we've got to always balance here is that, if Scott were to get placements on a big major retailer on the shelf at the product sales well he gets orders every month. When we pick up a big chain in one year, you get a big pipeline sale. And then you usually get a little bit of residual -- the chain might open up new stores or a machine might break. And so you have a much lower sort of ongoing demand.So every year you get a big chain, you've got to not only get another one to offset that, but then get another one to deliver that growth. So I think what I'll just sort of say is that, we feel good that we have enough wins coming along -- hopefully wins coming along to offset the wins we had last year. And the goal is to keep feeding that pipeline, so that we can at least deliver that 5% growth per year. And again the goal is we're investing to try to be that.

The Luckin win did that impact 2019 or that's going to come in 2020?

Should be both.

Okay. And then in terms of the international revenue, I know 24% of your revenue in 2019. Can you at least tell us how much is in China specifically?

No, we're not going to break that out but we'll -- if markets or segments become big enough we'll start to provide more color on that.

But is it fair to say that Canada and Mexico are your two biggest markets?

Yes. So we've been in those for many, many years. So those are definitely the -- our strongest -- the North American market is where we've been for decades. That's our strongest place to be.

Okay. And in terms of what occurred in the third quarter about the change in retail ordering patterns. Does that manifest in Q4? Or did it not happen because of the compressed holiday season or does it get pushed back into Q1? Can you just give us some detail on what happened on the changing retailer order patterns?

Sure. So, we definitely had orders pushed into the fourth quarter from the third quarter as we mentioned. And then, what we always talked about is, there's sort of several drivers of our performance in the fourth quarter and one is placements. So, do we have strong placements? And we had -- we do think -- we do know we had strong placements. Do we get strong promotional support and we based our outlook to you all based on the placements that we knew at the time. And so, we were -- that all worked out as we thought.And then always -- the big wild card of the holidays is consumer purchases. And then therefore the retailer reorders. So if you can imagine -- we might have some products that don't sell to what we think we are going to sell. So, therefore the retailer then would not order reorders because it didn't sell through well. The good news is all our products sold just fine.But what happens, it could be something where a different category or a different competitor didn't sell-through and they don't have open to buy dollars that could be a headwind. And in this case, what you see when you hear the results from all the major retailers. What you heard was, most retailers they had a holiday season they described as below expectations. Some had really difficult ones and some had okay, but not as much as they thought they'd do.And because of that, later holiday period and shortened holiday period, they didn't get that foot traffic or those purchases, so we didn't get that additional reorders that we normally would if the holiday season sold to the level that we all expected. So, we did get the third quarter delayed purchases. We just didn't get that final retailer pull or push for the holidays.And so as we go into the fourth quarter -- I mean sorry, in the first quarter there's a normal restocking of shelves and that type of thing. And we're right back on now in a situation where the back half is our biggest part of our year. So, I think we look at the fourth quarter last year as being a really good, particularly on the bottom line, not as good as we wanted and we're well positioned for having a solid year in 2020.

Have you seen any changes in retail order pattern continue, worsen, lessen with all the change in the tariffs?

The -- definitely there was a lot of work and effort in discussion and distractions for tariffs all the way through the holiday period and now post-holiday period. When things were going to happen and then not going to happen and rates are changing and so, it definitely was -- definitely is a topic of discussion although it is certainly lower than it was as we went into the holiday season. Scott, I don't know if I missed anything on that front.

No, I think that's right, Michael. On the -- as you know, some things came off the list on February 14. And so, I think some retailers are still trying to balance out their inventories. But for the most part, it's definitely smoothed out in the U.S.

Thank you.

Thank you.

Thank you. [Operator Instructions] And I don't show any further questions in the queue at this time. I'll now turn the call back to Mr. Trepp for closing remarks.

Thank you and I'll leave you with a few key takeaways. As I stated at the beginning, we're a very strong company with many positive things happening in the business. We have a strong team that continues to execute with creativity and professionalism that we believe will win over time. We believe in investing for the long term. Many of our strategic initiatives have gained strong traction and generated above-market revenue growth.We expect to increase returns over the next several years as the initiatives achieve higher levels of maturity and as we focus on growing our brand portfolio, introducing new products, expanding distribution channels and leveraging our current cost structure. The low debt level positions us for many forms of investing in growth. We're an asset-light business with a relatively low level of capital investment and the potential to generate strong free cash flow and strong return on total capital employed, which has generally been high relative to industry standards. We will continue our long-standing focus on a strong balance sheet and final financial flexibility as we work to build long-term shareholder value. Thanks again for joining our call today.

And this concludes today's conference call. Thank you for participating. You may now disconnect.