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Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to Dorel Industries Third Quarter 2018 Results Conference Call. [Operator Instructions]Before turning the meeting over to management, please be advised that this conference call will contain statements that are forward-looking and subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated. I would like to remind everyone that this conference call is being recorded on Friday, November 2, 2018.I will now turn the conference over to Martin Schwartz, President and CEO. Please go ahead, sir.
Thank you. Good afternoon, everyone. And on behalf of Jeffrey Schwartz and Frank Rana, thank you for joining us for Dorel's third quarter earnings call. We will take your questions following our comments. And please note, all numbers are in U.S. dollars.It was an improved quarter for Dorel Sports. And while operating profit was down slightly at Dorel Home, revenues were the highest ever recorded. Dorel Juvenile had a disappointing quarter and steps are underway to correct this situation. Several new product launches at Dorel Sports benefited all 3 divisions: CSG, Pacific Cycle and Caloi. Operating expenses were down considerably in the quarter due to planned overhead expense reductions through the year as well as our exit from the apparel business. Jeffrey will have more on this shortly.The Cycling Sports Group had an excellent sales meeting this summer, and dealer reaction was most enthusiastic. Several new counter deal on GT models and various categories were launched during the quarter, and all have been very well received. Pacific Cycle had a very solid quarter. Among the drivers were customers building inventory in advance of the approaching holiday season, improved parts and accessory shipments, continued growth in Mongoose scooter line and strong sales of battery-powered ride-ons.Several new models hit stores, including the new innovative, interactive Rideamal. The Rideamal is a sophisticated battery-powered ride-on toy pony that combines fun with interactive play thanks to fully motorized eyes, ears, head and wheels. It has received significant media coverage and will be promoted in stores over the coming weeks and should do well at holiday time.Caloi's strong organic revenue growth after removing the FX impact was driven by price increases implemented to offset rising inflationary costs and by new production innovations. Dorel Home posted record revenue for a single quarter. Operating profit was down slightly due to higher cost of some goods and increased warehousing and freight expenses.E-commerce once again led the way with online sales accounting for 58% of gross sales, up from 51% a year ago. Internet sales increased in all divisions. On October 1, Dorel Home acquired the assets and operations of U.K.-based Alphason, a designer and distributor of award-winning home office and audiovisual furniture. The Alphason brand is well known in the U.K. and is sold at several large independent retailers across the country. While a relatively small acquisition, it is highly strategic. We will use this new base to expand and to provide strong logistics support to serve and grow our European business, including our large North American e-commerce partners who have been growing in Europe and have been asking Dorel Home for support.Dorel Home had a strong showing at last month's High Point Furniture Show. All of the segments' major customers were in attendance. As part of their growth strategy, there is now increasing emphasis on brands, CosmoLiving being the latest example, which was officially launched at the show, as well as Novogratz and Little Seeds among others. CosmoLiving is a special furniture collection available primarily online, developed jointly by Dorel Home and Cosmopolitan magazine. While only a limited number of items are currently available, initial sales of CosmoLiving are encouraging. And we're anticipating good things from this line. There will be many additions to the collection in subsequent quarters.Dorel Juvenile's performance was disappointing, particularly in the view of the potential we have with our new product pipeline, which is the best it has been in recent memory. We are in fact making traction with many of our new products, but our gross margins have been affected by some higher input costs as well as competition in several European categories. In Europe, we now have a more complete product line, but we are not as strong as we should be in the multiage car seat category where the industry is seeing the most growth. This is a priority going forward. In Europe, we began shipping new items in this space, with several more in the product pipeline for 2019.Our Maxi-Cosi brand remains our strongest and its transition to a stroller brand is going well. The Quinny brand is being revitalized, and the launch of Quinny Hubb is the first step in that process. In addition to the Hubb, Q3 saw the rollout of Maxi-Cosi's Lila, two new key strollers manufactured at our China factory where production continues to increase. Although sell-through date is still to come, the successful design and manufacture of these high-end strollers is a milestone, as we have proven that we are able to properly assess consumer needs, designing and manufacturing strollers to a high-quality standard. The Titan Pro car seat is also being produced in China for the European market and will soon be sold into multiple markets. The Titan is a higher end car seat that addresses the growing consumer needs for multiple age car seats, a reality in all of our markets. In September, Dorel Juvenile attended the Annual Juvenile Products Fair in Cologne, Germany with an impressive booth displaying several new products and collections and it was a good show for Dorel. Our booth was very busy.Customer reaction to our introductions was excellent. The Lila and Hubb strollers were nominated for awards, and the Maxi-Cosi Jade won the innovation award of 2018 as the world's first approved car carrycot for newborns. The Jade is now available in the European market, and the award could provide powerful marketing of Dorel products. Jeffrey will now provide the financial perspective.
Thank you, Martin. I'll comment on the third quarter. Consolidated revenues for the quarter were increased by $27.8 million or 4.3%. Organic revenue was approximately 6.1% after removing variations of foreign exchange rates. When removing the impact of revenue related to the performance of the apparel line, organic -- that we divested of, organic revenues actually rose by 6.8%. So this is one of the better top line performances we've had in a while. We saw growth in Dorel Home in revenue and in Dorel Sports and offset by Dorel Juvenile as mentioned. Organic revenue growth was driven by Dorel's e-commerce channel, which now represents 58% of the total segment. Dorel Sports, mainly driven by the retailers building inventory at Pacific Cycle and new product innovations at our CSG group.The organic growth was offset by lower sales in Juvenile in markets like Europe and Chile, which I'll get into, however that was offset by growth in the juvenile in both in the U.S. and in Brazil.Our gross profit and adjusted gross profit for the quarter decreased by 280 basis points. That's an issue that I will discuss in a little bit more detail. Finance expenses for the quarter increased by $0.5 million to $8.3 million. Third quarter net income was $9.6 million or $0.29 per diluted share, with $13.3 million -- or versus $13.3 million or $0.41 last year. Excluding restructuring and other costs, adjusted net income for the quarter declined to $11 million compared to $14.5 million a year ago.Our effective tax rate for the quarter was 28.2% versus 21.3% last year. Excluding income taxes on restructuring and other costs, our third quarter adjusted tax rate was 24.5% versus 21.4%. We expect the full year tax rate to be between 20% and 25%. However, variations in earnings across the quarter means this rate could be moving around significantly between quarters. If we move over to Dorel Home, the third quarter revenues increased by $20 million or 10%. So that's again one of our stronger top line growths we've had in a while. Third quarter revenue set a record for the segment. As Martin mentioned earlier, e-commerce represented 58% compared to 51%. And it was driven by increased sales to online retailers and the direct-to-consumer Internet business that we have.Gross profit, however, did decrease by 190 basis points. This is mainly due to higher input costs that were getting some divisions were -- slightly affected by overseas finished goods, cost increases that have not yet been fully offset by price increases. So we have instituted price increases. They are going into effect in Q4. So we should start to see some of that recovery based on that.But move over to the Juvenile business, which I'm going to spend a bit of time on. As it is, it was quite a disappointing quarter for us. We -- there's no question we dropped the ball on this quarter, and we hope to post a strong comeback in Q4. So let's go through it. So our revenue decreased by 6% or 2.5% -- $6 million or 2.5% to $229.7 million. The decrease was caused mainly by less favorable foreign exchange as the organic revenue only decreased by 0.4%. So we start with sales and we look at some of the key areas. So we did have a sales increase in the U.S. of 5%, which we're very happy about, given the post-Toys "R" Us bankruptcy time. We're pretty pleased with that. Point-of-sale growth, again the POS was very strong. However, we did have a major customer who reduced their orders to lower their on-hand inventory to make room for Christmas inventory. And that definitely caused -- one of the elements that caused a miss on the earnings there. Sales improvements continue at our customers in general, as they benefit from the absence of the Toys "R" Us stores. And we expect these trends to continue through the balance of the year. However, we do expect to ship in those orders that were delayed in Q4 in the U.S. Brazil. Brazil is an interesting one. It's affected by currency. As an example, we recorded increase in revenue for the quarter of over 30% in local currency, but it only equated to a 5% increase in the quarter. So that was -- I think at the end of the quarter, the exchange rate was something like BRL 4 to 1. It's improved now to about BRL 3.7. So we have seen some strength compared to the end of the quarter.Europe was -- I'm going to spend some time talking about Europe because Europe was really the area that we were surprised by the most. So sales in U.S. dollar terms are down 2% for the quarter. And as we said, there were some issues with certain categories in which we are a little bit late to the party. We do have some products coming in. We have been introducing all year new products. They are going well, but there's a number of categories that we have not introduced the new products yet. And some of that is affecting some of the sales and margins. Speaking of margin, this is really where we have -- had a problem in the quarter. So our third quarter profit declined -- or sorry, our gross profit declined by 430 basis points to 25.2% from 29.2% last year. So that is definitely the issue. I will like to go through some of the highlights of what's caused that. So as we mentioned, volume in the U.S., despite being up 5% over last year, we still have a significant amount of orders that got pushed out of the quarter. And that's certainly affected our overheads, but also the profitability. Higher input costs, resin prices have been rising all year. We have secured price increases, and those will take effect at some point in Q4. But in Q3, we still have the cost in our numbers. And as I've spoken over the years, there's always that sort of lag period. And that's really going to end at the end -- sometime in the fourth quarter.Foreign exchange, as I mentioned, is hurting us across the board. I mean, they are smaller countries, but Brazil and Australia have had very, very good years in -- as far as market share, as far as moving company forward and yet it doesn't show up on the bottom line because of currency. So something that we're dealing with, we adjust for it. But certainly, we're not alone. I mean, all consumer -- international consumer product companies are facing that. But one of the big issues that I want to explain is, internally, we missed our numbers in Europe. And part of that is we've realized -- and we didn't foresee this in the quarter, but what had happened was because of the problem we had with our shipping and our warehouse management system, what happened in early Q2, we were not able to ship significant amount of products in April and May. We had then fixed the warehouse management system by the end of May and had a very robust June and then even July was -- did very well. And then as August and then September went through, we found the replenishment orders were significantly lower than our expectation. And we realized at that point what's happening is that when you're calling your customer and asking what's happening with their replenishment orders, the general answer was, well, we just got the last orders, we just shipped, we just came in June and July, we don't need replenishment yet. And what we're seeing that -- the reason we believe that that's a big impact is because we've seen those orders starting to come in again in October. So we do think that we've lost -- not only did we lose the initial orders back in the first quarter -- second quarter where we actually lost those orders, but it had an impact on the following quarter, which we didn't foresee. We think that, that issue is now behind us. Another issue that Martin talked about, certain categories of car seats that we're still running with some older products, while some of our competitors have some newer products. We will start to replace those older products with newer stuff. Starting as early as Q4, we have a new introduction on a convertible car seat in Europe in Q4. And then throughout Q1 through Q4 of next year, we have significant products in that category. We're feeling good because we have introduced a lot of strollers to the market in 2018. They've done well. We're seeing a significant increase in sales in 2018 for Maxi-Cosi strollers. And all of that is because of the new products. Our speed to market has improved significantly. One of the problems we'd had earlier was it was taking years to get new product to market. We're now able to take product to the market between 9 and 18 months, which is one of the reasons we feel confident that we will have the product to fill in the gaps in our line. So those are the primary reasons. We do see -- like I said, we do see already Q4 lining up with expectations and believe that we should be back to our internal forecast, which we didn't hit in Q3.Few other areas to discuss. Chile is making progress, but is still struggling. Their business is better than it has been earlier this year, but we're still -- it's still a very difficult marketplace there. And finally, on the good news side, China has been improving. It was profitable for the second quarter in a row. We're building up some nice volume through the factory and believe we're going to finish the year on -- certainly, Q4 looks like it's going to be positive. So that's the story in Juvenile.As we move over to the bikes. A good quarter in bikes. We are definitely coming back from some low points. Third quarter revenue increased by $13.6 million or 6.6%. Approximately -- once you remove the foreign exchange, we actually increased it to about 9.6%. And then organic revenue would have been 11.8% when you remove the foreign exchange and the divestiture of the apparel business. So all the divisions have contributed to organic revenue increase, which is great. The independent bike dealer, we had a solid quarter in that group. What's happening is, we introduced a lot of new products in Q3 and were able to ship some of it. A lot more of that is going to be shipped in Q4. Some of the product has sold out, which is great. We're in the process now of trying to move up orders that were Q1 into Q4 and I guess Q2 into Q1 and are very happy. And I'll probably say this is one of the most successful product introductions we've have had in a while at CSG. Over at Pacific Cycle, we had very good third quarter double-digit revenue increases. Definitely, the retailers are building inventory in advance of the holiday season. They do a lot of that in Q3. Pacific Cycle has also improved its sort of non-bike product shipments, whether it be parts and accessories, Mongoose scooters or the sale of the battery-powered ride-ons, all of those are contributing to increased business. And then finally, Caloi had some strong revenue growth. Although again, when you factor in the currency, it doesn't look as strong. Business there is improving. We're hoping we've seen an improvement in the real since the end of the third quarter, and we're hoping that, that continues as well now that they've got their elections behind them. Third quarter gross profit declined a little bit, 21% -- to 21.1% from 22.3%. And then when we exclude -- I guess it's similar when we exclude the restructuring costs. Some of that is mix. Some of that is slight increase certainly in some of the costs in Brazil and a few other areas. But overall, we see -- we're very pleased with the quarter and expect a strong momentum to continue into Q4. We've got a lot of holiday product still shipping at the Pacific level. And we've -- like I said on the CSG side, we have a lot of new models that we're not able to ship in Q3 or shipping in Q4. Some of them are sold out. And we continue to try and pull orders forward. So we're looking a lot more optimistic on our bike business than, let's say, we were earlier in the year.A couple of balance sheet issues. Our net working capital position decreased 11 days to 92 days at the end of September compared to 103 days earlier. We're managing our inventories better. And we are just watching our cash position a lot better. For the third quarter, the cash provided by operating activities was $31.2 million, which was very similar to the quarter last year.The only other issue before I pass it back to Martin is tariffs. Many but not all of our products are affected by the recent 10% tariff, soon to be 25% tariff on Chinese produced goods. We have a strategy of passing on the cost of those tariffs to the retailers, and that is going well, those conversations. We will continue to talk about it. Should the tariffs go to 25%, we will continue to follow the same strategy. The big question is, what is going to be the impact of that? And that's difficult. We will -- like I said, we'll pass the costs on. What the retailers do is undetermined and what effect on demand it's going to be is undetermined.So based on that, I think I'll pass it back now to Martin.
Okay. Thank you, Jeffrey. For our outlook, Dorel Home is expected to deliver higher sales in the fourth quarter compared to last year, with operating profit consistent with prior year. We expect Dorel Juvenile to recover this quarter from its poor third quarter and anticipate the segment's organic revenue growth to be in the mid-single-digit range with improved gross margins. Therefore, we foresee fourth quarter adjusted operating profit will be close to prior year levels. Sales strength should continue in the U.S., and the increasing contribution of new product introductions will benefit Europe.In Chile and Peru, Q4 is always the strongest of the year, and price increases in several markets will begin to take effect. For Dorel Sports, their improved third quarter results will continue into Q4 as successfully introduced new products start shipping in significant quantities. Much improved fourth quarter adjusted operating profit on higher revenue will result in excellent year-over-year gains for the segment.As Dorel has substantial multinational operations, foreign exchange rates are a risk. However, should the value of the U.S. dollar against the Chinese currency continue to rise, this would provide opportunity for cost savings in all 3 segments, possibly negating some of the possible negative impacts of other currencies deflating and of the higher U.S. tariffs.With that, I will now ask the operator to open the lines for questions. And again, I ask you to limit your questions to 2 on the first round. Operator?
[Operator Instructions] Your first question comes from the line of Derek Lessard from TD Securities.
I know you're starting to see a rebound in Dorel Sports here. Just wondering what your thoughts are on and I guess what is an appropriate level of EBITDA margin for the business? I mean, it's still -- because I mean if we look at it, it's still well below your best years?
I think it's a little early to throw that out. I mean, we had a really good start. We're going to have a good, I think, Q4. There's still a lot of turmoil out there. I think the new product and our new re-branding of Cannondale's going to really help. There is a little less certainty, particularly on the Pacific side, given tariffs and are they going to through and how they're going to be repriced and all of that. So I'm not going to put out a number yet. I think we're in our recovery, and we're moving forward, but we're not done. So I don't have a number to forecast.
Okay. Do you expect any type of lift coming from the Pro team and sort of their joint venture that they have going with Rafa and I'd assume that there's going to be a lot of advertising around them, the team and probably Cannondale?
Yes. You're absolutely right. I can't tell you what we're doing, but we've got some, I think, very interesting things planned with that. We're working very closely with the team and Rafa. And I think there's going to be a little more life to the -- from -- I'm not talking about performance. That's up to the athletes. But from a marketing standpoint, I think you're going to see a step up next year based on that relationship.
Okay. And maybe one just final one for me and I'm just going to hit on the tariffs. Maybe you can just remind us what areas of the business are, I guess, more significantly impacted? And wondering why Juvenile is less exposed than the other 2?
Well, all -- pretty much all the home furnishing that is produced in China. Now not everything is produced there. We do get products made in other countries. I don't have the -- I'd say the majority of the imported product is China, but not 100%. And I don't have the number for you. On the bike side, it's Chinese-made frames, which is virtually all of Pacific's business and the lower sort of half of Cannondale's business, the frames are made there, but more expensive items are not affected. And on the Juvenile side, the Juvenile industry was able to get an exemption for most of its products, the last minute exemption that came out I think September 24. So the bulk of the products -- some products, the only thing I can think of is it's going to slip between the cracks and there is a handful of items that do have tariffs. Play yards would be an example, but high chairs don't. So I don't know that there was a lot of thought process there. But generally, baby products were exempted from the duties -- tariffs, I'm sorry.
Your next question comes from the line of Sabahat Khan from RBC Capital.
Just on the discussions you're having with your retail partners on passing through the pricing, are you noticing that a lot of your competitors are also passing through pricing? Or are some of them kind of keeping some of the impact in-house?
The majority of them are passing it on. The majority of people, I believe, are passing on the dollar amount of the tariff, not the percent. You know what I mean? So if we pay $3 more in tariffs, we're increasing the prices by $3. That seems to be the stand that most retailers are taking as they'll accept the tariff, but they don't want to accept a margin on the tariff. And we're looking at structural ways to minimize if possible the tariffs. There's not a lot you can do, but that's pretty much what we're doing. The majority of our competitors have passed it on. And certainly if somebody hasn't, it's clear that they will have to if it goes up to 25%.
Okay. And then as you mentioned, there is a bit of a timing shift from Q3 to Q4 with retailers. I guess, at this point in the year, do you have visibility into those reorders that you'll make up the difference in Q4? Or will it depend on replenishment?
For example, on the Juvenile in the U.S., yes. We have the visibility. And yes, we have the orders. The POS was great. The POS, that was the crazy part is we're up over last year. The products are selling in the stores at a faster rate, yet the orders dried up. So there is sort of this lag period. And I think it was just done as they shift inventory between departments getting ready for the Christmas season. And as that stuff starts to go into the stores, they're going to fill up again on baby products. So we are -- it's sort of -- we have to execute. We have to get the product out the door is more of a challenge than waiting for orders.
Okay. And is there -- and did you say that was only an issue on the Juvenile side and not on the bike side? And is there any reason why that might be the case?
Correct. Yes, I think the bike side, that is -- that's a Christmas item. So they ordered those. They didn't stop those.
Your next question comes from the line of Steve MacLeod from BMO.
This is actually Nick for Steve. I just had 2 questions primarily related to the independent bike dealer channel. So you guys mentioned that you saw some strength coming through that segment. Can you elaborate a bit on those sorts of -- of that strength? And how you're seeing things play out in Q4 and beyond?
I think that most of the strength is really products related. I'm sure we have some new distribution points, but we're seeing that the new product that we introduced, such as the Habit, which is a mountain bike, I don't know if I'm getting my terms right, but the Habit is a bike that we had in the line before, but this particular one was designed better and it's doing extremely well. And in many areas, we've sold out. So we've got commitments from the retailers exceeding the amount of product that's coming in. So we need to get more. So we have a number of those stories. We have the Topstone, which is a gravel bike, which is I think at this point triple our expectation. So there is a number of success stories. We've a lot of E-bikes coming into both the U.S. and into Europe that has a lot of demand for us. So that's really -- at end of the day, that's what the strength is.
Okay. I appreciate that clarity. And to kind of touch on some of the products for Juvenile, you mentioned that there was a lot of strong showing on the new products, with several of them -- several products receiving awards. Do you have any additional details on some of the new products you're expecting to launch? Or what that pipeline of products looks like?
Well, yes. I mean, that's a good question because like we mentioned, part of our weakness in Europe right now is related to some of the categories that we've been in for a long time that we haven't put a new product to the market on. And those include convertible car seats, they include infant car seats. So we've -- we're still selling a lot of that product, but because it's a little bit older than some of our competitive products, it's not selling as well as it used to. So we do have answers for that. As I mentioned, early -- as early as Q4, we have a product coming out this quarter to start -- a new one to start combating that. And then right through the year next year, we've got some -- more than one product in the category. Some products are price related, and some are going to be feature related. So we have a lot of innovation on some areas. And in some areas, we're going to have some very competitively priced newer product too. So I feel really good about the pipeline. I feel really good about our team that was able to take the stroller business that had really shrunken and get new products to market and we're seeing the results of that. So it's unfortunate all these things happened in the third quarter, plus the issue from the computer thing and sort of everything hit at the same time and it was a very disappointing quarter. But we're doing a lot of things. And I don't think we need to wait very long to see some improved results over the third quarter.
Your next question comes from the line of Leon Aghazarian from National Bank Financial.
My question is related to -- on the Home side. I mean, we did see top line growth, which is actually very solid, but also saw that some of the operating margins were down. Can you talk to us a little bit of what went on there? Did you sell basically more lower margin products? Or I mean, was it more of an input cost-related issue?
I think it's a little bit of an input cost related. If you remember, certainly, earlier in the year as well, we've had the currency -- the Chinese currency was actually getting stronger. And therefore, we had some price increases from Chinese sources. As well as steel is up, freight is up. There is some inflationary issues out there. Labor, certainly in some areas of even the U.S. now is creeping up. We have put through price increases. And we'll -- I think it will be easier to do price increases in the future. [ Like ] it's easier to do an online price increase than it is to do a brick-and-mortar price increase because of the timing. So yes, we do have some brick-and-mortar price increases coming due from our customers in Q4. So we're going to see a little bit of relief. But I would think that our gross margin will probably end up somewhere between where it is today and where it was. We were running at a really good pace. However, having said that, at the same time, the more online business we do, we tend to find that the margins go up there. Most of the brick-and-mortar business that we do is opening price point where the margins are tight. And as you move more to online and we have success of some of these brands that Martin talked about, we tend to see more higher price points. So it's difficult. There's sort of that pressure between higher input costs, but then the mix should start to become more favorable over time.
Okay. That's helpful. And on the -- you mentioned some of the input prices. We did see kind of in some of the documentation, it talked about resin quite a bit as well. Can you talk to us about how much of a factor that was on the overall business?
I don't know if I have an exact number, but it's material. Like I said, we did get a price increase for a lot of the high-volume items that we use. But I would say, if we didn't get a price increase, the hit could be $4 million a year, annualized numbers. But I think that that's not going to be a hit next year unless resin continues to increase significantly over where it is.
Okay. If I can ask 2 like high-level questions. One would be again on some of these input prices. I mean, you're seeing that coming through, you'll have to increase pricing. And then also, you're seeing the tariffs come in and you have to increase pricing. I mean, at some point, like what's kind of the balance that you think? How much you can push through to the end customer at the end of the day, right? I mean, that's a challenge, I think a lot of retailers and a lot of consumer products companies, I should say, pardon me, are facing. So it's -- we have tariffs and have input prices, but I mean, at some point, what is kind of the threshold where you can actually say well, I can't increase prices anymore?
It's a -- well, we are going to pass to the -- I think what our strategy is -- and I think we can do it maybe a little bit better than some of our competitors because we do carry all the price points, is we're going to see people as the prices get a bit out of reach stepping down in product and they're going to be buying, let's say, more OPP, less MPP or something like that. And again, because of our brands and because of the way we've built our companies, we have products at all the levels. So I think that's our strategy. We do fully intend to pass all the costs on, but there will be -- there could be other effect on demand, but we will have something at a price point lower than that.
Okay. Fair enough. And one last one for me would just be -- I mean, when we're looking at the overall business, obviously, there's 3 different components and even within those, there's different regions and different areas. Has there been any thought to divest certain areas? I mean, whether it's in a non-core area for you in terms of certain geography or in terms of a certain segment? I mean, has there been kind of a high-level strategic view there?
We did divest the apparel business. So yes, I mean, we do look at things like that. I mean, sometimes, on Juvenile, we had a lot of geographic. If you look at the product categories we're in, they're not that many. We're just very geographically based, and unfortunately, it's a very volatile world with a lot of changes, both politics and currencies and all of that. And that's causing a lot more variance than we expected. But I think it makes sense to be all over the world and be able to -- as we design these great products, be able to sell them in all the different distribution points that we have. But we do. The answer is yes, we do look at that and we did take a step and I think it was the right step to divest of the apparel business.
[Operator Instructions] Your next question comes from the line of Derek Lessard from TD Securities.
I just want to touch on the licensing agreement with Cosmo. Just wondering if it already started to contribute and do you expect this to ramp up over the coming quarters?
Yes, it actually has. We're pleased with it. We're getting a lot of good cooperation from the magazine in the form of ads. They had a contest. A lot of entries into the contest. This is phase 1. I think we have, is it 40 -- 30 or 40 item SKUs. We got another 30 or 40 coming in Q4 and then another 30 or 40 coming in Q1. So it's just the beginning. What we do find interesting is Cosmopolitan magazine as a brand works well beyond just the U.S. So as we've now gone into the U.K., we hope to launch it there. It has quite a following as well in Asia and China. So we're looking at different markets to launch this product. For years, Derek, we talked -- I believed that branding in furniture was not important. The brands that seem to be doing it are these lifestyle brands. So the old traditional furniture brands I don't think carry a lot of weight with certainly younger millennials or whoever it is that's buying furniture like we're selling apartments or condos, but lifestyle brands do resonate. And that's why we've got 3 now and we're going to continue down that path. And it -- I'm -- I mean, the numbers are still small in Q3, but less of $1 million in sales, but they're ramping up sort of every week. So we're very pleased.
There are no further questions at this time. I turn the call back over to Mr. Schwartz.
Okay, thank you. Well, this concludes today's call. And I want to thank everybody for joining with us on the call and just tell everybody just enjoy your weekend. Thank you very much.
Ladies and gentlemen, this concludes the conference call for today. Thank you for participating.Please disconnect your lines.