For the past 20 months, we've worked our way through, hopefully, once-in-a-lifetime global pandemic.
So like other challenges in years past, the financial crisis back in 2008, the Great Recession that followed, and the cotton crisis in 2011.
We're forecasting sales this year at about 98% of the pre-pandemic level in 2019.
We focused our product offerings on fewer, better and higher margin choices, and reduced SKUs by about 20%.
Relative to 2019, our sales forecast this year reflects the closure of over 100 low-margin retail stores, a $50 million reduction in clearance sales, a nearly 50% reduction in low-margin off-price sales and lower demand from international guests, who historically were drawn to our low-margin clearance sales.
Cambodia and Vietnam now produce over 50% of our unit volume.
By comparison, we source less than 10% of our products from China.
There's been a 30% increase in shipping container volume this year.
By comparison, trucking capacity is up only 8%.
To put it in perspective, a mid-single-digit wholesale price increase is about $0.30 per unit.
Our stores are expected to be the highest contributor to our annual revenue this year with store sales projected to exceed $1.1 billion.
The profitability of our stores is forecasted to grow by over 30% relative to 2019 on nearly $150 million less revenue driven by our reduction in SKUs and closure of low-margin stores, leaner inventories, fewer clearance sales and improved price realization.
Our U.S. eCommerce penetration is forecasted to be nearly 40% this year, up from less than 32% in 2019.
With our investment in RFID capabilities, we're expecting higher productivity of inventory and faster shipping by leveraging over 70% of our stores to fulfill online orders.
Year-to-date, nearly 30% of our online orders were fulfilled by our stores.
They spend nearly 3 times more a year than our single-channel customers.
Our average remaining lease term is less than 2.5 years, which gives us the flexibility to negotiate better rates or exit the site.
We renegotiated over 25% of our leases this year, and over 70% of those renewals were at a lower cost.
Relative to 2020, we're forecasting higher wholesale margins and nearly 20% earnings growth for our Wholesale segment this year.
Going forward, our annual freight costs are expected to be a fraction of the nearly $40 million investment we're planning this year.
No other company in children's apparel has the scope of distribution we've built over the past 20 years with our brands sold in over 19,000 store locations, and on the largest, most successful online platforms.
Together with our wholesale customers, the online sales of our brands this year have exceeded $1 billion, up over 50% compared to 2019.
International sales are projected to exceed 13% of our annual sales this year, which would be a record level of sales and profitability.
Despite extensive COVID-related store closures in the first half, our sales in Canada are projected up 16% this year, including over 10% growth in store sales and nearly 30% growth in e-commerce sales.
Our brands are sold in over 90 countries through wholesale relationships, including Amazon, Walmart and Costco.
We expect our international eCommerce sales to exceed $100 million this year, more than double the pre-pandemic period.
Our brands have withstood the test of time in many market disruptions over the past 100 years.
Net sales were $891 million, up 3% from last year.
Reported operating income was $124 million, up 9%, and reported earnings per share was $1.93, up 4% compared to $1.85 a year ago.
Last year's adjustments totaled $6 million in pre-tax expenses.
These delays had particular impact on our U.S. wholesale business where we've estimated we achieved about $70 million less in sales than we had planned.
Our adjusted operating margin was also strong at nearly 14%.
When including dividends paid, our cumulative return of capital to shareholders through the third quarter was $145 million.
Building on the 3% growth in net sales, gross profit grew 7% to $409 million, and gross margin improved 150 basis points to 45.9%, both records, as I've mentioned, our gross margin expansion was driven by strong consumer demand and less promotional activity, which resulted in improved price realization.
Royalty income was down about $1 million.
On a year-to-date basis, royalty income has grown by 13%.
Adjusted SG&A increased 7% to $293 million, compensation provisions, which were significantly curtailed a year ago in response to the pandemic, were higher as was spending on brand marketing and technology initiatives.
Adjusted operating income was $124 million, up 4% compared to last year, and adjusted operating margin improved 10 basis points to 13.9%.
Second, our effective tax rate was higher than last year, 21.6% compared to 19% in last year's third quarter.
For the full year, we're forecasting an effective tax rate of approximately 23% versus around 19% last year.
So on the bottom line, adjusted earnings per share were $1.93 compared to $1.96 in last year's third quarter.
We ended the quarter with nearly $950 million in cash, and total liquidity of $1.7 billion when including available borrowing capacity under our credit facility.
Quarter end net inventories were 12% higher than last year.
At quarter end, we had $272 million of in-transit inventory, an increase of over 100% versus a year ago.
Year-to-date cash flow from operations was $7 million compared to $319 million last year.
As a reminder, our operating cash flow in 2019 was nearly $400 million.
We resumed share repurchases in Q3, buying back $110 million of our stock.
Share repurchases under our current trading plan have continued in the fourth quarter, bringing cumulative repurchases in 2021 to just over $190 million.
This brings our cumulative return of capital year-to-date, including dividends, to over $200 million.
All in, our consolidated adjusted operating margin improved to 13.9%.
Year-to-date sales were up 19%, and our profitability is up significantly with adjusted operating income growth of 171%, and our adjusted operating margin expanding to 15%.
Now moving to some individual business segment highlights for the quarter, beginning in U.S. retail on Page 10.
Net sales in our U.S. retail segment grew 4%, with comparable sales growing nearly 6%.
Regarding fixed costs, our store optimization program has allowed us to eliminate about $30 million of annual costs related to low-margin stores, which we've now closed.
On Page 11, we have several significant technology initiatives underway in retail currently, two of which we've summarized here.
Our initial experience has indicated it is as much as 50% faster.
Now turning to Page 12, and some of our Carter's marketing in the third quarter.
Turning to Page 13, and the OshKosh brand.
This campaign resulted in $2.5 billion earned media impressions and a strong lift across all key brand metrics.
Turning to Page 14.
In the spirit on Page 15, in addition to beautiful holiday products, we're continuing to develop new and innovative ways to drive consumers to our stores and to our award-winning website throughout the holiday season with exclusive giveaways and child and parent-focused experiences.
On Page 16, we're continuing to leverage social media as a key way to connect with parents.
We've recently expanded into new social channels such as TikTok, and we've increased our video content as we continue to increase our relevance to in connection with today's parents, especially those from Gen Z. This strategy continues to pay dividends as we captured over 70% of kids apparel social engagement on Instagram in Q3, and continue to grow our community of parents.
Moving to Page 17, and our U.S. wholesale business.
Wholesale segment sales were $294 million compared to $302 million in last year's third quarter, a decline of 3%.
Because of these inventory issues, we realized about $70 million less in wholesale sales in the third quarter than we had planned, with these orders rolling from Q3 into the fourth quarter.
Fortunately, the majority of this $70 million has now shipped.
Adjusted segment income was $40 million compared to $67 million in last year's quarter.
Segment margin was 13.7%, down from 22.3% last year.
One very notable driver has been the very significant expenditures for air freight in the wholesale segment, which were about $15 million in the third quarter.
Year-to-date wholesale margins are up 360 basis points over last year.
Moving to Pages 18 and 19.
Our wholesale partners provide 19,000 points of distribution across North America.
On Page 19, we show some of the rich holiday marketing planned by Kohl's and Macy's, which will prominently feature the Carter's brand.
Turning to Page 20, and International segment results.
Reported segment sales grew 15% in the third quarter.
On a constant currency basis, segment sales grew 10%.
Sales in Canada grew 5%, reflecting growth in both eCommerce and stores since launching omni-channel capabilities.
Earlier this year, Canada's omni-channel demand has ramped nicely, with stores supporting over 25% of online orders.
Sales to international wholesale customers grew 70% over last year, principally driven by demand from our partner in Brazil and Amazon outside the United States.
Profitability in the International segment increased meaningfully over last year, with adjusted operating margin increasing 17.4%.
On Page 21, we continue to make good progress holding our business in Mexico despite significant COVID-related disruption in this market over the past 20 months.
Turning to an update on our supply chain on Page 23.
As a point of reference, we've estimated that raw cotton represents about 16% of the cost of a finished good.
Now for our outlook for the balance of the year, beginning on Page 25.
We're expecting to post sales of over $1 billion in the fourth quarter with adjusted operating income of $127 million and adjusted earnings per share of approximately $2 per share.
For the full year then, on Page 26, we were encouraged by our profit performance in Q3, a combination of improved gross margin despite incurring extraordinary transportation costs and overall effective management of other spending across the business.
The charts on Page 26, show our performance for 2019 and 2020, in addition to our current outlook for 2021's full year results.
We're now targeting full year net sales of approximately $3.450 billion.
Adjusted operating income of $490 million, up from our previous forecast of $475 million, and adjusted earnings per share of $7.57, up from our previous guidance of $7.28.

Summary:
Reported operating income was $124 million, up 9%, and reported earnings per share was $1.93, up 4% compared to $1.85 a year ago.
So on the bottom line, adjusted earnings per share were $1.93 compared to $1.96 in last year's third quarter.
Adjusted operating income of $490 million, up from our previous forecast of $475 million, and adjusted earnings per share of $7.57, up from our previous guidance of $7.28.