Q2 2020 Earnings Call
Good day, everyone. Welcome to these statistics second quarter 2020 earnings call. Today's conference is being recorded at the somebody lets turn things over to David Pure Vice President Investor Relations. Please go ahead Sir.
Thank you for joining us on the call today to discuss the results for our second quarter fiscal 2020, joining me on today's call Katrina Lake founder and CEO, Citrix, and Mike Smith, President and COO interim CFO.
We are supposed to complete Q2 financial results in our shareholder letter on the IR section of our website investors Citrix Dot com.
Linked to the webcast of today's conference call can also be found on our site.
You would like to remind everyone will be making forward looking statements on this call, which involve risks and uncertainties.
Actual results could differ materially from those contemplated that are forward looking statements.
Reported results should not be considered as an indication of future performance.
Please review our filings with the FCC for discussion of the factors that could cause results to differ.
Also note that the forward looking statements on this call are based on information available to us as of today's date.
We disclaim any obligation to update any forward looking statements, except as required by law.
During this call will discuss certain non-GAAP financial measures reconciliations to the most directly comparable GAAP financial measures are provided in the shareholder letter on our IR website. These non-GAAP measures are not intended to be a substitute for our GAAP results.
Finally, this call in its entirety is being webcast on IR website and a replay of this call will be available on the website. Shortly I'd now like to turn the call over to Katrina.
Thanks, David and thanks for joining us.
After the market close today, we issued our quarterly shareholder letter with more details on our results in strategy, which I encourage you read.
I'm pleased to hear second quarter results as he today and to provide color on our women's category and the margin glide path as men's today I will then give an update on hydroxide platform, which we believe will drive even greater client engagement over time before providing some color on her I didnt quite funny outlook, but first I'll take a moment to highlight our results for the second quarter.
In Q2, 20, we generated net revenue of 452 million inline with our guidance and we're talking 22% year over year growth.
We delivered 11.4 million net income and 14.3 million and adjusted EBITDA at the high end of our guidance.
Adjusted EBITDA, excluding SBC was 30.1 million.
During the quarter, we grew our active client count just 3.5 million an increase of 504000 clients and 17% year over year. In addition, we grew net revenue per active client by 8% year over year, our seventh consecutive quarter growth and a reflection of our ability to expand wallet share and deliver value to our clients.
I'd now like you take a minute to discuss our growing women's and men's offerings. This fixes generated positive adjusted EBITDA every fiscal year since 2015, which has allowed us to reinvest in our business and in your category growth.
Our strategy is to drive leverage across our existing offerings all using the cash from those offerings says that the newer categories.
Over the years, we've demonstrated our ability to expand into new categories geography price points and even form factor is enabling us to better serve the needs of clients across our large addressable market.
To illustrate this reinvestment strategy I want to provide more detail around both our women's category and the progress we've made with Matt.
In past years, we've reinvested those dollars to find our mens category and today. These cash flows fuel the growth of new offerings, such as kids UK and Directbuy.
Women's currently represents a large majority of our business not only do we start millions of active clients. In this category. We also delivered year over year growth in both women's active clients and revenue every quarter on record in.
In addition, we've demonstrated year over year growth in women's revenue per active client and each of the last seven consecutive quarters.
When you pair this with our strong inventory management capabilities, we've seen U.S. women's gross margins in our first two quarters of 2020 surpassed our 45% to 46% long term target, which helps us to consistently deliver positive cash flows.
We continue to see opportunity to drive further growth in womens one area in particular is plus which comprise less than 10% of argue SMS revenue last year, So, which we believe represent a total U.S. market opportunity of approximately 20 billion.
We see potential that better surplus clients by expanding our assortment across and use it and price points, creating additional avenues for engagement or more relevant marketing campaigns and leveraging our data feedback loops with clients and vendors to better address client names.
But it's just one of several areas, where we're focused on driving growth within women.
The balance of growth and profitability in our women's category reflects the type of profile, we seek to build for each of our offerings.
I just over three years old we believe our men's category is still in the early stages of gross but has already achieved significant margin scale in a short period of time.
With new categories, we use a launch and learn approach, making smaller early inventory by concentrating inventory. If you were distribution centers and taking risks and experimenting to learn quickly about client preferences.
Over time, we apply those learnings to make smarter larger buys extend inventory to multiple distribution centers and strengthen our personalization.
Well I mentioned, so much her and we're pleased with the progress we've made and executing on the strategy. So far we've now expanded our men's assortment from two distribution centers to four resulting in more than 300 basis points of shipping leverage in fiscal 2019.
We also continue to strengthen our exclusive brands portfolio, which is approaching half of men's revenue driving higher margins.
Altogether, our strategy has resulted in men's revenue quadrupling and gross margins increasing by more than 1500 basis points from fiscal 2017 to fiscal 2019, and we believe there's still room for additional scale.
In fiscal 2020, we expect our consolidated gross margin to remain relatively stable with strength in women's and men's margins, enabling us to support our seedling kids and you take category.
To briefly update you on our kids category. We continue to be pleased of this performance in Q2 20, we introduce shock new colors to approximately one third of kids client forgiving parents and opportunity to not only stock up on more of the items, Our kids love, but also find previously purchase items and new sizes as kids grow well, we're excited about the opportunity.
You need to continue growing and extending the offering in new ways Kids are still young category and we remain and launch alert node. So we had plenty of headroom to scale the offering overtime.
Now an update and the exciting initial results we've seen an address I platform, which we believe it's highly complimentary to our fixed operating and will play a key role in unlocking additional market opportunity as we seek to attract new clients and drive stronger relationships with current clients.
As a reminder, our integrated Directbuy platform allows clients to shop in select the items. They love based on our hyper personalized recommendations and understanding of the pieces they have already purchased from us.
Styles level data in particular has been valuable in achieving this early directbuy momentum, specifically and how it informs our personalized outfit generating algorithm at the end of Q2, we've collected over 4 billion style shapell ratings with well over 80% of our active life, providing detailed feedback.
This rich data informs our styling recommendation and we plan to continue leveraging it across our direct by platform and fix offering to deliver enhanced client outcomes and experiences.
In Q2, we also began collecting client feedback data on shipped directly by items, which will enable us to further strengthen our personalized recommendation. In addition, we enhanced their algorithms to further diversify the looks we present the clients, resulting in increased conversion in items sold per client.
What's really exciting about direct five is we have observed incrementality in terms of both client spend and unit economics.
During our shopper looks beta test, which ran from October to January we found that client and the beta spent more money with statistics overall than clients without access and we saw in the aggregate no reduction in the number of fixes they ordered as they engage with our new shop offering.
Looking at unit economics, the direct my margin profiles already comparable to the fix profile, even though currently each directbuy item is shipped separately, we're able to deliver these strong unit economics to the combination is very low return rates because of the accuracy of our algorithms and variable cost savings tie to direct size recommendation being.
Fully algorithmically driven.
As we grow Directbuy, we see opportunities to continue to drive even stronger margins and client outcomes.
Inline with our plans to introduce Shocker looks more broadly in fiscal 2020, we rolled out the functionality to all U.S. women's and men's clients in Q3, while we're excited to continue growing adoption as we expand directbuy. It's still early days, we continue to take a watch and learn approach with this offering as a result, we plan to make ongoing improvement to directbuy.
As we build on our learnings and seek to unlock more opportunities for clients to engage with us overtime.
Before handing over to Mike I'd like to discuss our updated Athleta plenty outlook now that we've seen a few company specific but also macro themes play out in Q2 20, we're leaning more conservatively in the back half of 2020 and shifting our full year outlook.
First in Q2 20, we drove healthy active client growth. However, do we think to the heightened promotional activity across retail those client spent less with us in their fixes in the quarter on average, resulting in lower order values than we anticipated. We think its responsible to reflect this trend in our second half forecast our strategy to contain.
I need to grow our assortment of lower priced products to serve a broader universe of clients also in Texas guidance.
Next well expect our customer acquisition cost in the second half ask why 20 to be approximately flat year over year lifting costs rise in some key digital channels, we're working on both product innovation as well as experimenting into new and emerging channels to offset this we're applying more conservatism in the way, we're thinking about our marketing spending.
Second half of the year. In addition, we are evolving our product and messaging get indirect buys early success and now plan to redeploy brand marketing dollars into future ones, our messaging fully incorporate directbuy and our offering can appeal to an even larger audience.
As a result, we plan to modestly lower overall marketing center that ended fiscal 2020.
I'd also like to spend a moment on macro themes that lead us to approach the back half of that quite funny with more conservatism.
Our UK revenue has been lower than anticipated as we adapt our offering to the market and because of the macroeconomic climate tied to Brexit, which if they're staying longer than we had expected.
In addition, the Corona virus continues to be a fluid situation that we are watching closely.
To date, we haven't yet seen immaterial impact on our business that said, we continue to water development and are working closely with their brand and manufacturing partners to mitigate future impacts.
We recognize us as a dynamic situation and while it's too early for us to quantify total potential supply chain or client demand impact at this point, it's reasonable to expect we'll see some impact we are evaluating trends as a situation continues to develop which contribute to our conservatism as we approach second half guidance.
Nothing that we remain really excited about our future we see a lot of potential in directbuy to capture a greater share of our addressable market and as a company. We're focused on our mission to help people find that they love and our capabilities to deliver against that mission Hasbro stronger.
With that I'll hand, it over to Mike to share more on our financial performance and outlook.
Thank you Katrina Hello to everyone joining us on today's call before she wants you to 20 performance I'd like to take a moment to shield might shake out about stepping in as interim CFO.
Have you made though I've been part of the Citrix family for nearly eight years and it held multiple executive roles during that time.
Your friend didn't really stages or growth overseeing or category operational expansion. The U.S. internationally has given me the opportunity where many passage and I plan to draw on this law CFO.
My second initial eager to add more color and additional can catch to wished it opportunities the driver business human help inform our strategies to help investors I understand her business day.
With that I'll discuss our Q2 results or GQ net revenue of 452 million represented 22% growth year over year.
And with our guidance, which were still watch growth in both winning remains as we continue to build out or change in UK categories as well early progress in our Directbuy functionality.
Talking to clients through the 3.5 million or 17% year over year.
Revenue per active clients grew 8.3% year over year, representing a show them could check it its corner.
They took a net revenue per actually quite calculation is based on the wash for sercel corridors and benefits from the extra week in Q4 19 wont Hakan clients is measured over 50 to reach the 50 Threerd week contributing approximately 2% enough love new plant can claim.
Due to gross margin was 44.8% 70 basis points higher than Q2 last year. This was driven by improvements in merchandise Pos in operational efficiencies, partially offset by an increase in shipping costs.
Did you advertising was 35 point Sixmillion war, 7.9% of net revenue with brand spend representing approximately $3 million in the quarter.
Other unless you need excluding advertising was 35% net revenue in the quarter fluffy and guest kitchen table and stock based compensation to attract and retain top talent.
Q2, adjusted EBITDA was 14.3 million or 3.2% net revenues driven by invest catch an advertisement talent in the UK expansion.
Adjusted EBITDA actually even yesterday, she was $30.1 billion for 6.7%.
Our Q2 net income was 11.4 million diluted EPS was 11 cents.
In the first half of 2020, we delivered free cash flow $27 million and ended Q2 with zero debt and 397 million in cash cash equivalents and highly rated securities or healthy cash flows continue to enable us to cellphone, they're great wall maintaining flexibility.
I'd like to take a moment to provide more visibility into our self funded ingestion and the impact they have on our adjusted EBITDA.
We believe these investments widen that personalization mortgage and fuel our business.
First we continue to invest in UK merchandise styling and operations, which we expect to be between 20040 $5 million in fiscal 2020, having already deployed 13 million in the first half of the year.
Arched.
Successfully scaling categories gives me convictions behind it shouldn't bashing and the brought up would change the international English.
Jumping we continue to execute against her 2020 plan of investing approximately $75 million and stock based compensation to trapping would change technology talent that will enable us to enhance or product and fuel or long term growth.
In 2020 be self funded investments across you can't expansion and asked me. She will total 100 $210 million, while we are absorbing the impact of these expenses and a full year adjusted EBITDA guidance, we believe they will enable Washington fuel further growth.
Drive meaningful market share gains overtime.
Now to our outlook.
That's Katrina lunch and we are lowering their guidance for the full year.
Fiscal 2000 $20 million checking that revenue in the range of $1.81 billion to $1.84 billion, representing growth of 15% to 17% year over year.
Adjusting for the impact to the 50 Threerd week in 2018. This range reflects growth of 17% to 19% year over year on a 52 week comparable basis.
With the flow through from our revised guidance, you're updating our adjusted EBITDA to be between zero and $10 million with adjusted EBITDA, excluding SBC in the range of $75 million to $85 million.
Our SBQ forecast for fiscal 20 remains unchanged at 75 million in the first capsules personal 20, you spent 28 million against me she resulting in 40 70 million expected in the second half a year.
For Q3 20, we expect net revenue in a range of 465 support and 75 million representing growth of 14% to 16% year over year.
We anticipate that this will be driven by continued growth in revenue per client as well as year over year broking have to clients in the period.
In the quarter, we expect Sq. She is 22 million as we continue to invest technology teams to support growing initiatives like Directbuy.
As a result, we expect Q3 adjusted EBITDA in the range of minus turned the minus $4 million adjusted EBITDA, excluding as she she is expected to be in the range of 15 to 19 million.
In summary, we continue to give you shut in both the opportunity ahead of actions, we make investments across products international expansion in calendar, which we believe will fuel our personalization capabilities and allow us to capture greater market share overtime with that we're now ready for your questions operator, I'll turn it over to you.
Thank you at this time, if you do have a question. Please send off by pressing star one I can that well be star one for questions. We'll hear first today from wash Taylor with Barclays.
Hey, guys, who Katrina you rattled off from Cookie involved snack food.
The guidance for full darker off so I guess first.
Can you talk about from a macro perspective, what you're seeing in terms of supply source.
Sundries interruption in terms of jewelry coming in from China or elsewhere.
So I can send that to me I'm sorry.
I will choose good.
It would be solutions from.
Recent drop off in consumer spending related to cool mvrs versus some of the other items you mentioned.
Marketing cost inflation in the UK.
A little bit the little pulling them any color there in terms of portion that old deals.
Thanks, Rob.
And yeah I'm good questions I think all the first is just on on the factors that are influencing it and how much of this what are we seeing on the supply chain side on the honest truth is like you know, we're really still in the middle of this you know, we I think thankfully due to not quite thankfully, but when we did a lot of the worker on.
Tariffs, we really got handle around our kind of understanding of our dependence on China, but the reality is like the supply chain is really deep and then there are fabric. There are component and so you know we're really right now in the middle of working with our vendors on it we really we do anticipate it'll have sunit talked on our business, but the reality is we don't quite high.
An exact number at this time, but we do anticipate will impact our business.
On the demand side on what we said in the call I would just you know is that we don't see any it hasn't impacted our results to date and that being said it would be reasonable to expect that on you know there's a lot going on on the macro world right now and yeah definitely the combination of some of the trends that we talked about in the call.
In addition to you know what we're seeing in the World I really leads us to take a more conservative approach to guidance and so you know I think long term are still super excited for all the reasons that we talked about we're really excited about what's happening in directbuy. We feel that were really well positioned I think in a range of potential extra hill outcomes, but we also.
I felt like we need to acknowledge the short term state of affairs.
Well hear next from Doug Anmuth with JP Morgan.
Hi, This is Corey Carpenter on for Doug two questions. If we can first on drug by knowledge rolled out all.
The decline you us where do you still see the most opportunity to energy as we go through the year, especially as it relates to direct buys a potential customer acquisition channel and then of UK I was hoping you could expand someone where you see more challenges relative to your expectations and how does this impact how you see buttons that you're going forward. Thanks.
Thanks, Corey on I wanted to get your UK question first and come back to Directbuy on the U.K. you know simply I think there a sudden expected 'em, we always watch and learn into a new business and I'm in the UK, we're still doing some of that learning and so on our guidance reflects some of that and on the macro environment in the UK.
To be clear, we launched into an environment that we knew with macro economically challenged but that has definitely sustained longer than I think any of us would have thought on at a high level. We're still really excited about the opportunity for international in general for sex and I think in the UK really being able to personalize the offering from an assortment perspective, but even from a price.
Perspective, as an opportunity that we're really excited about and then related like I guess on Directbuy and Youre I think we're still in its very very early stages of what the attack. It dropped by can be on our business I think today our product. It's it's a great products, but it also on it it's not totally optimize yet.
And the user flow is not totally optimize even for the feature for our existing clients and then to your point around thinking about this is a way to be able to broaden the easily accessible market opportunity for us to capture more of that opportunity and that's absolutely one of the things that we're most excited about is.
To be able to allow people to engage with personalization and in a new way and the one that doesn't necessarily depend on effects and so on you know we're actively working on that no news to share yet, but on it I mean, it's it's really really exciting opportunity for our business.
Thank you.
Well hear next from Erinn Murphy with Piper Sandler.
Great. Thanks, Good afternoon, and a couple questions for me I guess first on the promotional activity Katrina that you referenced you also referenced that the women's business in particular with already over your long term target at 45% to 46%. There just trying to reconcile kind of what you're seeing out there that something you're expecting to hit really in the third and fourth.
Quarter, just reconciling those two comments and then I have a couple clarification. Thank you.
Sure Yeah on the women's side, we want to share a little bit more on the margin profile just to really you know to be able to add some specific specificity to the color that we've been sharing around our our business model being one where we can use the cash flows from our businesses to reinvest into new businesses and so we're really proud of the women's gross margin isn't it a really healthy point.
And you know that gross margin is it's you know a bunch of things that's the levers that we have with our vendors. Our vendors are very happy partners with us and so on being able to have it high initial markups contributes to that being able to use the data to drive down clearance to be able to drive a success rate and having more likely to clients are finding the products that they loved that helps.
That minimizing clearance overtime helps and and so those are kind of the inputs into that long term margin a little bit different than maybe what we were referencing in terms of the promotional activity and that's really that we saw on you know and this last holiday season, we experienced set to be especially promotional both in terms of kind of the depth of discount also in terms of the length of time.
<unk> promotional activity and and so yeah, we believe that impacted our business on more on the demand side during that time period in so we see a while some of those trends may not kind of continue through the rest of the year I'd. We felt that it was appropriate to try to factor in some of that just making sure that we are using the vessels.
Little knowledge that we had as we set out expectations for the rest of their.
Eric.
The only thing yeah. The only thing I would add quickly is.
I actually think they're very related to promotional activity and the gross margin that we talked about the women's and that we are not promotional or full price retailer. We're one of the few retailers. As you know that has gross margin expansion again were 70 basis points higher year over year and a lot of that's driven by kind of investment that we have and the success, we haven't or women's business.
So they are linked I think in a very positive way for for long term success of them all.
Okay, and then just to follow up for me really maybe first on inventory if if we're talking about the gross margin it seemed a little higher at 43% when I look at the mid teens guidance for the third quarter. So just curious on but as you know if you believe you have any action to take what that does look like I know you'll start will you start to see inventory and sales kind of went up a little bit more and then the second quarter.
Suffocation now that guidance Mike. This is probably more for you on Q4 revenue guidance. Despite around mid single digit can you talk about what your assumptions are for revenue per client an active client and in the fourth quarter. Thank you.
Yes, so two things first on the inventory it is a little higher than what we had expected in a lot of that comes from the just having taken sales down a little bit in investment that we made last year that we talked about where we Miss Q2 sales some and last year and wanted to make sure that we had enough inventory to take care.
Sure of kind of sales demand this year I would say that because we're not a huge fashion forward kind of company you know I'm not overly concerned about inventory risk or actions that we need to take in the short term I think in the back half of the year I do expect there to be some this alignment with sales versus inventory, but I've expect.
That until you know, we're not talking too much about 2021, yet, but I expect that to be more in line in future years.
And then on your comment about sort of single digit guide I think if you look at it on an adjusted 52 week basis, it's still double digits in terms of both Q3 and an implied Q4.
Okay fair enough. Thank you all.
And from Goldman Sachs, we'll hear from Heath Terry.
Great. Thank you.
Two.
Soon see more severe competitive environment, many and the most recent quarter haven't done and pass on keep grade.
Wondering if you could.
Delve into that just a little bit superbly keep reached and one of the one of the breakpoints in terms of your causing a or b over the over the last few quarters and so just relative to what you. What you had been seeing in prior quarters, what what really changed.
Your and you know how that how you're expecting to a 10 year sort of what's what's proctor again relative to the competitive environment in your your forward Gardens, and then Mike when we look at the shift in profitability guidance, you mentioned the change and.
In marketing or expected it spend and then in marketing and the.
The next couple of couple of quarters can you give us any more detail on somebody other major line items in terms of where the where the rest of that's stuff change in spending level or profitability is going.
Yeah, Thanks Heath and on the first let's keep rate you're one of the benefits is being it's really great data driven businesses that we have a lot of ways that we can really look at what we're seeing in trying to parse out you know how much of this is pricing how much of this is a customer and and so you know I think what we did elite we've taken a lot of pride and the fact that weve.
And able to get a lot of.
Vary a lot better with recommendations over time, you see that with revenue per client growth that we've had and you know we anticipate we'll have more of and on the keep right right. What we what we could isolate was that we saw some element of that keep rate that was kind of not something you could attribute to as an example, lower price points to lower price point has been something that we have continued to invest.
Then and so you can imagine that would have an anticipated ex that kind of impact on something like eylea and well keep rate. We saw on you know, it's highly like kind of.
Part of that timeframe, but I think we I'm can isolate that just saying that this is likely something to have to do something less competitive environment and so on so we deals responsible to kind of knocked out into the kind of though the whole year on that being said, yeah. We still feel really strongly about the strength of the personalization capabilities that we have.
We're excited that we yeah, we have had revenue per client growth and continue and plan to have that continue on and so you know we we think it probably was more related to just an exceptionally promotional time period.
Yeah, and this is Mike here I mean on the exceptional promotional activity I mean, I do think a shortened holiday season in terms of selling had some influence on that to where I feel like you know some apparel folks were probably more promotional than even wanted to be because they had to get rid of inventory in a shorter selling period. So I think that had some impact that you saw.
Those are on the profitability. The biggest drivers in addition to sort of the marketing cost that you made was SBC UK and the flow through other revenue guide and so those are the big ones, where there's not a heavier investment that we're making its the same investments that we talked about you know at the beginning of the year or commitment to the UK.
And our commitment to talent.
And it's just you know like we said, it's $25 million to $35 million in the UK and $75 million enough species, and we're still committed to both of those things because we know what's right for the long term value of the business.
Great. Thank you both.
Thank you.
Well move on to Edward Yruma with Keybanc.
Hey, good evening, guys nice taking the questions I guess first just really quickly the follow up on the FCC are you starting to see kind of more capability in trend from a hiring perspective, given what's going on the private side second just I don't actually willing to do any more clearly, but how incremental is direct five for the balance of the or and then really finally, you know any.
Other learnings from UK International you know I know macros top player, but any you know kind operationally features sorting through would be helpful. Thank you.
Yeah, I think set of questions on FCC and I think we I think we have benefited a little bit and I anticipate that is kind of current trends continue will really benefit a lot on but we believe our position from a hiring perspective has probably kind of increasing strength as people are on you know looking for strong.
Unhealthy businesses to join and so and you know we anticipate that will hopefully continue to be a favorable for us.
On the Directbuy I mean, one of the think are most excited about lets directbuy is that it so incremental and so what we're saying, let directbuy is that clients who on into the and the beta test that we get it was just the Navy test we found that clients just by having access to Directbuy and those coal cohorts, where I'm spending more with us and at the same time not getting to your fixes and so.
And we're really really excited about that and here we talked earlier in the call about how Lisa how excited we are about kind of continuing to invest in that capability and really opening up and you know the catching it twice as well in the future and then lastly, your question on that you can't and we're you know we're learning a lot and just as an example on being able to serve a multitude of shipping part.
Right and so in the UK people want to be able to choose their shipping partner, whereas in the U.S. people on you know people care less about that functionality and so that's something that we launched we learn we were able to incorporate those learnings into a better products and so you know so I think we're really we're still can we continually seek optimistic about the UK and and you know worksite.
That we can't take those learnings and very quickly put those aftermarket.
Thank you.
And your Squali with Suntrust has our next question.
Great. Thank you. So two quick questions maybe the first for Katrina argued the shop. Your looks have you started and engaging dormant accounts already it's not a warning on the product ready to also be trying to engage dormant accounts. If you could maybe quantify the number during accounts that you've had over the years, maybe it's too soon.
Two or three years, and then like love to beat the dead horse here with the guard, but as you look at the macro versus company specific issues anyway, how how did you go about kind of coming up within your guidance is there a way to kind of at least Directionally help us the majority primarily.
Driven by that unknown macro issues that you referred or is it.
Jordi basically company specific issues like the competition, you've talked about more marketing spend thank you.
Yeah. Thanks for the great questions yourself and on the Chalker looks I mean, the honest truth is today shop. Your loved isn't is really only oriented against current clients, who gets Texas and so currently shop. Your looks that has an anchor piece at an item that you had already kept from such facts and so on you know if you have.
I didn't catch something in your fixes in such that you're not going to have choppier Lux and if you're items are very old as you know somebody who is quote unquote dorm it might be and it's not going to be very effective and that being said that's an area that I think is really interesting for us I think there's both people who engaged with fish takes a long time ago and haven't engaged recently theirs.
Also this category of client to have I'm signed up shared a lot with us about who they are but haven't yet gotten to fix that is also a potential audience and so you know I think those ours, we think about where do we take choppier Lux and Directbuy and what are the kind of you know next lowest hanging fruit that are interesting opportunities. Those two are definitely significant.
Components there.
In terms of the the guidance and not girl I mean, yeah, I think what we can say is that we thought we saw these trends in the business and that coupled with the uncertainty and the risk of the macroeconomic environment leads us to lean anymore conservative place on and so yeah. We saw these trends in the business in a much more optimistic now.
Her environment, you might actually be able to feel like you can make things up with initiatives and and you know kind of lean to the more optimistic side and I would say in our case and you know given what you see in the macro side like we felt it was prudent to be more conservative.
Because you know.
Yeah.
From Wells Fargo would hear next from Peru show.
Hey, Thanks for taking my question, Tom I guess for the first question I had was on the are you will be trends I'm either between or Mike could you, maybe remind us where he will be used today and then maybe just where that had been trending over the prior 612 months and then what's most important I guess is what kind of it'll be decline.
You know you're now baking into the through the revised to each plan.
I I, yeah, we have not shared ASV in the past and that's on a metric that we plan to share going forward and that's really because as our business of all you can imagine that as we're doing directbuy as there's many other ways to engage with our business that kind of the wedding and think about that denominator really changes over time and direction.
The only I think some of what you can look at as revenue per client revenue for client isn't something that we've grown over time and we've shared and disclosure at the end of that slide 19, what cheap rate trends have looked like overtime and so as you can imagine like I'd keep rate goes up on you know that is a positive that is a you know what has a positive potential current tours.
He and so and like I said, we continue to be Super excited about kind of our ability to personalize for clients our ability to be able to continue to drive healthy engagement lets fish facts and so we believe that we'll continue to drive revenue per client, but you'll I think our definition of ASV is going to fluctuate as a business becomes more personalized that has.
Other channels and so I think revenue for client growth is gonna be the best way to think about our business.
Well, maybe if you don't want to disclose they read on that front is it possible to say, it's embedded in your going to what type of year over year decline or I'm, just trying to get on understanding of the magnitude of of the are you read decline the smell baked and tobacco.
Pretty clear I don't think we've shared I don't think we've said that there were planning on an elite decline.
Got it okay, just moving out of the marketing so I think he said it.
The prepared remarks modestly lower and marketing into wage or your remote or lowering.
Total marketing dollars should we expect those to be down in both through Q4 to your become mature understand what you mean.
So the marketing side, there's I think there there are two things. So one is that on we've seen on it we've seen with then we're still planning to have kind of our year over year customer acquisition cost be about flat and so we share that in our on in our remarks, and and you know that we'll continue that I think the underlying thing is that.
We are seeing some digital channel to be more and be more competitive and so Facebook as an example is a great channel for us in general we've seen that handle get more that get more competitive and we've been very lucky or good that we have I'm consistently had this diversified marketing strategy. So that were never Overdependent on one channel and so you know we believe that weekend.
Yes, and other channels on but I think that being able to think about kind of our marketing and knowing that there's risk and kind of this one channel that's growing on like that something that we want to be more conservative on and then the second piece is brand marketing and that is something that we anticipate we're going to that we are planning to push out and so we had some brand marketing spend that we had anticipated in the back half of this year.
For the reality is we're evolving our products and how incorporating directbuy and fixes and having a new marketing messaging is a really important way to think about kind of the new product and how we engage with clients and so we are items. We are postponing that fan to add on and plan to spend on the feature.
Got it and one more veterans coupons on the two age.
Topline around 15% I mean, you're always your targeted 2025 for drugs in public and you've done.
Hitting those plans it should we assume this is this kind of more moderate growth I'm just kind of the plan going forward I mean, I'm kind of curious how are we pick your book or the topline Algo you know we can drop multi year on the business. Thanks, Yeah, Hey, like this is like no I don't think you should assume this plan is change on a 25% out though it's you know we're trying to reflects kind of current trends.
We're seeing a earlier question, yes, more macro then sort of company specific challenges and we feel very confident and things like directbuy and how in the future. How big you know what opportunity that is for us So no change in the Aldo.
Got it thanks, so much of.
Thanks.
Well move next to Janet Kloppenburg with J.J.K. research.
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Good afternoon, everyone. So I had a couple more questions on the promotional environment and what's embedded in full with guidance I think.
Having said that it but.
You think that's a holiday season has the promotional one so I'm wondering if you're seeing promotions, a phase now and and become less of them in pass on the business well. If you can continue to incorporate that into the guidance and then secondly, as we look forward to next year as holiday season, I, just wondering besides lower opening.
Price point, what some of your strategies my speech to combat what what it's always ability.
So most of all environment, specifically for apparel in the holiday season, and I had a follow on as well. Thank you.
Sure. Thanks, Janet and you know in terms of the the holiday season and forward guidance I mean, what we saw was.
ASV growth than we anticipated and so we attribute some of that too just you know people seeing a lot of really deep deals elsewhere and yeah. That's kind of what we saw within that holiday period, and you know, we didnt anticipate that would sustain through the whole here, but we also felt like we couldn't that we needed to.
Like at least some of that as we thought about the rest of the year and so you know we didn't kind of extrapolate exactly what we saw it could have done a whole here, but we did it did I did just kind of get us pausing and helped us to see it more conservative approach there and in terms of kind of next season or even just like broadly speaking yes.
What's great about our business as Mike started out was that we arent you know we're not a promotional business like we don't win for having to see this discounts are for having you know kind of like the cheapest genes out there like the way that we witnessed by having the right genes that fit you on and that's something where I think that you know you're you're not going to have as much elasticity around in that product category.
The whole product categories that were Ed we feel really excited about because they are the pieces that you were over and over and over again and you really care about some of those features and you're not necessarily buying it because it's the cheapest and so yes of course, our investment in lower price point, which we have on we have been investing in and we continue to plan to continue investing.
It certainly will help us, but you know we really believe that the way that we win long term as by being able to deliver the most personalized experience for people in the one that is yeah, most able to be able to help people finally say lives.
Okay, Great and then just on the UK <unk> hopefully you know a lot of a lot of macro issues.
Totally understand but also when we look at assistance they have now and the growth plans and the scale timeframe that you had said that business has any of that changed given what you know today should we think that perhaps that didn't pay scale Ah Ah failing to pop and so they may take longer.
But you had to wait till we expect that.
Yeah, we haven't shared any specific plans around profitability in the UK, but you know our business and the U.S. hi generates a lot of cash flow. That's a very good thing on that gives us a lot of optionality and I think even sharing the color that you can't around when ended how profitable women's and men's and the glide path there and that really is to show examples as well.
That looks like the UK is our most fledgling of all of the businesses and so you know it's not quite at the place where we're seeing economy of scale and that market I've hashed out, but you know we're very committed to showing that glide path. We're very committed that that glide path exists on and you know showing that we've done that in women's and men's I think as evidence of the way that we think.
Okay. Thanks, so much in lots of luck.
Thank you very much.
Okay.
And from RBC will hear next from Mark money.
Okay. Thanks, the outlook for the next two quarters. This deceleration in revenue growth you think will she greater deceleration in fact appliance or in annual revenue per client because those have been pretty consistent the last couple of quarters, which one is more likely to see a deceleration and then maybe one question on marketing spend.
My first reaction was with a direct five functionality rolling out and my guess, Mike My assumption would be that there's not great awareness of it a yet but this would be an opportunity to spend materially more on marketing spend more and marketing to get that go to let people know about that features and functionality of directbuy.
Katrina is your it's your point that you still need to figure out the messaging you haven't got that airtight yet. So that's why you want to postpone the <unk> the or the product isn't exactly where it is.
Why the delay in putting marketing you know what would behind the direct by Arrow.
Yeah, we I mean, we definitely agree with you as like there's I think there's a big opportunity right away I said anything in longer term does it make opportunity in terms of using that to be able to bring people into the fixed family. We are super Super excited about those things that being fed to your point I think right now we feel like we want the product can be and a little bit more of an evolve state we want.
I'm kind of the shopping experience to be better integrated I think we have some work around how do we position it and so on you know so I think we think that syllable at that we have that we'd probably want to use and the future and and we do anticipate that there's a lot of benefit you're putting more marketing dollars behind that I'll, probably have Mike talked about right Mark yes.
So we'll still have year over year growth in both after class and revenue per active client, but to your point just taking down revenue. We expect some deceleration as it relates to kind of what we saw in Q on Q2, and active and seminar back and so we can talk through that when we talk to you.
Okay. Thank you.
Again for questions, let us start one at this time well move on to Dana Telsey with Telsey Advisory group.
Good afternoon, everyone.
You think about the direct fly program and the reduction in the numbers fixes that you had how do you think about that algorithm and the profile going forward, which is what you know what their fixes has been and what you think about the opportunity for direct side is there an average order value that could be higher on direct flight versus six is over.
Time, and how you're thinking about it thank you.
Thanks data and yeah, just for clarification, when we launched Directbuy, we get our HIV test. We found was that people spent more with us and that they actually order. The same number effects as we didn't see we saw no decline and the number of fixes that clients are getting and you know that the trends were really excited about because I think it shows the incrementality of that feature and it.
Shows that we're able to actually capture greater wallet share with that feature.
In terms of Eylea and we've actually we actually believe that people will engage us directbuy in Texas and very different ways and so we'd love to be able to have any product experience I can allow somebody buying more indirect by if that's the way that they would prefer or somebody who might be buying boerne, Texas and so you know to be honest I don't know that we have a perspective, the ASV should be higher.
I or in one place or another about what we want as a product that really is able to I've had a cohesive personalized styling journey for I people for a range of different people that want to engage with us and lots of different ways.
Got it and if you think about inventory levels going forward.
And you mentioned that obviously will be next year when it's more imbalance will be as you think about this the next two quarters does it stay at this type of them. These metrics going forward or do you think it comes down to go little in terms of your planning.
It comes down a little but it's not as much as is like Danahers.
But not as much as we had expected that where we sort of play every year, but again as we look at the quality of inventory that are underneath those numbers are we don't have big concerns as far as you know not having the right inventory to serve our clients.
Thank you.
Thank you.
Oh.
Well here now from Mark Altschwager with Baird.
Good afternoon. Thank you start off I was hoping you could talk a little bit more about the gross margin puts and takes for the back half of the year <unk>. Jude said the prepared remarks, I'm expecting similar margin for the for the full year that following some expansion in the first half and then bigger picture you could you update us on the law.
Long term margin targets and how you're thinking about that provides path over the next I'm, calling a couple of years. Thank you.
Sure Mark here this is Mike.
So yeah, the puts and takes I mean, it's similar to what we talked to on the call. We expect the same kind of behavior in the second half of the year in terms of men's and women's being really healthy gross margins and helping funds from overseas when businesses like because in the UK as far as long term margins and we look forward to kind of talking.
Future quarters about kind of once they get a physical 21, obviously it looks like in future, but given that were already on our long term targets almost even with the she's going businesses. You can expect that we we feel really good about kind of how gross margin can trend over time and more to come in future quarters.
Just a quick follow up there could you talk about what levers you habits in the near term to protect our EBITDA margin should somebody will be pressures persist given the uncertain macro.
Yeah, I mean, we have a lot of control I think or are you kind of our expense base and to the investments that we've made specifically kind of in talent and SBC and the UK you know we feel good about those long term targets, but the things where we can get cost more in line with revenue because if we.
Experienced kind of a tougher recessionary period, we feel good about our ability to kind of react to those today, though we feel good about the guidance, we've given and good about the long term prospects for the business and just to jump in on the kind of what the behind this question is like what he what how are you thinking in the case of a recession I mean, we think were.
Very well positioned on indicators like that and you know being in this personalization digital commerce business and we see this is a fundamentally better business model than stores and long term leases. Our inventory turns really quickly to Mike's point, we have best in class data to be able to make decisions about that inventory, we've had strong cash flows and history or.
City, and just like at a high level I think and these moments of Turbulences, when you're seeing that accelerating on of high market share shifting and and yeah. That's something that we were excited about and that's something that we feel like we'd really benefited.
Thank you for all the detail.
At this time I'd like to turn things back to Katrina for closing remarks.
Great. Thanks, again for joining us today, we look forward to get connecting with many of you in coming weeks.
And again that will conclude today's conference. Thank you all for joining us.
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