Q4 2020 Earnings Call

Greetings and welcome to the fourth quarter fiscal year 2020 earnings call.

At this time, all participants are not listen only mode. A question answer session will follow the formal presentation.

You want to require operator assistance during the conference. Please press star zero on your telephone keypad <unk>.

Please note this conference is being recorded.

I'll now turn the conference over to your House, Arvind Bhatia, Vice President Investor Relations. Please go ahead.

Secondarily good afternoon, everyone and thank you for joining us today, we're at homes fourth quarter, That's clear 2020 earnings results Conference call.

On the call today.

Our chairman and Chief Executive Officer LIBOR.

President and Chief operating officer of course.

On Chief Financial Officer, Jeff's comments.

Neither will begin by updating you on the call with 19 situation.

Followed by running through high level results for the quarter I think your and lastly, revealing our key strategic initiatives for the upcoming year and beyond.

Peter will then provide an update on our churn mitigation sourcing at inventory initiatives.

Yes, what provider indefinitely view, our financial results for the quarter and that's clear 2020, along with the actions, we're taking to respond to the current environment had reserved.

<unk>.

Please note that the financial results discussed today, the main subject to the completion of our audit.

The lottery discussing financial guidance today.

After the team has made for final remarks, well open the call to questions.

Before we begin I need to remind you that certain comments made during this call may constitute forward looking statements that are made pursuant to out of it in the meeting all the safe Harbor provisions of the private Securities Litigation Reform Act up 1995.

Particular statements about our outlook and assumptions for financial performance Roughest near 2021, and our long term growth targets as well that statements about the markets in which we operate expected new store openings real estate strategy potential growth opportunities strategic initiatives future capital expenditures.

Your cash flows liquidity the impact of tourists no impact at the recent global outbreak of covered my team are forward looking statements.

Such forward looking statements are subject to both known and unknown risks and uncertainties that could cause actual results.

Our materially from such statements.

Those are referred to it at homes press release issued today.

In filings that at home makes with the FCC. The forward looking statements made today, our adds up to date on this call.

At home does not undertake any obligation to update any forward looking statements.

Finally, the speakers metaphor to certain adjusted or non-GAAP financial measures on this call such as adjusted EBITDA adjusted operating income pro forma adjusted net income.

<unk> adjusted earnings per share.

Reconciliation schedule, showing the GAAP versus non-GAAP financial measures is available.

And at homes press release issued today.

He did not have a copy of today's press release, you may obtain one by visiting beat Investor Relations page of the website at Investor Day at home Dot Com and addition from time to time at home expects to provide certain supplemental materials are presentations for investor reference on the Investor Relations page of its website.

With that I'll now turn the call orderly leap.

Thank you aren't good afternoon, everyone. Thank you for joining us to discuss our results for the fourth quarter for fiscal 2020.

Before I discuss our results I want to address the rapidly evolving Tobin 19 situation.

First I'd like to thank our entire team was truly come together over the last few weeks to re examine how we continue to serve our customers, while ensuring customer and team member safety and well being during this unprecedented time.

We're taking several thoughtful staff to preserve the health and safety of our communities. While also taking an exceptionally disciplined approach to managing our business and liquidity during this time.

We continue to adopt recommended safeguards in plan and our stores in home office as circumstances change.

As such we temporarily closed all of our stores across the country from Sunday March 22nd through Saturday March 28.

We're compensating our associates. During this plant closure will continue to actively monitor the situation or reassess the plan timing for reopening as needed.

In order to continue serving customers needs. During this time our team to work together to roll out of curbside pickup solution is now effective at the majority of our stores.

It's allowed by stake state and local mandate.

At our stores that don't already have buy online pick up in store or BOPUS enable customers can place an order by calling their local store or completing.

Curbside delivery order form on our website.

Then tech each customer when their orders ready for pickup.

So she it will meet the customer curbside werent lots for safety measures process their payment and load the product without the customer ever need new lead their car.

For stores that have.

The order process is even easier.

Well, it's still very early in sales from Kurt I picked up a relatively small customer engagement has been strong and the feedback has been positive so far.

We continue to monitor guidance from state local and federal agencies and situation evolves and remain committed to implementing additional changes or closures as needed.

The same time are focused on taking decisive action to enhance our financial flexibility and preserve liquidity. During this unprecedented period of uncertainty by reducing our operating costs in capital requirement in the near term.

These actions includes the spending all new store openings and store remodels significantly, reducing Q1 advertising spend and deferring consulting and capital project, except to support our omni channel initiatives, which we are accelerating.

We've also practically drawn down 55 million of RBL facility and our pursuing additional sources of liquidity as a supplemental option.

I'd now like to share some color around the impact of Koby 19 that we've seen to date.

Jeff will discuss inventory supply dynamics, but from a demand perspective, we've seen a notable downturn in customer traffic.

Recently and it coincided with heightened concerns around the virus.

To put that into perspective in the weeks, leading up to our preannouncement year to date Entre proximately flat. However for the past two weeks or so primer prior to our temporary store closures across the country comps churn materially negative as customers began implementing social distance quarantine practices.

That said, we've seen a meaningful uptick in certain categories like home office furniture and cleaning supplies over the last few weeks.

The circumstances in response is changing.

On a daily basis simply too early for us to speculate on the impact into buyers on our operations or financial results.

Given the uncertainty of the magnitude and duration of the disruption we are unable to provide first quarter in fiscal 2021 outlook at this time.

Jeff will get some color shortly and outline the actions, we're taking to preserve liquidity right now.

Our team is adjusting in pivoting it lightning speed, while prioritizing the health and safety of our team members and customers.

Turning to the results of the fourth quarter Q4 comp performance improved in the back half of the quarter, enabling us to exit the year with solid momentum. We also were pleased with our clean inventory position and the significant improvement we made in free cash flow.

As noted in our last call Buda soft start to Q4, which is due in large part two is significantly more promotional environment in Brazil, resulting from the shortened holiday season.

We took decisive action in accelerator, a typical markdown cadence to move.

Through our holiday product and maintain our competitive position as a low price value leader.

Our teams worked hard navigated these challenges, while allowing us to deliver results above our most recent expectations, which we shared in a press release, just two weeks ago.

In terms of the full year fiscal 2020 with a challenging one for our company as we faced a number of headwind.

I'd like to compressed holiday season adverse weather for the first half a year and tariffs for external.

Others, including execution select category reinvention customer price perception as result of our tariff respond.

An incremental new store cannibalization within our control and our clear opportunities for us going forward.

We took important steps and adjusted our tactics as we move through the year to address these challenges, but our full year results fell short of our expectation in comps were down.

1.7%.

Despite weak comp performance, we grew our topline 17% on the Bakken solid new store performance, which helped us gain market share.

Despite the challenges we faced last year, our fiscal 2019 class delivered 6.7 million in average sales in their first year and our fiscal 2020 class.

Forming.

Very close to our internal expectation.

You have temporarily suspended new store openings in response to current environment, but we continue to believe that over the long term new store expansion will remain the primary driver of our growth and shareholder value.

In addition to new store performance our team delivered several key positive in fiscal 2020, you opened our new D.C. on time and under budget significantly improved our inventory position immediately reduce shrink increased our loyalty members by 65% to 6.5 million members and delivered over 100 million Euro.

Free cash flow improvement versus fiscal 2019.

Turning to fiscal 2021, our near term priorities are centered on navigating the current market challenges and being nimble at the same time, we haven't lost side of our key initiatives designed to regain momentum and drive future success. Once we returned to more normalized environment.

Our overarching strategy continues to be providing great product at great value.

I'll start with their efforts are on SDLP plus LP plus is an important excuse me is an improvement in how we use storytelling to our advantage.

Originally merchandise our stores and highlight at homes, great prices and customer value proposition, creating campaigns around select categories.

We were pleased that prior to covert 19, four out of five of our SDLP plucked campaigns were successful in driving comps in clearance to sell through.

Driving comps in clearance sell through within the highlighted category.

Well were temporarily paused these campaigns during cold over 19 disruption overtime, we believe SDLP plus well give customers are better appreciation for the breadth of our assortment continuous product newness. Most importantly, the exceptional value of our everyday low prices.

Second sharpening our focus on category reinvention, which had been critical comp driver for us historically, but had mixed results for us in fiscal 2020.

Well you DLP plus is primarily about emphasizing our great prices and category Brett Reinventions are primarily about delivering highlighting product newness. We were pleased with the performance is several of our Reinventions late last year and our teams plan to take these learnings from highly successful reinvention sharpened execution and applied.

Them to our assortment going forward.

The third initiative.

We'll continue to build upon this years, our insider perks loyalty program, which was launched only two and a half years ago and has already grown to nearly 7 million members.

George with a higher penetration and growth rate of inside your perks membership typically deliver a better relative comp performance.

Also our temporary pulling back on media spend our CRM and advertising campaign focused on our loyalty members have been the most productive inefficient marketing spend for us.

Fourth we expect a reduction in new store cannibalization moving forward, our fiscal 2019, and 2020 classes featured new stores in more mature denser markets that impacted or higher volume stores in the comp base and therefore drove outsized friction on call.

Well, our new store openings for fiscal 2021 are currently on hold given that cobot 19 situation our plan to moderate our long term growth rate to 10% should reduce the impact of cannibalization on comp for formats in the future.

If it's strategic initiative is continuing to build on our omni channel capabilities.

Response to covert 19 were taking your vision and accelerating it quickly as we roll out BOPUS in large curbside pickup services earlier than planned.

We began testing both within 28 stores are up across six markets in January.

And we're pleased with the initial results as order size and transactions were trending above our expectations prior to covert 19.

The initially planned to launch BOPUS to a larger group of stores in the back half a year, but we have accelerated that plan in light of the current environment. We now expect to have over 100 stores enabled with BOPUS capabilities in April.

In addition, as I mentioned earlier, we've added curbside pickup solution at the majority of our stores has allowed by state and local mandates and our quickly moving forward with establishing delivery partnership.

This is a prime example of how we're effectively adjusting the execution of our long term strategic initiative to better serve our customers well also prioritizing health and safety during these challenging time.

I'll turn the call over to Peter to discuss our teams continued focus on our operational initiatives, including sourcing diversification and inventory management Peter.

Thank you Lee good afternoon, everyone.

At home is focused on driving profitable growth.

Our key fiscal 2020 operational initiatives are expected to drive savings and enable us to reinvest in our strategic priorities overtime.

Which in turn should help drive efficiency going forward.

Our biggest operational accomplishment in fiscal 2020 was clearly the launch of our second distribution center in Carlisle, Pennsylvania, which now supports over half of our stores.

Hi, I'm, so proud of our Carlyle team's ability to ramp up quickly.

Both of our distribution centers are highly productive cross dock facilities and as we get back on track host Colgate Nike, we expect to see more of the transportation savings from the Carlyle deep sea flowing through gross margin into fiscal 2021.

We also put a substantial effort around our tariff mitigation strategies throughout fiscal 2020, particularly by making adjustments to our sourcing strategies to diversify our supply chain and expand our direct sourcing.

We increased our purchases from alternate countries and reduce some of our reliance on Chinese products. We continue to look for opportunities to diversify and expects to make further progress in fiscal 2021.

On direct sourcing, we actually did fiscal 2020 at 15% of purchases, enabling us to shorten the production lifecycle between concept and customer.

Direct sourcing also gives us increased oversight of production to ensure higher and more consistent product quality.

Our goal for for fiscal 2021 is to exit the year with even higher direct sourcing penetration.

We have also been keenly focused on enhancing our inventory management efforts to drive better financial returns and cash flow improvement.

As an example, we increased the number of seasonal product flow scheduled for fiscal 2021, which gives us more flexibility to trim orders and respond to adverse weather events or changes in customer behavior, including the ongoing impact of coded 19.

This ultimately should help us better manage inventory levels and potential markdowns.

As anticipated our significant reduction in shrink shrinkage during fiscal 2020 also underscores our commitment to can constant analysis and process improvement to drive our business forward sufficient.

And finally, we're rationalizing the number of skews, we carry in certain categories, along with improving our in stock rate on key items overtime. We expect you continue to build on this initiative.

With that I'd like to turn the call over to Jeff who will recap our financial performance for Q4 and fiscal 2020, Jeff.

Thank you Peter and good afternoon, everyone. As a reminder, additional information is available on our earnings release, which is posted to our Investor Relations website and includes reconciliations illustrating our non-GAAP results as if the new lease accounting standard had been effective in fiscal 2019, our discussion of adjusted Metro.

Next on the rest of this call will be on a lease adjusted basis with fiscal 2019 results recast to illustrate the standards impact.

During the fourth quarter net sales increased 12.3% to 397.7 million driven primarily by the increase in our store base.

Comparable store sales decreased 3.1%, which was above our most recent guidance and compared to an increase of 2.1% in Q4 last year.

Cannibalization from new store expansion was in line with our expectations for the quarter.

In mid January with two weeks still ahead of US we updated view that Q4 comps were trending toward the upper end of our initial guidance of down 4% to down 6%.

Our outlook factored in potential weather related volatility that we have historically seen in January.

Whether ultimately remained relatively mild for the balance of the quarter and combined with the success of our targeted Christmas markdowns helped US report comps nearly 100 basis points above guidance.

Fourth quarter gross profit was 114.1 million down 2.7%.

Gross margin was 28.7% and declined 440 basis points year over year or 360 basis point adjusted for the new lease standard due to product margin contraction and occupancy de leverage partially offset by improvement in shrink to more normalized levels.

As we mentioned, we're pleased with our sell through of clearance merchandise during the quarter and we exit fiscal 2020 with inventory growth of 9.4%, which was well below our fourth quarter and full year sales increase of 12.3% and 17.1% respectively.

Fourth quarter adjusted SGN, <unk> was 73.8 million up 5.5% versus Q4 last year.

So thats DNA was 18.6% of sales and improved 120 basis points year over year due to favorability in incentive compensation and preopening costs, partially offset by investments and labor and advertising.

Adjusted operating income increased 10.6% to 38.2 million and adjusted operating margins decreased by 250 basis points to 9.6% at the high end of our outlook.

Fourth quarter pro forma adjusted earnings per share of 37 cents was a penny above the upper end of our 33 to 36 sign outlook.

Our adjusted metrics, excluding non cash goodwill impairment charge of 250 million as a result of the Q4 interim impairment test.

As a reminder, the goodwill on our best.

Relates to the purchase price price accounting at the time of our acquisition prior private equity sponsors in 2011 and not for many asset purchase or business acquisition by the company.

Turning to the full year fiscal 2020, net sales increased 17.1% to approximately 1.365 billion.

Primarily driven by new store growth and partially offset by a 1.7% decrease in comparable store sales.

Full year comp sales were affected by more promotional environment in Q4, due to our shorter holiday selling season and adverse weather conditions in the first half of the year.

To a lesser extent, we also saw an unfavorable customer response to tear for later price increases in certain categories, which we discussed on our Q3 call in December.

Full year, adjusted operating margins were down 360 basis points year over year to 5.9%.

The decline was primarily due to lower gross margins driven by Mark Downs occupancy costs de leverage and costs associated with our second distribution center, partially offset by shrink improvement.

Adjusted that's DNA rate improved 10 basis points for the year driven by favorability in incentive comp largely offset by investments in labor in advertising.

Full year pro forma adjusted EPS was 57 cents, a penny above our most recent outlook.

One of the fiscal 2020 highlights I'm. Most pleased with is a significant improvement we made in free cash flow.

For the full year free cash flow decreased $18 million, which wasn't an improvement of 105 million versus fiscal 2019. Despite a 25 million dollar reduction in sale leaseback proceeds.

We believe the sharpened focus we developed in fiscal 2020 to reduce capital investment rollout strategic procurement initiatives and implement working capital efficiencies.

Helped us react to the need to prioritize liquidity during during the current coven 19 disruption.

Turning to fiscal 2021.

First our thoughts go out to all those impacted by the virus across United States and the globe.

With circumstances and responses changing daily it's too soon to know the full financial implications of coven 19 on our business.

Therefore for the time being we're suspending our normal practice, providing detailed financial guidance for both the current quarter and fiscal 2021.

That said, we are prepared to share a few key insights as well as initiatives underway to preserve liquidity until normal operations for zone.

Importantly, during this unprecedented times, we're prioritizing the health and safety of our customers and team members.

As Lee mentioned, we have taken action by temporarily closing stores and rapidly accelerating our omni channel capabilities to better serve customers in this environment.

To help our team members, who are feeling the financial impact of covert 19, lius generously chosen to contribute half of his salary to the at home and foundation. Our program that supports team members in terms of hardship during this difficult time.

We are committed to our team members and we'll continue to focus on helping each other through this challenge.

As Lee mentioned, we saw notable slowdown in store traffic over the last two weeks as customers began practicing social distant seen in quarantine measures to control the spread of the virus.

As you know we are domestic retailer with no sales outside the United States. However, we do have supply chain exposure to China and Asia and we had initially saw some shipping delays as factories closed.

However, most of the factories in China that we work with our operational and approaching full capacity as the virus has leveled off there.

Based on the information we have today, we expect the majority of our receipts for March and April to arrive in the U.S. on time absent further logistical disruptions.

Now I'd like to touch on the Swifton bold actions, we're taking to preserve liquidity. We initially planned to open 21, new stores in the first three quarters of fiscal 2021, implying that 10% unit growth rate for the year.

Quarter to date, we have opened six new stores. However in light of the Coven 19 developments, we have suspended all new store openings and remodel projects, which could lower our capital expenditures by over $100 million. If we do not resume new store to investment for the rest of the year.

As a result, we have also suspended inventory accumulation for aren't for an open stores and we'll redeploy any accumulated new store inventory to existing stores as appropriate.

We have eliminated you need discretionary capital spend other than as it relates to our omni channel initiatives.

We've trimmed purchase orders for near term receipts to better respond to customer demand and we're exercising an extreme prudence on new product orders.

We've also reduced store and distribution center labor hours to better align with current demand.

Our best current thinking is to move forward with our seasonal orders for the back half a year. So we'll continue to monitor the situation closely and respond as appropriate.

We have significantly curtailed Q1 advertising spend consulting projects team member hiring and non essential operating expenses in the short term.

As a per caution we have also proactively drawn down $55 million on our ABL facility to give us increased financial flexibility and we have the ability to draw more if needed.

Given the incredibly fluid and unprecedented situation. We are currently facing we're evaluating additional actions to improve liquidity, including pursuing supplemental financing that could be a longer term solution until business normalizes.

Overall, our executive team is moving quickly and nimbly to make decisions and preserve liquidity in the best interest about harms customers team members and investors.

With that I'll pass over to leave for final remarks before QNX.

Thank you, Jeff I'm incredibly grateful for our team's efforts to successfully navigate various headwinds throughout last year, enabling us to exit the year with a healthy inventory position and work together today as a community to take on the current totaled 19 challenge.

Obviously, we're facing unprecedented times and near term uncertainty, but we remain confident in our business model and as long term potential.

I have a highly differentiated concept with compelling store economics, and a significant white space opportunity.

Most importantly, we have a talented team that will enable us to steer through the short term challenges, we're facing position us for a bright future with that operator. Please open the line for questions.

Thank you at this time, we will be conducting a question and answer session. He would like to ask a question. Please press star one on your telephone keypad per participants using speaker equipment, and maybe necessary to pick up your handset before pressing the star keys.

A confirmation Tony will indicate your line is and the question Q.

You May press star too if you would like to remove yourself from the Q.

One moment, please while we call for your questions.

Our first questions come from the line of Simeon Gutman of Morgan Stanley. Please proceed with your questions.

Hey, good afternoon, everyone.

I have two questions all I'll answer them I'll ask I'm, sorry, and in one and two parts here. The first I realize you can't give specific guidance and it's a very uncertain time.

Can you give a sense of Directionally I mean, right now your stores are close but doing curbside.

And we don't know when the open and then when we do open it to to likely we're in a tougher economic situation and so I don't know if you can quantify or dimensionalize type of sales pressure that you're expecting so that we can think through of or what you're planning to do from a cost side.

And then the second question is on the supply side can you talk about supply chain disruption.

Our their orders that you're canceling on now and is there flexibility.

In terms of inventory and those are those are the questions.

Yeah, Hey, Simeon this is Jeff I'll take the first part and then we will take the second question, Yeah, I would say in the weeks leading up to our pre announcement comps were approximately flat and then what we saw in the two weeks post that announcement is that we did see a notable downturn in traffic in our stores.

And we the second week post our pre announcement was worse than the first week. So.

Our quote our stores are now close we're planning to be close through this Saturday that 28, we do have curbside enabled where that's allowed we're following government mandates, but this is a very fluid situation and we're going through it on a daily basis, and that's really why we can't give you any guidance today are anymore.

Other than that I would say.

That were extremely focused on a day to day basis about preserving liquidity.

And on over the long term as Lee mentioned, we think we have the right team the right model and we're working on the five things to help drive comp store sales when we come out of us on the other side.

Let me talk about the supply side.

No I, what I would say is we did a really nice job at the end of the year managing inventory I was really pleased with our inventory action not only from a sell down standpoint, but also planning our inventory as well going into the year. We did have slight delays initially from China.

I'd say that that actually helped us we because we've now trend our flows due to the reduced demand due to coated.

With the stores suspended we've caught paused all inventory accumulation, we redeploy that inventory to our existing stores.

We've also looked at our new product orders and had been thoughtful about our future orders. We are planning on Halloween harvest and Christmas orders, replacing them as we speak but we've also realize the one benefit of a slow inventory turn if we have enough inventory in the store to manage any demand when we reopened and have enough demand with wood.

Product to support demand for far spring and summer assortment for some time, we were able to address.

Those backend orders and clip where necessary on this spring and summer and we've been able to look at our inventory orders for every day and looked at our inventory positions and been thoughtful about that as well.

Tim in the launching of Thankfully Oh, sorry.

I would add to that as you know we have great long lasting relationships with our product partners and several weeks ago. When they were in the midst of the virus outbreak and they were asking us for our understanding as they were working through their factory shutdowns and the delays were now asking them to reciprocate with us and be understand.

And as we work through this and trim orders appropriately and manage our inventory levels as we're working through it in the United States now.

Our next question has come from the line of John Heinbockel Guggenheim. Please proceed with your questions. Thanks, guys two questions.

On the Opex side, Yeah, maybe talk about managing labor.

Oh, yeah. Once once you reopened how much what I guess, how much enable dependent on the volume and traffic, but maybe talk about managing that a little bit because I know you've had kind of.

Groups of folks right in the store.

And how you deal with that and then secondly, with respect to working capital.

Can you size that opportunity.

Not growing this year.

Much could that possibly come down and add to the a capex benefit.

[noise] So Peter sure. This is Peter I'll take the I'll take the first one.

So this is a place actually where our labor model really is a benefit for US remember, we only had two exempt employees and only 25 total employees in our average store with over 80% of that staffing part time. So we plan our label or labor as you know as a percent the sales.

So when this began to happen and we saw the decrease and changes in demand we were very proactive with that so when we reopened.

Well reduce our staffing to approximately four people per store.

Through a reduction in scheduled hours, it's appropriate based on demand.

And where we're allowed a in stores that are closed because some stores or close to all business, but some allow us to do curbside will continue to do that in those locations and provide curbside pickup for our customers.

Yeah, John on the working capital side I would say when we look back to this past fiscal year and 105 million dollar improvement that we drove in free cash flow. This year about 20% of that was driven by working capital improvements with the remainder coming out of gross.

Capex, because we did fewer sale leasebacks. This past year as we look forward into this year I would just say I'd want to remind everyone that the 100 million reduction in capital that I spoke about is just from the new store into about development program, obviously as we think about trimming.

Refreshing remodel projects other discretionary capex that there is additional capex that can be reduced out of the business outside of just started new store development program, but that new store development program is the vast majority of our capital spend on the working capital side, we will continue to work through that we.

Obviously have inventory turns less than two times per year, so that remains an opportunity for us.

Certainly in a normalized environment.

Okay. Thank you.

Thanks, John.

Our next question has come from the line of Jonathan matches Zoo ski of Jefferies. Please proceed with your questions.

Yes, thanks for taking my questions and thanks for all the detail I guess, just the first one you mentioned rationalizing skews in certain categories and improving inventory levels than others.

Seems like more of a strategic move versus.

Reflection of the current dynamic, yes, if I understand that correctly so.

Maybe just elaborate on that decision and what informed it and how will it.

It will evolve over the next few quarters. Thanks.

Sure. This is Lee Jonathan we looked at our inventory productivity last year, we've looked at a focused on.

Backing up our best sellers with more inventory and looking at our slow turn inventory, we still want to went on assortment, but we looked at 50000 skews and said there's a lot of skews that may seem duplicative until last year, we set a goal of ourselves to reduce our SKU count by almost 20% over the next year, we've been able.

To do that overtime and so our assortments as we've come out now and most recently with our Reinventions and our product update have a lower skew count we're buying behind or bigger ideas. Our best sellers were making sure our in stock rate on our best sellers are now at a record high for us as well before this covina.

18 situation and that allows our inventory to be more effective and more productive and that was or strategic plan starting last year, but now been implemented this year.

Great. That's that's helpful. And then just to see if you could give us an update obviously really fluid competitive landscape.

So just your thoughts on.

Expectation as we normalized throughout the year.

There are kind of a few a few players in the landscape that are challenged and closing stores others that are liquidating. So any any thoughts on kind of the the degree of.

No near term potential headwind there as well as I think in four key we saw the math players.

Used in the home category.

To to drive traffic do you anticipate that dynamic to kind of improve or worse than at the year progressive. Thanks.

Sure Jonathan that.

As we look at the competitive environment. It continues to evolve I would say, we're continuing to monitor very carefully we even did a study this past.

December and January to really understand their promotional practices of our competition over the past three years in our category NASS players specialty players in the light to see how they've been behaving in how we should.

Address the market as well going forward.

In the marketplace, given how promotional wasn't the fourth quarter I would tell you. We think give environment remains challenging for everyone to category was slowing before but we're a value player and a value player does very well in times of economic uncertainty and we like our position in that we like our price position our prices continued to be.

The lowest in the industry and that's been our focus I would tell you. There has been some pressures that we've seen around closures of our competition. So pure one had a number of store closures over 400 stores closed in the past four months that a long term opportunity for us but in the near term we did see some headwinds from that.

From their inventory liquidation in their store closures, but we also know that Theres a lot of cross shopping of our customers to their store and there's customers to our store and we see that as an opportunity for us long term. So net net add economy will be challenged value players when and I like our position over time.

[music].

Great. Thanks for all the detail.

Thank you John.

Our next question has come from the line of Brad Thomas of Keybanc Capital markets. Please proceed with your question.

Good afternoon, everybody. Thanks for taking my question [laughter].

Yes, Jeff I was hoping you could just talk through the PML, a little bit and help us think about the variable cost do you have versus the fixed costs that you all have.

Sure Brad So obviously, if we're in a normal operating environment, we would consider our occupancy expenses home office labor as two of our primary fixed expenses had them. We would typically look at store labor and marketing as a percentage.

If sales and variable, but I can't emphasize enough that we're not a normal operating environment right now we've addressed.

Prior to closing this past week, we had changed operating hours within the store, we had changed Peter's team did a great job minimizing staffing levels in the store to reflect the demand levels, we were seeing and work still continuing to make decisions on a daily basis to manage through this city.

Duration and focus on liquidity as Lee mentioned in his prepared remarks, weve drastically reduced our marketing spend for the first quarter to the point, where now we are just focused on communicating with our customers through our owned channels via email and the web site.

So we're managing expenses as tightly as we can.

As we navigate through this.

Great and if I could squeeze in a couple other housekeeping as of today or ended the period can you tell us how many stores you own then.

Is there any market today for sale lease backs and and.

What do you think that could be work in a normal sale leaseback environment.

Sure. So in a normalized environment. We currently own 12 stores today as a reminder, we did $125 million in sale leaseback transactions. This past fiscal year that was nine properties that we sold so on average roughly $14 million per price.

30, we would think that would be a good proxy of what those 12 stores that we own today would be worth in the future in a normalized operating environment and we continue to have dialogue and canvas the market with our real estate partners, but that that market right now.

Is not operating as normal so we would look to maybe be able to do something hopefully later in the year.

Great and if I could squeeze in one quick one can you remind us how much of the business do you think of is seasonal and perhaps at risk from periods like this where the stores are close versus how much of the assortment is maybe a core everyday kind of product that may not have as much markdown risk.

At the approximates the square footage, we allocate to the business or 25 to 10 of our square footage reallocated seasonal so think about patio and garden for the spring and then Halloween harvest and Christmas in the fall or some of that had even garden does carry through all year long so about 25% of it is what we Uh huh.

For seasonal and we're now looking at we've already cut orders for spring and summer the follow on orders and we're being more thoughtful about or Halloween harvest in Christmas orders for the back half of the year.

Hi, Brad just too much Brad just to go back home sale leasebacks, obviously, given the amount that we had planned to do this year I'd, just say that by suspending the new store development and if we don't put any more capital dollars towards new store development for the rest of the year that hundred million dollar reduction would well out.

Pace, what we expected to do in the sale leaseback market this year.

Yes of course yep, Okay. Thank you Jeff.

Thanks, Brad.

Our next question comes from the line of Curtis Nagle of Bank of America. Please proceed with your question.

Great. Thanks, very much front for taking my question.

Yes. This maybe a question you may not be able to answer it it's perhaps a bit.

Sensitive and then things were obviously very dynamic, but we did start to see.

Handful of.

I guess examples of other retailers and I'm trying to work with landlords in terms of Ah.

No.

I guess deferment, some rep it seemed like <unk> and things like that.

During periods of store closures.

And if you could comment or kind of how how are you guys thinking about that you know.

Yes, well can you comment on that at all.

I would say right now.

We are having those conversations curve, but there's been no decisions made as to how we would work with them on a go forward manner and.

All the other actions we've taken those are decisions, we've made on reducing capital, reducing the marketing spend trimming new store orders and everything else that we mentioned in our prepared remarks, but that was there's been no decisions made as it relates to our landlord relationships and how ramp will be handled go forward.

Okay, so totally understandable.

And I guess, what do you guys again. This maybe one question just trying to two dynamics.

Yes sure at this point, but when do you think you expect to make a decision on when do you could open stores and good to see something that would I guess basically meditated by you know well just the state mandates and obviously the.

Health and.

Well understand your employees and customers.

At current as we were really listening and taking the lead of our local officials and government.

Both federal state and local officials on this.

Our expectation and what we knew at the time, when we decided to close our stores for this past week was the information we had at the time this continues to evolve.

We have found that each municipality has its own set of rules and we're following each of those I would tell you that our teams are prepared to open when we need to that's why we kept the core team in place as Peter mentioned, there's four core team members that we have at every store that prepared even while the stores closed compare.

To to run it either at a support curbside pickup or reopened the store. So we're going to take it on a case by case basis, but Oh, sorry, our hope is that we can open as soon as possible, but our focus really is that health and safety of everyone involved yeah, Curt and I was just add that obviously with our folks.

Yes on liquidity in managing through this the plan right now.

As we said we'd be that we'd be close this week, but then moving forward. There's obviously a number of different scenarios that could play out where we could have stores that are closed for longer than that due to local ordinances and we're preparing for all those to suit for all those scenarios and ready to make decisions as appropriate a if we have stores closed longer than a week.

Of course, all right. Thanks, very much and good luck guys.

Thanks, so much.

Our next question has come from the line of Anthony Chukumba Loop capital markets. Please proceed with your questions.

Thanks for taking my question. Thanks for all the helpful information. So I have a two part question.

So you mentioned that you drew down $55 million from your HBIO. Thank you can draw down more needed I guess I was just wondering first thought what is the remaining availability under the ABL. Then second half you mentioned that youre exploring other liquidity measures are looking at the financing measures Leds.

I Wonder if you could provide a little bit more color on what exactly that you know that constitute a thank you.

Sure Anthony So I would just say, obviously with our our borrowing base and an inventory back a b L that that fluctuate.

Within the quarter. So we did draw $55 million on the A.B.L., we do have additional room, there to draw more and I would just say that with the actions that we've taken in the draw that we did make that preserves all of our covenants and we're fine from an operating standpoint with.

The draw that we did make and we could draw more and not violate any covenants.

Got it and then just in terms of if you could just provide any color in terms of the other liquidity measures that youre pursuing.

I mean, it would be primarily there's a number of different options there, but the primary source of additional liquidity could be in the form in a fellow traunch on our ideal.

That's helpful. Thank you so much.

Yeah.

Thanks Anthony.

We have reached the end of the question and answer session I will now turn the call back over to management for any closing remarks.

All right. Thank you so much and thanks to everyone for joining us. This afternoon. Please take care of yourself and your loved ones and state Dave.

This concludes todays conference you may disconnect. Your lines at this time. Thank you for your participation have a great evening.

[noise].