Q1 2020 Earnings Call
[music].
[laughter].
Ladies and gentlemen, thank you for standing by welcome to a cure rates retail Twentytwenty Q1 earnings calls during the presentation. All participants will be another listen only mode. Afterwards, we will conduct a class.
<unk> answer session at that time, if you have a question. Please press star one on your telephone.
As a reminder, this conference is being recorded may 7th.
I would like to turn the conference over to coordinate young Chief portfolio Officer, and senior Vice President of Investor Relations. Please go ahead.
The week immediately following stepped up government response.
We saw sharp fall off in the second and third week said March across her U.S. businesses, she lets H.C. Lily cornerstone.
Experienced similar impacts on on international market, but the timing varied from late February and Italy for the first half of March in the UK in Germany and mid April in Japan, following the declaration of the National emergency.
We also experienced significant product margin pressure as their business mic shifted from higher margin fashion products, the lower margin home categories.
Additionally, incurred incremental costs as we adjusted our practices to ensure team member safety and wellbeing.
Since late March after the initial destruction.
Rebounded sales.
Consumers adapted to the news stay at home mandates and we adjusted our merchandising programming and marketing the better meet her needs.
Over the product margin pressure as good a category mix ships continued and we incurred further covered related costs, including an additional paid for our team reduce productivity standards in Oklahoma Tenors, which is also leading to increased fulfilling the times, an additional bad debt reserves, partly in anticipation of the deteriorating economic.
<unk>.
We have been focused since the onset of a covert crisis on four key priorities.
In our Tuesday.
Adjusting our consumer taking action to be relevant this environment.
Managing our costs and balance sheet and supporting our communities.
To ensure the safety and financial well being of our team members you pursuit of three prong approach.
First we enable and required all team members, who could work from home to do so shifting over 10000 office based team members in customer service Representatives worldwide to work from home.
Second for all essential to members, whose work is required to be done on site, which is primarily <unk> enlarge studio teams.
Created as taken environment as possible.
Significantly scaled back lives studio operations strict social distancing relaxation of <unk> productivity requirements in Oklahoma centres increased sanitation and many other actions.
We also provided additional compensation for all onsite team members as a form of appreciation for their efforts and their dedication.
And third we gave all central onsite T. remembers the choice to stay home indefinitely with no penalties and we've provided partial pay option to cushion the financial impact.
Rapidly adjusted our consumer base your activities changing virtually everything we were doing on air and online relevant and meaningful to her.
The scope and piece of these changes or a wonderful testament to the ability of our model the value of real time customer feedback and most especially the dedication of our team in a moment I'll share more detail on these actions.
We could only manage we are currently managing our costs structure.
Capital spend and ensuring a healthy balance sheet sort of of prepare for whatever may come our way.
Finally, we're committed to supporting our communities around the world with the $29 million, <unk> really including $90 million, an emergency pay and benefits cartoon members and $10 million.
It is to support smaller micro businesses, a team member really fun and support for a variety of community programs across a global markets given a major fund raising initiative in the U.S. for meals on wheels, and no could hungry you can review the details of these initiatives and our April 23rd beliefs.
Now elaborate in for their our efforts to just consumer facing activities.
Focused throughout this crisis has been to engage the consumer in ways that would be meaningful to her.
She was looking to stay socially connected to the world around her even while being physically separated.
Socket speak to her in an authentic way.
When you're into our homes and our lives in ways that created more intimate connection and shared experiences.
And to shift our programming merchandising and events for the products and the stories she cared most about.
We did not know whether she would be interested in buying but we knew we can offer her a respite from the gloomy 24 hour news cycle.
We want it to be her place where place for advice.
Payment and community.
And a source of Joy hope.
Exploration.
We moved quickly the tale of content across across or on their online and social channels.
Profit to Santa no worldwide T.V. two businesses, we've quickly shifted the products. We featured on air to reflect the dramatic flings in the customers interest and find behavior <unk> most of our on your programs powder and invented new programs that would be to the moment such as love Your home with Rick like B.B.C.U.S. and afternoon.
On Air Mini series, but loving insights into trend in categories and new doing pattern.
<unk> increase in the afternoon T.V. viewing.
You made significant changes in our online merchandising as well.
T.V.C.A. sit down and the Lily all particularly curated homosexuals checklist for example.
Nearly 20 categories, including home sanitation, food and storage fitness tool Tech resources for distance learning and beautification.
Leaned into our social problems with a variety of creative program.
T.V.C. pass like close at home Social media campaign.
In our hosts lives springing from their homes.
Waging war conversations with fewer than gas.
Tutorials recipe.
And most importantly moments of connection moments of inspiration.
We conducted similar social initiatives across an international market.
<unk> hash tag Q.V.C. always with you can't pain at a cornerstone.
Brandon roads hash tag make you adore happy campaign inspired households could spread joy by sharing their beautifully decorated front doors on social media.
We are highly encourage by the consumer response to these actions.
You believe speaks to the relevancy of our brand the diversity of our product mix the efficiency of our <unk> consumers down, especially.
Especially the power of our community.
Oh sure some details and what we've been seeing however, I would caution that these trend should not be viewed as indicative of what we'll see through the second quarter remainder of the year.
None of us none of us can predict how consumer behavior will evolve and I mean, we spend months because the economy begins with the reopened.
Now these metric refer to the period from late Mark will correspond sales are bound to the end of April.
Well I'll start with audience engagement, because all we start with engagement up across all platforms.
<unk>.
Reflecting a stay at home consumer spending more time to U.M.T.V. and more time online.
And to take her see an impressive growth and the number of homes do you do it then T.V. networks each day.
10%.
<unk> things open lives pretty viewing in fact, as we have our lives in a result content it up over 100% cross social problems with programs like coffee talk with David example, by and large audiences.
A traffic for our website is especially slung over 30% because even higher growth rate from non customers.
I think if the U.S. socially 'cause up over 75% of April engagement over up over 50%.
It really is being similar increases with web traffic not nearly 30%.
And it gave the current o'clock or cornerstone brands on an international market or encouraging.
The tired engagement, there's intern translating into healthy growth in our customer base.
Lifting increases in total active customer path that two X.H.
That's all of our cornerstone brands and and all of our international markets.
Both in both new and reactivated customers is a special encouraging with games across every business minutes every market.
Looking at the surge in new customers that she would trade for example, nearly two thirds of the new customers are coming to us organically.
The power of our brands and reach.
The remaining third are discovering that should be paid marketing.
And the per cent of these new customers, who are making a second purchase within a 14 day or 20 they window.
Both the classes from prior years and early but strong indicator that these new classes may have a similar lifetime values.
Given a success with me and adding new customers, coupled with declining marketing costs.
Increasing our marketing spend the both attract more new customers.
Increase the retention of those new customers.
If you can improve efficiency across all marketing channels, including paid social which gives us a powerful platform to highlight are unique shopping experience.
Moving quickly to convert these customers into lifetime customers with campaign that build relationship.
Focusing on what makes sense to me.
Targeted emails digital nurturing retargeting and the piloting of additional fulfill channels and add format.
These high levels of engagement and high levels of <unk> for translating into consistent sales of the cube steak.
The international market.
Lily.
Cornerstones brands, but.
But to pitch in T.V.T. international the biggest driver brokers or off air sales.
You fucking it digitally oriented consumer was highly engage with our online property.
Especially Cooper new customers.
For example, I still can't see new customers are twice as likely to buy off their products.
Existing customers.
And over 80% of new customers are making their first purchase online.
They are highly encouraged by themselves were 50, but we are also experience in a mix shifts the lower margin emphatically.
This is most pronounced fix your page, especially if you see which historically had a relatively high fashion mix.
As a result product margins active stage in April ran down 150, 250 basis points below prior year.
I think you still have a broad range of consumers in the U.S. going around the world across multiple businesses.
<unk>, we're going to average selling price over $120, because they're really but the selling price under $20.
We haven't unique kurtz from which we can observe consumer behavior.
<unk>.
And they want it to provide some insight on the sales trends are seen in the late March.
Timeframe.
[noise] consumer of course is doing a lot more cooking at home and as a result, T.C.U.S. It it could send pulmonary demand sales are up nearly 40% you have a year and then you pay in Italy or up well over 100%.
And where is also a problem.
I may food is especially strong the costs all markets.
He looks takes up about 90%.
But the same time, she's trying to stay fit and healthy well stuck at home.
Goodness, we saw strong growth across T.V.C. globally, and H., it's been the home fitness equipment, including bikes treadmill and Ellipticals.
<unk> vitamins and supplements about also on a global scale.
He wants to be productive and pure at home.
Strong demand for home office, that's smart home item.
Laptop tablets printers and monitors are leaving the back here with P.C. globally, we'll take the fan, which Lily all the strength.
You can't make it better also seen rising demanded video calling devices such as Amazon at the hotel and Facebook poodle actually for new ways to stay connected.
Only friend.
Just wants to find ways to entertain herself and her family.
The plane more and crafting more arts and crafts is up nearly 200% puzzles, performing, especially well and the T.V. globally and interests and gaining an audio ups gone.
She's taking on home decorating plot projects that he strives to make the bases from spending more time in a beautiful uncomfortable.
Bed Bath, signing the kitchen with strong invalid design and interior furniture rows of Grand in Rome.
Decor and basic like games at Barnes Hill.
We're also seeing if the T.V.C.
A home scored than organization are also strong the post P.C. and it just then.
Or yard or outdoors page that to a refuge right now we're seeing lives plants in gardening tools to prosecute the U.S. and then growing 65% in April.
Category was also you up over 70% in Germany more than 100% and the U.K.
<unk> offices gone broken planters and garden assessment.
Outdoor furniture umbrellas and replacement fits into also performing well offensive.
She has a pool, she and her family or one's going to be spending a lot more time in it.
Floats acquainted or up over 100%, some cool toys or do Lily up as well.
We also focused on keeping her family's sake.
In our house sanitary as possible.
We only have sold well over a million bottle for breaks they probably the began failed early April.
See the breakup. It's in fact means that <unk> anti bacterial most drivers hand so.
<unk> don't see news all sold out quickly and we're working to restock these items.
[laughter] globally and it depends how services for care and air Purifiers in U.S. is being strong sales of shark I robot Dyson <unk> Air Purifiers in Germany demands with <unk> double and people versus the power you.
Impunity within a shift toward self care, while c. plus interested in polar cosmetics right now she wants to maintain her skin care regimen and it's also she being at home care Salon pot.
Bath and body product also have strongly.
On the flip side. She is much more selective in her Billy apparel accessory purchasing and these businesses are generally down Sunday across our company.
Nonetheless, and see a few bright.
In a parent which we computed it puts an athlete here and see where across the V.C. globally. It depends a little you can go on itself.
Relaunching for new Activewear casual brand the T.V.C.U.S. than it has been teaching and we continued to lead inside inclusivity.
And we we want to be mine last month was a big success and 80%.
It's a little is also taking advantage of its ability to provide a platform for heroin, especially vendors who are doing a different motor business arose.
You need to introduce a number of new plans, including motherhood maternity settle on this mother's day.
Oh closing some initial thoughts on what we expect to see if we moved to the next several months and the economy's gradually reopened.
Well there are many potential risk and challenges on the horizon.
You also anticipate the People's adoption of a more digitally driven stay at home lifestyle will continue over many months and to some degree is likely to become the new normal.
Focus.
Capitalizing on our current momentum.
Wrong with customer acquisition.
He didn't win in this new normal.
As a leader in both easy and digital.
Abroad, and diverse product range and an AD trial business model, we feel were wealth of different.
We're exploring what opportunities the current environment courage silliness to the strategic priorities are shared last year and away the positions as well for the future.
For example.
The folder, our product duration and diversifications gratitude.
Engage with a number of new vendors for easy to find new platform to verify like opening that many interesting possibilities perhaps.
I don't focus been continuing to buy new off instead of people think that the merging stay at home lifestyle.
Well, it's hard to be a good hardener to our vendors, while others are slashing orders and we believe this will serve as well in the long term.
The drive video reach and relevance, we're moving quickly to take advantage of the high levels of T.V. viewership.
Sample by significantly expanding our marketing president on Amazon fire in advancing discussions with bleeding virtual N.B.P.B. partners preparing.
We've never had as many visitors to our digital platforms and so we're moving quickly on a variety of initiatives to optimize the site experience, while continuing with longer term initiatives to encourage daily digital discovering.
You continue expanding in our passionate community focused on up in arms that investment in marketing as others pull back.
And learning from the new customers were cracking, how we can engage them and we hope convert them for a lifetime customers.
It's clear that cool then we'll forever changed.
<unk> and competitive landscape.
Legally will be among the winters.
Those retailers, who are digitally driven and create immersive engaging experiences.
Those retailers, who have an intimate relationship with their loyal customers.
Those retailers of the product mix and agility to rapidly.
Two cares about at any given moment.
And those retailers who benefit.
Some great financial strength and resources, you could invest to grow both sandy emerging challenging.
Let me close where I started.
With profound gratitude.
<unk> retail numbers.
Extended family event with partners in debt.
They have responded to the worst circumstances in the best way.
I mean together at the C.P.
Supporting each other.
Inspiring our customers.
<unk> every new development with agility and resilience.
Living in our principles out.
I'm, so proud walk alongside them every day.
<unk> alternate over Jeff.
Thank you might get good morning, everyone.
Mike mentioned <unk> pass on each read business studies.
Our net revenue for the quarter declined 5% and was impacted by approximately $55 million.
Related changes in sales trend.
Cheney disruption closure of retail stores and constrained because some capacity, which delayed shipments of customer orders and so cute shoes.
Adjusted or the decline 70%.
In part due to actions, we took the tech 13 numbers and suppliers and to respond to rapidly to change and customer behaviors.
What a quarter.
Affected suggested organized.
Approximately $40 million.
From reduce this trend low profit margin.
Fire, they caught speech a category ships into home product.
Reserve adjustment Baghdad customer returns and lower productivity standards <unk> percentage.
Elaborate more within each business units, because I guess my discussion.
So they can segment results.
Qxh.
What a quarter net revenue, 1004% on 3% smaller units on them and 1% lower A.S.P.
The estimated impact of code it on his Avenue.
$20 million.
Yes, we do to the combination of delayed shipments of customizable others into cute too.
Partially offset <unk> like come to court.
On the fly to take about financial presentation, you know speed that we had more closely aligned a discussion on adjusted to that and it's contributing factors to the T. you know.
I guess, they pointed out declined 17% and adjusted margin climb 260 days.
Then we provide more detail just contributing factor.
Gross margin.
This marching decline of based.
<unk>.
Margins.
Response with increased Margie January and February largely offset by deterioration in March.
Merrily from the product next show them higher margin fashion category.
All the margin own category.
Second to stamp.
She is comprised of warehouse and straight.
Unfavorably acted guess marching band from 25 basis.
Driven by our investments in network optimization, and higher frequencies seems to drag rate increases increased drop ship penetration.
Each factors, partially offset by favorable can each way off the lesson 30.
30 days.
Due to the juice entry level.
Moving the operating expenses, which were flat on a dollar.
That increased 20 basements pointing suspended.
Merrily from headlines from higher credit card schemes and conditions associated with W.T.V. distribution contracts find and cheap 2000 mine too.
East carriage conditions were partially offset by lower variable conditions associated with higher airspace.
And finally S.G.N.A.
As she an expense increase hundred and 40 basis point as per cent of Avenue.
Combination cut administrative costs that debt.
Okay.
And then a straight across increase 65 days such things as <unk>.
Of which has is associated with incentive compensation and cool and the remainder we expect sales surge in outside services.
Partially aspect by reduce trap.
Bad debt increased 50 basis points as per cent of that.
I've, which 40 days, it's point is related to increase.
He boasted ideas.
It's called a true that changes.
Economic conditions.
We expect to incur elevated levels that bad back from the shift in our customer base.
Product mix it might get match.
Manage future charge off the stage as we are closely monitoring customer payment performance and utilize inside and credits.
<unk>.
Finally, marketing increased 25 basis, 0.6%.
It's lucky performance marketing you acquire new customers.
[noise] current marketing spend is still relatively modest.
Less than one intact percent.
Yeah.
<unk>.
Estimate, but coded compacted choose one objective fox and the $25 million.
<unk> product mix ships changes that's trends <unk> adjustment for bad that customer return.
On our last call you indicated metaphor optimization and other to some extent and chance with can cheat.
To increase our energies and improve our margins based on the second half a 22.
All the <unk> the land installations on the news off management system.
Can be achieved scheme of things associated the Rocky Mountain, North Carolina, and Ontario, California.
Yeah.
Well over while fully functional.
Bethlehem facility is currently expense experiencing reduced.
<unk> and often under social station constraints.
Five is because it's basically the call.
We expect each situation continues until restrictions on listed on team member and it's quite contract to travel.
Space.
You're going to Q.V.C. international.
On a constant currency basis.
Before the quarter was down like.
4% lower uniform.
3% gain in A.S.P.
It's performance, we stuck it continued strife in Japan, which was partially offset by declines in Germany, you pay and get away.
The progression of reporters performance resembled back up Qxh with a split of code that butting in February.
Climbs in apparel accessories, and jolt, partially offset by increases and now.
So it impacted net revenue by approximately $13 million.
Early from lower demand.
Suggested or good down 3%.
That's a quite a bit a margin on 40 based on.
Merrily from.
70 basis point, increasing conscious though.
Led by lower product margin and unfavorable inventory off so much.
In the playoffs lessons reflected.
I'm a favorable reserve adjustment.
A year.
The combination of these factors with partially offset by reduced.
Inversely already that module supported by 40 basis.
S G.N.N. from lower administrative costs associated with friends, which was closed in March 2019.
The estimate coded impacted Q1 adjusted pointed out.
<unk> $8 million, primarily from lower demand supply side.
Margin.
Mixture.
And that that research.
<unk>.
<unk>.
Quarter.
Revenues is down 20%.
I'm, 21% lower dissolved.
1% gain <unk>.
Duly experience.
Earliest code impact as it's trying to supply chain disruption.
Early February.
At least supply chain challenges are largely as well.
Luxury results you can buy the beginning of March.
Experience.
Further segregation March teachers declines in consumer demand driven by coated in addition to the underlying precious we discussed Empire calls.
This was exacerbated by the closure of many domestics, a barge, which further hampered deal is limited and into their model.
Yes made a deal.
To see that we do sales by approximately $9 million.
Disappointed I declined $15 million and adjusted for you to March at the crime 370 basis.
Merrily due to 160 pages point decline gross margin.
<unk>.
Increase warehouse costs.
Recognition as emergency pay Pal.
And these productivity and lower and.
And second some blow a pack March.
[noise] over there with additionally pressure to get by 200 and he based his point increase in history in that.
And fix coffee leverage and additional expenses to sanitize.
Some incentives and office building.
Yep Yep I would be school marketing.
There was a modest only modest impact the drugs adjustable.
From the disruptions in trying to watch.
And finally Cornish than that.
For the full quarter net revenue declined opera show.
Prior to the onset of all brands of delivering what except on it yeah.
Collecting a challenging apparel and bond.
Allergy design front gate tools.
<unk>.
You have to make revenues were impacted approximately $2 million from coded related to changes in customer demand and school age.
Just.
Period, with the loss of 2 million damage, reflecting fixed classes.
The language.
Greater employee related.
Higher marketing expenses from the timing of expense recognition catalog deduction.
Increase digital spend.
This was partially offset by improved product March.
We estimate <unk> impacted or get a call from like $6 million.
Moving capital expenditures free cash flow liquidity.
Capital expenditures with $45 million for the quarter.
As a precaution to preserve the task that we live taking actions can reduce non essential 2020 capital spend like 30 million to $50 million.
You are I generated $75 million it treats cash flow in the quarter.
You define free cash flow net cash.
Guided by operating activities.
Left with some of the phone.
Senators.
Expenditures for T.V. distribution right.
Estimate the loans to cost an equity investments and dividends pay to mom controlling interest.
<unk> Cashwell increase their c. she's on at last year married from the lower T.V. distribution right.
Prove working capital.
Reduced fat that.
As a March 31.
We have $555 million cash and cash and cuisines and $2.4 billion total capacity under Q.V.C.'s involvement credit facility.
Which 1.6 billion until the day, so into a covenant threshold.
This revolving credit facility mature can 2020 spring.
February T.V.C. <unk> marketing completed a registered that often for $575 million, 4.75% senior secured notes do in 2027.
Procedure use the partially prepaid lifting indexes and it's revolving credit.
They aren't compliance with all that covenant as defined on the T.V.C. you stated revolving credit the green and all other senior.
Kismet.
And if March 31 this year.
Leverage ratio was 2.4.
I met a next schedule maturity of seniors curious nodes, which with $500 million and it comes due in 2022.
We anticipate we page marriage available cash on hand.
Free cash falls, Barney and or the <unk>.
Or refinancing in the public death Mark.
Finally, while we generally update the busiest fixed cost structure.
10%.
Annual net revenue.
Q R.G.
And fixed cost of less than 10%.
I know net revenue qxh you're maintaining.
Disciplined approach to manage enough hot and an uncertain environment.
Constructive huh, Oh conservatively hiring.
Bible any preferences.
Summary of navigate and I'm certainly environment, you continue to track cause and effect specially mindful than an extended play down could create long term effects.
If any emerged we will continue to address the issues.
Approach.
Healthy bound cheese and equipment position.
Canal turn it over the great.
Thanks.
Let me start by it also thinking jury employees in management.
Medication perseverance.
And no smoking they were able to adapt quickly new environment.
It's been made into junior response from our customers.
<unk>.
I'd like to reiterate a few points made by Mike in jail.
Birth, we'd feel very comfortable with our.
This is a business to generate is free cash flow.
We have not drawn on or a ball or English quarter or to go in Christ began and back to the tango revolver.
As we know we currently have a revolver 2.4 billion total capacity, which 1 billion.
<unk> something to our current color and threshold.
Covenant threshold, three and a half times when we're currently about 2.4 times.
We didn't use cash to repurchase 49 million of them shameful bugs in the core.
But we <unk> jeez repurchases of those bottles decreases your price.
And and changing <unk> under the care there.
No longer be using now.
Planned to reduce callback spending.
Or budgeted amount by $30 million to $50 million for the down at this year.
Despite our college you know what it means.
<unk>.
We are encouraged by the trends we've seen in the second.
Might noted positive grows engagement in cars were killed her friend waiting and sales growth.
Excellent.
We appreciate your continued interest injury retail.
Oh, you all statements down with that operator, I'd like to over the other questions.
[noise] hi cute.
As a reminder piece pressed star one draft across channels and we will take our first question from.
Oliver Wintermantel from every corner keys go ahead.
[noise]. Thanks, Thanks, very much the <unk> the first created.
Good 'cause you may be talk a little bit above what you expected to second quarter to I'm cool with related mostly pressure is how much if that will linger into into the second quarter.
<unk> or safety precautions to get paid can and.
Full of course, we will <unk> <unk> a quarter today is bad but that means sales are currently trading positive.
Okay.
That's begs the question with a couple of comments on margins themselves up in the turn it over 10 to death.
The margin title I'm, just coming on the product margins, because I didn't and check and cover the rest I mentioned you mentioned the downturn their product margin late in two one but a reminder that product Martin's work flap or the full border.
Then in April I mentioned, a got 150 to 250 basis points product marketing erosion cute X.H.
Due to mix shift.
I'd say that that.
Range got kind of better from the beginning April today. So we were pointing towards the higher end about earlier in the months and have been trendy downs consent as we've taken actions to try to moderate that margin pressure I won't predict what it'll be going for other than to say, it's been trendy and they'd better direction towards the lower end of that.
Range, we also have somewhat easier comparisons in May and June.
The fashion mix is not as high from a year ago May June as it was in April so little bit easier comparison little bit including trend.
But yet we still expect aggregate product margin pressure due to this mixture on sales growth, yes, we've seen a consistent positive sales growth we've seen it every week since late March two to today, we've seen it in every business unit every market every brand.
Consistent positive sounds cool.
Just you want to comment on the other aspects of the margin profile.
<unk>.
So in addition to the product marching if he's a one of the segments that we had as as a result of that but shift from some or fashion categories into a home categories are are dropped shit penetration was much much higher and some of those categories.
So that that was that settling for us the other elements and that will continue going into q. too too expensive you have that same type of <unk> mixing as all categories.
The other components that job confessions are experiencing you know their houses.
Impatience shoes, because it was out of having the central station and reduce sort of productivity as a result of some bizarre attendants.
That is also creating some precious force with respect to receive efficiency and productivity and the.
Society's the one thing that you.
Feel nervous when.
Station that we do we show that you know.
There's about 125 basis.
Scores and you know about half about those prejudice for segments in about half of that lives as a result.
Half of them is fake.
The house.
The <unk>.
The challenges that we will have game for at all so as it relates to.
[noise] execution.
Our network optimization, we had talked about where in the we were expecting to continue to hit on milestones could get through some some opportunities to help reduce some of the pressure we would have a foreign car.
Fuck margins, if you go and it would help us from some freight impact factor.
As a result of having a couple of days in that in that <unk> minutes and installation now they where else management.
If we believe that we're going to be from a tiny prospective we're going to be delayed and they're not going to have some of that improvement I'm going into the second quarter.
Anticipated.
So so just just to somebody likes to say.
Trendy pauses, but markings are maybe a little bit better than the first quarter, but not not positive.
Yes, the the margins would be trendy and.
But I think with lift a Mike was indicating is that in the second in a lot of hard because the corner first quarter, we saw a some some significant heads and.
Product margin sensors out of the mix and product mix that we still have a product mix impact we will improving by product mix margin as coming through the credit card of April and maybe he would continue to that twist that says we moved to a quarter.
But thanks very much.
Thank you we run out take our next question from had their Bosqi Bank of America.
[noise] Hi, Thank you for just my question I something on the sales fronts first <unk>, especially for Qxh a pocket knife. Your overall sales are trendy.
Or April.
And then also.
<unk> marketing to help the tank and it is more customers you're tracking can you talk a little bit more about what else you're carrying trim shore that the customers. The engagement anything right now that you can <unk> cookie.
I have a thanks for the question no we're not going to put specific numbers around the sales trends just because it's a handful of weeks and.
Along the way to go and in the quarter, but you know I would characterize it as you know very solid positive sales growth and and again, we're encouraged by the.
The consistency the growth mean, we've seen it every week since late March we've seen it across new customers reactivated customers occasional customers core customers.
We've seen at across.
Range of home categories, and what kind of categories beauty categories learned place only place we're not seeing it is in apparently accessories and drawer.
So you know I'd characterize it as consistent.
Broadbased sales growth.
You know terms of the customer engagement.
I would say, we're we're piloting encouraged to see growth and every crotch of customers really accelerated growth in the new and reactivated customers. So as I mentioned in my comments, what we're doing a lot to engage all customers.
Those new and reactivated customers true you marketing programs through <unk>. You know are we targeting marketing through continued investment and social marketing all the places or you know she is continue to speak to her to continue to.
Demonstrates a range of our product offering welcome cats that that help should introduce her to the story financial incentives for second purchases. So out that very broad approach based on her behavior to target I, we will get her to continue that behavior.
We are really encouraged.
Given the increase in your customers were seen natural expected that on average the quality of those new customers with wood that cut down.
Absolute numbers are strong, but at least our early metrics of quality are suggesting that.
It says she's ever that sort of saying predicted like.
[noise] on value as roller classes can you get a pretty good window on crack was lifetime quality is <unk>.
Her repeat rate in the first 14 day, she's with us and the first 28 days she with US are pretty good indicators of lifetime quality and so for the week So <unk>.
Here's what we can measure either 14 day or 28 days repeat ready, we're seeing same or better performance penalty. Historically scene. So you think we're attracting a good quality customer were actively engage unheard of trying to secure that it makes it she keeps coming back to us and.
When I get that would make that we feel good about it just you know we know there's actually along like finding a normal environment. Some kind of experience in C.V.C. for the first time on T.V., let's say or through a paid marketing.
And then actually making a purchase to the fact that we are seeing so many.
New viewers and occasional viewer spending time watching our programming some with his object translated into immediate sales, but just the visibility all our platforms engagement across all those platforms.
That a different level, we think that is in of itself of values. Because we know that when we can get people to engage with us they become like time customers.
I think this is the spectrum.
When we're our team has been an amazing job, telling our story and it's awful way on their online.
<unk> I think that will help things I mean, if that's the amount of more currently I see.
[noise]. Thank you very much.
[noise], maybe some kind to mind, we've run out take my next question from Espresso drew mass kind of keep bank.
Hey, good morning, and thanks for taking my question I guess, just keep harder first on the bad that are you starting to see behaviors and then easy pay that that underpins you're you're a change in bad debt assumption that you seem kind of Lincoln c. or or higher charged up and then to I know apparel has been a mix of throw away.
Other retailers have taken <unk> I guess I know you said that I think the ending for obsolescence, which are actually went down I, just kind of walk us through the quality of them and for the department the balance sheets. Thanks, so much.
Like W. I picked up.
Absolutely. So this office bad debt.
Respectively. It much.
Deterioration in the quality of customer payments as of yet what we do know that the combination.
Purchases than they are more concentrated into some at the home categories overtime. They have a higher level of the default rate as well as not the longevity at the <unk> customer who is a new customer service is one that's reactivated or.
If you longer my back neither customer is because one sitcoms that has a higher.
Experience.
It's a combination of new customers and isn't it.
Customers, especially by the first purchases and some of those higher category with some of this kind of business at a higher translation as we thought of is prudent to start expecting that and how we think about I was searching for.
It's really <unk> entry level, so actually down every year and then we then working day.
[noise] garbage over the trial and adjust we speech, where we could only.
Going through this process.
We did increased I'll check into it so a little bit as a result, some of the the shifted we were staying in categories botch, but for the most fun to be the 30 basis points improvement and overall obsolescence was address other deducible Detroit net.
Adjustments that we've made for.
Category shift the worst thing.
The the the heavier than entries that we think we might be too ultimately look would look at it but.
Do you.
Cars don't pricing.
<unk>.
Thank goodness.
Comment on on inventory and so it's just that we will take up a position will end with inventory down overpower year as all healthy inventory, we've made a strategic calculation to generally reduce the matter, which D.C. would have in that fashion categories.
<unk> situation, but not to eliminate them.
One of the things that also discussed some encouragement about sustaining sales momentum is that you know most retailers have cancelled most follow orders and we'll be fine to take a big backlog of spring summer merchandise and about it to their systems, we'll be having fresh orders new light.
And and new contest new products in the fall and and holiday time period that I think will be the differentiated from what we'll do gladly available at Waco, because there's a little bit of a within that are there we don't get all the sales because.
But we feel good that we stuck right balance of it there's been towards clean, but also half pressure steep so they'll they'll be relevant for the customer in fall.
Great. Thanks, so much that.
But even though take our next question <unk>.
Great. Thanks for kicking my question are making team I'm glad to hear that every word as well and it sounds like you're doing a wonderful job navigating just in there.
Challenging environment. So the question. If you like is there wants to know if you could telling me the financial mindset serve your U.S.D. international customer I know historically things that have affected it has been told values and you know stock market levels.
I'm, just wondering where your thoughts are today.
<unk> Dot appreciate your comments.
You know we've been.
It's really been encouraged by their friends and pattern thing I'm not sure how to exactly the links asking for financial mindset, Yes, certainly in the surveys we do she you know concerned about the economy as you would expect but you're right that you could believe most sensitive I was in values in the stock market value both of which.
Held that better.
Recent days, then maybe we would have expected a month or so ago, but we're encouraged by her behavior is that you know she's investing in her home right now and to see really strong performance across every cornerstone brand and those services are highest income customers.
Along with the high performance across the Q. and a says but no I think she's good okay. She's willing to make investments to make her whole life more comfortable for herself and her family clearly she's not going to be buying apparel right now are buying my flux of it but that's not a priority to her because those things that are.
Or a priority for for making her home like better at this current moment.
Clear investing in product investing in quality.
And and there's no sort of trade down phenomenon that we're seeing so I think for now.
We have concerns about this tough environment and he's going the way she engage in with US I think she's.
Bruiser she's too surprising is doing and I guess, that's how I would characterize.
Thinking like they will.
It's tough.
Maybe sometimes we've allowed pick our last question from Jason back Tonight Keys go ahead.
Just had a question for Mr. George If you had to.
Offer up a hypothesis for the main driver top line improvement.
Between quarter and some machine.
They.
What would that be.
I think <unk>.
<unk> Yeah to me it's a it is a combination of we know we have a consumer who.
Home and D. is much more engaged in U.M.T.V. much more engaged in.
Anytime online so the power of our class them to be president for her yeah, and getting were seen a lot of new viewers and new consumers and new traffic to our website. So it's not just started slipping customers child, but just think the fact that we have very powerful platforms blog reach the T.V. top forms and online platforms say that.
At this moment in time, when she's engaged in that universe.
There were there in a big way and whether they're in a really differentiated way. It was always believe that if you get I think in order to spend a little better time engaging with from start to spend a lot of time and Dave do with us and you have.
Unforeseen positive effects.
I think that what we're seeing that that then coupled with.
Higher level, the age and they can put this at home.
And I would say if there's a story of yeah, <unk>, especially at Q. and a till the last couple of years, it's been math.
From a fairly strong fashion cycle, and a tougher homes cycle, the fashion cycle than moderated over the last year, but we didn't see the homes five picked us and that was really what causes the cost per cent point decline over the last year, if we had to over simplified.
Growth of fashion and beauty, that's often didn't rebound now we're in a mode, where the customers to do much differently.
Home and actually wants to invest in at home and you have a wonderful away a product for the film across all of our business units and now that she is much more focused on that aspect.
I could benefit from that.
So you then try to fast forward again, none of us can predict the future of this dynamic.
But just the fact that so many people have been exposed to our ecosystem that might not have been exposed to it in a normal time.
The fact that some aspect of it digital lifestyle will certainly continue.
Back at some aspects of the stay at home lifestyle and appetite for investment in the home will likely continue I think we can be strong beneficiaries of both of those trends.
Thank you very much.
Thank you.
And I didn't that's the last call. So thank you everyone for your per cent support as it's really a tough time.
We appreciate it like you all stay safe and well thanks very much.
Hey, these intention that will continue to face conference call. Thank you for your participation you may know disconnect.
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