Q4 2020 Earnings Call
[music].
Greetings and welcome to the VF Corporation fourth quarter fiscal 2020 earnings conference call. At this time, all participants are any listen only mode. A question answer session will follow the formal presentation. If any one trick acquire operator assistance during the conference. Please press Star Zero Wonder telephone keypad as a reminder, this.
Conference is being recorded so my pleasure to introduce your host show higher. Please go ahead Sir.
Good morning, and welcome to the F. Corporation's fourth quarter fiscal 2020 conference call.
Participants on today's call will make forward looking statements.
These statements are based on current expectations and are subject to uncertainties that could cause actual results to differ materially.
These uncertainties are detailed in documents filed regularly with the FCC.
Unless otherwise noted.
Amounts referred to on today's call will be on an adjusted constant dollar basis, which we defined in the press release that was issued this morning.
We use adjusted constant dollar amounts as lead numbers in our discussion because we believe they more accurately represent.
The true operational performance and underlying results of our business.
You May also hear us refer to reported amounts which are in accordance with U.S. GAAP.
Reconciliations of GAAP measures to adjusted amounts can be found in the supplemental financial tables included in the press release.
Which identify and quantify all excluded items.
And provide management's view of why this information is useful to investors.
During the fourth quarter of 2020, the company determined that the occupational workwear business met the held for sale and discontinued operations accounting criteria.
Accordingly.
The company has reported they related assets and liabilities of the occupational workwear business in discontinued operations as of the date noted above.
And include the operating results of this business in discontinued operations for all periods presented.
During the first quarter fiscal 2020, the company completed the spin off of its jeans business into an independent publicly traded company under the name contour brands.
Accordingly, the company has removed b assets and liabilities of the jeans business as of the date noted above.
And included the operating results of this business in discontinued operations for all periods presented.
Unless otherwise noted results presented on todays call based on continuing operations.
Joining me on today's call will be V S Chairman, President and Chief Executive Officer, Steve Rendle.
And Chief Financial Officer, Scott Rowe.
Following our prepared remarks, well open the call for questions Steve.
Thank you Joe and welcome everyone I Hope my comments. This morning find you and your family's safe and healthy.
Please bear with US today is we're all working from separate locations.
It is remarkable how quickly the world has changed since our last call just a few months ago.
The first 10 months of the year, Yes had a powerful momentum tracking ahead of our long range plan and love Cold. It has profoundly impacted the world as well as our business for the last two months of our fiscal year I've never been more confident in our people our brands in our future.
It's times like these that serum as it purifying fire separating the best companies from the rest.
We've prepared ourselves well for a time such as this.
Our strong brands, our financial and supply chain disciplined coupled with our fortress balance sheet allows us to weather almost any storm.
I'm confident that VF will emerge from this crisis in a position of strength prepared to accelerate at a time when many are under tremendous financial strain and unable to adequately invest in their business.
And well Cobiz has probably been a dominant speed recently, let's not forget to 2020 has been a year of significant accomplishments for the.
To name just if you move to Denver and release of Science based targets in line with our commitment to sustainability. The successful spin off of contour brands and the announcement of our intent to sell the occupational workwear business.
Even with this exceptional activity, we were managing our way to a strong year.
Through the first three quarters of fiscal 20, we delivered 9% organic revenue growth.
More than 100 basis points, a gross margin expansion and 19% organic earnings growth.
Bands in the North face, our two largest properties were growing 17% and 9%, respectively and our global DTC platform was growing at a double digit rate led by 20% digital growth.
So, what's giving me confidence about our future.
First and foremost are incredible community of associates from our experienced leadership team actively managing this crisis to our distribution center associates working tirelessly to enable our brands to continue serving their consumers.
Words cannot fully express how thanks to land for the entire D.F. family and their infallible commitment each other and our business.
Next the nimbleness of our enterprise, which has demonstrated once again the ability to adapt and act with agility to protect our people protect our enterprise and preserve liquidity into quickly pivot those priorities, which position us to emerge in an advantaged position.
And I'm thankful that we had been aggressively transforming be out can do a consumer led retail centric digitally focused enterprise.
This transformation coupled with the renewed focus on the three lens approach to managing the portfolio as honed our organizational focus and simplified our business model.
Our ability to pivot in light of changing consumer and distribution environments through portfolio actions has been and we'll continue to be with a catalyst for growth as well as a hedge against risk.
Our movement away from challenge distribution channels, while focusing more deeply on the most attractive addressable markets gives us a real advantage in an uncertain and fast evolving world.
Finally for the commitment across organization to act as a purpose led performance driven enterprise during the time of crisis.
In addition to providing pay continuity to retail associates during the global locked down and increasing hourly wages for our distribution Center associates VF is committed to nearly $7 million in financial support and product innovations across more than 20 different branded initiatives and we're in the process of producing up to three and a half million pieces.
Urgently needed P. P for cobalt 19 relief efforts.
Our most recent cobot related actions are in addition to the ongoing efforts around our made for change initiatives, leading with science based targets focused on improving People's lives and planet.
Using the considerable scale and resources at VF for the better minute both people in the plan it or not just the right thing can do it's good business, it's before even deeper connections with our consumers. During this time of crisis.
Collectively these characteristics position VF to not only weather the storm the to emerge as an even stronger leaner digitally oriented enterprise on the other side of the current pandemic.
In light of the current environment in the new World, we find ourselves operating within like spend a few minutes highlighting the key elements of how VF is managing the now as well is how we're approaching emergence from this crisis in how we intend to capitalize on the next.
Regarding the now from the early days or the outbreak in China. We've taken a people first approach in October 19 response, prioritizing the health and safety of our people well also protecting their financial well being.
It's my good friend in North face athlete Jimmy Choo in told me all storms pass, it's how you whether that and then matters, we have a bias for action and decisiveness to effectively manage this crisis and I'm proud of the actions we've taken guided by our values.
If we implemented measures to care for and protect our people. We've also taken several key actions to advance our enterprise protection strategy. These prudent action to helped us preserve and enhance liquidity and giving us more flexibility to manage our operations through a prolonged crisis.
These actions have included.
Reducing discretionary spending and compensation across the V.F. senior leadership team and our board.
Proactively executing a $3 billion bond offering to establish a significant cash buffer and ensure over 5 billion of near term liquidity.
Implementing a thorough and rigorous review of current inventory and forward inventory commitments.
Spending our share repurchase program.
Collaborating closely with our most important strategic partners across the value chain and finally proceeding with our previously announced divestiture of the EPS occupational workwear business as a potential source of additional cash.
One of the ups greatest assets has always been our operational discipline and rigor with which we manage our balance sheet.
Today that discipline and know how are coming together to create a range of options for how we maintain and further bolster our position of strength.
Which Scott will cover shortly.
Turning to our brands all of which remain focused on driving consumer connectivity and brand engagement. During these unprecedented times.
Our brand teams are more than ever using this unique opportunity to share best practices key insights and learnings among our marketing and digital leaders to accelerate impact inefficiency.
We've made a purposeful shifting our consumer engagement actions to employ greater empathy and compassion connecting with consumers in the unique stay at home environment, We all find ourselves.
This strategic shift has resulted in stronger engagement and affinity leading to higher consideration and conversion.
I encourage you to explore our brand websites and social platforms and see this to come see does come to life.
Demonstrated in the north face in health care worker, and first responder initiatives, coupled with United to move the World program, along with vans bouncing off the walls campaign, She box challenge activation and put the Bill program.
Or alterras embraced space spiritual workouts and timberland stay strong campaign.
I'm proud of our brands ability to maintain strong emotional connectivity with our consumers. Despite this disruption in the world around us.
None of us knows exactly how the cobot 19 outbreak will change our world, but we're already beginning to see signs of what's to come.
Unfortunately, our brands and businesses are uniquely positioned to address certain evolutions and consumer behaviors and value systems.
For example, we believe people will place greater value on exploring the outdoors after spending so much time in their homes.
We believe there will be an increased commitment.
To personal well being and active lifestyles with healthy coming in major new priority.
We believe people will have a greater appreciation for the frontline workers, who keep other safe in the trades people, who keep our world running.
We believe there will be an elevated focus on environmental sustainability that will lead to a sharper focus on combating global climate change.
And with online shopping serving as a lifeline for so many consumers around the world during the pandemic, we believe the <unk> proliferation of ecommerce will be significant.
Regardless of whether these changes are settled or seismic our brand teams are already working to connect even more intimately meaningfully with consumers and they post cobot world.
Today, we're preparing for this new new future and positioning our brands to set the standard for what's next.
The long term strategy. We've introduced in 2017 has repeatedly proven that we're activating a powerful plan capable of delivering sustainable high quality growth in top quartile returns.
And I strongly believe that our strategy will be even more relevant in the years ahead.
We've evolved and focused our strategy since it was introduced but the key choices at the heart of it remain the same.
Driving and optimizing the portfolio.
Starting investments toward Asia, with a heightened focus on China.
Elevating D to C and digital and finally underpinning our strategy is the steady transformation of our business model to make be ask more consumer minded retail centric and hyper digital and everything we do.
As we prepare for the next our work is focused amongst other things on evolving our systems landscape and building better capabilities and tools to power brands forward.
It is focused on leveraging enterprise data and analytics with an emphasis on critical end to end data and digital capabilities to drive consumer engagement and loyalty.
We'll take on a new levels of importance is digital activity and engagement continues to rise in a post cobot world.
We're also working to become increasingly agile and how our teams work together, enabling us to move faster to seize opportunities whenever and wherever they exist.
It will result in more agile and efficient operating model and organization design through the lens of our consumer minded retail centric hyper digital transformation.
Before passing the call over to Scott I want to reiterate the deep gratitude I have to the incredible effort each of our 50000 associates put in during this past year.
Fiscal 20 with an unprecedented year for many of our teams even before the pandemic it [noise].
Spitting off jeans business.
Relocating associates and their families to different cities in countries and now managing through the disruption of Cobot 19 has been an extra ordinary ask.
Our associates have been tested to the extreme.
And they've responded just as you would expect with determination and a sharp focus on getting the job done.
But they did more than that I'm. So proud of the way our associates and rallied to help others. In this time of great need living out our purpose in a very real and meaningful way.
It's been truly humbling to see how our teams have answered the call in our communities and it gives me great hope and our collective ability to overcome this moment together driven by the power of human scared.
It also gives me even greater confidence that VF Corporation will be better on the other side over 19 crisis.
I believe that truly purpose led brands and companies will fare better than others when the situations over because their decisions will be principled and based on values that consumer share.
Continuing to foster a sense of community with our consumers. During these trying times, we're positioning be asking our brands for a bright future.
With that I'll turn it over to Scott.
Thanks, Steve and good morning, everyone.
I'd like to start by echoing Steve's comments as I could you share a deep sensor gratitude for the leadership team and community of associates around the globe.
Steve and I have been part of the V. S family for more than 20 years, and while I have a deep understanding of the depth and unique capabilities resident within be us I have nonetheless, humbled by the commitment and excellence that I've witnessed has this great company continues to rise to the occasion.
This exceptional group of people, it's taking actions to position the us to accelerate upon divergence from the crisis, the individual and collective efforts throughout every region Brandon function on nothing short of amazing a sincere. Thank you to each one of you. It's not just what you're doing but how you're doing it that inspires me.
Personally.
Commitment of our associates to each other and to the broader communities in which they work backwards a little to drive up business forward their bodies. The court DNA, yes. It was a purpose lab performance driven enterprise.
Last fall at our Investor Day, and Beaver Creek, we introduced the topic of portfolio resiliency, and specifically highlighted balance sheet and supply chain flexibility fiscal discipline diversification and investment optionality as core tenets.
It received less focus at the time, given the growth trajectory of our business and the economic backdrop at large however portfolio resiliency could not be more relevant for where we are today as we manage through what Steve referred to as the now.
So I'd like to spend a few minutes, providing insight and context for hardware navigating the current environment.
Let's start with balance sheet flexibility and physical discipline bedrock of de after 121 year old legacy.
You have to entered this crisis with a fortress balance sheet and strong liquidity.
Prior to the outbreak our leverage was below two times, we were on track to returned close to $2 billion to shareholders in fiscal 2023 share repurchases and dividends and we had significant dry powder to execute our M&A agenda.
In year, one of our long range plan, we were tracking well against the goal to generate more than $8 billion that free cash flow over the next five years.
Just a handful of months later, the whole world changed revenue across our sector froze overnight, resulting in high rate you cash burn and disruption across the retail landscape.
The capital markets remained open but there were growing concerns about the ability for even high quality companies such as GE us to access committed lines of credit.
These are uncertain times, but in this moment of turmoil, we demonstrated both our willingness and our ability to tangibly build excess liquidity to weather the disruption caused by cobot for a prolonged period.
With us in mind, we elected to raise $3 billion longer dated debt last month and fully repay our revolver, providing us with more than $5 billion of immediate liquidity.
Well, our recent actions may ultimately prove conservative given the current uncertainty surrounding the retail sector. Our actions are a clear testament of the EPS balance sheet flexibility and financial strength.
Moving to the second dimension of our portfolio resiliency supply chain flexibility and operational rigor.
The sophistication and scale of our global supply chain, coupled with our operational discipline are hallmarks of P.S. and a source of competitive advantage, particularly during times of uncertainty and marketplace disruption.
As the pandemic began to scale globally, our operational leaders mobilized quickly to thoroughly assess inventory on hand and in process assess inventory positions of key retail partners and meaningfully reduce forward inventory purchase commitments through a rigorous and thoughtful demand supply match.
And process.
We maintain an active and transparent dialogue with our key partners and strategic suppliers as we work together unfolded purchase commitments and product Assortments.
We also remain in the active conversations with our key retail partners as we collaborate on a thoughtful plan to clear access inventory moving forward and the appropriate level of future inventory purchases considering the current environment.
Throughout these conversations our focus is undeniably on the long term health and sustainability of the us our brands and our partners and while many of these conversations are difficult we have not strayed from our core values approaching each discussion with honesty transparency and integrity.
Yet. Another example of power enterprise scale supply chain flexibility fiscal discipline in financial capacity, coupled with our deep rooted history of treating each stakeholder ethically composition V. After most from this crisis in an advantaged position.
Turning to the third dimension of portfolio resiliency investment Optionality.
Optionality applies to both capital allocation as well as investment spending both capital and expense.
Short term capital allocation priorities and changed well share repurchases remain a key element of our long term plan. We are taking actions to preserve liquidity, we have decided to suspend our share repo program for the time beam.
We do however remained committed to our dividend of course subject to board approval.
Dividend has and will remain an integral part of our TSR algorithm over the long term and the recent actions we've taken to shore up liquidity gift Testament to our ability to continue to support the dividend.
Regarding investment spending we have selectively reduce discretionary spending and capex in line with the current environment.
We have focused our remaining investments on the aspects of our strategy, but we believe will be even more important growth drivers and opposed to covered world, specifically, DTC and digital including digitally focused demand creation and technology.
And while it's still very early days our April results support the general belief that digital commerce will only increasing importance.
And finally, we are reexamining, all structural overhead in light of a rapidly changing world.
Historical analog support structures are being re imagined in a hyper digital future.
These actions will simplify the business model and increase agility necessary trades in this fast evolving marketplace.
So wrapping up the concept of Optionality I will front run a topic I knows on any of your minds M&A.
First with regard to our occupational work business, we're proceeding with our sale process.
As I'm sure you've noticed in our release this business as qualified for held for sale discontinued operations accounting treatment.
We remain active conversations with prospective buyers and are confident we have a transaction completed during this fiscal year.
Well keep you apprised as the process unfolds in the coming months.
With that said Wow, the strategic rationale for the divestiture is unchanged. There is no urgency to sell these assets on the financial standpoint.
As is always the case a material deterioration in market conditions could impact the ultimate timing of a transaction.
As it relates to potential acquisitions, we continue to actively assess strategic opportunities and believe the disruption caused by club it could lead to an increase in M&A activity and the availability of attractive assets.
While our first priority remains stabilizing our organic business, we are well positioned from a liquidity standpoint to pivot to an offensive posture when prudent.
M&A remains our top capital allocation and strategic priority on a medium to long term basis.
The disruption underway across our sector will undoubtedly provide ample opportunities for strong companies with demonstrated M&A capabilities to create significant shareholder value.
Organic gross.
The final element of portfolio resiliency I'd like to highlight is out of diversification.
As companies across the Globe reported earnings we're reminded of the advantage of running a global enterprise during this crisis.
The ability to extract learnings from reopening protocols traffic trends and consumer behaviors and our eight talk region allows us to be more uncertainty and planning for the ensuing recovery across other regions. It also gives us a several months head start compared to Mano geography companies are diversified.
Channel footprint has also been critical most notably our digital business, while our own D to C. Digital platform is about 12% of revenue today, our total digital footprint, including digital wholesale it's closer to 20% of the business.
The ability to keep these channels opened during this lock down period, it's been critical in our ability to continue to engage with our consumers and recent trends suggest significant growth in the digital channels are likely to mitigate some of that brick and mortar short calls, although it's too early to understand solely on the school evolves.
I want to conclude my comments on diversification by directly addressing our wholesale footprint in light of the heightened disruption we see underway in certain segments of the distribution landscape.
Certainly in our digital wholesale and international partnerships doors, roughly half of that business today's D to C and consumer facing.
The remaining wholesale business roughly half is through international wholesale which was healthy and growing heading into the crisis and remains well positioned.
In U.S. wholesale which represents about 25% of total revenue we've dramatically reduced exposure to the more structurally challenged mid tier and department store channels, which now represent less than 5% of VR revenue in fiscal two money.
The largest portion of our U.S. brick and mortar wholesale business slips and what we call specialty which is primarily comprised of differentiated healthy outdoor active on Atlantic retailers.
Most of these retailers are healthy and growing digital businesses have their own.
Our key accounts and then this crisis strong and actively working with our partners to emerge from those prices stronger together.
So to summarize I'm confident that our balance sheet and liquidity positioning investment optionality supply chain flexibility and portfolio diversification physician be off with the capacity to navigate the current environment and provides us with the ammunition to thrombotic celebrating broken returns as we begin to.
Merge from focus.
Diversified TSR model with a strong commitment to the dividend coupled with both organic and inorganic optionality delivers a unique imbalanced value creation model.
So now moving onto our fundamentals and recent business performance.
Our business was showing strong momentum heading into the final months of our fiscal year as evidenced by 9% organic revenue growth and 19% organic earnings growth during the first three quarters of fiscal 2020.
The fourth quarter, however, marked a profound change in conditions.
Our Asia business was essentially shut down for two weeks, our European business was closed anywhere from two to three weeks and our North American business was close the final two weeks with a corridor.
Unsurprisingly our results for the fourth quarter reflect the operational impacts of the disruption just outlined.
Despite this disruption really encouraged by the trends we experienced in our digital business during the quarter, which remained operational in all three regions on a global basis vans, the north face dickies, and our emerging brands all appropriate double digits.
EMEA generated low team digital growth led by more than 40% growth at the north face.
Let me is digital business declined over 20% in the month of March, but reaccelerated to high teens growth in April led by triple digit growth in the north face.
The apacs region generated 19% digital growth led by more than 20% growth in China, driven by strength at fans and dickies.
Our digital trends and APAC for essentially a month ahead of AMEA, what's a significant decline in February followed by a sharp rebound in March with growth of more than 30% led by fans and dickies.
In April digital normalize somewhat with growth in the high teens.
The digital business in Americas grew at a low single digit rate during Q4 strengthen bands was offset by softer trends at the north face.
Following modest declines in February and March we've experienced a sharp recovery in April which has continued into may with triple digit growth driven by broad based strength across the big four brands.
And while it's too early to draw strong conclusions from our quarter to date performance. We are encouraged by the relative consistent phase you know the recovery efforts across regions to date.
As you saw in the release this morning due to the current marketplace uncertainties, we're not providing a formal fiscal 2021 outlook at this time.
Ever I can share with you how we expect our business to evolve over the course of the coming year across our three geographic regions AMTI approach, we're taking to planning our business.
Through the remainder of the first quarter, we expect North America, and EMEA to begin to reopened and we expect continued steady improvement and the APAC region.
We anticipate disruption across the distribution landscape, resulting in a highly promotional marketplace.
We expect high teen inventory growth in the first quarter, followed by lower inventory levels on a year over year basis, as we moved three the balance of the here.
Moving into our second quarter, we expect to see sequential improvement in North America, EMEA, but expect both regions. The declined significantly on a year over year basis, we expect our APAC region to continue to accelerate we believe promotional activity will likely remain elevated.
Disruption across the distribution landscape to continue.
By the third quarter, we believe our APEC business will begin to return to a more normalized spreads alongside a stabilizing North America and European marketplace. As we enter the fall holiday season, we believe continued promotional activity is likely.
We expect our North America, and EMEA businesses to return to modest growth by the end of our fiscal year with Asia Pac returning to more normalized gross.
We believe that promotional environment will begin to moderate as the impacts of excess inventory at retail consolidation began to stabilize.
Underlined the expected evolution of our business just outlined is an acceleration of our hyper digital transformation.
As we look ahead digital will become even more central to be EPS growth and success, our fiscal 21 investments in digital transformation, which represent about 80% of all planned strategic investment for the fiscal year offer a springboard of how we will leap into a more advantaged future.
Look forward to sharing more details as the year unfolds.
Given the recovery expectations, just outlined and the visibility we have into the current quarter. We expect revenue in the first quarter fiscal 2021 to be down slightly more than 50%.
For the full year, we expect to deliver at least $600 million of free cash flow through a combination of operating earnings working capital management and lower Capex.
We believe this supports a year end liquidity position of at least $5 billion with over $3 billion, a cash on hand, and and that leverage ratio below three times.
These members exclude the potential proceeds from our occupational work divestiture, which could provide an additional source of liquidity.
So in closing VF has navigated many crises over our 121 your history and have demonstrated willingness and ability to evolve our portfolio and strategy to stay relevant as consumer behaviors and the marketplace evolves.
There is no question that the code at night came disruption well have lasting impacts on our sector.
There will be retail casualties this will accelerate industry consolidation.
This will likely it's another meat category trends, which we believe will benefit from activity based lifestyle brands.
We are witnessing the acceleration of digital commerce critical importance of direct consumer engagement.
We also believe this environment will shine and even brighter light on corporate values and highlight the importance of purpose loud enterprises.
Ultimately, we believe what we're witnessing right now is an acceleration of underlying trends, which we're forming before the crisis hit further supporting on consumer minded retail centric hyper digital strategy.
They're supporting our portfolio reshaping of fruits from the past three years and further supporting our portfolio focus towards activity based lifestyle brands in large growing structurally attractive addressable markets.
The building blocks of our long term strategic plan are unchanged, but the pace of market and consumer evolution will undoubtedly summary.
Fortunately, we've been moving down a path to transformation to this new reality for several years using portfolio moves out as a catalyst we will continue to focus our key strategic choices around the transformation to a retail centric digital legal and enterprise.
A combination of all these levers coupled with the diversified TSR model will play ski us being an advantaged position.
So with that we'll turn the call back to the operator and take your questions.
Thank you will not be conducting a question answer session if you'd like to play from the question Q. Please press star one under telephone keypad, a confirmation told indicate your line is in the question Q.
You mean press star too if you like tour movie question from the Q participants using speaker equipment, and maybe necessary to pick up your handset before pressing the star keys, one moment, please well we pull for questions.
First question today is coming from Robert Turbo from Guggenheim Securities. Your line is that a lot.
Hi, good morning, everybody here, because you are aware about thanks.
Sure until I guess, just I was wondering if you could spend a little more time on inventory levels I guess by brand.
And I was just wondering if you could.
Maybe explain a little better in terms a you know your plans of.
Through the promotional environment, whether you would pack stuff away maybe use of off price.
You know just the different approaches you might take in terms of the level of promotion.
To sort of get the supply demand imbalance in the coming quarters.
Sure Bob So to speak you know I'll take that one so we've gone through as you can imagine are really rigorous process demand its climbing that's when as we you know looked at former.
Demand signals order books lists and that's very Isabel depending on the brands of the geography, but in general we're seeing forward order books, all winter that are down in that 20% to 30% range.
Excluding eight back which of course is a hard from a recovery standpoint, and so what we've done and screens even from a bias standpoint, not even a little more aggressively than that but that's because of our goal here Bob is to those two both make sure we have the right.
Assortments and enough newness on the floor.
As we as we go through 20, Oh, I'm, sorry fiscal 20 months, but more importantly, we want to exit this year.
In a point of equilibrium from a <unk> turning inventory standpoint that means beds are only inventory and inventory at retail.
As a result, what we're doing those were looking at the inventory that we earned we're aggressively taking I would say market appropriate discounting to try to clear excess inventory and we expect that to continue through through the balance of the year, but we're also looking at.
Building the Assortments that ensure we have enough newness and at the same time, you know being a little more aggressive on the carrying oversight of the business in order to make sure that as we exit this year. Our inventories are back in line that varies by brands. You know if you think about our largest spread.
ER vans, yeah, Lou we will be relatively less seasonal goods as you think about the north face there was relatively more seven some cases, where linking with holding inventory and building those assortments and reducing form advice. This is also where outlets really come into play.
We reduce our former buys for outlets and use them at the goods that we have on he went from a merchandising standpoint. So hopefully that gives you some shape of our thinking about inventory and with on the situation.
Great. Thanks very much.
Mhm.
Thank you.
Ladies and gentlemen, as a reminder, we ask you pretty that's one question and one follow up the return to the Q and that's star. One three plays into question Q1 next question today is coming from Omar Saad from Evercore ISI. Your line is not a lot.
Thanks, Good morning appreciate all the information.
Good luck more detail on the digital platform, you're building I know you're talking a lot about ecommerce and digital and then the information.
You provided around penetration right. Just also really helpful. But specifically where are you on apps loyalty programs data analytical capabilities and also on Omnichannel BOPUS. If we remain there even if stores open if we remain in a subdued traffic environment, but being able to offer the consumer inventory across your channel.
And touch points that maybe they don't want to go and spend the time Mystore shopping where are you on your capabilities for kind of omni channel inventory management.
And Jeff dropped broadly speaking on digital I know its focus but diving a little bit deeper there for us. Thank you.
Yeah. Good morning, Omar This is Steve I'll I'll I'll start.
Okay. The one thing that we're one of things were most happy about is this transformation that we've been putting in place to last two years and really increasing our focus on our digital platform, our digital capabilities and our our consumer facing information around our data platform. So you know where we are.
It is you know strong position.
And we're continuing to invest in our digital platform, specifically, you know just ease of shopping different purchasing checkout capabilities.
Doubling down on our mobile and to your point on apps its an area great opportunity for us and you can see.
Vans in North face do use goes to some degree, but that's an area, where we're going to double down and then best.
Our our loyalty program, our vans business is now up over 12 million and our north face business is somewhere in the I think 78 million consumers in their loyalty program and its that level of information, that's giving us insights into where consumers are with there.
Acting in how should we be engaging with them and we'll continue to build our consumer data platform and analytics capability table to really get closer build greater in an engagement in affinity.
Weve pivoted quite a bit on our.
In a buy online pick up in store.
How we're thinking about buy online returned to store and then this new notion of buy online pick up that curve that that was not something we had in our tool kit a month ago and a in the next two weeks will be standing that up not only here in North America, but in Europe. So the one thing you know that gives me so much confidence is the is the agility.
You know that our organization is showing our digital and technology team you know, where we've made significant investment in people and capabilities.
Hi, strengthening us in this time, where consumers pivoted. So strongly towards you know engaging with brand online not just on the content, but as we've seen significant growth in our online sales April and month to date, we're in a really good position and make it couldn't be happier.
So with their decision three years ago to make this and it could be more consumer minded retail centric and hyper digital and everything we do.
And then one quick follow a Steve.
Yeah, I don't really just real quick sure scary.
Yeah. So just wanted to say just to reiterate what Steve said, we talked about focused investments.
Well there we will there's not one not pulling back right when continuing team or.
Prioritize on the investments you know so you know could we could we see more short term profitability by copy.
Cancers, such as Dennis Yeah, we feel that but that's as this is an area, where we're maintaining our our investment done with Uh huh.
And so thanks, Scott one quick follow up you know where do you have you said, where you see that kind of 20% overall penetration can go and then you know is your digital capabilities that important when you're in discussions with potential acquisition candidates. A you know the digital prowess you can bring to their brand franchises. Thanks.
The remind me Joe I don't think we've stated where we think it will go you know that 20% is not as both our own as well as our wholesale digital partners, but that is where all of the energy is certainly pivoting.
From a consumer standpoint, and we see that becoming a much more significant part of our of our go to market strategy and we think about acquisitions.
I'm certainly brands you know they would have.
This this capability within the the addressable markets that we've talked about would be certainly an advantage that we'd be looking for but we're also looking at partnerships. You know they would bring enhance you know skills capabilities in the area of data and a different parts of the analytics tool kit.
We would like to get your quicker time to value.
Well go next question today is coming from Michael Binetti from Credit Suisse. Your line is that a lot.
Hey, guys. Thanks for all the be telling of helping to questions here I want to ask a little bit of the detail on some of the slides around vans in the D to C trends you laid out for the business in total here I guess I'm not you know for the Americas D to C number in February I know the month was warm I know you have a lot of cold weather businesses could you speak to how much of the.
DTC comps he saw there were due to mix of north face. Some timberland and then maybe just a little bit of color on how van D to C is trending in the Americas as we as we start to emerge here in this quarter.
Yeah, Scott you want to grab that.
Yeah sure. So you know the I guess the last part of my question firms Michael the.
You know the trends have been very strong and and we laid them out.
In some of the pre green materials, a look we released you know, particularly in April when you're seeing a big.
So that's in in our in online business and attack University, and <unk> triple digits across [noise].
Some of our brands and ER and.
Different region. So you know whether this trend continues don't know.
But it's a very encouraging to see that are not the significant uptick and I guess, Michael help me with your your question around van specifically, yeah, well I know vans had some you know was <unk> was growing at extremely high growth rates for few years, that's right, but a bit in that.
December quarter, and then we we don't have.
Specific fans pieces to look at here through January and February but the vans.
I'm trying to total comes to provide in North America in February I'm wondering how much that was impacted by some of the weather brands.
Yeah, I know some forms one month I'm trying to figure out how to think about when vans is doing before the floor. Yeah I understand I understand your question. So one thing is remember you know when one thing we like in our own businesses.
The multiyear stack and you're you're you're up against massive numbers.
And there's a year ago, we also talked about the soft landing event. So its while still impressive it has moderated I would say, but more to oh.
Level, that's a inline with our long term expectations, but but you're right in what you're probably right now.
We looked at.
The.
Colder weather brands or your she had a bit of a drag there.
As in the end it for the issues that we talked about remember coming into our leaving Q3 and kind of into the fall holiday, which set as a general statement, we were a little late and not as deep from a promotional standpoint.
Yeah that our intention was to increase we were losing some business that arose and our own dot com based on a more attractive pricing for similar products and in other in competing channels. So we did address that and we did say that out of trends in a precursor with Bayer.
Yes, this start to really accelerate as we.
You know boasts a became more competitive and also we're moving a lot of enjoyed frankly through the channel or from a pretty good standpoint, and then what's kind of it had of course get all the numbers get a little difficult, but the encouraging thing to US is all brands cold weather bands all of them, we've seen a material acceleration.
And in the month of April and and so far continuing into May again, I'm always cautious to say early days, let's see where this goes but but the the green shoots we're seeing there are encouraging.
Okay. My follow up I would add real funny I'd just couple things real quick.
As we you know van headed good quarter, but what's what's really you know and kind of giving us greater confidence is where we stand April and May and I know you guys watch quite a bit of what goes on with our brands online.
We spent a lot of time shifting our message to our consumers getting much more empathetic and really trying to meet our consumers with where they are in this ah stay at home environment that we're all living in and really changing you know our messaging much more purpose led in case of bands it really up.
10 around creativity, and if you've seen anything about the shoe box challenge, but he did submit is coming in from our consumers. The user generated content that we're able to grab from this.
But really that greater connectivity in affinity are our April and May digital results are up really really strong and giving us confidence that this will be a continued growth vector for band as we wait for our stores to come back online in the coming month.
I guess it could you just one more in there I you know as we I know we've talked about before covert vans margins were obviously very very good lower lower mid Twentys I think the way you've got some talking about them at the analyst day for bond with years ago, how to E Commerce merch margins compared to the overall brand margin since that's going to be bigger focus going forward and maybe how to the low.
Our volumes impact the vans DTC EBIT margins. Thanks.
Yeah. So as we used I think said fairly consistently a Michael the you know the margins. Both gross margins are gonna be similar to what we see in our DTC channel, but yeah without the four well costs and add a you know the just the.
The lack of posted at at least in her business that dilution not not really being a significant factor.
It's our most profitable channel so as we see the move to digital that's that's a good thing from a mix standpoint from a profitability standpoint.
Thank you next question is coming from Jonathan Komp from Baird. Your line is that a lot.
Yeah, Hi, thank you.
A bit of a follow up question, but I want I just understand.
All the detail how you see that geography easier covering was very helpful. I'm curious.
At least maybe directionally, how you're thinking about that across your brand and just thinking differences of a band we had just been stronger lots and lots of momentum versus a timberland, which goes down the opposite side of the spectrum any any thoughts are willing to share kind of looking forward on <unk> on a relative basis.
Sure John It's just hard [laughter].
Yeah, and I was just going to clarify your question. So you're talking about anything different five brand by geography legally unique is that.
Just wanted to understand the question yeah, that's not quite that broad, but more trying to understand how you're thinking about the ability for the various brands to recover yeah, and it's been buyer scenario that you laid out from a geographic standpoint, I'm just thinking about yeah. The big brand target, how you're looking as we go ahead Dr.
That's right.
Sure. So I'll start Scott Yeah, I think you see our Asia business is back up and running all of our stores are open our partnerships doors are open.
And our digital business is it is performing extremely well we are seeing consumer traffic improve week over week, but it is down over last year, but the results we see.
Really are across each of our brands finding unique unique ways to connect with consumers be it online yeah, we're doing virtual shopping events or Dickey sprint has been real and innovative and how they're thinking about connecting to virtual to the store a those learnings are helping us understand how.
To activate in in Europe In America studies as these markets come back on and they were back up with about 40% of our stores in Europe today.
We have had our digital wholesale partners working with us since the onset of the you know called the crisis and continue to see no really solid growth with them across our full brand portfolio. So really not one brand I'm over cheating I would tell you are north based business is probably the strongest in there in there.
Our online connectivity.
And here in the Americas, we are preparing to open our stores and expect to have stores opened in five states next week and you know our D to C brands, specifically bands North face timberland to a lesser degree will will benefit from that but what's interesting.
My earlier point on that on the pivot on how we've got shifted our marketing I'm in the messaging Interconnectivity, our timberland business has seen exceptional growth.
Through April and and month to date here.
Online and we we find that actually extremely.
Positive <unk> is we now we do know the consumers are engaged with us they're extremely interested in the messaging as well as the products that were offering and I think we see it really at a universal growth across our portfolio. As we have you know much more sharing and collaboration on the different approach.
Oh choose different tactics you know they had worked first in China, and we'll bring that across each of the other regions.
Yeah, I just I just add Jonathan is as you think about China, you know I reset it in our prepared remarks, we at the advantage of a couple of months head start to see how consumers are reacting and what emergence looks like and.
As we looked at our China business, you know returning to growth pretty very broad base and widespread.
Across a a crash the month of April so.
Really encouraging sign and and that's really you know the basis for how we're trying to understand what this what this progression looks like as as we think about the Europe and North American regions as well.
Okay. Thanks for that and maybe just one follow up on more of the expense side and protecting margins and I understand the thoughtful and your unique approach that you're taking time protecting the state of the organization I guess I just wanted to understand if we think about you have the next several quarters Phil.
Pretty significant topline pressure any thoughts on how kind of the downside flow through on that on the EBIT line might look relative to what you had in the March quarter here.
You know, arguing not giving specific guidance, but a couple of things out themselves or as you take that gross margin in particular or you know I think I mentioned earlier.
We will we will see some promotional activity as we as we work on movie Threeg inventory in the channel. So you pick about the puts and takes a structural that's benefit we like will be more you know for the for the long term and for next year remember.
We have for them I thought standpoint.
The benefit from a hub gene standpoint rolls off last year, you gotta, putting okay, no <unk> promotional activity.
As we saw that evolution will be elevated or weekly pretty much through the balance of the year Oh, it's got to put a little bit across or from a on the gross margin standpoint, as you think about next year not structural not ongoing Mrs. More episodic news we deal through this issue, but you know how in the next quarters.
We would expect some pressure from that standpoint.
What do you think about you know early we go when we gave you a little bit of shape with how the evolution of the books, especially from the topline standpoint, I'd just remind me of a couple of things we talked about more than 600 million to free cash flow. Most as we look to cut costs and evolution walk him or the materials.
We also mentioned most of my Bucks or.
Just a reference point, we've talked about maintenance capex being well not 2% range he personal auto sales.
We've talked about aggressive inventory management, which you can see means that from a working capital standpoint, we should see some.
For the remainder in and of course is on its Oh, well doesn't give you everything but though at least gets you in the ZIP code as you think about how we are you in the flow through.
Thank you next question is coming from Jim Duffy from Stifel. Your line is that lives.
Thank you good morning Hope you and your families are doing well Ah.
Difficult times, no doubt, but clearly the strategy from eight months ago seems even more relevant today I have a few questions on the digital business first could you speak about the changing economics, you're seeing with digital demand creation or what are the changes you're seeing an ad rates and conversion rates with store closed.
And then a the triple digit North American digital growth seems to be outpacing the digital growth in other regions are there things that are more evolved in the north American digital business. It can be accelerated in EMEA and APAC.
Yeah. Good news around here [laughter], Okay. It I don't think we have the our AD rates, but let me let me just start real high level, Jim I'm, we pivoted, our marketing and I used to zero based budgeting approach to you know how we deploy our AD dollars.
And pivoted all of the dollars towards more digital tactics.
And clearly that having significant benefits.
To our ecommerce trend at this point.
Yeah, we've seen traffic.
Up.
But what we've seen even more so its conversion.
As we are engaging consumers are great. Examples there it's just the level of.
Dwell that we see our vans business, you know with the shoe Buck chat. She box challenge you know the people coming online you know to create a pair of custom shoes, you know to contribute back to put that bill program that they have to support their specialty.
So really looking at very different ways.
Improving content, improving you know just different programs things to entice consumers and not to participate retire.
Our north base business, you know, where we've probably seen the most exceptional growth over the last three or four weeks.
They're they're program to support the frontline workers not specifically medical workers.
As broad a tremendous increase in traffic, we have something like 89% of our traffic our new consumers.
And a very high concentration of females I'm, giving the brand just additional people to speak to connect two and a and really were not driving transaction as much as we're driving connection engagement and affinity.
End of bringing you through that funnel when and if you're available, but really focused on building that that much much stronger engagement for a longer term b a benefit.
ARCT our growth here in the U.S. is stronger that's true.
But our growth in Europe, and ER and Asia is right in line with where we would expect to be and there. We are deploying these same tactics.
You know that we're using here and are seeing that that strong engagement.
In built really looking to build that long term affinity and ER and continue to drive consumers into our are different digital platforms.
Helpful. Thank you.
Thank you next question is coming from Erinn Murphy from Piper Sandler Your line is not a lot.
Great. Thanks. Good morning Hope you all are well I'm just kids for me I think all three open stores I'm curious if there is added cost that you need within your own stores just to ensure a shopping experience a safe and then what do you expect or how do you factor staffing requirements could change with in store and then the second question around hotter.
Launches for fiscal 2021, I'm just curious if you've had to make any shift this year or income that's just given the current environment. Thank you.
Yeah, Aaron I'll start Scott certainly filling the blanks here, we are actually very ready to begin to open our stores as I mentioned, our stores were opened in China.
We have begun to open stores in Europe, and we're preparing here in the United States.
Our playbook, you know that we've been able to develop in China over the last four or five weeks is giving us a really good understanding of just what we need to be doing you know too sure consumers.
We are comfortable but equally important is that our staff feels comfortable in this new environment. So there are some increased costs associated.
With bringing that Ah you know that security around.
Proper sanitation, you know the proper P. P. E. You know for people to be using we have received re merchandised our stores to get that proper social disconcerting.
And we're not our traffic is not what it normally is.
I'm so our staffing levels are adjusting accordingly to make sure. We got the right people now right level of service and a improved really providing that personal one to one engagements and what's really really gratifying is the feedback we're getting from our consumers as we open.
Is just a high degree of confidence.
And.
It really thankful you know that were there and are enjoying the opportunity to get out and engage in a very safe environment.
In the second half your question Aaron if he could repeat that for me it was around Kratos Gen <unk> yeah.
Product launches.
Just to have there been any change if you had to change your forecast in terms of when you're launching products that you're just get then I took it 19 and impact on your inventory buys.
Yeah no. Thank you no really if anything it's heighten the need to be much more retail centric in how we think can operate our stores and this is a big big part of our transformation you know the the level of newness and the frequency of new new reasons to engage.
Be it in store online I mentioned some of the virtual shopping tests that are our dickies team has been doing in China. You know looking really for you weekly reason to engage with us So our product offer our new product release city called out schedules he'll stay very much intact to Scott.
Earlier comment around.
Yeah, the thoughtful management, a forward buys and looking at our on hand inventory that has been done.
With the same eye to assuring that we have open to buy available for the right level of newness flowing into each of our brands be it through our own D to C or with our wholesale partners is that begins to open as well.
Thank you you know I just had one thing era that Steve asked every day you know what do we have enough newness, there's an intense focus on new this there's another.
A good byproduct of this process that we're going through its as we're transforming to retail centric reach out first mindset. There's also the reduction in skews. The they offers are tighter very much from my perspective of our own retail stores are in digital environment and how that then applies to our whole.
We'll sell partners. So you know a lot of the rigor and discipline and focus has been on both newness and ensuring that we have a very tight assortment that makes it makes sense from a retail environment. So there's actually a.
A good byproduct of the out a disciplined that comes with with this constrained environment.
Thank you. My next question today is coming from Adrian even from Barclays. Your line is not a lot.
Oh, great I hope everybody is doing well good to hear from you.
Steve I guess my first question is really sort of like more big picture sonata outside the obvious chip to digital what are the other secular consumer behaviors that you're seeing a for CE, marking coast code that how did beat to the fourth pillar brand stand to gain in that environment and then Scott My follow up well out of my follow up will be on gross margin.
Absolutely.
[laughter] to get ready yet.
Yeah, I appreciate that does [laughter].
No no great question clearly you know that you know the comments the conversations we've been having about the you know the immediate uptick in a in digital demand in digital connectivity.
In addition to that things that we're seeing you know too you know our analytics and conversations with consumers are some really interesting trends and that trend at our portfolio is extremely well aligned against I think one would be this appreciation for the outdoors.
As people are staying at home if people are less apt to be thinking about travel outside of their beat their home city or home state. You know this this connection with the outdoors and no getting back into outdoor activity nearby. The house is probably one of the most significant trends coupled with health and wellbeing.
And are we seeing is coming out loud and clear in China.
With people just very focused on their their individual health the health of the up the climate.
And clearly our purpose led vision and the focus of our portfolio is very strong there.
Yeah, we see actually a lot of interesting supporting the frontline workers across the globe.
And here the work that our Dickies brand has been doing.
The commitment of three and a half million pieces of PPV for medical workers here in the states.
As well as supporting those those workers that are you keeping infrastructure up and running we've seen tremendous interest in supporting and our dickies businesses is reacting extremely well so those trends across the outdoor health and wellbeing I'm focused on the climate I'm could not be more in.
Aligned with our portfolio reshaping we've been doing the last three years.
But also our deep commitment to being purpose led performance driven as our way of creating value for our shareholders.
Great that's very helpful.
Got you get that.
Digging in a little bit deeper on be patterning of the gross margin in which border. Obviously, there's pressure from promotion certainly one stores open and then I'd say no Cal partners second liquidate inventory in the fault the fall season I suppose when do you see so the the deepest hit to gross margin which of those quarter here.
The September quarter on it sounds like inventory gets a little bit better and then in what format does it take I understand like at your own DTC, you'll be competing on price.
At retail, but are you getting our vendor allowances are you getting a you know lower cost on the outside you forward, but you know six months out. Thank you.
Yeah. So in terms of the shaping and you can get some of this in the prepared materials, we talked a little bit about the promotional environment, but but for sure in the first half you'll see.
More more pressure and you'll see that start to moderate as you move.
Through the year, although elevated per the for the full year more pressure in the first half you know in terms of tactics, we got a a wide range of options and I I won't go into too much specifics, but generally you know, it's it's partnering with key accounts and.
Looking at you know from from discount in gross to net.
You know markdowns et cetera.
On a limited basis, a you know generally that so that's how we to tend to focus as opposed to wholesale returns or things like that so those are more the tactics. We use the what are the best weapons that we have as our outlet networks and you know we learn so hard lessons.
So in the past about dumping a bunch of goods into the off price market third party off price and you won't see us doing that you know that's not to say we don't use these channels there good partners and their effective ways within reason to Claire goods, but look the majority of this is gonna be working as Keith.
Accounts, it's going to be in Iran, Digital dot com and and our biggest weapon as I said as our outlets and that's where in a bread appropriate way, we can dispose of a lot of inventory without causing channel conflicts or having things that boomerang back on us and in the broader marketplace.
Thank you, ladies and gentlemen of interest of time. Our final question today comes from Camilo Lyon for B T. He your line is not a lot.
Thanks, Good morning, everyone Hope you guys doing great Hey, Hello, and welcome back welcome. Thank you [laughter]. Thank you. Thanks, Thanks for a things all the detail. So just two questions for me. The first one I think you mentioned in your or in the press release, just wondering like you had some supply chain impacts I was wondering if you could just delve deeper into.
Which brands are being hurt by some of the supply chain impacts and where that stands and if they have been resolved and if they haven't been when would you expect that supply chain a truly resumed kind of the flows that you're not yet you're used to.
And then the second question is he spent a lot of time and rightly so on the influence of the digital and and the spend in the overspend on this on this particular channel and importance of it.
I'm curious to know what's your view and has your view changed on what the rightsize, what's the right store base size going forward and if you're anticipating cuisine. Some doors, whether as a result of maybe some now mall or lease rolling off leases rolling off or.
Just and up will end up at least life terms or anything up to sort of perspective.
Active closures.
Yeah good.
It's got out you know it's got all start Capella, there's not really are no material impacts to our supply chain or anything.
You know the connection the connectivity with our key.
Supply partners both [noise].
[noise] garment and footwear production, but also the material side.
Ms, where we've been spending a tremendous amount of time as we as we right sized our forward purchases and really aligned you know our purchase and open to buy I'm against the demand that we see today.
And if those partnerships.
We build over the years, you know that are allowing us to to make these quick pivots and position ourselves to do really meter bring down our current on hands over the course of the year.
The proper amount of newness, so really really no impacts you know two to any degree within our supply chain.
And then on the on the store base size.
Yeah, It's it's an interesting question and.
Well if there's if there's one thing we're seeing as we reopened our stores in China and most recently in Europe.
Is that that local community based you know retail footprint.
Some people would call that hyper local is proving to be extremely valuable consumers shopping closer to home in those in those communities are neighborhoods that they will be living in doing so we think about our footprint here in your opinion in in the United States across our vans north face in timberland businesses that'd be something to pay attention.
In two our exposure.
You know to the to the malls is is not significant we have about 80% of our of our footprint are in the a malls and a and then it really tapers off to be and then you know the tail sits in the C and d. So we're we're very well positioned where were located.
But you're changing consumer behavior, I will be a really interesting element of the go forward.
Strategy that we had I think as consumers are they going to be is comfortable coming into the store do they want to.
I have a clienteling relationship where they can buy online and pick up at curb we're ready for this our teams have been doing your quite a bit of preparation, arguing team is providing the technology to be able to do that.
But if there's one thing we've learned in China is the store is important.
Those the closer it is to where you live seems to be a growing trend.
And honestly the footprint in the size and the way that our stores connect with consumers. Today's she is very well positioned with that trend if that continues.
No I just build on that to Camilla, if we talk about this quite a bit but wave, we pretty aggressively manage our lease terms and at any point in time.
Actually a quarter of the fleet 25%.
Is up for renewal every year, so while we're always constantly refining and updating what our footprint looks like that also gives us a lot of opportunity as we understand better what retail evolves into a nobody fully understands that today, we just know that it's changing and that we're continuing to.
With that our ability to turn that fleet as is pretty quick.
Thank you. We appreciate about question answer session I like to turn the floor back over to see for any further a closing comments.
Great. Thank everybody for joining us and a and putting up with our conversation from home or no model here I hope it worked for everybody I'd just like leave you with a couple of thoughts.
Yes, and the strong strong history that we had is absolutely build for unprepared to navigate the times that we arent today like the strengths that we have both an operational financial disciplines that have guided us I'm over 120 year history, a put us in a very strong position to manage you know.
Really the foundational elements of our business, our iconic brands and the reshaping of our portfolio that we've taken over the last three three years puts us in a very strong position to connect with consumers in these evolving consumer in market trends.
And our investment over the past two years to transform it'll be up to be more consumer minded retail centric hyper digital enterprise entered deep deep commitment to elevating our D to C digital and consumer engagement through our our data platforms.
All are proof points that strategy, we've been working on the actions, we've been taking position us extremely well to navigate and accelerate or any other side of this crisis and just would really encourage you to stay connected with our brands watch what we're doing online engagement strategies that were put.
Being in place just to kind of reinforce and give you confidence in the work that we're doing to drive our business and be prepared for acceleration on the other side.
Again, thank you for joining us and we look forward to talking to you in July.
Thank you that does conclude today's teleconference. You may disconnect. Your lines at this time and I have a wonderful day, we thank you for your participation today.