Q1 2020 Childrens Place Inc Earnings Call
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Ladies and gentlemen, this the operator today's conference is scheduled to begin momentarily until that time you a nice will again be placed on music code. Thank you for your patience.
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Ladies and gentlemen, thank you for standing by and welcome to the children's place first quarter Twentytwenty earnings Conference call. This call is being recorded if you object to our recording of this call. Please disconnect. At this time all participants have been placed any listen only mode.
And the floor will be opened for your questions. Following the presentation.
After the speaker's remarks, there will be a question and answer session to ask a question. During this time simply press star one on your telephone keypad to withdraw your question. During this time press the pound to key it is now my pleasure to turn the floor over to Anthony I Pardot director of Investor Relations did again, good morning and wealth.
Them to the children's place conference call.
On the call today are Jane Elfers, President and Chief Executive Officer, Mike Scarpa, Chief Operating Officer, Chief Financial Officer, the children's place issued a press release early this morning and copies of the release and presentation materials for today's call I've been posted on the Investor Relations section of the company's website.
After the speaker's remarks, there will be a question and answer session.
Before we begin I would like to remind participants at any forward looking statements made today are subject to the safe Harbor statement found in this mornings press release as well as the company's as he see filings, including the risk factor section of the company's annual report on form 10-K for its most recent fiscal year.
These forward looking statements involve risks and uncertainties that could cause actual results to differ materially. The company undertakes no obligation to publicly release any revisions to these forward looking statements to reflect events or circumstances. After the date hero.
After the prepared remarks, well open the call up to your questions. We ask that each of you limit yourself to one question. So that everyone will have an opportunity and with that I'd like to turn the call over to Jane Elfers.
Thank you Anthony and good morning, everyone I'd like to start out by thanking the thousands of our associates, who have done a remarkable job. These past few months under very difficult circumstances, they've demonstrated the resilience of this organization by keeping our business running at a high level and providing millions of growing kids.
Yes, the country with the clothes they need.
I want to say especial. Thank you to our front line distribution center and store associates, who have been the heroes of our company throughout this crisis working hard every day to ensure that our facilities continue to operate safely and effectively and that families. All over North America continue to receive the ascent.
I will close they need for their growing children.
Moving onto current business, we're not providing guidance, but we want to bring you up to date on current business.
As demand for our essential children's clothing continues to surge our omni channel advantages are clear.
Quarter to date, our consolidated sales are running up positive low double digit.
With online demand up 300%.
While approximately 95% of our stores remain closed.
We've brought back 88% of our for loads store associates with the remaining furloughed store associates expected to return by July 1st when we are planning to have the majority of our stores open.
Moving onto our strategic initiative.
Although we are facing a period of uncertainty regarding the future impact of the cobot 19 pandemic. The children's place is moving swiftly and decisively to proactively address these challenges.
How we emerged from this crisis depends on the actions we take now.
In order to position the company for continued success, we are bouncing near term priorities necessary to preserve our financial flexibility, including working to protect our employees and customers.
Flexing, our supply chain to address demand disruption.
And managing cash and liquidity, while continuing to focus on transformational strategies.
Including allocating resources to drive digital sales.
And significantly accelerating our fleet optimization initiative.
Building new advantages during times of uncertainty requires skills leadership and strong resolved.
For companies that are well prepared successfully executing transformational moves during difficult times creates opportunities for long term competitive advantages through market share gains.
We believe that our longstanding transformation strategy has prepared us well for these uncertain times.
The preexisting conditions in our industry.
The shift to digital and the consolidation of brick and mortar had been in place for some time.
However, due to the pandemic they are both likely to experienced a significant acceleration.
Fortunately we've been focused on these two issues for the better part of the last decade.
[noise] due to the pandemic consumers all across America had been forced to shop online. Many for the first time with positive results.
We anticipate that the lingering impact of Coven 19 will continue to accelerate the shift to digital putting enormous pressure on the already stressed brick and mortar channel.
Resulting an accelerated store closures.
Further exacerbating this issue are the forced bankruptcies of several weaker retailers that were unable to handle the demand shock to their balance sheets caused by the pandemic.
Retail bankruptcies, almost always come with outsized an accelerated store closures or in many cases full store liquidation.
When you combine the accelerated shift to digital which we believe will continue over the long term with the large number of store closure is anticipated to occur over the next few years.
We believe that significant market share consolidation opportunities exist for retailers with stronger balance sheet.
Developed omni capabilities and recession proof assortments.
Before we discuss our digital transformation and fleet optimization initiatives, let's address our number one strategic priority superior product.
Our product consistently resonates with our customers and demand for our product remains very strong.
We are clearly an essential provider of children's apparel in the U.S.
Our market share position, our consistent product and our strong value proposition give us confidence that our brand can thrive in any type of economic environment.
During the Oh wait and Onein financial crisis, our company achieved low single digit comp for the combined period as compared to the balance of children sales, which were down for that same period.
Moving on to digital transformation.
Our strategic decision three years ago to invest $50 million to accelerate our digital transformation caught some by surprise.
They wondered why we didnt spread the spend out over a longer period of time.
The fourth site that decision cannot be underestimated.
Not only have those investments allowed us to achieve one of the highest digital penetrations in the industry.
31% of total revenue for fiscal 2019.
They have allowed us to continue to operate at a high level. During this current crisis.
Without that accelerated digital investment, we would not have the sophisticated omni capabilities needed to continue to operate during this crisis.
We implemented ship from store capabilities across our entire fleet two years ago, which is a significant competitive advantage.
Since April we have had over 85% of our U.S. fleet fulfilling ship from store orders, which has more than doubled our daily DC shifting capacity, enabling us to continued to promote our brand and fulfill our surging online demand.
If we had not made these digital investments when we did we would be losing significant market share and brand loyalty at a critical time.
Without these digital capabilities, our stores and our distribution center would be filled to capacity with the trapped spring and summer merchandise.
Instead, we are able to fulfill our customers strong demand for essential children's clothing.
Further consolidate market share and earn moms loyalty as she contemplates shopping for next season's wardrobe.
And importantly, due to our ability to fulfill our strong online demand.
We are targeting to have zero pack and hold liability coming out of the second quarter.
Not having the burden of pack and hold on our balance sheet allows us to better utilize our capital take advantage of what we believe will be an advantageous AC environment in 2021.
And provide our vendor partners with continued order flow.
Within our online business, our key digital metric you, Pts adss and conversion are all at record levels.
And further supporting our digital growth during this difficult time, our two key factors first has been the migration of our store only shoppers to omnichannel shoppers at four times, the pre pandemic rate.
With 50% of our file currently E com, our omnichannel customers.
Versus 37% last year.
Our omnichannel customer spend nearly three times that of our retail only customers.
Second.
We've increased our new digital customer file by approximately 250% since we closed our stores in March.
We believe will allow us to emerge from this crisis with greater online share due to increased customer awareness of our ecommerce channel.
Driven by our accelerated investments.
Our superior product offering our strong value proposition.
And our digitally savvy core millennial customer the shift to digital was already well underway at TCP, but since the onset of the pandemic. The digital shift has significantly accelerated and we believe it will continue to do so post pandemic.
Moving on to fleet optimization.
Fleet optimization has been a key focus of the children's place for the better part of the last decade over the past several years, Mike and our store development team have strategically position the company for optimum flexibility in our lease terms.
Culminating in lease actions that impact approximately 70% of our fleet through fiscal 2021.
This level of fleet flexibility on a fleet of our size is unique and because of it we can now significantly accelerate store closures without financial penalty.
Over the next 20 months, we're targeting to close to an additional 300 stores dramatically, reducing our reliance on our brick and mortar channel.
We anticipate that entering 2020 to.
Following the 300 closures are mall based portfolio will represent less than 25% of our total revenue.
While the challenges that lie ahead, our many and visibility is limited we're moving forward with urgency in focus guided by the pillars of our longstanding transformation strategy.
We believe that we were ahead of the digital shift due to our accelerated digital investments.
And we'll work to stay ahead due to our increased focus on personalization.
We were ahead of the brick and mortar shift due to our fleet optimization strategy and we will work to stay ahead of it through a significant downsizing of our fleet.
While remaining in the best most productive locations.
With a significantly reduced reliance on malls.
And continued flexibility in our lease terms.
We have a strong brand that the rise in good times as well as bad.
Our business is supported by superior product with great value that strongly resonates with our digitally savvy millennial core customer who is buying our product for her gen. The children, who are growing up wearing the TCP brand.
We believe we are well position to capitalize on the significant market share shifts that have already begun and we'll continue to accelerate for the next several years.
And finally, our long tenured management team is focused on winning for our associates, our customers and our shareholders.
And now I'll turn it over to Mike.
Thank you Jane and good morning, everyone.
I'll start by reviewing our Q1 results.
Including an update on our balance sheet cash flow and liquidity.
I will then provide an update on our progress with several strategic actions.
Including steps taken to help reduce operating costs and capital spend.
And the significant acceleration of store closures, which collectively.
Our anticipated to enhance our longer term profitability outlook, while helping to preserve our financial flexibility.
Starting with our Q1 results in the first quarter, we generated.
And adjusted EPS loss of $1.96.
Net sales were $255 million versus last years $412 million.
Our total sales decreased 38.1% as a result of temporary store closures due to the Kogan 19 pandemic.
For the first five weeks of the first quarter.
Comp sales increased in the low single digits before the store closures on more treaties weighed on sales in March and April.
Ecommerce sales increased 12.2% to approximately 53%.
Total net sales as online sales accelerated following the March 18 store closures.
Adjusted gross margin.
Adjusted gross margin decreased 990 basis points from 36.7% to 26.8%.
Well merchandise margins were in line with our expectations prior to the store closures.
For the quarter, they were down approximately 430 basis points with 70% of the decline driven by a higher ecommerce penetration.
Primarily related to the store closures.
The remainder of the gross margin decrease was the result of higher fulfillment costs.
Along with the de leverage of fixed expenses, resulting from the decline in sales as a result of store closures.
Adjusted gross margin excluded approximately $88 million of charges.
Primarily in three items, which the company believes are not reflective of the performance of its core business.
Primarily related to the following.
One.
In line with prudent accounting practice, we recorded an inventory provision of $63 million related to the adverse business disruption, resulting from the Kobin 19 pandemic, including the store closures.
Based on our inventory position that the ended the first quarter.
We've earmarked over 3 million units with the inventory value of approximately $11 million for donation to charity to support families in need.
For the balance of our inventory position, we've recorded in inventory provision of $52 million to write down or inventory through its net realizable value.
Inclusive of anticipated fulfillment costs, which are expected to be significant.
Given the higher level of ship from store activities, taking place to support our accelerating online demand.
By opening up our store inventory to meet our E commerce demand during this period.
Positions us to grow market share and meet our moms need for our central clothing as well as ensure we are in an advantageous inventory position for our upcoming back to school season.
Additionally, the company anticipates zero pack and hold exiting Q2.
Two and occupancy charge of approximately $23 million related to locations closed due to covert 19.
It is important to note that we suspended rent payments beginning in April but for accounting purposes.
We have accrued or full rent expense.
This provision represents the rent expense for the period when our stores were closed in the first quarter.
And three incremental expenses of approximately $2 million.
Primarily for incentive pay and personal protective equipment for our distribution Center associates.
Adjusted EPS DNA.
Adjusted EPS DNA was approximately $88 million.
Versus $127 million last year.
De leverage 380 basis points to 34.6% of net sales.
Primarily as a result of deleverage of fixed expenses, resulting from the decline in sales as a result of store closures.
Partially offset by a reduction in operating expenses associated with actions taken in response to the Kogan 19 pandemic.
Adjusted Espina excludes approximately $10 million in certain items, which the company believes are not reflective of the performance of its core business primarily related to.
At approximately $6 million charge related to the Kobin 19 pandemic, including.
Payroll and benefits for our in store employees during the period stores were closed due to the pandemic.
Net of a tax benefit related to the cares Act.
Customer receivables.
And personal protective equipment for our store associates.
And prior to covert 19.
We incurred approximately $3 million of restructuring costs.
Primarily related to severance costs for corporate associates.
Adjusted operating income.
Adjusted operating loss for the quarter was $37.5 million versus operating income of $6.6 million last year.
The leverage 1600, 30 basis points to a negative 14.7% of sales.
Adjusted operating loss also excludes approximately $37 million and asset impairment charges, including the right abuse asset to recorded in connection with the adoption of the new lease accounting standards.
Tax rate.
Our adjusted tax rate was a benefit of 27.4% versus a negative 17.8% last year.
Moving onto the balance sheet.
Our cash and short term investments for the quarter were $72 million as compared to $68 million.
At year end.
We ended the quarter with 235 million outstanding on our $360 million revolving credit facility.
Compared to $171 million.
Outstanding on our $325 million revolving credit facility at fiscal year end 2019.
The increase reflects funding to support operations and seasonal working capital needs.
We ended the quarter with inventories down approximately 1.5% inclusive of the $63 million inventory reserve related to the coven 19 pandemic.
We are targeting to end the second quarter with clean carryover inventory and zero pack and hold liability.
The advantages of not having the burden of pack and hold inventory on our balance sheet includes better utilization of our capital.
Ability to take advantage of what we believe will be an advantageous you see environment in 2021.
And continuing to provide our vendor partners with continued order flow.
Moving on to cash flow and liquidity.
We used approximately $40 million in cash flow from operations in the first quarter.
Capital expenditures were approximately $6 million.
We repurchased approximately $15 million of stock in the quarter prior to suspending the capital return program.
We have undertaken several actions in an effort to preserve liquidity in fiscal 2020 as a result of the Kogan 19 pandemic.
The notable actions include.
Executing a substantial reduction in deferral of all non essential expenses.
And carefully scrutinizing all capital expenditures.
With capital now planned.
At approximately $20 million in fiscal 2020 versus approximately $58 million in fiscal 2019.
We remain vigilant on inventory management forward receipts with the intention to better balance inventory to demand.
We have collaborated with vendor partners to extend payment terms.
We suspended rent payments on leases for all our us in Canadian stores and we are currently in active negotiations with landlords regarding our store leases.
The company continues to evaluate its options on store lease events occurring through the end of fiscal 2021.
Which impacts approximately 70%.
Of our current store fleet.
We finalized an amendment to our revolving credit facility on April 24th which increased borrowing capacity from 325 million to $360 million for a period of one year.
We have to temporarily suspended our companys capital return program.
Inclusive of share repurchases and dividends and we instituted temporary furloughs.
Or pay reductions for a majority of our corporate staff all store and field associates were furloughed.
And we've implemented temporary executive and board pay cuts.
As of June nine.
The company's liquidity position has improved $24 million from the end of Q1 to $184 million as a result, the positive cash generation and an increase in our borrowing collateral.
The company believes its ongoing actions coupled with continued strength in its digital business will provide liquidity to help support the company in navigating through this unprecedented level of uncertainty and disruption.
I'll now provide a brief update on our store activity in the quarter along with planned actions, we're taking to accelerate our fleet optimization initiative.
We closed four locations in the quarter, which brings our total store closures to 275 since our fleet optimization initiative was announced in 2013.
We ended Q1 with 920 locations with 62% malls and 38% in non malls.
With 83% of our mall locations in a or B centers.
Moving onto our accelerated store closing plan.
Weve often discussed the you need flexibility we have as a result of our decade long fleet optimization strategy, which has resulted in an average lease life of approximately two years, which with approximately 70% of our stores, having a lease event by year end fiscal 2021.
Which arms us with meaningful flexibility to further optimize our store fleet.
As E Commerce demand has accelerated partly as a result of Kobin 19.
We have significantly increased our planned store closures.
And are now targeting to close approximately 300 additional store locations by year end fiscal 2021.
Our forecast now targets closing approximately 200 store locations in fiscal 2020.
And approximately 100 store locations in fiscal 2021, resulting in approximately 625 store locations at year end 2021.
Historically, we've realized that approximate 20% transfer rate and sales from closed stores.
By the end of fiscal 2021.
We expect to greatly reduce our reliance on our brick and mortar channel.
Resulting in a smaller and more profitable store footprint and leaving our mall based portfolio accounting for less than 25% of revenue entering fiscal year 2022.
Outlook.
Due to the continued level of uncertainty in the current business environment, we're not providing a financial outlook for fiscal year 2020.
At this point, we will open the call to your questions.
Thank you at this time I would like to remind everyone. If you would like to ask your question. Please press Star then the number one on your telephone keypad. If your question has been answered and you wish to remove yourself from the Q press. The pound key we ask that you. Please limit yourself to one question only to allow for.
Many questions as possible. Our first question comes from the line of Adrian of Barclays.
Good morning, everybody.
Yeah.
Hi, Good morning, Hi, Great I'm glad everybody is doing well so again.
Thanks for all the color very helpful.
Yes.
Just last comment was in 2021 much much smaller smaller store base. If we think about the business say three years from now or even five years, a little bit of a longer term.
Does the kind of E commerce to store footprint look like does it really matter because you're becoming so omni and can you give us a quick update on the gym pre launch and how that Gary. Thank you very much.
Sure as far as Jim Murray, we're really pleased with how Jim Murray launched we had a really great customer response out of the box and from what you is telling us on our social media channels, we really hit the nail on the head as far as the product is static.
Unfortunately, as we've discussed before we launch with predominantly Easter product. It during the crisis that we only had about four weeks before the Lockdowns began.
But we continue to be very pleased with the summer lines that we have launched over the past couple of months and the customer feedback remains very positive on the on the groups that we have launched they have the same call out that they had from the beginning they're asking us to produce more light product, they're asking us for.
More underwear and specifically they want pajamas Jimmy.
Was a big category for Jim Murray and heyday, and all of those three categories are in the work for fall and so we'll see more of that throughout the back half of the year and now as we did for TTP products, we went into the back happen right sized.
The year back year supply with projected demand and made some outsized inventory reductions in the categories that we think we'll probably pose some of the biggest issues like that dressing category, we're being conservative for the back half of the year, but overall extraordinarily pleased really kudos to our design team they really did.
Phenomenal job really heading like I said to nail on the head and then as far as you know three or five years out it's hard to tell but I would I would tell you that if someone had told me.
That I was going have all my stores closed and I'd be double digit comping, a consolidated I'm not sure even though on the pretty big advocate, if our digital future I don't even know if I wouldn't believe that so I think as through this crisis, we've really seen what we can do digitally I think we are obviously strongly on offense now we have.
A need based product we have a recession proof product we have our digital investments that have set us up to have the kind of success, we're having right now and it really allows us to move aggressively to rightsize our store portfolio. So we're looking at as Mike said 625 approximately stores in the next judge in 20 month to.
Have that and then we'll take it from there I certainly think stores will be an important part of our business going forward as I think an omnichannel model is it is important and we see not.
But we're certainly low as I said taken an aggressive stance to pair our store base now now that we can see that we can continue to grow revenue even with our stores closed.
Your next question comes from the lineup Tiffany Kanaga of Deutsche Bank.
Hi, Thanks for taking my question.
Today consolidated sales trends were helpful. What do you talk specifically how your reopen stores have performed if you can give a copper some incremental color for Jeff that great, even though I know what to small cohort.
Could you break down how much cimbri is contributing to the digital growth and what the core children's place online growth looks like.
Sure as we said, we had 61 stores open and they're doing 97% of last year's productivity, 97% of last year sales. So.
We're very pleased with that as far as Jim Murray is we're not breaking it out but it's much much smaller piece of the business.
Digitally.
Now.
Your next question just just I'm, sorry, just to add some color to that also in terms of the stores that are open.
We are seeing.
Conversion up high single digits, we're seeing utilities up high single digits. We're actually seeing here you are up low single digits oil very positive.
Sure.
As we opened our stores.
Now. We're next question comes from the line of Jim Chartier, Monness Crespi Hardt now.
Good morning, Thanks for taking my question.
Just was wondering if you could it was little bit of color on what the profitability of.
This is going to look like in to Q.
Yes are there higher fulfillment costs and other costs more more I'm sort of going to.
You don't weigh on margins in second quarter, despite the double digit comps.
Thank you just talked about the profitability of.
E Commerce, and then more normal environment, Berkshire store fleet and the stores that you're planning to close times now.
Jim This is.
Even though we're not.
Providing guidance due to all the uncertainty.
I could provide some color comments regarding.
Q2 margins.
Versus what we're seeing from a consensus in Factset perspective.
We think that the margins maybe a little.
Optimistic that we're seeing given our projected penetration of E commerce in the quarter.
I will remember that Jane pointed out that our stores will not be completely open until the first in July so heavy ecommerce penetration.
We're also seeing some inefficiencies and fulfillment costs associated with the large number of ship from store orders that were fulfilling.
And also.
Turning into some inefficiencies in our DCF radio.
Due to the social distancing and safety protocols that we put in place.
So those two way on.
Margins and then as Jay indicated.
Promotional environment in the second quarter also weigh on margins.
We think that.
Q1.
With me the most difficult.
From a.
So.
But we do expect sequential.
To your goes up.
Your next question comes from the lineup Dana Telsey of Telsey Advisory group.
Good morning, everyone, I hope, everyone safe and healthy.
Do you think of the bucket of SGN <unk>, how much of the reductions are permanent reduction how many how much comes back and then as you think about planning for the third in the fourth quarter in ordering inventories <unk> for a holiday season unevenly back to school, how is it different going going forward.
You see there and just lastly, how is outlets and Canada. Thank you.
Now.
So from an M&A perspective, we were down roughly $39 million in the quarter more than half of it.
Or store base.
Associated with furloughs that we took in terms of.
Our store associates in our fuel management.
We would expect that we're going to continue to see us DNA.
Under last years levels, we've taken a look at our corporate staff and made the appropriate adjustments and obviously as we continue to.
Closed over 200 doors. This year, obviously expense will come out of the organization both from.
Yes, the store payroll perspective occupancy perspective.
Potentially just just corporate structure.
And then as far as Canada, we're seeing triple digit on E commerce growth in Canada as well from an outlet point of view of the stores. We have opened I remember, it's a small group were double digit comping in outlets. So thats been very strong and then I think your last question was around inventory in the back half of the here we are approaching it very conservatively we.
You know, obviously, we're not able to impact our spring and summer receipts that we were able to impact our back half receipt that were being very conservative we have to see what's happening with school openings. Many districts haven't announced yet so we have our eye on that we have our eye on when the tax free events are going to be a lot of that as an announced as well and so that's in a very import.
And you know two things for us in Q3, the back to school business and tax free and then can you get into Q4, you now we're anticipating that there could be significant pressure with respect to social debts, and saying traffic in the stores. We have no idea what a black Friday might look like or some of those big Saturday weekends in December that we've approached it very.
Conservatively, particularly from the stores a point of view and then you know obviously to talk about it could there be seconds bikes out.
Now your next question comes from the lineup Paul Lashway of Citi.
Hey, Thanks, guys. It seems like you have a lower percentage of your stores opened the than many other retailers out there was curious as to why if that's something do with the centers are located then I'm not reopening maybe.
Just talk about how many stores could you help reopen but but did and.
And what percent of stores are you fulfilling out of and then just a second and E. Com plays a bigger role and you have fewer stores now after the store closings.
So much to fulfill orders are you thinking about adding additional DC capacity.
Sure well over 85% of our stores are helping to fulfill so that you know is the answer there as far as the answer of why the stores. Arnaud then we were planning on opening a significant number of stores last week, but with the.
Unrest of the past 10 days, we decided that we would wait until next week. So we're going to be opening on Tuesday, which as Dick 16, we're going to be opening of around 350 stores. So a huge number of stores I will open to another amount on 623, which is the following Tuesday, and then were.
Our plan is really to have every one of our stores opened by July Earth now, we can't promise that because we have a heavy concentration in new Jersey in New York and there's a lot of moving parts with New Jersey in New York, So significant number of stores still having given the exact date in New Jersey, New Jersey in New York, but they're all leaning toward the end of June So that's why we're using J.
Alive for ourselves, we should have most of them opened by July 1st and then as far as helping to sell we are pretty.
Obviously, we have been other stores really pitching in now to help with the social distinct thing going on in the DC, but we had always planned to have radio kick in in a big way for back to school. That's what we had planned enough for the past year since last year, it's back to school and so they will be set up as we get into mid July.
Hi, when the peak it back to school you'd normally happens they will be set up from mid July on to take over at a big share of the burden from the doors. So we're feeling good about that we're on track with that Anda.
We should beat we should be fine there.
Your next question comes from the line of Susan Anderson of B. Riley FBR.
Hi, Good morning, Thanks for taking my question nice to see that are best online growth.
So I am more looking out to next year and kind of curious after you close the junior too late this year. How are you thinking about the PML and economies easily lower gross margin that higher EBIT and now without the rain on those stores should we expect this could be significantly helpful to EBIT from 19 levels and then also would you.
We expect more efficient fulfillment costs going into next year, and then finally, those 200 stores, where they profitable and I guess will they reopen it all this here or shut down.
And then shut down after they reopen to clear the product. Thanks.
Look it's incumbent on us to drive you know our PNM through a couple of different factors.
Obviously, we're we're thrilled with the level of business. We're currently doing online.
You know considering that 95% to stores are closed we're seeing digital demand up 300% fantastic open stores, obviously running at 97% of last years.
Productivity is also a very very positive thing.
The flexibility that we built into our up.
Into our core fleet.
Given the fact that.
We can get down to 625 store base over the next two years.
It is also a powerful weapon for us.
Then as Jane mentioned in her prepared remarks, you know the conversion of store only shoppers that we're seeing at four times the rate of last year is used for us. So now it's it's incumbent upon the management team to drive the appropriate rent deals and the remaining stores that are open.
Drives the appropriate corporate structure and also ensure the fulfillment capacity to support.
As digital first organization.
We believe that all the above is an opportunity for profit improvement overtime.
Your next question comes from the line of David Buckley of Bank of America.
Good morning, Thanks for taking my question. So just following up on that last question. The 200 store closings. This year well the majority of these stores not reopen in the second quarter or will they be post holiday or closing way. It is.
And then just what we what percentage are either.
Sorry, Michael I'll, let you answer though.
We expect that.
By the end of the second quarter will be probably in the hundreds store range of closure so half of them will take place.
In the.
In the ensuing months ahead.
Oh.
We expect that a good portion of them open and liquidate and then.
Oh, well, we'll close depending on the inventories that are left in the store. If there are ship from store activities.
Oh.
And another question.
Yes. Thank you that's helpful. And then just what percentage of E. Comm orders now being filled some stores and can you just talk about the economics of shipping from store versus so anytime waters from your DC.
Sure.
We would say probably about 55% as being filled right now from our ship from store capabilities as gene mentioned by adding ship from store, we more than doubled our overall capacity and as I mentioned or capacity in both.
Our DC in and radio is somewhat limited based on some of the safety protocols that we put into place when we look at ship from store economics, obviously, they don't have the equipment that oh or distribution centers have so from a labor productivity there probably.
40% productivity level or do you season, obviously, our order size has increased nicely in these last couple of months and we're seeing our utilities actually up over 20%. So.
What were encouraging news.
Splits associated with that which drives freight costs up.
Probably in the.
You know, 40% to 60% range.
What we normally ship complete orders group.
So not the most economical situation for us, but we're thrilled we have the.
Ability to expose store inventory ship from store meet moms needs.
Reduce our overall inventory burn as we move into back to school.
We have time for one more question. Your final question comes from the line of Marni Shapiro of the retail tracker.
Hey, guys.
Great job getting through this crazy period.
So can you just talking about a couple of things, yes, I do open into a couple of things as you opened the new stores. Your stores are typically a pretty tight fit how are you thinking about either adjusting it to there's a little bit more space. So people can I'm more comfortably be away from each other and what would that look like going forward and then.
Right and in stores, but even on line you've done a nice job of expanding your footwear business and it feels like that could be a bigger opportunity now go forward on line, especially since you just talk a little bit about how that business was during the last couple of months and and if the if you still see that's a good opportunity.
Yeah, I mean, I think footwear, though it's been an important business for us and as we saw in Q1, we certainly had some pressure on the dressier categories. Just like we did with the dressy apparel, but in Q2, so far we've seen very strong demand for casual for sandals sneakers flip flop those type slide those types of things. So we're excited about footwear.
Going forward and we're going to continue to.
Continue to fund that business from a collateral point of view.
You can go on our website and look under our corporate update we've done a lot of work in our stores, we had signed up with social debts and saying we have you know need guard that their register we have.
Yeah.
Sanitizing products.
Pretty much run the gamut on on making sure that when they open those doors. We're set up is as safely as we possibly can for our customer you know certainly we will have to meet our flow traffic flow thats necessary into the store to make sure that we do adhere to that those will distancing guidelines, but I think the stores are very prepared and set up and.
For the stores that are up and they're doing a great job.
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