Q1 2020 Michaels Companies Inc Earnings Call
Hi, we'd like to welcome everyone to the Michaels company's first quarter 2020, <unk> earnings Conference call.
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Please note this event is being recorded.
Thank you and now I'd like to turn the conference over to your host Jim Matthias Director of Investor Relations Mr. know if I may begin your conference.
Welcome to our fiscal 2021st quarter financial results Conference call.
Presenting on this morning's call their CEO actually began.
Also on the call available for the Q1 I portion is John Robinson, our SVP finance.
Jim Sullivan, our SVP and Chief Accounting Officer.
No for today's call will slide deck available on our Investor Relations website contains additional financial content support today's discussion.
Oh, we began our discussion I remind you that comments made on this call.
Oh information provided on our website they constitute forward looking statements.
We are made pursuant to an within the meaning of safe Harbor provisions.
The private Securities Litigation Reform Act 19, 95000 amended.
These forward looking statements involve risks and uncertainties that could cause actual results to differ materially.
I was anticipated by these statements.
Information about these risks as noted in our earnings press release and the risk factors in our latest and report on form 10-K filed with the FCC.
As long as in our other FCC filings.
Forward looking statements are only as of today June 4th 2020.
Turning assumes no obligation to update these statements except as required by law.
Investors are cautioned not to place undue reliance on these forward looking statements.
Also please note that we will reference non-GAAP financial measures on today's call reconciliation of these measures to the corresponding GAAP measures are detailed in today's earnings release as well as a supplemental slides.
Now, let's turn the call over to our CEO Ashley.
Thank you for joining us today.
I'd like to begin by saying that our thoughts are with those who have been impacted by the cobot 19 pandemic.
It was on the front line all this winter workers, including our own store Associates, who then dedicated to serving our communities for almost at Michaels. Thank you.
We believe that Michael this is an important part the many communities, we operate and across the country.
We're doing our part to help during this difficult time.
He made a significant donation of fabric used to make face masks provided instructions on mass, making our website.
We also collaborating with organizations face masks frontline workers.
Separately, we're pleased that we were able to continue sport on maker community, providing resources in offerings that bring us that's a comfort in the distraction from the stress and uncertainty created from the current 19 crisis.
It was telling us that crafting is an essential coping mechanism.
Sounds kind of exercise three books are gonna being outside.
Our research is found that three out of reform makers are crappy more during this time.
The desire to learn and experiment.
Starting new hobbies too.
As we have listened to our customers. We have found our makers are using arts and crafts for a number reasons, including we did make a difference.
Plans for the children for some way to make money.
Maybe then this is not discussed on todays call focus on improving our ability to enable our makers to purchase across supplies are really needed during this period.
I agree our entire team pulled together to help our commuters and customers meet the challenges presented by 19.
Before I guess the details for the quarter I want to highlight three key areas. We've been focused on as we navigate through this environment.
First the safety and well being of our employees and customers has been and remains our top priority.
During the quarter, we developed and implemented health and safety protocols across our store base that included limiting store hours, increasing cleaning sanitation as well as social listening measures.
Additionally, we provided thermometers were associates and salt plexiglass yield the checkout and hand, sanitizer dispensers drought or stores to protect with our customers and our associates.
Second.
We focus on our financial health.
It's very early on we took a proactive cost and cost management actions provide ourselves sufficient liquidity the comfortably whether the crisis.
And the economy begins reopen we're well positioned to continue leaving for emerged as a stronger company.
And third.
Our team did a great job aggressively expanding our digital and omni channel capabilities this quarter.
We rolled out capabilities to give our customers ability to shop, how and where they want while also reducing friction around transactions.
This is the only an important element overall strategy. It was critical during this period when in store shopping was not always possible.
And just 45 days, we set the foundation for Michaels next chapter as an Omnichannel retailers are rolling out turns out service.
Span the ship from store same day delivery shot must store.
Not person capabilities and chat lot and many other offerings.
No. We are working on number additional capabilities, we planned rollout over the remainder of the are you looking back on the quarter work done here by this team under challenging operating conditions.
Very impressive.
In an unprecedented environments, our teams executed well across each of these focus areas and operational performance was solid.
The impressive pace at which were able to advance on our initiatives position us favorably as we move ahead.
Now as I look at the list of the customer facing capabilities, we introduced during the first quarter and the pipeline of what does the com I'm truly excited with the direction, we're headed in the confidently future success Michaels.
Now, let us discuss our first quarter results.
Well in the quarter totaled 800 million down 27%.
Year over year decline was driven by temporary store closures in the second half of March April do the co that conducting pandemic.
Offsetting the impact of the store closure this significant increase in digital sales, which I'll provide some incremental detail shortly.
Well, we're able to do so in compliance with state and local authorities, we kept our stores open.
Allowing us to preserve jobs and meet strong customer demand for our products.
Within the various categories in the store, we saw solid demand within painting, our slot another crop core crafting areas as family sheltered in place I mean took on the added responsibility home schooling.
Our comparable sales for the quarter were down 27.6.
Importantly, though.
We have reopened stores than me demand has been strong with these stores reporting an average comparable store sales of 11%.
We feel really good about the sales trends, but it's early we acknowledge that craft pantry loading as well as the benefits from stimulus Jack's may also be contributing to these strong results.
We will continue to monitor.
Now moving E commerce or.
Our digital sales performance was a record for Michaels growing nearly 300% first quarter.
So we are fairly close digital sales accelerated throughout the quarter as we aggressively ramp up our omni channel capabilities.
You know we don't anticipate this rate of growth to continue we do expect to see our our ecommerce penetration to total sales continued to increase going for.
Consistent with the surgeon does activity for the end of February to the end of April Comscore right, Michael Dot Com among the top 20 of all retail domains.
This is our first time, appearing in the top 20, and we were pleased to be the company us on the largest online retailers.
We're even more please note that Michael Dot com with a place that families turned to they look for creative outlets for themselves.
Their loved ones during this challenging period.
A rapid launch an expansion of capabilities I discussed earlier enabled us to meet the increased digital demand this quarter.
We continue to work on a host capabilities that will further enhance the digital shopping experience for our customers. We believe proposition Michaels to capture increase chair in the future.
We are encouraged by the solid demand were seeing at least any open stores.
Today, we have roughly 1000 stores opened a fully operational the team is working to increase that number on daily basis.
Costs related to the koby not seen this quarter totaled approximately $15 million and were comprised primarily of costs associated with benefits on salaries for fertilizer workers as well as hazard pay for certain team members as well as the write off a seasonally ever try that could not be sold into store closures.
Gross margin in the quarter or 27.7 versus 38.2 last year's first quarter.
Do you ever hear decline was primarily driven by the impact of de leveraging occupancy in distribution related costs because of the temporary store closures during the period.
I will impact from Terreson channel mix.
We did we didn't see some benefit however from our ongoing pricing in sourcing initiatives, which provided some partial offsets the pressure experience from our closures.
That's you know the press felt also de leverage versus last year.
On the absolute dollar basis declined 12% versus the first quarter last year.
Well, Michael said, the lean cost structure. This quarter, we took aggressive action to further rationalize spending across the company.
Let me try liquidity position, we ended fiscal 2019 with a strong cash position of over 400 million.
In March of this year, we proactively drew down 600 million on our revolver.
Our cash position and further increasing our financial flexibility.
As a result, our strong liquidity position at the start of the quarter an immediate steps we took during the quarter, including drawn down on our revolver for telling expenses managing cash outflows there strong working capital management.
We ended the first quarter and 927 million in cash.
In the first quarter your outlook, we pay down 300 million on the revolver draw that we did in March.
We still have access to the significant borrowing capacity should the need arise.
Preservation of our cash and liquidity will remain a priority for us on a quarter is ahead of the uncertainty around could not seen remains well, we will continue to invest and capabilities that will further solidify and strengthen our competitive position.
I believe the code knocking it's abundantly chains retail industry, and accelerated shift and shopping behaviors, but even a greater focus on ecommerce.
And while we are committed to reshaping our business. There are make your strategy or forecast 19, we use this time to accelerate key elements of our strategy to quickly adapt and serves the needs of our customer during a small joe's time.
It's impressive what we have accomplished over the past quarter, particularly the last 45 days.
Cycles, as well as weve, becoming the leading omnichannel retailer, where the robust suite of digital capabilities.
The the hard work for our team and they will buy solid technology infrastructure Foundation, we rolled out several customer facing initiatives I mentioned earlier.
For example in mid March we tested and launch curbside pickup over the span I was just a few days.
Customer response to contact was picked up has been very positive and we expect us to remain amazing customer shopping over the coming quarters as well in the long term.
Although a number of stores were closed a foot traffic on the quarter, we utilize over 80% of our stores for ship from store focus in terms of as well as other fulfillment options.
In April.
Lastly, rollout same day delivery across 700 affect our source.
Since expanded to well over 1000.
While still early the copper sponsor this offering has been extremely positive.
We expanded other ecommerce options, including ship from store focus offerings.
We initially you lost 300 stores for ship from store and by the end of quarter, we had approximately 1000 stores.
No. This was an important capability and enable us to unlock store inventory to generate sales safely meeting customer demand.
We recently increased the utility of our mobile app, enabling purposes. It's still early we're encouraged by the three X increase conversion thus far.
In the month ahead, we will continue to introduce new capabilities that will enhance and streamline our customer shopping experience across multiple interfaces.
We do include increased personalization, our Michael Dotcom website improvement the curbside pickup contact with shopping as well as well as ability to track shipments initiate returned and more.
It's important to note that our ecommerce business is profitable across all nodes.
On the quarterly growth along with profitability drives our commitment to build out these enhanced capabilities.
Our team that technology infrastructure performed well and effectively met increased online demand this quarter, which at times was gone beyond anything we have seen before including Black Friday.
In addition to increasing the number ways, we help our customers shop, we also reshaped our marketing strategy this quarter to align with our hands digital and omni channel focus.
Our may buy you campaign is aimed at creating a dialogue with our customers to education and creativity.
We are fostering passion and arts and crafts, ensuring inspiration and make your customer base.
We believe that the strong engagement in connection with our customers will help drive increased loyalty and then Tom increased transactions.
And as part of this effort, we're utilizing digital communication methods to reach our customers.
Example, we started and sex program and hopefully just to must be over 2 million members with whom we have a one on one connection.
Importantly, we will building these relationships, while continuing to provide value to the customers the combination of great deal and coupons.
Finally, with the store closed in the quarter, we typically quickly providing our customers 1000 of projects and how to videos.
We also hosted virtual classrooms, and lose store base classrooms, and the customer response was positive.
All these actions underpinned the tenants are maker strategy. The reality is the current environment has shifted the timing of some our priorities, but our direction strategy may remain consistent.
Our work to plan execute category resets well, we bring in fresh and curious skews continues and we anticipate a lot more news coming throughout the balance of year.
After a successful pilot we now expect rollout our loyalty program later this year.
The original timeline of April.
On the Hill the strong performance for our first maker prototype store here in Texas.
I'd like to open a few more prototypes or later this year as well.
We definitely sees the opportunity improve execution and accelerate our digital agenda in the current environment.
I'm confident we're striking a balance between preserving cash on the same time.
Addition, michaels return to sustainable future growth.
Before I close I'd like to provide some additional color around our recently announced decisions close our hosts operations as well as provide an update on the business trends, we're seeing today.
First falling in the quarter, we announced our intend to close our to resells operations.
So we will retain the resource and related offices in China. We expect this process to be substantially completed by the end of November.
As part of this closure, we anticipate primarily non cash after tax charges in the range of 46 $52 million.
Well, we're not a physician provide a formal financial outlook for the second quarter or from the rest of year.
Let me share a few insights to help you think about our expected performance.
As the last couple of weeks, we're now have a majority of our stores open and as I mentioned earlier cost of the stores. We opened in may on averaged 11%.
We're working to continue to open source and based on state local Valving guidance. We're currently expect have substantially all our sort of open fully operational by the end of June.
And of store openings, we were proactively investing implementing hell protocols and training associates, though when we are able to open stores, we're ready to go on day one.
Longer term I am confident marketability to gain market share and post random at retail environment.
From a cash and liquidity perspective.
Michael This is a strong position due to the work we have done to reduce cost cut and deferred capital spending and effectively manage our working capital.
We expect to utilize cash and the second quarter based on our current view, we expect the second half of fiscal 2020 to be cash flow positive and we believe we have sufficient liquidity for the foreseeable future defined planned capex working capital requirements debt service payments and anticipated growth.
Importantly, I'm confident that they actually we have taken and continue to take will strengthen our business over the long term, allowing us to continue to be on the offense and position Michael to achieve sustainable long term growth.
So in summary.
Our team has made great progress pivoting to digital led model a short period of time and under difficult circumstances were moving the Ryan direction with our strategy to better meet our customers when they want to shop or adding talent to the strong Michael's leadership team to execute on the strategic agenda.
As evidenced by the three additions to our management team MCM He joined us from Walmart as our new General Counsel.
Following joins us from sends an estimate skew technologies and also spent time as CTO Sam's club as our new Chief Information Officer, and finally, I'm pleased to welcome Melling Berlin.
As previously at them as our Chief Human Resources Officer.
We continue to make good.
Thanks, Roger Chief Finance officer as well.
As we mentioned on our call last quarter, we continue to look forward to sharing more about our microstrategy.
Our new leadership team, our financial algorithm and our capital allocation model during the upcoming Investor day.
In the current environment, we have not committed to date, yet well keep you informed decisions are made.
With a global health process, creating will undoubtedly a challenging quarter.
We were able to execute well, while safeguarding our team our customers, which remains our top priority our team pushed forward with speed to accelerate Michaels journey to operating in the leading omnichannel retailer with strong digital capabilities.
Additionally, we took aggressive steps to preserve financial flexibility and maximize liquidity. During this unprecedented Tom as we move for having all of our stores open again, we're confident our ability to navigate the current environment emerging even stronger competitive position.
Hi, kudos to the team, we're pushing forward and what was unprecedented set of operating conditions I. Thank each and every 10 number for their hard work and contributions.
Operator, we'll now move the DNA Fortunately call.
We'll now begin question and answer session.
Next question you May Press Star then one on your Touchtone phone. If you are using these speakerphone. Please pick up your handset this more pressing the keys to.
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Your first question today comes from Steve Ford, giving some securities. Please go ahead.
Good morning.
I wanted to start with a.
Second quarter to date pump trends right regarding the 11% pump noted for reopen stores. So maybe just a multipart question on that I guess is that an omnichannel comp or store only comp.
Can you help us understand right how ecommerce trends.
Had that have trended right as we entered the May time period.
And then just clarify again, what subset of stores that 11% comp pertains to it was it. It's all 1000 stores that have been opened by early June.
Good question.
The total levers that copy the total comp, including stores and E com, including all the transaction that take place around Opus curbside delivery.
So through our ship to home, but also that our store base.
And it's it's a pretty much a broad based comp or seeing across most categories within the store and our E Commerce platform I would say.
Both have been shown real positive signs as our stores opened up.
Our E commerce trends continue to improve as well as the in store base. So we're very encouraged with the size are saying.
With a bounce back and that and that's a rolling number as as we started out in may.
Some stores opened as roll ups are up roughly 1000 now so that's a that's an average of the stores as they roll up and some of it open for multiple weeks since all of over for a week or so, but we're encouraged with the overall trends for sure.
Thank you again, and then just a quick follow up.
I don't believe promotional pressures were noted during the first quarter gross margin.
Headwind, so maybe just discuss what you're seeing in the competitive environment in general.
And then just the frequency in depth of planned promotional.
Yeah, Yeah. Your promotional plans right as we look out of the second quarter it and beyond.
Based on mix of promotional strategies across from competitive standpoint.
For US you have seen the depth of promotion probably not being as need.
The mix and the change and the approach on how we fulfill orders and you saw changed our marketing as well, we pivoted really really aggressively to being a brand you interact with.
How you get content, how you learn to classrooms, how you get tight you make mask.
You teach from your her kids from school at home and how you you do your crafts. So we we changed our marketing mix and we changed our debt promotion during during the quarter and that's what you saw and you saw.
A real positive response from from our customer base is that as well as needed.
Moving onto this kind of tumultuous time at their house.
Thank you.
Thank you question today comes from Christopher Horvers of JP Morgan. Please go ahead.
Thanks. Good morning, So can you talk about.
Getting your comps for the first quarter.
On 28, you you outcome, some other retailers not near space like a Dick's sporting goods and even ulta.
Trying to get a sense of.
How many stores were actually open.
Or if you were essential and were allowed to be open. So can you give us a sense of how the stores were the cadence of stores that were open.
Once covidien head.
And shelter in place orders went in place and then they sort of the number of stores. The grade as as you know jurisdictions tightened up and so just the flow of how many stores were actually open.
Throughout the quarter.
Yes varied as you know.
Rolling state homeowners and closures came across the country.
Through mid March and all we into April I would say April as are our lowest point, where we had over 900 stores close and really only 300 stores open.
Having said, we're able to you love over 80% of our stores.
From ship from store capabilities or curves.
Which enabled us to keep fulfilling orders and keep driving sales or the customer demand. We're seeing and also help alleviate some of the inventory that was basically trapped in stores and freed up a lot of our ship to home can these capabilities from our FC. So overall, we hit a low point of non or stores closed.
Oh, we're able to straight sales and commerce through about 8% roughly to.
Really do the fact that our team really aggressively rolled out ship from store.
Same day delivery.
So I was really pleased with how quick we pivoted to digital omni channel retailer and were able to use of our store base to to deliver on demand.
Understood. So.
To follow so one.
Can you how was your inventory position now I mean, it sounds like strong comps.
In May do you feel like you are clean.
It also sounds like you're less promotional so would that would suggest here you're sort of clean going forward and then can you also give us an update on a seem more and the inventory liquidation.
And whether or not you felt like that was an additive to comp at any point.
Including the month of May.
We feel really good about our inventory position really.
Like I said, we were able to use trapped inventory for our ship from store fulfillment.
Strategy and on top of a strong demand were seeing as stores open. So we actually feel really good about where inventory is.
In stock levels seem to be strong and we seem to be really good from a supply chain standpoint.
Most all of our Dcs to remain fully operational almost the whole time. So we feel we feel really good but I remember from inventory position and Havent seen really supply chain disruptions coming out of China.
John or any other any other places so we feel good about our inventory position.
As it relates to AC more.
We were training quite well and the transfer.
Going into February into February as well as you know most of those stores are.
Located in the northeast where other store closures are actually still remain.
So what we were pleased with transfer at least our main comp opportunity cap capture significant sales transfer as they open up and as you put on the 19 stores, we're taking the leases on three where Michaels relocation that we originally planned to do that and the second quarter. Most of those now are being pushed out the fiscal 21.
On the Michael nicely more piece.
I mean that you're not.
We will open knows he won't necessarily opened those stores.
More still going away so the comp opportunity.
As in the back half.
Is still there in.
For the rest of the see more stores that are that you're not assuming the lease are are they all gone at this point.
Yeah. Those are all gone I'd like you said, we were trend like is that we're tracking really well in February and above our forecast on the transfer. So we remain confident that when the stores reopened as they have reopened we're seeing that that share that sale this year transfer to us.
Understood Best of luck. Thank you.
Thank you.
The next question comes from signing Gutman of Morgan Stanley. Please go ahead.
Hey, good morning, Simeon Hope all is good.
My first question actually I don't know if how how much you can track of market share by your category.
Should be are probably was a stay at home beneficiary and I'm sure. Some parts of your store. We're not curious what you think share or how share trended in the quarter and whether or not having the stores closed. The eventually hurts you from a market share perspective, maybe later in the quarter.
That's good questions.
Our category to track share and.
That being said.
From a pure play.
And crafts.
Competitive set were.
Almost equal playing field I think somewhere allows the over more than us, but with that being said I think our digital capabilities are rolled out I'll spend a lot of that as a skew intensive category. So when you look at a mass perspective.
Can't offer the full breadth of our footwear offerings. So it's really hard to turn this therapies well that being said I think.
From what I've seen the digital capabilities that we rolled out.
The newness is coming in and the early results that new product with the way the customers are interacting with the new ways of shopping.
[music].
I'm very confident in our ability to maintaining grow share in this category and you're seeing it I think and are and what we're seeing and that may openings as we moved on.
As our E com as the remain.
As of growth it was.
Throughout the quarter, plus the store base recovering and you're seeing those people and new customers shopping the way that they haven't been able to shop and Michael afford been very very encouraging.
Got it.
My follow up to.
Two parts, but it's related to the same topic. Its omni channel platform curious I'm sure you have goals of what you wanted this platform to look like from a capability perspective curious what percentage of the way are you. There now given some of the quick moves you made in the quarter and then how inefficient where you.
If you're just doing ship from store now how much more efficient can you get another words I'm sure gross margin was impacted by this big shift, but I'm guessing you're not doing it optum Lee yet and so how I guess, it's all tied to what the margin structure could look like.
When when you get this thing operating more optimally.
Yes.
Like I said last quarter when it talks about how big E. Com can be we don't put a number on it.
And we don't put a number on it.
For for really the specific reason of I want the customer mail to interact with us and shop with US However, they want to whether that bottom on a pickup in store go inside the store curbside.
Haven't delivered their house in the same day, we just want them interact with our brand how are they want to react with it and.
I think what you're going to see the subset of customers taking advantage of each one of these capabilities differently and I think from that you'll be easier way for them to shop and have more interaction brown on a weekly and monthly basis.
And then as far as they come to mix, we have invested over the years on getting our costs down.
But we still have a long way to give us a we we're constantly thinking about how to.
Reduce cost and make all nodes profitable any problem across all nodes, which is a real positive that we can actually really invest and lean in.
And we have a host of capabilities that we've mapped out.
Throughout the rest of the year this quarter or third quarter in the fourth quarter that we intend to roll out very very quickly.
I'd like I said, we did a lot of these capabilities at 45 days.
And the agility and nimbleness of that seem to do this in a really short timeframe and the map. The roadmap. We have going forward is very encouraging on the way the customers about our interact with us in the future.
Thanks.
Thank you.
Hi, Ken if you have a question. Please press Star then one.
Question comes from Kate Mcshane Goldman Sachs. Please go ahead.
Good morning, Thanks for taking my question I, just wanted to ask about marketing.
If there was a pull back and then during the first quarter and how quickly you plan to ramp that sat down.
And what form.
Oh I said, we we had a plan to overtime change the way, we interacted I think with our customers from a brand perspective.
I think what this allowed us to do as people sheltered at home and we're looking for ways to either be creative to create arts and crafts spent time with our kids or even to make money as they made things and resold them.
We took that opportunity to rapidly change the way, we did our marketing and that marketing was deliberate and there was a pre planned.
Rollout, we just were able to rollout more quickly.
Thanks on the customer demand and what we saw was a significant positive interaction with the customers. They said they saw us.
As a way to educate a way to inspire a way to create a way to spend their time and that was the change.
I'm not saying, we're walking away from promotions coupons that we are still there as well as just a balance of what we've seen.
And.
And we still continue to will bring value through everyday pricing and promotional strategy.
But we'll be nimble and how we how quickly you go back to the level and depth of promotions we had previously.
Based on demand.
But we really encouraged the way they interact with our ran right now.
Thank you.
Your next question comes from Liz Suzuki Bank of America. Please go ahead.
Great. Thank you.
And on the wind down at the right. So you go back when it was acquired the management team and express, but my guess is already in moving from branded product into more private label and that there would be incremental margin benefit from moving from third party private label to direct sourcing eliminate some of the fees would take greater control of the product.
What's changed since then that yes, but there is no longer viewed as a beneficial assets and Michael.
Well I think.
Oh parse that question out a little bit.
Going private brand is still.
The strategic imperative in initiative for us.
What you're saying is we'll see an increase in private brand penetration, we believe overtime and I don't believe that the closure Driesell MP that at all in we took a strategic view of it and in the long term plans, we decided to close the wholesale business.
Over the years they had lost some large clients.
And we review the go forward and we saw really no viable path to profitability long term on that.
It has some positive assets, we're going to keep.
We keep the sourcing office it had some accounts receivable systems.
It will be using going forward as on warehousing capabilities.
But we didn't see a long term viability to two growth or profitability and we didnt fit in our long term strategic approach.
Okay, and then just since the reaches the last of Lamrite west assets to be wound down.
After Pakistan stores were closed hi, how are you thinking about potential for M&A or partnerships terms here and there does that experience change your view on future transactions.
In our current view, we don't expect.
M&A to be a major priority for us at Michaels.
But we will be opportunistic.
Did that opportunity arise for sure.
Okay, great. Thank you.
Your next question comes from Carla Casella JP Morgan. Please go ahead.
Hi, I have one one follow up on their Ace and then couple others, but on the dairy business.
Effect, we are the expectation you had for terrorists.
This year and also the car.
Expected.
Incurred for the dairy I said, how much of a cash versus non cash.
And the timing.
Yes, there's no impact to our cost related to tear assets. This wind down and that Phil is expected to be.
Approximately $45 million I think now tariff costs in 2020 compared to 2019.
And and and then the second part of your question lens related tier.
Which is always the cost of various that.
Okay, that's cash on cash and the timing of that.
Yes, so the majority energy non cash and the timing will be.
Throughout the quarters Pat.
2020.
We will see some cash.
21 specific access.
Okay, Great and then one business question can you give us a sense for that E. Commerce performance by month March April may.
We're not breaking it out by month.
But what you saw was.
A considerable increase month to month as the stores closed and as we rolled out mainly our capabilities.
Each capability, we rolled out.
Seem to accelerate.
The growth in our ecommerce business, which has maintained even in into the current quarter.
Okay, great. Thanks.
Thank you.
Next question comes from my question.
With capital. Please go ahead.
Thanks for taking my questions. So the 11% comp out of that day.
Awesome like him comment on sort of what the puts and takes off or how sustainable that wouldn't be think that there theater into your own chronic driving this I mean, the think that hum out of the with.
Positive comp in the back half or does that possibility book remotely.
I mean.
How sustainable is is unknown.
So some craft pantry loading clearly some benefits from us and most checks.
And so just some basic pent up demand I believe.
No. We're just we're monitoring it on a daily basis, but we know we're not providing a back half guidance on how we think it's going to.
So you see are not continue but we are encouraged with the reopening start for sure.
Great and we plan inventories for the back half what's your philosophy in your and your initial orders for seasonal this fall and holiday.
You know our hypothesis from from the beginning as we went into this in February because we're really proactively.
We saw was coming early so we preserve liquidity early.
And once that happened we realize that.
Our anticipation was what the demand might look like in the back half.
So we we wrote out a lot of strong capabilities in preparation for that from a digital perspective and from a from inventory ordering perspective.
We thought we have gone through the trough of of it in Q1, So we remained.
Positive on what the back half and particularly seasonal look like.
It's a slight decrease in seasonal orders, but not not to the degree that probably.
Most would expect.
Hi, Thank you.
Huh.
Next question comes from Cristina Fernandez Telsey Advisory Group. Please go ahead.
Hi, good morning.
And then turn the performance of the stores to remain open.
During the first quarter.
So Steve relative to what you're seeing me.
Yeah, we're not.
We're not breaking out how the stores that remain 300 towards remained open out the whole time.
Versus the entire fleet.
I mean, obviously, maybe better than the entirely when you're close.
Not breaking those those numbers out.
We also seeing a similar similar trend across with the stores that remain open in the stores there reopened.
In may.
Okay. That's helpful and Didnt could you expand the category trends that you've seen have don't have the goal.
Quarter and to me last quarter or when you reported last can you commented that see something the core were soft during our two crap weaker I think you mention today that.
Categories, where.
Today, if you're seeing brought great strength, but any more color there by category would be helpful.
Yes.
Reinforce our maker strategy throughout the quarter, what you saw was.
Demand strong demand in core making categories.
Canvas pain kids crafts, all the things that that we've discussed as around our core maker and as a sort of close we saw demand contraction and seasonal.
Demand and.
Home decor.
And that trend continued.
Throughout the first quarter and then stores reopened you saw.
Kind of a broader base demandware core crafting still remain strong and then at an uptick uptick in our seasonal business as well.
The next question comes from Zack Fadem Wells Fargo. Please go ahead.
Hey, good morning looks like you were able to take out about 35 million.
That's DNA versus last year.
Loading some of the adjustments curious if you could walk through the details how much with labor or.
I was there any that was previously categorized fixed cost and.
How should we think about that trajectory with news with stores reopening Q2.
Yes, we've definitely taken out some costs as Ashley as mentioned earlier.
Due to the store closures you know we had a fairly significant number of team members furloughed.
Which had somewhere in the neighborhood of 20 plus million dollars positive impact.
We right sized our marketing costs and made some shifts and where we focused on marketing as well, but overall there was a slight de comp decline in marketing costs.
We did incur some additional cost.
And as DNA related.
Compared related items.
A lot of that had to do at hazard pay and certain sanitation supplies that we bought.
So there were there there's a lot of anomalies going back and forth and as we reopened stores and bring furloughed people.
In some of these sanitation cost.
Start to subside and hazard pay starts to get pulled back what we'll see we'll see a more normalized STN a run rate.
So on that.
Yes, I was that on that.
And as we've done obviously, you know in assessment of our our entire cost structure, and we still see opportunities to run more efficient operation.
A leaner cost structure going forward and we're looking at those assessments as well.
And we anticipate some investments.
Our capabilities and those timings might not.
Lineup exactly but we definitely see.
And opportunity to operate on a leaner cost structure.
And our recovery mine, you as as well and SGN I.
We're going to be Comping, a pretty low.
Formats based compensation from last year.
You will see that head in headwind as we.
As we go forward in the year.
Got it that that's helpful. And then just wanted to follow up on the 15 million of co big cost that you called out specifically in and which we you would categorize as recurring versus non recurring in Q2.
Yes, again, a lot of that had to do with with hazard pay both for our DC at our and our store employees.
So certainly significant chunk of that was in SGN and a lot of that would be pulled back on there was a huge push for sanitation costs.
Certain certain amounts of those for example on the stores setting up.
So you get glass barriers for our cashiers.
And getting getting hand sanitizer place throughout the store some of those costs will well even out.
But they'll probably be some small incremental costs. We go forward as we maintain it.
Great and there is some of the plexiglass cost is you know we made it in house in our industry factory.
Cost of make that was actually.
Probably significantly less than we had appeared to have the market and opened up an interesting.
One of our archery business because.
Things that we can make outside of just custom framing.
The last thing I would add on the content related cost as we did have the seasonal inventory write off in Q1 related to inventory that we need to get our stores.
Yeah.
Closure, we will experience some of that in Q2 as well because.
The stores just now opening up in Q2, and obviously, we will have to get the stores cleared out and ready for back half.
And so we do expect to experience some incremental.
Potential seasonal inventory write offs in Q2.
Now how much of the how much including thousand Jason was the write off.
The bases points, we don't have it right on hand, but.
Certainly certainly we it was it was quite.
Absolute dollar amounts were quite a bit higher than last year, given how many stores were closed and the seasonal.
Product that we had in the stores there wasn't able to sell data as quickly as we normally would have.
So yeah and to Jennifers point, we did take some additional charge because of that and that's obviously included in gross margin.
All really helpful. Appreciate the time.
Yeah.
This concludes our question and answer session.
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