Q2 2020 Sleep Country Canada Holdings Inc Earnings Call

Star one on your telephone.

If you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today, Dave Free Smith CEO. Thank you. Please go ahead Sir.

Thank you good morning, everyone and thank you for joining with.

With me today are stewardship for our Chief business Development Officer, and Craig I'm proud of our Chief Financial Officer.

First and foremost I'd like to begin by acknowledging that the past three months had been among the most challenging conditions to navigate and sleep countries history.

Feeling that is shared by our entire industry.

I extend my sincere thanks to our associates for their outstanding dedication into our suppliers and partners and landlords for their continued support through the ongoing koby 19 pandemic.

Our teams resilience.

Innovative spirit and commitment to serving our customers has been inspirational.

At our last earnings call, we highlighted our five immediate priorities to navigate a pandemic one keep our employees safe unemployed.

To continue serving our customers needs.

Three support local communities.

For maintain business continuity alongside partners and landlords and five ensures a long term prosperity of our company and shareholder value.

These priorities have not changed.

Touching upon her business is state of affairs in Q2, we entered April with our entire store network closed.

Since safely and successfully real then all stores as of June 24.

After closures ranging from 40 to 84 days.

Given that our stores were effectively close for 50, 454% of operating days in the quarter. We believe that same store sales as a standard measure does not currently represent the business and it will not be included this quarter.

Our second quarter results demonstrate the power of our strategic vision and the value of our ongoing investments in digital platforms and strategic partnerships.

Over the last two years, our strategic vision focused on investments to strengthen our omni channel impact through a variety of platforms.

This includes enhancing our digital capabilities for sleep country and during <unk>.

Acquiring and continuing to grow Andy Canadas largest and most profitable online mattress retailers.

And focusing on developing powerful in strategic value add partners partnerships, such as Wal Mart and symbol.

Each of these investments have contributed to our growth and digital marketshare and reinforced our ability to best serve the sleep needs of Canadians anyway, they choose to shop.

The pandemics impact on our physical store locations showcased the value of these investments violent enabling us to pivot to an entirely digital landscape quickly and effectively.

Our second quarter highlighted the power of our digital infrastructure, which delivered explosive triple digit E commerce growth and strong results in this challenging environment.

Our robust online platform was further supported by a relevant product assortment superior brand trust and differentiated online purchasing experience, including the newly introduced sleep expert chat program.

All of which kept us top of mind with our existing and growing customer base throughout the quarter.

Our sleep country indoor Mediabrands messaging continue to resonate with Canadians through the evolution of our sleep, well stay well advertising platform across digital and traditional channel.

Our team did a fantastic job leveraging see country share of voice to further grow share of heart and meaningfully connect with customers no matter. The channel. Our goal remains the same to best serve Canadian sleep needs by exceeding their expectations and providing a superior experience. We believe that our results indicate we are doing exactly that.

We're also very proud to continue supporting our communities by donating 1.5 million in mattress embedding essential to vulnerable communities coast to coast that experienced severe strain due to covert 90.

This program built upon our speed country cares program, which has a long legacy of supporting local charities, but how children and families and eat.

Sleeping an essential pillar of health and has never been more relevant in critical to the wellness and every county.

We're honored to continue doing our part and providing Canadians didn't need with a safe and secure place to rest each night.

We believe that our proactive in pre in a prudent financial initiatives, which commenced last quarter and eligibility for the Canadian emergency wage subsidy program were key to successfully keeping 100% of our 1500 associates employed while our stores were closed.

Other actions taken to manage liquidity and secure business continuity included reducing executive and board compensation.

Suspending the N C VIP and she IB and dividend and implementing proactive cost saving measures across the business, including marketing procurement and sales expenditures.

In the near term, we remain laser focused on preserving liquidity and insurance financial flexibility and are encouraged by our performance against these measures, which Craig will elaborate on further.

Over the past several years our strategy is centered on ensuring we remain Canada's premier provider of sleep products across all channels at all times, the combination of investments and powerful digital infrastructure physical stores and strategic partnerships supported by the Superior brand Trust, we've developed over the past quarter century, Matt.

We were able to retain and grow our leading market share during the quarter.

We were extremely gratified to see the benefits of our strategy is come to fruition.

Delivering the value for our customers in business.

As we navigate through this crisis, we remain confident that our family of brands are best in class and well positioned for continued profitable growth and market share expansion.

I now turn the conversation over to you can discuss our financials.

Thank you, Dave and good morning, everyone.

I'd like to reiterate that we're pleased with that results for the quarter. Despite the material disruption to businesses in Canada and globally.

Given the challenging retail landscape, we think it's worth noting upfront that these numbers have surpassed our expectations demonstrating the resilience of our business through these difficult times.

In particular, the strength of our ecommerce business and ability ability to rate remain top of mind for Canadians. Despite the closure of all 276 retail stores for much of the corridor.

Now onto sounds a quarter highlights we'll focus our attention on Q2 fiscal 2020, given the material impact cover 19 has had in our business, let's begin with revenue.

In the second quarter revenue decreased by 31% to 114.9 million when compared to 166.6 million in Q2 2019.

Our total sales decrease is mainly driven by the closure of 276 retail locations across our country for approximately 54% of total operating days.

This decrease was offset by triple digit percentage growth in our ecommerce sales across all three brands, which speaks to our ability to allow our customers to shop, when they want how they want and where they want.

Matches revenue decreased by 32.6% to 90.1 million compared to 133.7 million in Q2, 2019, well accessories revenue decreased by 24.6% to 24.8 million from 32.9 million in Q2 2019.

Again, these trends were tied to the closure of a retail locations in Q2 fiscal 2020.

During the second quarter gross profit decreased by 25.6% to 37 million from 49.7 million in the same period of 2019.

Our gross profit margin increased to 32.2% revenue from 29.8% of revenue in the same period last year.

The increase percentage margin was primarily due to the wage subsidy under the Canadian emergency wage sub sea program, which favorably impacted the sales and distribution compensation costs.

The Cws efficiency was partially offset by the de leveraging of fixed distribution occupancy and depreciation cost [noise].

Onto DNA.

DNA expenses for our second quarter decreased by 8.7% to 27.8 million compared to 28 million in Q2 2019.

As a percentage of revenue DNA increased from 16.8% to 24.2% in 2020.

The increase in G., a DNA as a percentage of revenue is largely due to an increase in the following items first marketing expenses as a percentage of revenue.

With tied to the decline due to our store network being closed for 54% of total operating days in Q2 2020.

The company pulled back on marketing dollars throughout the quarter by approximately one point threemillion, largely reducing spend through traditional channels and reallocating spend tore towards digital to dropped to drive our ecommerce business on a year to date basis, our marketing spend is that 7.3% of sales as compared to 6.8 percentage sales for the same period in the prior year.

Second professional fees increased by 8.5 million year over year, causing a slight delevering effect on GNS expenses. These costs were really tied to the Ari ERP implementation and have been normalized in our calculation of operating EBITDA. The net increase in professional fees on a year over year basis net of this normalization it would be point 1 million.

Third of salaries wages and benefits increased by point Fourmillion, mainly as a result of an increase in share based compensation due to the forfeiture from departures of two executives in Q2 of 2019.

These increases were partially offset by government wage subsidies that accompany qualified for under the Cws program.

Lastly, GNS depreciation and amortization expense increased 5.5 million, mainly due to the increase in intangible decrease depreciation tied to our revamped E Commerce finance and merchandise platforms implemented in Q4 2019.

Moving on from DNA or operating EBITDA for Q2 decreased to 24.5 million or 21.3% of revenue compared to 35.6 million or 21.4% of revenue at this time last year.

This change is due to the decrease in our EBITDA offset by the favorable impact of adjustments related to higher share based compensation.

For the quarter and nonrecurring ERP implementation costs in Q2, 2020 that did not occur in Q2 2019.

[noise] finance related expenses increased in the second quarter to 9.7 million up from 5.3 million in Q2 2019. This large increase relates to a onetime true up charge of 4.3 million to the contingent consideration liability for the Andy earn out. This recognition in Q2 fiscal 2020 is due to end these excellent 22.

The performance year to date, resulting in the expectation the FCC will pay the maximum 25 million contingent consideration in Q1 2021.

In Q2, our adjusted net income decreased by 7.5 million to $5 million compared to 12.5 million in Q2 2019.

This decrease was due <unk>.

It was due to 12.9 dollars reduction in net income of 12.7 billion offset by the favorable impact of the share based compensation onetime ERP implementation costs and the onetime adjustment for the endear note as mentioned previously.

Net cash flows provided for in used in operations investing and financing financing activity. The year to date was 55.8 million.

Our cash position at the end of Q2, 2020 was 99.8 million compared to 14.9 million in the same period last year on May four 2020, the company's secured additional liquidity to manage the impact of Koeppen 19 honor operations. The senior secured credit agreement was amended to include an incremental 50 million dollar accordion.

The company's in compliance with all covenant covenants as of June Thirtyth 2020, and subsequent to quarter end, we repaid 34.2 million against our senior secured credit facility.

The company continues to be prudent and manage our cash flows in the fall on ways. In May 2020, we made the decision to temporarily suspend our NC IB program. We will continue to suspend share repurchases. At this time in May 2020, we made the decision to temporarily suspend our dividend payments, we will continue to temporarily suspend dividend payments at the.

His time.

The deferral of the cash portion of board compensation and deferral of between 25 and 50% of named executive officers remains in effect.

The company intends to reinstate these items at a time and payment level considered permit crude and by the company's board at aligned with the resumption of normal operating conditions and when the board considers the risks and uncertainties associated with Coke in 19 are likely to have.

Not to not have a material impact on the company going forward.

Management and the board have decided to reinstate the following capital expenditures that were previously postponed opening a minimum of four store locations. The renovation of 10 to 15 existing locations to feature and enhance store design.

And continued investment into phase two of our ERP system.

Going through these I'm President and times required quick action from our associates partners and vendors as Dave mentioned, we're extremely pleased with the outcome of our proactive imprudent measures enacted in Q1 in Q2 to manage liquidity and ensure financial flexibility through this crisis.

We look forward to sharing additional updates with you and on that front in the coming months.

That completes my overview of the financial results back over to you Dave.

Thanks, Craig.

As we monitor the economic reopening process carefully we remain confident that are resilient business model and exceptional associates have set of positive path for our business.

Today more than ever we are very appreciative of our extraordinary culture and team.

I'm pleased to share this country and during May do have been certified as a great place to work for yet another year, we sleep country sitting in the 2020 Best list list of best workplaces in Ontario.

This award is always an honor, but I'm, especially thrilled to be recognized by our associates during such a difficult time.

True Testament to the positive and innovative spirit that just characterize our business pandemic response.

I'd also like to recognize Andy for winning the 2020 best mattress in a box award from product to the year, Canada and to congratulate Alexandra Ugly the Dina CFO of Andy for being awarded to 2020 Best Executive In Finance Award I report on business.

I'm also very happy to share that we have continued to advance our strategy throughout the quarter.

Subsequent to quarter end, we opened four new stores.

Two of which are located in Windsor, Ontario, and new market for sleep country.

The winter opening was one of our strongest openings in our history.

We also announced a brand new partnership with innovative bedding and furniture supplier maloof.

This exciting development further differentiates our assortment by offering Canadians exclusive access to the fresh and modern loosely products to our stores and web sites.

In addition, we expanded our partnership with Walmart by significantly growing to see country assortment offered on the Walmart dot CA marketplace, including a wide selection of both mattresses and sleep excess.

And we now serve as walmarts dossiers exclusive retailer of traditional matters.

This new and expanded partnership expose our branch and millions of new customers in target customer segments further strengthening our market share through multiple channels.

While the Canadian retail landscape remains uncertain in the near term our businesses future remains bright this positive momentum is thanks to our robust and differentiated physical and digital infrastructure financial flexibility and exceptional associates.

In the near term, we remain focused on keeping our employee safe and employees, serving our customers needs and supporting local communities maintaining business continuity alongside partners in landlords and driving a long term prosperity of our company.

We're confident that our family of brands will continue to generate profitable growth capture market share and deliver shareholder value well into the future.

With that we conclude or remarks and open the floor for quest.

Thank you as a reminder to ask a question do you want me to press Star one on your telephone to withdraw your question press the pound or hash key please standby, what we compile acuity roster.

And our first question comes from the line of Martin Landry from Stifel. GMP. Your line is open.

Hi, Martin.

Hi, good morning, everyone and congratulations on your on your results in a tough environment.

My first question, what I wondering if you could provide some color on on the how sales of has evolved during the quarter. You had a provided that in Q1, which was quite helpful. So wondering if you could share any any tidbits on and on the house sales have evolved post.

So opening.

Sure.

So as we alluded to in our last call, obviously closing our stores.

Our online presence grew dramatically.

And that continues both at sea country, joining me, who as well as Andy.

As we reopened stores our stores were quite busy and we were very very happy with the amount of volume coming through our stores and that was the case up until the last thing if you.

Okay, and then a you know as a follow up to that wondering you know.

As has this momentum carried into July a you know I know I'm you know it any color on that would be would be helpful. We're obviously, all seeing strong home improvement spending. So you know I would assume this is a little bit of a tailwind for you guys any any any comments on that.

Well I think that to your point I think it's a pretty common knowledge that people are spending more money on the home and that probably didnt end at the end of June we don't give color ended the quarter that we're currently in.

But.

Kind of all I can say sorry.

Okay. Okay, and then maybe one last one a wondering what was your your average.

Revenue per unit during the quarter versus last year.

Are you talking about average unit selling price on a math, yes, yes, well that's it by the way more that's a great question and very interesting. So you know we've always had you know we have one blended rate a very U.S.P., but that's really broken up into two different categories whats online and what's going to the stores and now you know and by doing what goes into stores.

Generally higher we now actually have three different categories that make that up we have our online only sales. We have the sales that are supported by our sleep chat and our sleep online our dream line program, where people can talk to sleep expert on the line or by Chad and then we have whats through the stores and I can tell you that we are making really.

Hey, good progress in the areas that we wanted to make in in lower price points, while not losing any upper price points. So we're feeling that we've got discovered even more than before.

Okay broadening your target market.

Correct.

Okay perfect. Thank you. Thank you Mark.

Our next question comes from the line of my Bank from CBC. Your line is open.

Good morning, Matt.

Good morning, once transload the disclosure on that you're paying the earn out so if I go back to when you announced the acquisition and you talked about an implied EBITDA multiple if the earn out was hit if you're going to do that math.

Suggests that Andy EBITDA is expected to be $10 million are higher in 2020 is that is that correct.

Sort of implication.

Yeah, you're in the right ballpark and so let me back a misstep, yes, you're in the right ballpark.

It's only halfway through the year, we're very pleased I mean, let's face it Andy was doing very very well prior to the pandemic and then pandemic actually would not have affected NDN a negative way like it just because they didnt have towards the club. So they were performing extremely well prior and they performed very well through and their continued.

Through this closure period and so.

You know, we're not going to talk anymore about what you implied multiples the until later in the year because it's still early in the game, but needless to say, we're very confident and hitting it.

And can you just talk what have you guys think about balancing profitability and topline growth there.

I think what I think we can say it very similarly across all of our brands we are very very.

We would like to see our profit continually grow but we certainly would not go out of our way to restrict our growth to do it for a percentage point, we really look at our profitability more from a dollar point of view.

As opposed to the percentage of revenue.

But we are always we don't really feel that it will to raise revenue without getting associated profit within that that goes across all of our banner.

Okay, and I'm not sure if you'll be comfortable sharing this but is there anything you gave in terms of your expectation for online as a percentage of total sales as as things kind of normalize in the next few months in the stores ramp back up.

But.

We do not break those numbers out for competitive reasons, but I think the one thing that I hope we all hope excuse me. The Q2 is going to do is going to meet people realize that we are more than a bricks and mortar retailer I'm not saying were shame to being a machine word retailer, we love it but were more than that and Q2 cents, especially considering 54% of the quarter our stores were closed.

We performed very well and we don't see that our online business is going to ever go back to the way. It was before it is going to continue to be very strong I don't know Stewart do you have something you want to add to that.

I agree on your percent.

And I would just add that whether our customer chooses to transact in our stores transact online at or multiple web sites, which are sleep country Doremi the war and the or transact through all the partnerships that we're creating like Walmart Sim back or blank well in and every one of these cases, we win so we are we're channel.

Gnostic <unk> with that whether it's the stores are on site, we hope to see that growth and be recognized for not just the brick and mortar.

Foundation that we've created but the accelerated digital presence that we have that throughout Canada in multiple brands.

Thank you.

Our next question comes from the line from Sabahat Khan from RBC capital markets. Your line is open.

Good morning seven.

Good morning, and a thing just on the kind of the commentary around reinstating the capex plans and investing in renovation and so forth.

Perspective, both on how you're looking at the renovations in light of the changing kind of consumer purchasing patterns and the E Commerce trend that you noted.

Secondly, just kind of the location.

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I'll be door.

Well the.

Strip mall type of situation I was sort of thinking about your store network and the type of stores you have in light of the current environment.

So well I'll say that.

We are pleased with the performance of our stores across.

The entire market the mall stores were obviously the last two open.

And represent roughly 11 stores out of our 280 stores. So not significant that being said the traffic is returning to those stores not in the same pattern as before but the customers that are coming in are coming in with a clear mandate.

Who converted by so on a go forward basis at this moment in time nothing has changed strategically in terms of our plan there was lot of questions.

Within the team to decide whether or not we should even open up Windsor Awards lay it and we decide to move forward as we normally do and we were incredibly pleased to see lines a round the corner. When we were opening up and as Dave mentioned earlier on his remarks. It was one of the strongest openings in terms of Capex.

In terms of the the overall store design.

Similar to what we've been talking about for a while investing in our mill work for our accessories that continue sits right thriving online is thriving within their stores and so for the moment besides putting in safety protocols throughout our network.

Nothing has changed.

As it relates around our real estate plans.

Great and then.

HM little bit of common whose provided earlier on the subsidy can you maybe with the dollar amount then.

How much was in.

Line, I don't want or something.

The total amount.

Yeah. So we disclose the total amount in our financials in one of our notes I believe it's no 13. It did the total a amount was 15 million received and then the vast majority of that would've been up in our where the majority of our associates.

Our employees in our operations and our sales associates, so up in in the cost to sales section of the piano a there was a slight some efficiency in the DNA, but definitely not to the magnitude. So you could assume you know a large a significant a split was a was above.

The gross profit line.

Okay, Great and then just one last for me I guess more of a longer term question I know there's been some question then commentary around the ability of sleep country to potentially capture more share going forward.

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We have faced more challenges and larger well capitalized repairs I guess what are you seeing on the ground have you seen some of the smaller operations or regional competitors maybe not.

The woman's environment, and what's your outlook on or the longer term or maybe upsize your market share coming out of this downturn.

Well I think if we go back a little bit just your reiterate we've been gaining market share.

Very strongly for the last five years, we it's very difficult, we can't really talking about Q2 market share yet because it's more of a lagging.

Indicator that we get information.

Are you getting over the next couple of months I can say than in the first part of the year prior to the pandemic, we are gaining market share very quickly.

And our belief is we can continue to take market share, especially the pandemic has allowed us to focus even more and online.

Terry So it's easier for us to sell the areas, where we don't even happened to have stores.

And we when you talk about the smaller players we don't necessarily believe that a lot of people are going to be going out of business, but theres going to be two factors that are going to affect them number one.

They're not going to be a strong from marketing point of view as us and we can take share there and secondarily you know supply chain. During the post pandemic is a little bit challenged it's not terrible, but it's a little bit challenge, but it's even more challenge for the smaller players because the bigger players are getting first priority and.

We're so were top of the less.

Great. Thank you.

Thank you and by the way the only I'd like dimension on the CW S. So.

Nothing made us happier than keeping all of our people employed while our stores were closed and we really appreciate the CW, yes, a lot helping to allow us to do that but interestingly enough had the CDW has not been place and we would have had to lay off the people for that period of time, we've actually had less expenses. In Q2, then we did by having to seed.

Yes, because we still covered 25% of those expenses.

And our next question comes from the line of Patricia Baker from Scotiabank. Your line is open.

Thank you very much I have a good morning, everyone I've a couple of questions. The first one I'm just curious whether the consumer behavior.

Shifting you know, we said that your stores, we're closer to 54% of the operating days in the quarter. Then when you reopened just wonder if you saw any.

Big shift in conversion rates because of people be much more purposeful about actually going out and going to the stores.

Yes, Stuart mentioned that in his comment a minute ago.

And so I think theres really two full I think number one if people were going to go to a store they were going with a real purpose and they weren't going to go and kick the tires.

Secondarily.

We talked about this before we've been hearing from around the world and we're seeing it that specialty retailers.

Our a safer place in People's mind to go, but it's a smaller more intimate environments or benefiting from that.

We were saying and our last call that we've been social distancing for years, and our store and we continue to do that.

The and then lastly, we also think that part of the reason conversion is up is because the groups that are coming to store a little bit smaller as well. So there's a lot of factors there so.

Visits to our store very efficient.

Thanks, Thanks for that Dave and then secondly.

You know that in the in the third quarter. We've got kind of you know back to school and I know that you know a universities, it's up in the or what's going to be happening with kids going to to University in dorms and all the rest of it how big the headwind is that for you and or are you doing anything specific with regards to marketing or or you know adjusting.

People could be headwind there.

Yeah, I would say that we are one of the big and I would say, where the biggest supplier to back to school, but even having said that it's not a huge part of our business I think the one thing that I will tell you is that something that's been offset or will be upset because you know our cottage country program is quite strong this year with people outfitting their secondary homes. So I do think.

It's not a huge headwind and we can make it up elsewhere. Okay excellent and then thirdly, you know the pandemic is to delivering record bankruptcies and record permanent store closures across North America, but from a real estate perspective are you still are you thinking that there could be very interesting opportunities for you when we come out of here because there's going to be some very interesting locations that are vein.

And.

Great question, Patricia and as you know, we don't need to open more stores, we always look for AAA locations.

And we have a clear path over the next five years in terms of markets in areas that we want to be but to your point, yes. There are definitely opportunities already conversations with landlords on properties that we were looking years out that may become available sooner because of the situation that we're all facing so the big positive.

Excellent. Thanks, so much.

Thank you.

Our next question comes from the line of Brian Morrison from TD Securities. Your line is open.

Good morning, Brian.

Hey, just on the comment with respect to E. Commerce remaining strong obviously, there's going be a permanent shift towards E commerce and I'm, just wondering if that impacts your brick and mortar economics or with the E Commerce media advertising.

Whether this will be offset by market share gains and traffic or better economics, you might be good.

Well I interestingly enough, we don't know yet what the.

The store is going to look like in the future. You know one thing I will tell you. We said it for the last several quarters that I want to make sure everybody or since we have no. You go around the number of stores. We have so we will continue to be at the right number of stores as time goes forward. If that's 350 will be there in the future. If that you know 250 will be there.

In the future and the good thing is we have a good turnover of our stores all the time. So we can really make those adjustments as we go.

And we you know, but what I will say is as I mentioned before since this stores every open we have been very pleased with how quickly people seem to want to go back to shopping in store donor Hong that's going to last I don't know, what's going to happen, but the nice thing is we're a leader in every category, where the number one online player. We're the number one in stores and we can.

Shift very effectively I don't know Stewart did you have something wanted to add to that I agree on your plan with what Dave is saying I will say that the journey, where the consumer out with US is seamless interesting enough when all the bed in the boxes were coming online in Twentyseven team.

Concerns were that the E commerce play would disrupt the brick and mortar world and in many cases it has not necessarily in the matches world because it is that tactile item and and case in point clear enough that we've experienced that in.

In this past quarter triple digit growth in all our platforms as the comes as our consumers had the choice to go online instead of the once the stores were closed but once the stores reopened we saw that that experience and that journey me have started on their phone gone into our stores.

Tours and may be completed on their phone, but that is one of the competitive advantages that we had and we will continue to see as our customers.

Customer base continues to grow and allows them to shop seamlessly between all our channels.

Well. Thank you so clearly you're well positioned across the channels just out of curiosity gear E commerce sales in the quarter did they exceed the total of 2019 in total.

Uh huh.

Yes.

HM.

Craig when it can you know they are obviously, we don't break it out but we did a we did have a very strong quarter.

Giving the shift with that with the stores being closer to 54%. So it was that was strong and yeah, we did exceed.

Last question, Craig your target leverage I, obviously pardon me, obviously its couldn't be impacted by the pandemic Where's the level, where you guys get comfortable.

Reconsidering or reinstating returning capital to shareholders.

Yeah, I mean right right now we're really.

Continued yeah, well, we're pleased with the results from from from the quarter and navigating through this its still very uncertain times and and so it did not that we need to have a you know the levels get back to where they were pre pandemic.

But we do want to make sure that we're in a zone, where the business is predictable and we understand what that would that new norm looks like and a and at that time, we would love to do.

You know two to reinstate these programs.

In terms of leverage.

We are.

We're comfortable where we even where we're at today, but its really more around the operating performance at the business and making sure that you know the risks and uncertainties are.

Are behind this and that we have an understanding of the new norm and the levels that were playing with on that and the new in the new environment.

Hi, Thank you will.

Excuse me can I break in here for just one second before we go any further.

Apparently or something in the script was over looked at the very beginning and so I just have to read a quick blurb real quickly before we go two more questions. So I'll just take a second.

For your convenience to second quarter earnings release financial statements and management discussion and analysis are available on the Investor Relations section of our company's website. It's the country dossier. They are also available on SEDAR. The results were released yesterday after market close. Please note that the remarks on this conference may contain forward looking statements about the country can is current and future play.

Plans expectations intentions results levels of activity performance goals are achievements or any other future events or developments forward looking statements are based on information currently available to management and on investments and assumptions based on factors that management believes are appropriate and reasonable in the circumstances. However, there can be no.

No assurances that such estimates and assumptions will prove to be correct.

Many factors could cause actual results levels of activity performance achievements future events or developments to differ materially from those expressed or implied by the forward looking statements.

As a result sleep country, Canada cannot guarantee that any forward looking statement will materialize and you are cautioned not to place undue reliance on these forward looking statements, except as may be required by law suit country, Canada has no obligation to update or revise any forward looking statements, whether as a result of new information future events or otherwise for additional info.

Commission on these assumptions in RIS. Please consult the cautionary statement regarding forward looking information contained in the company's Mdna dated August six 2020 available on SEDAR dotcom.

So now we go back to questions.

Thank you and again, if he'd like to ask a question that's star one on your telephone keypad. Our next question comes from the line of Stephen Mcquoid from BMO capital markets. Your line is open.

Good morning, CRC. Thank you already guys right. After the forward looking statements I guess I got I will get asked them [laughter] now now we can really in.

Yeah, that's right [laughter].

So thanks for taking my question I just had a few questions.

Can you just talk a little bit about how sales trended throughout the quarter I mean, obviously with the stores being closed and you know through through much of the quarter. After the quarter, but can you talk little bit about how they trended online as you as you rolled through the quarter.

And then what happened when stores opened in sort of what happened on a Q3 to date basis.

Yes, so again as much as we would love to talk about Q3, we don't and so I can't go past the end of June.

But what I will say is that you know just as a reminder, when all of our stores closed and we went completely online.

We as a company within a matter of two weeks had completely started a new department within our company called sleep expert chat and asleep expert call and program and so that has that will remain as part of our business. We were planning to roll that out in Q3 of this year.

That was very effective because again as you know this is a highly consultative purchase for people and so we've been able to help a lot of our people who needed something while our stores were closed and it continues to be a big part of what we're doing going forward and that helped us, but let's face it our online business exploded when our stores closed when.

Our stores reopened it tempered back a little bit which was fully expected, but it is considerably higher than it was before so weve, it's a whole new business for us and Andy just continued to be very strong.

As our stores reopening of I've already mentioned, our stores reopened very strong and they remain strong until the end of June.

Stuart.

And now I'll, just add even Steven as a interesting enough in terms of the merchandising mix as we closed up the stores and as Dave pointed out our online exploded and there was for sure. The cocooning effect that was happening within the landscape of Canada, and our accessories exploded.

Diversifying the fact that we've talked about our matches business and accessories for years now and then we we saw a big acceleration on that at the same time keep in mind that we pulled back on all our marketing or at least our cell marketing our focus was more so on Brad in social recruit social respond.

Stability at the time and more of a top of the final soft messaging on building out the Halo and our responsibility, which which also led to our focus all around donating to less fortunate folks as the as is the as time went on some of our advertising began to return.

Which led up to the opening of our stores and then the big ticket items started to accelerate and their lifestyle beds in our higher end matches that started to explode once again.

Okay. That's a that's very helpful. Thank you and just on the on the wage subsidy Craig you quantified the impact in the quarter. So thank you I just I'm just curious this does not leak into Q3 at all or is that going to be totally isolated to Q2.

Yes, I mean, we're continue to look at the legislation and the changes and then compared to our results of free where or if we qualified at this point in time, we can confidently say the qualified up to the end of June and the period from March 15th to June, but Uh huh.

No comment on what well, what we would see in.

In Q3, as we learn more there seems to be consistently changes and modifications. So we're just staying up to speed on that but no comment as to what we might see in Q3 on that front, but again, we would disclose.

In future quarters, if there was any impact to the cws.

Okay. Thank you.

In the outlook section you had some commentary the college or changed a lot around the ERP investment.

And you it sounds as though you have we you know we reinvested in that project.

And continue to do so can you just talk little about where you are on that project investment cycle.

Yeah. So we're well as you know were released one which is the E com and and finance portal merchandising section is complete and then what we're doing is building out the warehouse management system in store Pos in the back end and sorry and supply demand planning got tools.

And then connecting all the systems together. So we're currently I'd say through a decent portion of the build out when when we were getting when we got stalled kind of coming into this pandemic now that we've picked it up a really try to figure out the most efficient way to work through the rest of the project. So I'd say in terms of where where we are compared to.

Where we'd like to be were a little bit behind just because of the delay with a pandemic, but well through.

You know.

Big chunks of the build out for release to previously we had kind of communicated that we'd expect to roll out.

Between Q2 in Q3 of 2020 now it is likely going to be pushed into the new year to 2021 and one of the reasons for that is Q4 is very highly promotional and we want to make sure that theres no disruptions on as we flip in turn on each DC a across the country.

One by one we run parallel systems with the said with this rollout.

Just want be cognizant of the highly promotional period and good seasonal sales in Q4, no and not having any disruptions in so will be pushing the system out and delaying it probably to the to the new year now and again at that point in time, we'll cut over one by one and the stores that are attached to that DC, you got connected and the in store Pos and new experience.

We'll all be flipped over one by one across the country and run in parallel. So there is no interruptions to our business, but those are some of that I think in terms of timing of rollout and when you can expect spend I think you'll continue to see spend throughout the second half of the year, but the rollout.

Well, we will come in in Q1 of next year I hope that addresses dresses the question.

Yeah. That's that's very helpful. Thank you.

And Steve and the maybe just yeah, alright, just just add a little color to that I just want to.

Released one which is our ecommerce platform, which has been so beneficial to us in 2020, so that was great to have that rolled out.

Our current ERP system.

We'll go handles our business in store well and so this rolling out next year I mean of course, we would rather have had rolled out this year, because there is upside, but but our system is very capable of running itself through this delay.

Okay. Yeah. That's that's helpful. Thank you.

And then finally with respect to the the store network I know.

I know, you're not pinned down to us toward a targeted store count.

But you've opened four stores year to date your target for the year was a minimum for.

You have anything else in the hopper for the back half of the year.

Hey, Steven we we definitely put everything on hold.

And so the normal I'm not the stores that we opened is going to be pushed a little bit. There is a good chance that we may open another two stores that were going to determine.

In the third or fourth quarter of this year.

But all the ones that we were planning to open that would not open normally in 2020 will be shifted into the first quarter or the second quarter of 2021, but the plans to continue down that path that we discuss of opening approximately 10 stores per year that hasn't changed at all.

Okay. Okay. That's a that's great. Thank you very much.

Thank you. Thank you.

Our next question comes from the line Patricia Baker from Scotiabank. Your line is open yeah, sorry, just one follow follow up question I'm, just curious with respect to the the chat program on line.

Kind of if you can give some color around that what percentage of customer Houston is it.

Did the pick off of that tool meet with your expectation there and.

Do you alluded to earlier in some that's remarks that you saw different behavior from already classified.

People, who are using that pop facility as.

Being separate from just online only or online store I'm, just curious what what sort of behaviors, you're seeing the company you chat.

So I would think a start off by saying.

It exceeded our expectations like we were like we're thrilled with the way we were able to use it and again I think people want to shop in different ways and people also had different levels of need for what they own personal needs are for what they need from guidance. So you know some people would prefer to shop online and not talk to anybody and other people want to spend four hours in our.

Store getting every bit of detailed they want and everything in between and now this lead chat on a dream program, which is more of an online which is more of a telephone call. So it can be chat or a phone call that just gives everybody. We can go from zero touch to complete touch and everything in between and you know it is really.

It is directly affecting approximately 20% of our online revenue see country indoor may do but I do but it's even more than that because some people talk to the chat line and then they buy online. So it doesn't make that direct connection but it really is just giving the people that need that editor extra little bit of guidance and expertise.

What they need.

And by the way, we're still early days and thus we are doing very well with it but we'll continue to optimize it with more technology and optimize it with better.

Just better technology that will help it even be stronger your did you have anything else that.

Just two points I wanted to add and Patricia first of all the folks.

That are managing the chat lines are our sales experts. The these are folks that have worked on our floors and they're trained exactly in the same way as all are fabulous associates within our stores, which had a clear differentiation between many call sensors. So it's not a call center. It is our sales experts to.

New interestingly enough a good portion of those calls actually lead for the customer by pointing to come into our stores, where the process may begin and be completed online, but a good portion of it is a customer is is sent to a a convenient store where associates around.

When you the process, which is wonderful for the basket size also.

Excellent. Thank so much for that color.

And we have no further questions in queue ill turn the call back to the presenters for closing remarks.

Well. Thank you very much for the great questions and your continued support.

We look forward to meet you again, and just a few months and a have a good summer. Thank you bye.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.

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