Q4 2020 Duluth Holdings Inc Earnings Call
Good morning, and welcome to the Duluth Holdings fourth quarter 2020, and fiscal year earnings Conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by T. Rowe. After today's presentation, there will be an opportunity to ask questions.
To ask a question you May press Star then one on your Touchtone phone to withdraw from the question queue. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to Don a case Investor Relations for Dolby Holdings. Please go ahead.
Thank you and welcome to today's call to discuss Duluth, Trading's fourth quarter and fiscal year financial results. Our earnings release, which we issued this morning is available on our Investor Relations website at IR Duluth trading Dotcom under press releases I am here today, with Steve Schlecht, Chief Executive Officer and day.
We met our Chief Financial Officer on today's call management will provide prepared remarks, and then we'll open the call to your questions before we begin I would like to remind you that the comments on today's call will include forward looking statements, which can be identified by the use of words, such as estimate anticipate expect and similar free.
<unk> forward looking statements by their nature involve estimates projections goals forecasts and assumptions and are subject to risks and uncertainties that could cause actual results or outcomes to differ materially from those expressed in the forward looking statements such risks and uncertainties include but are not limited to.
Those that are described in our most recent annual report on form 10-K, and other SEC filings as applicable. These forward looking statements speak only as of the date of this conference call and should not be relied upon as predictions of future events.
And with that I'll turn the call over to Steve Schlecht, Chief Executive Officer of Duluth trading Steve.
Good morning, and thank you everyone for joining today's call.
It was one year ago, almost for the day that we announced our first store closings.
Primarily in the northeast due to Covid.
At that time, we didn't know just how far reaching the impact would be but it was clear that our plans for 2020, we're suddenly disrupted.
I won't go into all the details of our Covid response as it was pretty much standard procedure for all responsible retailers protect staff and customers and protect our financial position.
What I think is more important are the lessons we learned from operating an alternate retail reality.
First lesson.
Don't know if your business model is resilient until its pressure tested.
By the end of March all 62 of our existing stores were closed due to the pandemic.
We had absolutely no idea when they could reopen.
In the prior year retail store sales accounted for 43% of total revenues. So this circumstance.
Entity giant mountain decline to fill that revenue GAAP.
Fortunately, we already had a strong omni direct channel in place that allowed customers, who traditionally shop in stores to shift their buying patterns online.
When our stores closed we also ramped up digital marketing and promotions to drive current and new customers to our website.
And it worked direct sales closed the retail GAAP and ended the year accounting for 72% of total 2020 sales.
The second lesson was that the currency of the Duluth trading brand was validated in a difficult retail environment.
When your entire organization is dedicated to creating innovative solution based high quality products.
Outstanding customer experience you have created a lifestyle brand that can prevail in challenging times.
Our online activity sword, as both established and new customers recognize the Duluth products hit the sweet spot of their new normal at home and outdoors is.
As customers found their way to Duluth trading brand, we saw a 17% increase in new buyers the largest percentage gain in three years.
Our third less never stop investing.
To make your company stronger and more competitive.
We're not for the substantial investments made over the last three years of distribution facilities expansion and capabilities.
In re platforming our E Commerce channel.
And value added services like bogus.
We would never been ready to handle the surge in direct business.
Fourth lesson.
I believe in the power of newness during the past year, we expanded our playbook to focus on new ways to delight customers. We made headway building out our family of brands platform that celebrates the can do spirit of Duluth.
We developed 40 grid, a no frills basic workwear line to appeal to a younger more price sensitive customer.
We expanded our last the hard gear line with a new fishing collection and added the best made brand of premium hard goods and workwear to our family of brands.
We continue to drive innovative product development for new lines like swim shoes for men and women Dang soft underwear Noga natural route.
An additional pad sizes for men.
For all these reasons and the challenges encountered in 2020.
I'm very proud of what our team accomplished and delivered net sales of $639 million.
Up nearly 4% year over year, adjusted EBITDA of $55 million up 7% and free cash flow of $38 5 million.
So what's ahead in 2021.
As we've discussed before we have paused, our retail store expansion until there's more clarity around consumer buying patterns post pandemic.
Right now we have only one signed lease for 2021.
Looking beyond this year, we'll be studying new store concepts to reflect the changing retail environment.
We will continue to focus on new product innovations and potential line extensions, including possibly adding a women's collection to 40 grips Alaskan hard gear and best made.
We will continue to make investments to expand digital capabilities that will provide more customized marketing and then improve our localized assortments and stores.
And we are exploring the benefits of partnerships.
In the beginning of March we entered into a pilot test with tractor supply company to have Duluth displays a buck naked underwear in 13 other stores.
Tractor supply is not only one of the biggest successes retailer day.
It is also closely aligned to the Duluth customer base.
The pilot is successful the concept will be rolled out to other tractor supply locations.
I think this type of partnership makes sense for Duluth.
See this is a great opportunity to expand our brand awareness with a top tier partner.
That said its way too early to count any chickens.
In today's press release, we announced that board member, Dave <unk> has decided to retire at the time of our upcoming annual shareholder meeting.
Dave has been involved with Hulu for 20 years, having served on our earlier Advisory Board and then on our public board, providing invaluable advice and guidance to our company.
Brent <unk> has been slated to replace day, one our board brand as a partner and managing director of William Blair's equity capital markets and was instrumental in bringing Duluth public.
His deep experience in the capital markets and public company directorships will be a complementary benefit to our board.
I also want to mention that we have engaged a search firm to identify our next chief Executive Officer.
When I reassumed the CEO role in September of 2019, I didn't expect to stay on this one.
However, COVID-19 made the continuity of leadership a deciding factor.
Frankly jumping back into day to day management gave me a greater appreciation for the talent and dedication of our team.
I'm proud of the work we did together during the most trying of times.
Have more confidence than ever in the future of the company.
Finally.
Duluth trading has always been committed to the principles of corporate social responsibility and many Lynch principles are embedded in the 10 wells that shape, our culture of striving for greater purpose.
Like we treat customers coworkers and vendors like next door neighbors.
We strive for growth both personally and collectively.
We build lasting satisfaction into our products and we achieved we aim to achieve a fair profit.
I admit that we have been a laggard in communicating our commitment to CSR and ESG, but at 2021, we're going to do a better job.
We have already formed an ESG steering committee and are adding ESG to the oversight responsibility of the nominating governance committee of our board of directors.
We understand this is an important initiative for our many stakeholders our customers employees vendors investors and the communities in which we have facilities.
With that I'll turn the call over to Dave Loretta to cover the details of our financial and operating results for the fourth quarter and full year.
Thanks, Steve and good morning, everyone.
I'll begin today with a brief overview of our fiscal year results, then I'll cover our fourth quarter performance and conclude with commentary on our outlook and guidance for 2021.
As Steve mentioned in his comments the Duluth team rose to the challenge and demonstrated agility and resourcefulness throughout a difficult year.
The strength of our omni channel model shine through as many customers shifted to online while retail stores were closed for up to 10 weeks during the early stages of the pandemic.
We delivered net sales of $638 8 million, an increase of three 8% over the prior year.
Our direct fulfillment network, including the role our stores play it and shipping orders and expediting both disorders handle the surge in online sales with minimal disruption as the direct business overall grew to represent 72% of full year sales compared to 57% in 2019.
We entered fiscal year 2020, with plans that reflected an emphasis on growing our brand in new and existing markets.
Leveraging expenses and expanding bottom line results faster than top line sales.
While the pandemic altered our approach the actions, we took coming out of our first quarter to increase financial flexibility enabled us to generate cash flow from operations of roughly $84 million over the three quarters.
In addition, we grew pretax earnings by close to 12% compared to net sales growth of just over 5% over that same nine months period.
In 2020, we opened only for new stores versus an annual pace of 15 store openings in prior years.
While new stores have been an effective way to attract new customers. We were very successful in growing brand awareness and reaching new customers through digital channels.
In fact, 2020 delivered our largest gain in customer acquisition in recent history with a 17% increase in the number of new buyers.
And we did this without losing sight of our existing customers.
We have seen improving rates of retention and reactivation all year long.
Another year long initiative was to rightsize, our inventory levels and free up more open to buy for newness in the assortment.
A year ago, we were sitting on inventory that was over 50% higher than the prior year.
This expands the expanded by the end of the first quarter to 68% higher over the comparable period.
By adjusting our future order flow and being more aggressive in our clearance strategy throughout the year.
We ended 2020 with inventories that were roughly flat to last year.
Our gross margins were impacted by these actions these aggressive actions.
But sequential improvement each quarter.
And realizing a 20 basis point year over year improvement in Q4 gives us the confidence that that we've now turned the corner on our inventory position.
That being said we are realizing some delays today in inventory receipts due to the current challenge state of inbound shipping channels and congestion caused by record high imports and Covid related labor shortages.
I will address the impact is likely to have on our first and second quarter sales trends shortly.
Overall for fiscal 2020, we delivered $55 5 million in adjusted EBITDA an.
An increase of six 8% over the prior year.
This reflects greater operational efficiencies and a focus on optimizing the investments we've made over the last three years in technology and infrastructure.
These investments are boosting our capabilities to increase delivery speed.
Customer spend and inventory efficiency.
And we expect this will continue in 2021 and over the coming years.
Finally in 2020, we generated positive free cash flow of $38 5 million compared with a cash burn of $22 4 million in 2019.
As a result, we ended 2020 with a much stronger balance sheet and cash flow to fund our next phase of growth initiatives.
Turning now to the fourth quarter we.
We reported net sales of $256 million down one 4% compared to the prior year.
As we mentioned on our Q3 call in December the holiday season began earlier this year peak.
Peak sales volumes were pulled forward several lease as many retailers encouraged early holiday shopping to avoid the strained delivery networks.
Our direct business continued its positive growth trend up 15% in the fourth quarter, although down sequentially from third quarters, plus 40% growth rate.
This reflected the early holiday shopping and the shifting of key sale event from November into October to avoid the elections.
As we progress through the peak holiday period customer traffic to our stores was impacted by our re emerging concerns with Covid lockdowns.
For the quarter, our retail store sales were down 29% and reverse the improving trend we saw from the third quarter.
Our omni channel initiatives helped offset the soft traffic with our stores fulfilling 22% of all direct demand in Q4.
Also evident of the shifting by buying patterns are direct sales in store markets increased 20% compared to an increase of 13% and non store markets in Q4.
So our traffic trends improved in January and continued into February.
Giving us confidence that 2021, we'll see a significant rebound in the store sales channels.
As the vaccines rollout continues and more customers returned to stores.
With industry wide constraints on shipping deliveries in the fourth quarter pulling some peak holiday sales for where it did help alleviate delivery delays.
However, competitive pricing and free shipping offers weighed on our shipping fee revenues, which were down $1 9 million in the fourth quarter.
Additionally, as mentioned last quarter, we expected higher costs associated with strains on the last mile network and heavier staffing needed to fulfill direct orders.
Overall, roughly $2 million of incremental cost related to EPS shipping surcharges and Covid paid premiums were incurred in Q4.
Turning to our product update for the fourth quarter overall, our men's apparel was down 2% compared to last year and women's apparel was down three 5%.
Softness in our buttoned down woven tops and core men's outerwear were below last year.
However, in both men's and women's our core bottoms outdoor active and workwear collections had strong performance.
Comfortable basics continue to be in high demand underwear, no yanks and net.
Noga collection.
In mens holiday themed underwear.
<unk> fire hose pants, and flannels contributed to men's volume.
A bright spot was Alaskan hard year products, which increased 9% to last year.
In women's we had a strong response to seasonal goods like outerwear and sweaters and flannel.
The plus business is holding strong at 11% of the total apparel business and is responding well to the outerwear and bottoms.
Additionally, we added two new collections to our brand lineup in the fourth quarter.
For the grit and best mate.
For the grid saw increased momentum in the fourth quarter, representing our latest introduction for entry level workwear at everyday low price.
That's made launched on our platform in October as our new digitally native premium men's brand and we quickly sold out our best selling colors and styles within the first few months.
We are excited about the potential of these two brands under the Duluth trading umbrella.
We believe the new brand structure, including Alaskan hard year, and our core men's and women's Duluth brands.
Establishes duluth as a destination for Likeminded outdoor and workwear stops lifestyles.
These emerging high growth brands speak more directly to targeted customers based on their needs and wants.
And we will benefit from our scale and infrastructure platform in a way they couldnt achieve on their own.
Turning to expenses.
SG&A for the fourth quarter increased 1% to $105 million compared to $104 million last year.
This included increases of $4 4 million in general and administrative expenses and $4 million and selling expenses.
Offset by a $7 $2 million decrease in advertising and marketing expenses.
As a percentage of sales SG&A expense increased 110 basis points to 41, 1% compared to 40% last year.
This increase was largely due to the incremental costs incurred to meet customer expectations and a unique holiday shopping environment and the higher mix of direct sales as a percentage of the total.
Selling expenses as a percentage percentage of net sales increased 170 basis points to 16, 7% compared to 15% last year.
The carrier surcharges and heavier use of stores for direct order fulfillment pressured our cost per unit metrics and increased delivery expenses.
On the advertising front, our continued investment in digital prospecting drove growth in mobile traffic conversion and sales rates.
Although at a slower pace in the third quarter.
Planned cuts to TV ads, mainly during live sports in the October and November impacted site traffic and brand search in subsequent months.
Our brand search and website traffic were up 9% compared with 30% in Q3 and 2% in the fourth quarter of last year.
Despite the slowdown in holiday traffic, we realized significant advertising leverage in Q4.
Advertising and marketing cost as a percentage of net sales decreased 260 basis points to 10, 6% compared to 13, 2% last year.
<unk> due to reduced catalog and television advertising spend as well as cutting billboards and local store markets, partially offset by higher digital advertising.
General and administrative expenses as a percentage of net sales increased 200 basis points to 13, 8% compared to 11, 8% last year.
Largely due to higher depreciation and amortization on new technology investments.
Our store count remained stable at 65 stores during the fourth quarter.
We are on hold at this time for adding new stores, while we observe customer shopping behavior and the economy begins to return to normal.
Adjusted EBITDA for the fourth quarter was $38 7 million, a decrease of $1 $3 million versus the comparable period.
We reported net income of $21 8 million or <unk> 67 per diluted share compared to $24 4 million or <unk> 75 per diluted share reported in the fourth quarter last year.
Moving on to the balance sheet.
We ended the quarter with net working capital of 115 million <unk>.
Including $47 million in cash and $48 3 million outstanding on our term line of credit.
Clearing through the elevated inventory levels from earlier in the year and reduced capital spend relative to prior years helped generate positive free cash flow of $38 5 million in 2020.
Cash flow will fund future growth will lessen our reliance on the credit facility and support the exploration of New third party distribution channels as Steve articulated before.
As we.
In the new year, we're focused on improving profitability through increased sales in the stores cleaner inventory management and greater automation in our distribution Center network.
In addition, the initiatives to support our emerging brand platform are on track and our new customer data warehouse in the analytic tools are ramping up to enable deeper customer segmentation and personalization.
Altogether, we are very optimistic for what the future holds at Duluth.
That being said.
Given the continued uncertainty with respect to COVID-19, we remain prepared for a range of scenarios to ensure we can sustain growth and continue to accelerate our operating efficiencies.
Based on the assumption that our stores will remain open over the course of the year and vaccination rates will continue to improve we expect to deliver sales growth in the range of 6% to 10% overall for the business.
This includes one new store opening in Cherry Hill, New Jersey.
Currently slated for a November 2021 opening.
And the closure of our mall of America Test concept store next month.
The quarterly mix of sales by channel will shift dramatically in 2021, given the easing effects of the pandemic.
We do expect some near term pressure in the first half of the year due to the delays in inventory receipts.
Our best estimate at this time is that sales growth will be at the lower end of that sales range in the first half of the year and at the higher end of the range in the second half of the year.
With cleaner inventory levels, we expect to realize gross profit percent improvement of 50 to 100 basis points.
This will drive operating margin improvement of at least 100 basis points for the full year as we realized leverage in selling expenses and stores contribute up to 35% of company sales.
We are entering the year with a number of key investments in place that have added to our overall depreciation and amortization estimate of 31 million to $32 million for 2021.
Adjusted EBITDA is expected to be 66 million to $70 million this year.
Which represents growth of roughly 25% over 2020.
In addition to this healthy growth in earnings.
With only one new store in the pipeline capital expenditures, including software hosting implementation costs will be down slightly year over year to about $15 million.
As a result, we are expecting to generate positive free cash flow of at least $20 million in 2021.
And with that I'll open the call for questions.
We will now begin the question and answer session.
A quick question you May Press Star then one on your Touchtone phone.
Using a speakerphone please pick up your handset before pressing the keys.
Dropped from the question queue. Please press Star then two.
The first question comes from Jonathan Komp of Baird. Please go ahead.
Yes, hi, Thank you good morning.
Dave maybe first just wanted to get your thoughts on the near term environment. It sounds like you've.
<unk> had a good start for the first quarter and you're about to quite call. It if not already about past few days pretty significant disruption last year. So how are you thinking.
The current trajectory and maybe the balance of Q1, Q2, and any thoughts on how that might play out by channel would be appreciated.
Yes sure John.
Yes, we are in the middle of a period.
Compared to prior year going to be significant shifts right.
It was a year ago that we did start to have to close our stores.
But are so going against those comparable is going to look different and then we have as of recently.
But the trends overall in the business are very encouraging through February.
For the month of February our total business was up.
13%.
By channel that represented direct up a little over 40%.
And the retail channel still.
Still negative, but but a little better than the fourth quarter down minus 2024%.
In March for the first two weeks of March.
Seeing that improvement continue and we remain in the mid to even slight high teens overall.
This past week is when we really start to see our stores comp positively over the prior year as traffic was dwindling and then stores started to close so.
When we look at our first quarter.
We're expecting the quarter to to be in the mid teens overall for the business.
And that that means direct is going to be.
It's going to be slightly down from its current trend because last year, we were very aggressive at near the end of March and in April with with some promotions clearance events and.
So we're not expecting that the direct to be as much. It by the end of the first quarter to be as positive.
But.
Retail should.
The significantly higher 60% to 70% over last year, which so the combination of those two gets you that sort of a mid teens for the Q1 outlook right now.
Okay, great and maybe on the margin, but full year.
Margin expansion as well as it looks like.
A little bit of implied G&A leverage for the year could you maybe just.
Differentiate some of the drivers for both of those pieces.
Youre willing.
Yes, certainly.
We do expect that gross margin.
See some improvement.
Last year, we had a significant hit to our gross margin so.
We'll see some improvement in the first quarter.
Likely a little over 100 basis points.
And for the full year 50 to 100 basis points improvement in gross margin when we.
On our promotional plans right now.
But yes, our leverages is becoming from from selling costs and overhead.
Component of overhead is simply having our stores open and being able to leverage the occupancy and the fixed cost in that in that channel.
But in terms of AD spend where we're expecting to be relatively flat in terms of a percent of sales.
We held some back less last year, and we're going to shift it around we will have significant leverage in the first quarter, but were just moving dollars into the for the back half of the year. So.
Full year guidance that we gave on an earnings growth is sort of.
What those components will get us to.
Okay excellent and then just last one on the new pilot selling and tractor supply the handful of stores so far.
Any broader thoughts how to how to shape.
The strategy, how it's evolving around where are you may be willing to sell Duluth product and I know, it's very early but just given the current margin profile of the business itself.
In your own channels, if you did decide to ever meaningfully increase the portion that you might be willing to sell in other channels.
Any any kind of broad stroke from what that might mean from Bob.
From a margin contribution standpoint understanding it's early.
Thoughts there would be helpful.
Yes.
It is very early.
The product that we picked for for that test is our most tried and true well known product and it has net carry some of our best margin. So we.
We expect debt net we'll see some accretion in margin or.
Overall from from this activity if it really takes off the way we.
We hope it will.
We don't necessarily need to apply the same level of of AD spend.
On that effort. So you get some benefit there and then it's.
The partnership is really a one company to another and it's a well known company. So we don't have any plans at this 0.2 to ramp up a wholesale division or internal.
Cost to really manage our growth in that but this was simply a first attempted us to see what our product will look like in other other retail places that.
Gains from customer awareness and pick up new customers.
And we look forward to continuing that thank you.
Yes. Thank you.
The next question is from Jim Duffy of Stifel. Please go ahead.
Thank you good morning.
So guys, Inc. Goodyear all in all very good progress on the inventory.
After growth in both the second quarter third quarter.
Flexion, though revenue declined however in the fourth quarter came as a bit of a surprise.
Given the new customers acquired technology advancements.
Alex offerings, we would've thought the direct business would have been stronger what was the direct deceleration larger than your expectations in the fourth quarter.
Do you guys think maybe you cut advertising expense too much in the fourth quarter.
And then Dave I am curious whats embedded for direct business in the full year outlook.
Well, let me start there Jim.
In terms of our outlook.
<unk>.
For the full year.
We're not expecting that direct is needs to generate.
Much growth at all compared to the prior year.
We.
You saw from April through.
November direct was on a very high growth rate the deceleration in the fourth quarter truly came in the some of the critical weeks in.
December.
And possibly pulling up on the AD spend did impact that but.
Given the dislocation of where the shopping was happening.
We and the concerns around delays of deliveries from our carrier network.
We were concerned that if we stepped on the gas further.
In that period of time that we made.
Disappoint customers.
Thats something we didn't want to do.
Having a delivery not made when they expected it so.
That's partly why I think we saw some deceleration there but.
It really re.
Reinvigorate itself when we came into January so no concerns that that there is a channel.
Issue with our direct business.
And I think we could be.
My estimate for 2021, but.
Sure.
The retail is really where we're expecting the growth in the top line to come in 2021.
Okay.
With respect to the direct business greatly tightened up the inventories securing tends to be less promotional there's some inherent tension there between.
Promotion and.
And supporting that direct business.
Are you confident that you can.
Stabilize the direct business, while being less promotional or do you view that.
The less promotional stance has been a headwind we should consider an estimate.
No.
We can demonstrate growth in direct during periods, where we're not as promotional.
Starting with the comment of the file the customer file basis is much larger and Thats right. It is so.
I think in the periods, where we are introducing new products.
Debt are seasonally right and hitting that sweet spot then.
We're going to see.
Nice momentum in direct but it will be hard to compare.
To the prior year, but that doesn't mean that we're really going backwards in that channel.
Okay, and then last one for me and I'll, let someone else jump in just a point of clarification on the guidance Davis the tractor supply rollout reflected in your commentary about mid teens growth quarter to date and are you embedding any assumptions about our wholesale revenue contribution in your.
<unk> 2021 outlook.
No.
It's not contemplated in the outlook and the tests that were in right now.
<unk>.
<unk> 13 stores of tractor supply.
It's just our Buck naked.
SKU across a few colors and sizes so it.
It's fairly small and not not material at this point, but.
<unk> progressed, well and we expanded to other stores then, we'll obviously refresh our outlook to contemplate that but its not in there today.
Okay. Thank you guys.
Thank you.
As a reminder.
If you have a question. Please press Star then one the next question comes from Dylan Carden of William Blair. Please go ahead.
Thank you very much.
Just curious you had mentioned kind of the outperformance of hard gear.
And it sounds like <unk> is off to a good start can you kind of just breakdown.
The contribution at this point between kind of plus hard gear. Some of these newer categories and brands.
Thanks, Dan now or maybe as you anticipate them to stand for 2021.
Yeah, Alaskan blasting hard gear is certainly much larger than best made and 40 grit.
It's about 5% of our of our business but.
But growing at a faster pace.
So that's probably more of a meaningful.
Sub brand that that's going to move the needle when it does well.
Mays and 40 grit today are less than 2% and what their planned, but we're going to see significant growth in those in those channels or in those brands 2021.
But still relatively small compared to our core men's and our core women's which which are driving most of this volume for us right now.
Great and then.
When you talk about for this next phase of growth.
Maybe talking about sort of why capex hasn't stepped down a little bit more.
This year with only one store coming online and kind of what youre, putting capital towards now net stores aren't kind of the primary growth engine.
Debt Paydown kind of anticipated and uses of cash go forward anything there would be helpful.
Okay, Yes, certainly.
Certainly capex.
As.
A function of other.
Stores and with one store then we will see less spend there, but the other areas that we've got.
Teed up and that we're working on right now include a.
Our software implementation, our merchandize lifecycle management tool that that will provide us with.
Tools to allow for assortment planning for.
For casting and replenishment.
These are basic infrastructure that retail organizations have an.
We've gotten by with a patchwork of systems and manual procedures, but it's really due time to have this initiative, so that's going to be.
Several million dollars, three or so million dollars of Capex too.
That initiatives stood up.
And then the other big spend is going to be in our logistics area.
We we are going to add some efficiency.
Capabilities and our Belleville warehouse.
But more importantly, we're adding a third distribution center.
And Salt Lake City that will have several million dollars of implementation and fixture cost to get it up and running and what that will do is it gives us the capacity during the peak period and a closer delivery time to the west coast as well.
But that capacity will give us further confidence during during the fourth quarter to step on the gas like I articulated.
And really be confident that we can.
Deliver and meet our customers' expectations. So these these are capital spend that are infrastructure related.
And are necessary, but we will get benefit from for for the.
Foreseeable future three to five years at least.
That's kind of the big pieces.
That's great. Thank you very much for that and then the final one I have is just from kind of trying to understand guidance here.
You are off to kind of a mid teens pace total top line it sounds like.
And that should theoretically get a little bit better as you.
Closures.
But it sounds like Youre expecting of the 6% to 10% sales outlook for the whole year.
There's a first half the first half is going to come in kind of towards the lower end of that range for the back half towards the higher end.
It sounds like there might be just some volatility between quarters.
And then stores, making up 35% of total for the year is there any sort of way that you can kind of contextualize, what that looks like front half versus back half day.
Yes, certainly first half.
<unk>.
We're going to see direct going against some significant volumes in.
In the end of the first quarter and in the second quarter end and we're not.
Anticipating that for a channel growth that we'll see any growth.
It will likely be down to prior year in the mid single digits.
But thats going to be offset with retail that could be up as much as 50%.
No.
That's that's the rough math to get you to.
The low end of our sales guidance range for the full year and then in the back half of the year.
We will expect direct.
To start to grow, especially in the fourth quarter.
But for the full back half of the year, it will probably be mid single digit.
And retail will be closer to 20% to 30% growth.
Sure.
We're going against periods, where the stores have been opened but for.
But traffic was strong last year with the pandemic concerns so.
We think the back half of the year can combine those two to be higher to the high end of that range.
The 10% growth.
Really appreciate that day. Thank you.
There are no other questions at this time. This concludes the question and answer session and today's conference. Thank you for attending the presentation you may now disconnect.