Q4 2020 Franchise Group Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to franchise group fourth quarter Conference call. At this time all participants are in listen only mode. After the speaker's presentation. There will be a question and answer session I would now like to hand, the conference over to your host and day Lyons Executive Vice President.
On a franchise group.
Thank you operator, good afternoon, and thank you for joining our conference call I'm on the call with Brian Kahn franchise groups, President and CEO and Eric seating franchise group CFO.
Before getting started I'd like to mention that certain matters discussed on this call may contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995, and other provisions of the federal Securities laws.
These forward looking statements are based on management's current expectations and are not guarantees of future performance.
Actual results could vary materially from those expressed in or implied by the forward looking statements.
The forward looking statements are made as of the date of this call and except as required by law franchise group assumes no obligation to update or revise them.
Investors are cautioned not to place undue reliance on these forward looking statements for more detailed discussion of these and other risks and uncertainties that could cause franchise groups actual results to differ materially from those indicated in the forward looking statements. Please see our form 10-K for the fiscal year ended December 26 2020.
Which was filed this afternoon and other filings we make with the SEC.
The financial measures discussed today include non-GAAP measures that we believe investors focus on and comparing results between periods and among peer companies.
Please see our earnings release in the news and events section of our website at franchise <unk> Dot com for reconciliation of non-GAAP financial measures to GAAP measures non.
Non-GAAP financial information should not be considered in isolation from as a substitute for or superior to GAAP financial information, but included because management believes it provides meaningful supplemental information regarding our operating results when assessing our business and is useful to investors for informational and comparative purposes.
The non-GAAP financial measures. The company uses have limitations and may vary from those used by other companies now I'd like to turn the call over to Bryan Bryan.
Thanks, Andy and good afternoon to our listeners and thank you for joining us.
I will briefly walk through a review of 2020 provide updates on our recent activities and discuss current trends in our markets and businesses.
Then I will turn the call over to Eric to provide financial details, we'll then be happy to answer questions.
Overall franchise groups management teams associates and franchisees overcame challenging obstacles in 2020 and adapted in a manner that has strengthened our brands and position them favorably for the future.
In the fourth quarter of 2020, we continued to enhance our cash flow by driving revenue and cost synergies from an increasingly diverse set of operating brands.
We acquired <unk> home, which added more than 30, new units to the American freight brand without any incremental overhead and.
And we re franchised 47 buddies locations and further in some of our efforts to strategically re franchise corporate stores.
<unk> during and after the quarter, we signed and have now closed the acquisition of pet supplies, plus and successfully syndicated and closed the related financing debt materially improves our cost of capital for.
Furthermore, we signed a definitive agreement to combine Liberty with <unk> acquisition Corp.
Wowing for a fully value Delevering transaction, where franchise group will maintain a significant economic interest in the strategy of aggregating consumer finance products and services.
These actions combined to positively impact our free cash flow generation and a portion of that enhanced free cash flow being returned to shareholders through a 50% increase in our annual dividend rate to $1 50 per share in 2021 compared to $1 per share in 2020.
So as of today, our current capital structure now includes a $1 $3 billion term loan.
$182 million of which will be paid down with cash proceeds from Liberty's merger with next point, which is anticipated to close in the second quarter.
As we've previously stated the Liberty and next point merger accelerates our strategy of evolving Liberty from our seasonal tax business into a year round diversified consumer financial products and services company.
As for our ongoing brands.
Our operational priorities for 2021 include accelerating our franchising efforts for each of our brands and enhancing all of our brands ecommerce capabilities and productivity accelerating our franchising efforts means different things for some of our brands than others for American freight and the vitamin shoppe that means going to market.
<unk> for the first time with newly created franchise programs and infrastructure for the more established buddies and pet supply franchise programs. Our focus in 2021 will be on accelerating their growth and providing world class support to both new and existing franchisees.
We expect debt is 2021 progresses, we will be able to report significant franchising and refranchising activity in our system.
For full year 2021, we expect revenue growth at the vitamin Shoppe American freight and pet supplies plus at bodies, we expect revenue to be lower due to the refranchising transaction in 2020 like many other companies that experienced store closures shelter in place orders impacts of government stimulus programs in Staggard reopening.
<unk> of its stores are quarterly year over year comparisons.
Will require context as the year progresses, given that we had as many as 90 vitamin shop and 150 American freight stores closed.
Some beginning about this time last year, we intend to provide more insightful comparisons to augment our regular reporting this year.
As a whole for 2021, we expect franchise group to achieve over 10% adjusted EBITDA growth, which will drive incremental non-GAAP earnings per share growth Eric.
Eric will provide more details on our expectations for specific periods shortly.
But also as a reminder, our budget excludes refranchising activity that may or may not occur throughout the year and we will update you on the financial impacts of these events as they occur.
With the pet supplies acquisition closed and the pending Liberty definitive merger agreement signed.
The way our management team looks at franchise group today and in the way our management team is compensated by the franchise group is on a pro forma basis, assuming liberty is excluded for the entirety of the year on pet supplies is included for a full 12 month period.
Our goal has always been to maximize our discretionary cash flow you've heard me say that term many times and then reallocate.
Our cash flow to the highest and best uses.
On a pro forma basis, we expect to benefit from over $200 million of annual discretionary cash flow based on a $330 million annual pro forma adjusted EBITDA.
Approximately $70 million of interest expense pro forma for the debt repayment from the pending Liberty cash proceeds.
Approximately $15 million of system wide maintenance capex.
For the sake of being conservative approximately $40 million of cash taxes, assuming we are a full cash taxpayer at the statutory rate of 25, 8%. This year. However, based on tax attributes from the pet supplies acquisition we.
We don't expect ongoing operations to pay any federal cash income taxes, and only an immaterial amount of state and local cash taxes, providing significantly higher short term discretionary cash flow.
Our current allocation of that discretionary cash flow is earmarked approximately $15 million for additional growth capex initiatives across all businesses.
$10 million for debt amortization, $8 $5 million for preferred dividends and $60 million for common dividends based on our recent dividend declaration right.
After all of those allocations, we expect to still have over $100 million of annual free cash flow to be used to further delever our balance sheet continued to diversify and scale franchise group.
And return additional capital to shareholders.
As a reminder, after the Liberty merger closes we expect our balance sheets have less than $1 billion of net debt quickly Delevering franchise group back to under three turns of net leverage consistent with our long term financial policy.
We will also carry a significant balance sheet asset for our equity investment and next point.
The Liberty and loan me combined public company.
If for any reason the Liberty transaction does not close our adjusted EBITDA cash flow earnings per share debt level, then the ratios would all be higher and we would provide those details at that time, but we look forward to the liberty merger closing in the next few months.
And lastly for me, it's worth noting that our budget for 2021 also excludes any assumptions related to another round of government stimulus and includes our expectations of continued supply chain constraints, which have also led to elevated product and freight costs.
That said, we were pleased with the resiliency of our brands. Despite these challenges and look forward to an easing of supply constraints overtime.
Before turning the call over to Eric I'd like to once again, thank all of our dedicated associates for their hard work and supporting each other are.
Our franchisees and ultimately the success of franchise group.
Eric.
Thank you Brian.
Before I address the results of operations I would like to remind you that we will be making references to pro forma items throughout this call on.
Press releases and filings May refer to historical financial results for the acquired businesses prior to their acquisition by franchise group.
These items have been adjusted to align with our fiscal calendar and accounting policies to the extent reasonable.
Comparison to pro forma results will allow us to discuss and evaluate performance of the acquired companies when a comparable period does not available due to the recent timing of the acquisition.
The 10-K that we'll file today contains the actual results for all businesses for the entire year, except for the first 48 days of fiscal 2020 for American freight.
When discussing our pro forma results or comparable period results to prior periods. We will include American freights results as if we owned it since the beginning of the year.
In order to conform with SEC rules consistent with concepts in article 11 of regulation S X for non-GAAP reporting franchise group will not be reporting synergies and other acquisition costs as part of pro forma adjusted EBITDA.
Company will continue to report adjusted EBITDA in the same format as it hasn't passed and we will provide supplemental information supplemental information for Q4 that reflects cost synergies and other acquisition impacts.
At this time, we do not anticipate reporting any supplemental information in 2021.
The specific allowance included in each disclosure are fully discussed in detail in the non-GAAP financial measures and metrics.
For the fourth quarter of 2020 total reported revenue for franchise group was $496 3 million.
GAAP net loss attributed to franchise group was $4 2 million or <unk> 12 per share.
And adjusted EBITDA was $28 8 million. In addition, we had $5 2 million of supplemental information related to cost synergies and other acquisition impacts in Q4.
The GAAP net loss for the quarter was primarily driven by interest expense, which includes deferred financing cost and one time items associated with purchase price accounting.
We have four reportable segments American freight the vitamin Shoppe Liberty tax and bodies.
For the quarter ended December 26, 2020 American freight had revenue adjusted EBITDA and supplemental information of 214 million $18 9 million and $2 9 million respectively.
The vitamin Shoppe had revenue adjusted EBITDA and supplemental information of $255 4 million $15 7 million and $2 3 million respectively.
But he's had revenue and adjusted EBITDA of $22 1 million and $7 8 million respectively.
As previously disclosed the Refranchising of 47 bodies corporate locations in November 2020.
Is expected to have a net reduction in annual revenue and adjusted EBITDA of approximately $35 million and $6 million respectively.
This impacted buddies revenue and adjusted EBITDA by approximately $3 million and $1 million, respectively in the fourth quarter.
Liberty tax fourth quarter revenue on adjusted EBITDA was $4 8 million and a negative $12 4 million respectively.
With the recent announcement of the combination of Liberty tax on net next point acquisition Group Corporation Liberty tax will be reported as a discontinued operation operation starting in Q1.
For the full fiscal year of 2020 franchise group had revenue of 2.15 billion and net income attributed to franchise group of $25 1 million or <unk> 70 per share.
Adjusted EBITDA for $227 6 million in supplemental information of $32 4 million.
As just discussed buddies refranchising transaction reduced our annual adjusted EBITDA by approximately $1 million.
Turning to our balance sheet and cash flow for the quarter, we had free cash flow of $3 5 million defined as operating cash flow less capital expenditures.
Capex for the quarter was $8 2 million in 'twenty 'twenty, we generated $206 $6 million of free cash flow received approximately $52 million in tax refunds related to NOL carry backs allowed under the cares act and repaid $355 $5 million of debt since the beginning of the year.
Capex for the year was $34 9 million.
As Brian mentioned in conjunction with the closing of pet supplies plus we've put in place a new debt facility that has reduced our effective cost of debt from 11% to six 2%.
Our annualized cash interest expense on our new debt is expected to be approximately $85 million, which will further.
Be reduced by just over $10 million after closing up the next point transaction.
In conjunction with our balance sheet and business performance. We believe we have sufficient liquidity to continue to meet all of our obligations and support all of our businesses for the foreseeable future.
Before I turn to guidance I want to reiterate that FRG management understands the importance of compliance issues noted in prior years, and we spent a significant amount of time with each for the operating companies and improving both accounting processes and internal controls over financial reporting to provide consistency.
Ross the businesses in our portfolio.
At the end of 2020, those investments have paid off and we look to continue to implement this program with the inclusion of pet supplies plus.
Before taking questions, we would like to provide our current outlook for 2021 and providing our guidance we want to highlight a few important changes and their impact.
We are removing liberty tax from our guidance as it will be reported as discontinued operations starting in Q1.
But we will benefit from its cash flow for the 2021 tax season.
Liberty tax contributed approximately $122 8 million in revenue and $37 million and adjusted EBITDA in 2020.
And on a stake in compliance with article 11 of regulation S X. Our official guidance will include pet supplies plus from the day of acquisition as opposed to the full year of fiscal 2021 on a pro forma basis pet supplies plus had approximately $80 million and adjusted EBITDA in 2020, and we expect it to grow approximately 10% in <unk>.
'twenty one.
But only $72 million of actual adjusted EBITDA is included in our guidance.
As I previously mentioned the net annualized impact of the bodies for Refranchising transaction will reduce adjusted EBITDA by approximately $6 million annually.
It takes into account for loss of four wall EBITDA reduction in operating expenses and receipt of franchise royalties and fees.
We will also start reporting non-GAAP, EPS, which will be calculated by adding the tax effected impact of the adjustments to EBITDA to GAAP net income and then dividing by the weighted average shares outstanding.
On calculating non-GAAP EPS were currently using an effective tax rate of approximately 26%.
We do not expect to pay any federal cash taxes in 2021, but expect to have an immaterial amount of state and local cash taxes.
We will continue to report the financial impact of free franchising and franchising on a quarterly basis.
With the impact of all these factors in 2020. One we are expecting to grow adjusted EBITDA by 10% to at least $310 million with a revenue to franchise group of $3 billion to $3 $1 billion.
GAAP net income of at least $40 million or $1 per share.
At least $3 and 25 of non-GAAP EPS and.
In calculating EPS, we are using 40 million weighted average shares outstanding our guidance does not include any assumptions for additional acquisitions divestitures or refranchising activity.
I do want to thank all of our shareholders and lenders for their support to date.
And operator, please open the line for questions. Thank you.
Thank you and ladies and gentlemen, if you have a question at this time please credit score.
But on the.
<unk> on your Touchtone telephone.
My question has been answered or you wish to remove yourself from Macquarie group.
That's a powerful who asked for and we'll close on a yourself to one question and one follow up one moment for our question.
Our first question comes from Mike Baker.
Hum.
Hey, guys. Thanks, Alright, one question one follow up there's a lot to ask but I guess I'll I'll do this one.
I guess I wanted to understand the organic growth that's within your EBITDA outlook on my math, if you take the $2 60 from 'twenty to 'twenty, including supplemental information takeout Liberty tax take off the Buddy Buddy sales.
And the 89 for pet supply path for them to take out a little bit for when you're done on them et cetera, you'll get to a base of about $2 87.
EBITDA yet your guidance is $3 40 to me that looks like something around 18% organic EBITDA growth am I thinking about that right and if so where.
Could you tell us where you are.
We intend to generate that kind of EBITDA growth for them.
Eric do you want me to take that.
Yeah, Yeah, Yeah, that's right. So I don't think the math is exactly right. I think you started off rate with the $2 60, and taking out Liberty 37, and the Buddy six.
But I don't think we said anything about 340, although that's nice.
Sorry, I meant to say three times, sorry about that yes.
Yes.
So for the 310.
PSP.
<unk>.
So if you if you want to look at the 310 and PSP is in there for 72.
Right Yeah.
So you get to $2 <unk>.
<unk> and.
72 is 289.
And then you've got organic growth from there through about 8% organic growth, Okay fine and so then if that's the case.
Where it is.
Well the 70 72 is.
Art year as well so it's.
It's not as it's not.
What was that.
The businesses overall will grow combined by north of 10% all else being okay.
So we can get into the numbers I guess specifically.
You know offline, but but for the.
Bigger picture question is it seems like you plan on organic EBITDA growth and so if you could just discuss you know the trends there and I guess a follow up before you can do the same math and I, probably messed it up as well, but when you do that same kind of math on the top line. It looks like there's some implied organic growth in the 10 to maybe 15% range in Europe.
He sort of said that was the expectation for pet supplies, plus so I guess, where are you seeing with specific businesses are you seeing the.
The implied organic growth on the top line and on the EBITDA line.
And water.
So.
Implied organic EBITDA growth, it's a good one and so we're seeing them.
Slide organic EBITDA growth and vitamin Shoppe American freight.
And pet supplies, plus we would see implied EBITDA declines.
Organically at Buddy's.
And all of those.
Net out to be still north of 10% overall.
Right. Okay. So I guess the point I'm trying to make is you are seeing organic growth and maybe I'll answer on the question on I'm sure someone else will ask about but just in case, you know maybe a little bit more detail on what you were seeing in in these businesses. We've given a lot was on a lot of high level information sure, but if you could tell US you know what at vitamin Shoppe look like in the fourth quarter.
And into the early part of 'twenty 'twenty, one and what is American freight you know what are they comping out et cetera.
The type of detail I think it would be helpful.
Yeah, so vitamin shoppe.
For the vitamin Shoppe, Comped north of 11% in Q4.
<unk> freight grew.
North of 3% Buddies grew north of 3%. So all three of those businesses and PSP comped positively as well. So the businesses are performing well you know there are incremental margins associated with each of those businesses we have.
Unit growth at American freight.
Our company owned unit growth, which has an impact as well.
So the businesses are or healthy supply chains, certainly difficult, but the teams are managing through that some products or are.
Closer to par level, our levels and others were absolutely leaving.
Revenue on the table from the supply chain, but but we're comfortable with.
On the outlook that we have now with the supply chain the way we see it unfolding.
Okay I appreciate that color I'll turn it over to somebody else.
Sure.
Thank you. Our next question comes from Susan Anderson with B Riley.
Hi, good evening nice job on the quarter and managing through a tough year and I guess really quick on Liberty tax I think you said it closes after April 15th So I guess the bulk of the tax season should be done.
Yes, just to clarify are you keeping them on the bulk of that cash from the tax season. This year.
Yes, it's a good question and so we continue to own and operate the business and the days fall, where they may so we do expect the transaction to close after the season has ended so we will operate the business get the get the cash flow from there.
Tax season that we invested in last year to get to the season to remember you lose money nine months out of the year and you make money three months out of the year. So we've invested those losses into the back half of last year.
To get the tax season, this year and to the extent that the transaction.
On.
Closes later.
We will continue to fund that business and fund their weekly monthly.
Operating losses until the transaction closes so oh God that gives you a little more color.
And did you say.
What you're expecting from in terms of cash flow from the tax season. This year.
I think last year, obviously, it was delayed so not true.
For horrible.
We'll look at in a normal tax season, and we do not believe at this point that the deadlines will be extended.
I think we did 37 million of EBITDA last year, so call it $35 million to $40 million EBITDA for that business you would generate in excess of that during the season and then you invest.
Some of that back into the remaining nine months. So just directionally you should expect that tack.
Tax season generates more than 100 per cent of your cash flow for the year if that helps.
Yeah that's helpful. Thanks.
And then just as a follow up I guess I'm curious, how you're thinking about if you're still I guess I think historically, you said, 25% pay out of EBITDA and dividend. So now with PSP and obviously the refi debt. How are you thinking about that return to shareholders and I guess, if you're guiding debt 310 million net EBITDA this year that equals out.
To dividend about 193.
It would be higher also stepped PSP was there for a full 12 months I'm just curious how youre thinking about that now going forward.
Sure. So when we think about it frequently.
Right now I think that we're we're comfortable with the dividend rate, but I don't want to do is I don't want to be going up and down and I never want to go backwards.
We don't want to generally.
You make policy changes in the middle of the year I mean, we look at our budget, we see where we are you know I don't think that we need to be right up at that 25% level, yet I do think that's where we aim to be down the road, but.
Are there other factors in other uses of cash that may be it may be more valuable than an immediate increase in the dividend but.
Long term, we do expect to continue to grow the dividend we want to create.
A track record that can be relied on for increasing dividends and never going backwards and I think we're on a good path.
Proving that out.
Okay, great if I could just add one more follow up on the impact of the supply constraints.
I guess did you guys break out at all the impact to sales and I guess, the cost associated with that and I assume.
So it's already supply constraints within appliances, and somewhat furniture, but now we have the port congestion to so is that adding to the issue and when do you expect that to catch up.
Sorry, the first part of your question I got the left for just asking the first part again I missed that.
Yeah, great related yet.
Or can you give some more color just on kind of what you guys for like the impact of sales, where because the lack of supply.
I assume mainly American freight and then also if there was increased costs related to the port congestion that flow through in fourth quarter, and maybe first quarter.
Yeah. So your costs are higher it's not just related to one thing.
When you think about what happened last year.
You know as everybody had to shelter in place all the manufacturers shut down whether they were domestic or international just people werent going to work.
And that's really.
That's what's driving the majority of it the weather in Texas doesn't help port delays don't help but those are those are at the margin I think that what you are seeing industry wide is product cost increases because.
Supply is low end.
Just simple economics supply and demand in and the manufacturers are increasing prices because they know that they can get it that will.
We passed that on it's not impacting us.
But over time.
Revert back to the mean in supply and demand.
Lay itself out and that'll be a tailwind for us.
On the road.
I really wouldn't look at any one thing though.
No.
There is no great fix where if the ports open up everything is going to go back to normal. It's just people are.
Getting getting what they can get for their product, they're charging what they can charge for freight and if youre not willing to pay the toll then that trucks going elsewhere. So for US we just want to serve our customers as well as we can and make sure that we have product for them.
So we've got some some skus that are 100% stock and some that are 50, it's just it's across the board and.
But I would certainly caution you to just think about any.
To avoid thinking about any one.
Fixed debt will will solve this issue I think I think it lasts probably longer than people think but.
We'll make it through it and obviously the performance is there as far as how many dollars for left on the table.
I don't even know the answer to that.
It's not insignificant that's for sure, but but the reality is.
If you if you start looking backwards at what could've been then you get the next year and then you think about alright, well then how does that compare.
It's a slippery slope.
I think we really look at.
What our plan is for the year.
The cadence is going to be awkward, you'll have very very unusually large comps you know when you're going against periods, where stores were shut in debt doesn't really make a lot of sense and then youll have some businesses when you get to the summer like American freight that we would have.
Large negative comps because.
On the reopening and the stimulus but.
As it turns out for the whole year that actually works out well just like it did last year, but we had zero revenue for an extended period of time.
Lots of tonnes from being shut down then in the summer.
You ended up getting a lot of revenue back and then there was significant strength throughout the balance of the year. So that when you actually look at the whole year.
Didn't know what happened within the year it would've been about exactly what you expected that was just blind luck, but now we're in a period where stores are opened we certainly do plan for them to remain open if they don't then we'll certainly let you know what that impact is but the cadence will just be strange on month to month basis.
We'll help you.
For stand what that means.
As the year goes on.
And how that how that impacts our plan.
We could have.
Negative comps in American freight and for example in June or July, but still be absolutely fine for the year.
Got it okay, great. That's really helpful. Thanks, so much good luck this year.
Thanks.
Thank you. Our next question comes from Larry Solow with Who's joining us for currency.
Good evening and thanks for taking the questions on echo the congrats on a more than respectable year on a tough environment.
Yes.
Brian maybe just a global question just in terms of obviously I assume your appetite for more deals remains on mute.
Obviously, the interest environment is favorable.
How do you how do you balance that I assume there's opportunities out there are certainly dislocations in the market should yield some opportunities how do you balance that with sort of your net debt to EBITDA. It looks like it's about three times on a pro forma basis, so not exceedingly high but sort of that I think where you kind of want it to be do you feel.
Your priorities maybe are more on the short term debt pay down some debt rather than acquisitions or how do you sort of balance that.
Yeah. So first of all I think that book, we could function with higher levels of debt and we can also function without acquisitions I mean, we can grow the business and it's still accomplished a lot.
It's nice to be able to continue to diversify its nice to be able to add scale to the business.
We think that helps we think the diversification of our for our cash flow streams helped in this last refinancing.
As well.
But I think it's right now the most important thing for US is really just like we did for our equity holders.
Doing what we said we were going to do I think we need to do that.
For lenders in all of our stakeholders and we've committed to getting back to within our financial targets of under three turns of net leverage when we lever up to do a transaction and I think that it's important for us to to actually do that and then prove it out first and foremost.
So they're always going to be great transactions, but they may not always be right for us I mean, we're always working on.
Potential brands to bring into franchise group mean that that's our job, but we're gonna be doing this a long time. There is no there is no rush.
And I think that will get far more benefit down the road from doing what we do.
They were going to do and then being able to remind people later that day.
We did do that.
Over and over again.
And then just jumping on on the next great deal I mean, there are.
Plenty plenty of opportunities and they take time anyway. So I don't feel any anxiety to go add another one but when you think about the flexibility of this capital structure now.
We have the ability to add leverage to help us get a transaction done generate cash delever, we've got multiple ways of delevering.
As well and clearly this liberty transactions. Another example that probably wouldn't have thought of before but it was the right thing to do and we still will have a large valuable asset in the equity of the combined business sitting on our balance sheet, it doesn't impact our or EBITDA or earnings per share.
It's just it's an equity investment, but it'll be something that matters for us down the road and we're happy to be doing it.
But look we can we could lever up to acquire assets delever through refranchising cash flow generation debt Paydown and then do it again.
As long as we don't get.
I don't think we will go north of four turns for a transaction, but I also.
I think it will be materially lower than we are today before we would.
Look to do another material transaction.
Okay. Good and then just a specific question just on the vitamin Shoppe.
It seems like the business that may have been most beneficial on the longer term for from the pandemic.
I know on your part I think you guys were sort of I think plan on comps being down and you were.
Closing some stores they were losing money on obviously and then it came in with greater focus on health and health care that changed that a lot.
As you look out over three years to five years, you probably saw some of these pressures from Amazon and the large online retailers.
Offset maybe by your own online efforts. So do you see this business as more of a flattish to slight growth on the topline and your operational improvements continue to drive bottom line growth is that a good way to view it.
You're talking about over the long term yeah, yeah, I'm talking three to five years.
As we.
Sure.
Yes.
I think what happens three to five years from now.
At vitamin Shoppe will be determined by what.
What we do what the management team does.
Today, and what they've been doing for the last couple of years that their ability to increase their private brand penetration.
Their ability, which they they invest long before we got here they started investing series.
Seriously in in their direct to consumer channel into ecommerce. It is something that the previous management team prior ownership overall vitamin shoppe.
Really they were a little late to the party, but Sharon and her team has invested significantly since she came on board and because they did that they were ready for what happened last year, where it wouldn't have been nearly as successful of the year otherwise. So I think what you really got was COVID-19 speeding up the process.
And proving the value of the ecommerce on the direct to consumer channel I think that from our franchisees perspective franchisees always going to ask you what do I get for my royalty dollars why am I paying you well there are two distribution centers in a heck of a direct to consumer business.
Sitting there ready for them to take advantage of where they can get benefit from.
Retail transaction without ever actually having to.
C or deal with the customer that's that's pretty valuable and that was driven by previous investments and what the team is doing now so now look that last year I would've expected our focus to be.
More on private brands, but you ended up having a shock to the system with the pandemic.
And you're really just fighting for your life and so what you're selling whether it's your product or third parties mattered a lot less but I do think that the focus on private brands and the success that the team will have increasing that penetration will create a stickier customer and lead to customer growth that leads to.
<unk> revenue growth down the road.
<unk> E Com book will grow faster than brick and mortar, but brick and mortars growing now it's it's.
It's not like today, we're talking about.
Shrinking brick and mortar business, that's being offset by.
M E comm growth does that change three or five years for now.
I think that'll be determined more by what happens.
Within the business over the next year or two then.
Anything else I can think of.
Okay, Great I appreciate that color if I could just slip one more in just the buddy's comped down is that on the comp down for buddies year over year does that include debt. Excluding the franchise agreement or is that is that or is that including on.
All right.
Yeah, it's a double down so you're losing revenue because you're taking.
Stores out the corporate stores out the 47 that we re franchise, but the but the organic comp within bodies I think that I think that'll be negative this year I think that the rent on industry.
We're very unique in gist.
Just how many parts of the pandemic touched it and what I mean by that is the runs on an industry was very used to.
Getting they get there.
The customer gets a tax refund in February and they spend that they buy out their agreements you get a lot of revenue, it's lower margin revenue, but it's a lot of revenue because instead of paying you $40 a week they are coming in and paying $500 now to.
For buyout their agreement or something larger than that so just dollars are larger well last year. The government stimulus turned into a second tax refund. So you really got a double dose of that revenue.
Which is really just one time revenue and then you need to go replace that customer you buy new product and you put the product back out on rent and you go rent and collect in the cycle continues.
Hum.
My view is that you know.
That will also revert to the mean, just so happens that doesn't mean, the businesses and a great business it'll continue to grow over time, and but I think that there was when you're putting up last year I think we had a quarter with like 15% comps and that's that's that business its absolutely.
That was driven by the stimulus and I don't we.
We don't we don't budget for that to happen again this year. So yes, there is.
Here's to be another round of stimulus coming but I don't for.
For our budgeting purposes, I don't want to I don't want to have to think about all right. We're going to get the same thing again with this stimulus. It's just if we do great, but if not we'll be fine the business will keep generating cash we're going to continue to help franchisees get stores open in debt.
It's more about what happens year after year after year than any one particular quarter.
Got it okay, great. Thanks again appreciate it yeah.
Yes, no problem.
On this concludes our Q&A session, but today I would now like to turn the call back to Brian <unk> for any further remarks.
Great. Thanks, Carmen and thank you all for joining US. This afternoon carbon you can conclude the call.
Thank you, ladies and gentlemen for participating in today's conference you may now disconnect.
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