Q4 2021 At Home Group Inc Earnings Call
[music].
Greetings and welcome to the out of home fourth quarter fiscal year 'twenty 'twenty One earnings conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.
I'll remind you of this conference is being recorded I would now like to turn this conference over to your host Mr. Arvind Bhatia, Vice President Investor Relations. Thank you Sir you may begin.
Good afternoon, everyone and thank you for joining us today, we're at home as fourth quarter fiscal year 'twenty one.
The results conference.
Carl.
On the call today are chairman and Chief Executive Officer Lee Bird.
President and Chief operating Officer, Peter of course Huh.
Chief Merchandising officer, Chad Stauffer, and Chief Financial Officer, Jeff Knudson.
After the team has made their formal remarks, we will open the call to.
Questions.
Before we begin I need to remind you that certain comments made during this call may constitute forward looking statements within the meaning of the federal Securities laws.
Such forward looking statements are subject to both known and unknown risks and uncertainties that could cause our actual results or performance.
The differ materially from such statements.
Known risks and uncertainties at referred to in at Home's press release issued today.
And at our SEC filings, including our annual report on form 10-K, and subsequent reports.
The forward looking statements made today are as of the date of this call or other of specify.
Specified day.
And at home does not undertake any obligation to update any forward looking statements, except as required by law.
Any discussion during this call of our results for the current quarter to date are subject to variability and may not be indicative of our results of our trends running full reporting period.
Finally, the speakers may refer to certain non-GAAP financial measures all of this call.
A reconciliation schedule showing the comparable GAAP versus non-GAAP financial measures is available in at Home's press release issued today.
If you do not have a copy of today's press release, you may obtain one by visiting the Investor Relations.
The page of the website at Investor day at home Dot Com.
I will now turn the call over to Lee.
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Inc. Garvin and thank you all for joining us today.
Before we share of Q4 results with you I wanted to take a moment to thank our nearly 7700 team members for their continued.
Can you dedication and hard work despite unprecedented challenges this past year.
Their resilience was critical in helping us to deliver a record year, while remaining focused on our highest priority.
In the health and safety of our team members and customers.
Turning to the results I'm extremely pleased with our record Q.
Poor performance and the continued momentum in our business comp store sales of nearly 31%. We're well ahead of our increased expectations of 23 to 24 per cent.
Due to acceleration of our business in January.
Our new and non comp stores also continued to perform well on all key metrics.
As a.
Result of upside in sales and strong flow through to the bottom line, we delivered pro forma adjusted EPS of the dollar and Eaton and.
And adjusted EBITDA of nearly $120 million.
Well ahead of consensus expectations.
Financially, we're in our strongest position ever as a public company and in the quarter.
Order with more than 125 million in cash nothing drawn on our ABL facility and a record low leverage ratio 0.5 times down from three two times a year ago.
Consistent with the last several quarters, our outstanding Q4 performance was broad based in terms of departments geography.
Thiago B and age of stores and it was driven by strong growth in both traffic and ticket.
Within our everyday business all departments comps solidly positive of shoppers continue to decorate and organize their home and spend time in their kitchen.
Q4, Comped and wall decor, textiles accent decor and.
In furniture home organization, the kitchen entertainment or well above company average.
Seasonal comps exceeded expectations, despite inventory constraints as we sold through nearly 90% of Christmas product at full price compared to our typical 70 per cent.
Moving to the most profitable Christmas season in our.
History.
Geographically all districts were strong and overall performance across our newer and older stores with consistent including stores older than five years.
As I mentioned during January we experienced an acceleration in there a bit.
We believe this was driven by a combination of factors, including the.
The benefit of the second stimulus.
The more expensive bed Bath and storage E D L P plus event.
And success of replenishing inventory in the face of supply challenges.
Strong early sell through of our spring seasonal merchandise was also a small contributor to of january's outperformance and an encouraging indicator.
Of our continued growth in fiscal 2022.
We remain excited about the debt we're driving in our redefined go to market approach R. E. D. L. P. Plus campaigns continued to highlight at home sharper pricing and value proposition of category reinvention and collaboration showcase newness and freshness.
Our growing Omnichannel business is also offering more convenient for our customers.
We offer vocus in curbside in all of our stores the local delivery.
More than 70% of our stores the expanded delivery partnership with pick up including postpaid is progressing well and was critical to serving our customer.
During the busy holiday season.
Before I turn the call over to Chad I want to quickly talk about trends in the ongoing first quarter.
January's momentum has continued into fiscal 2022, we're off to a very strong start and see potential for Q1 comps of 142%.
<unk> of 153% of.
Obviously, we have easy comparisons due to mandated store closures in Q1 last year, but even on a two year basis, our comp trends have accelerated from the fourth quarter.
Jeff will provide additional color on sales and profitability expectations later in his prepared remarks.
Last quarter, I mentioned, how our chief merchant, Chad Stauffer and his team are striking the right balance between the art and science of merchandising.
I'm pleased to have Chad on the call. This afternoon to share his thoughts on the factors driving our fixed debt and the significant opportunity in front of us.
The long and Chad comment of our President and Chief operating Officer, Peter Corsa.
But an update on our operational initiatives before turning the call over to Jeff for a few financial highlights.
Chad.
Thanks, Lee good afternoon, everyone I'm delighted to be on the call today to speak about the incredible strides we've made in all areas of merchandising.
Over the past two years, we've significantly.
Gently elevate at our merchant organization through a series of focused investments.
Kept our customers at the center of our business and enhance our capabilities to better meet their needs.
Couldn't be prouder of our more disciplined and sustainable approach.
At the leading value retailer of home decor, we know that our customer sees value at.
At the intersection of three things of broad assortment unique product and the best pricing first in this three legged store with our assortment. We are focused on making sure our customers familiar with the unbeatable breath that we offer we out of sort of other home decor stores with up to 50000 of items across 15 departments.
For instance, we carry 55 different colors and patterns of patio cushions in 17 different shapes and sizes and we carry more than 800 different bedding products and nearly 1300 different while the core skus in store.
C. A R E D. L E plus campaigns, we are encouraging our customers to cross shop additional departments.
If you look back on the first year of these events were analyzing the results and refining our approach in fiscal 'twenty two.
There are some events that means selling more inclusive stories and expanding the category focus where appropriate.
For instance, we pivoted last spring bed and Bath events at bed Bath and storage of at this January the drove even.
Of the financial outcomes.
Bringing the customer truly unique products at the second leg, we refocused our product trend and merchant teams on building cross category themes and trends revived our discipline around the reinvention of execution and developed new collaborator relationships.
Our fourth quarter every day.
Strawberry Reinventions, such as kids bedding healthy home and Campbell comps nearly twice the company average continuing a positive trend and proving that our reinvention engine is working well.
During Q1, we are focused on the two key reinvention wall art and home office and quarter to date results are promising.
Honestly, we have completely revamped our wall art department by creating lifestyle sets improving the fixtures expanding the space for large art and merchandising by color to improve customer shop ability. We have also launched several brand new home office collections and the variety of styles.
Our collaboration.
<unk>, which are multi year of rotating partnership with brands and designers continue to be very important for us. These collaborations incumbents of variety of season styled in rooms within our assortment.
Highlighted traditional collections, which were I think home decor media Star Grace Mitchell and iconic toy brands at the Eau shorts in the fourth quarter.
We launched an exclusive collection with London fashion designer Tracy Buoyed in February inspired by art travel adventure and the patterns of Japan and look forward to sharing the exciting details of the collaboration with the World class athlete in TV host this fall.
The third and final leg as having the best prices.
We established an in house team to ensure our price leadership across categories and key items, increasing both the discipline and frequency of our pricing analysis.
During Q4, we offered lower opening price points in several key departments, which was instrumental in driving comps as well as lower markdowns.
Our team is laser.
<unk> total stumble, serving our customer and driving our business through sharp everyday low prices.
As we turn the page the fiscal 'twenty two we remained focus on striking the right balance between the art and science of merchandising.
From an art standpoint, we're incredibly enthusiastic about our assortment this year on the seasonal trend.
But we've already seen strong performance from our new patio collections, which were of coordinated with outdoor decor themes to enable customers to easily pull together a cohesive patio space.
On the science side of the house, we are confident that our progress in pricing sourcing inventory management and SKU rationalization will continue.
And the financial returns for the business.
For context, when I joined at home nearly three years ago, our internal sourcing team is comprised of the handful of people. Since then we have out of bandwidth and deepened our capabilities accelerating from practically no direct sourcing in fiscal 2014% to 15% of our Assortments.
To enhance the end of fiscal 'twenty and nearly 20% today.
In addition to hundreds of basis points of margin improvement at each item source directly we are able to create a more agile supply chain, which allows us to diversify country risk drive product quality and improved speed to market as we work toward our longer term goal of direct.
Assortment of seeing 30% of the assortment.
Our inventory management capabilities of followed a similar trajectory.
No that best in class retailers have unbelievable planning organizations, and we have been building and strengthening those skills within the at home we.
We have improved the synergy between the planning and buying functions.
Our dedication to these capabilities enabled us to flex or planning muscle like never before this past year, including during periods of unprecedented sales, which has positioned us well as we enter fiscal 2022.
Finally, we're exhibiting at home company values of being smart and scrappy through our SKU rationalize.
<unk> and edit to amplify strategy our stores, maybe the largest one stop shop at home decor, but it's important that each of our items as the clear purpose for our customer and drive optimal financial outcomes for our business.
We are analyzing each category and eliminating less productive skus reinvesting those.
$3 into higher sell through of items and big ideas, while still maintaining the impressive collection of you're known for.
Over time this effort should improve inventory turns and generate better return on working capital.
We began this effort in fiscal 'twenty, one with four out of our 15 departments and have already seen.
Inventory nice comps in those areas.
Plan to tackle another four to five departments this year slightly reducing our total SKU count.
I hope you can sense, how excited and proud I am of the journey. We've been on is the merchant organization and where we are today from the very beginning our vision has been to become a more vertically integrated.
The home decor category killer.
With our strengthening capabilities in trends in product development pricing sourcing inventory planning and allocation, we are well on our way to realizing that vision.
Retail is truly a team effort. So we are also incredibly grateful to the operations and field teams for helping to execute our.
Vision in these stores every day.
I'd like to turn the call over to Peter of course, our president and COO to talk through some of our operational developments Peter.
Thanks, Chad good afternoon, everyone.
First off I'd like to say, thank you to our team members in the stores distribution centers and home office.
For delivering a truly incredible year for at home.
We are so proud of our field leadership for navigating through unprecedented and challenging variables of fiscal 'twenty one.
They implemented safety precautions that enabled us to reopen as soon as local regulations allowed.
Rolled out omni.
The options for our customers at lightning speed and executed E. D. L P plus events and Reinventions that drove outsized results.
Their ability to adapt on a daily basis, while staying focused on our key strategic priorities has been a driving force behind our record results.
As you May remember.
Channel typically flex our store labor to support both inventory flow and customer facing activities, we maintain that philosophy, while improving our inventory position in delivering more than 30% comp sales growth in each of the last three quarters.
As a result, our stores are well staffed.
We clean and organize while continuing to implement Covid safety protocols.
Customer satisfaction of net promoter scores have continued to increase.
In addition, despite high levels of product flowing through our supply chain and onto the sales floor. Our shrink rates have remained very low thanks to the process.
Claim improvements we made in 2019.
In fact, our labor productivity rates and freight processing times at both the stores and the distribution centers are the best we've ever seen.
In recognition of such impressive teamwork and resilient is helping us to drive record results we're delighted to.
<unk> stayed out record bonuses for fiscal 'twenty one.
Turning to fiscal 'twenty, two our biggest area of focus is the current international supply chain environment.
As you know for the past several months consumer driven industries have faced equipment shortages and shipping delays related to COVID-19.
Two of disruption and the global increase in demand for goods.
In turn these constraints have significantly inflated freight cost per importers.
We have been working closely with our transportation partners to help us navigate these challenges.
We started by proactively adjusting.
Covid the structure to move our shipments through the supply chain faster and support our extraordinary sales growth.
As a result, our backlog rates are well below industry average.
We have been prioritizing key items and seasonal product for our patio and garden assortment at.
Well as items related to our visuals.
Our racing dicing and marketing initiatives.
To help ensure the success of planned campaigns.
We have also invested store labor to help speed incoming product to the sales force and our distribution centers are operating at peak efficiency, turning around freight and less than 24 hours.
These efforts have enabled us to not only replenished inventory, but build our position despite continued shipping delays.
In fact, we have been one of the top 40 importers in the U S for the past few months based on substantial cube volume we utilize.
We are of high class problem.
With net sales growth of about 40% in each of the last three quarters. There is record demand for our products.
But because we are far exceeding our contracted volume securing the product to satisfy the demand comes at a higher cost.
While the current constraints on the global supply chain or beyond.
And our control I am extremely proud of how our team is managing and mitigating to the best of our ability.
Our success is reflected in our ability to support the accelerating top line momentum we are seeing in the first quarter.
We are in the process of negotiating our annual transportation contracts and the new.
The rates will become effective may one.
While it is difficult to predict the timing, we do expect freight costs will eventually normalize from the current elevated levels.
With that I'll turn the call over to our CFO, Jeff Knudson to provide the financial update.
Thank you Peter and good afternoon, everyone.
I am pleased to share a few financial highlights from our record Q4 results as reported net sales for the quarter were $562 million or up 41 three per cent.
Adjusted net income of $72 6 million and pro forma adjusted EPS of $1 eight nearly tripled from.
From the year ago period.
Adjusted EBITDA grew 94% to $119 6 million and we generated free cash flow of more than $85 million during the quarter.
As Lee mentioned comp sales were well ahead of our pre announcement in early January and flow through to the bottom.
And what's also very strong which led to the significant earnings upside.
As a reminder, the fourth quarter of fiscal 'twenty. One included an additional week versus fiscal 'twenty. The extra week contributed $31 4 million in sales and generated an estimated at $15 9 million of gross.
The profits and $4 3 million in SG&A expense as a result, we estimate the extra week contributed $11 6 million in adjusted EBITDA and 14 fence in EPS.
While the earnings release, we issued this afternoon, mostly reports are key metrics for the 14 and 53 weeks.
<unk> ended January 30th for ease of comparisons I'm going to highlight a few key items on a 13 and 52 week basis.
Q4 comps were 38% and total sales increased 33, 4% to $530 6 million for the 13.
At period.
We estimate that Q4 gross profit was up 77, 5% and gross margin increased 950 basis points to 38, 2% on a 13 week basis.
Consistent with the improvement in Q3.
Approximately 450.
The <unk> points of the improvement was driven by product margin expansion as we benefited from a higher mix of full price selling and reduced markdowns in both of our everyday and seasonal departments.
Occupancy and depreciation expense leverage on record fourth quarter sales growth and lower outbound freight cost.
The big row of the remaining gross margin improvement.
Mandated store closures related to COVID-19 reduced our inventory flows in the first half of the year, reducing the outbound freight expense, we recognized in the third and fourth quarters.
As a reminder, freight expense impacts cost of goods sold as inventory turns.
And based on our terms, there's typically a two quarter lag in the timing of when these costs hit our P&L.
By the same token increased inventory flow to support record demand coupled with higher freight rates in the latter part of fiscal 'twenty, one and so far in the Q1 will impact our P&L in fiscal.
'twenty two.
I will shed more light on this momentarily.
Q4, adjusted SG&A was an estimated $111 5 million or 21% of sales on a 13 week basis.
This included slightly more than $5 million and performance based incentive compensation above the normal.
Reflecting the are incredibly strong year.
Relative to Q4 last year, our adjusted SG&A ratio increased 240 basis points, driven by higher incentive compensation and advertising expenses, partially offset by operating leverage on our strong sales performance.
Within adjusted SG&A store Labor was approximately seven two percentage of sales in line with the full year and advertising was approximately three and a half percentage of sales compared to two five per cent for the full year.
Turning to the full fiscal year as reported net sales of one.
We will run seven 4 billion were up 27, 3% over fiscal 'twenty and adjusted net income was $173 6 million per.
Pro forma adjusted EPS was $2.68 as much as the prior three years combined.
Looking at some of the key metrics on.
One point, the two week basis fiscal 'twenty, one comps were 19, 4% and net sales increased 25% to $1 7 billion.
While we benefited from a wave of industry growth last year, we believe the strong execution of our at home to point out strategy.
Helped.
This gained meaningful market share, especially since fully reopening in June.
On an estimated 52 week basis gross profits were up 51% and gross margin increased 590 basis points to 34 three per cent.
Occupancy depreciation and.
<unk> center expense leverage on record comps, along with lower outbound freight and distribution center costs drove approximately 400 basis points of improvement.
Product margin expansion as a result of a higher mix of full price selling accounted for the remaining increase in full year gross margin.
Okay.
At 52 week basis, adjusted SG&A expense was up 14, 1% year over year and adjusted SG&A as a percentage of sales was down 190 basis points to 21% the.
The improvement in adjusted SG&A as a percentage of sales was the result of reduced.
The opening expenses as we temporarily paused new store openings at the onset of the pandemic lower advertising costs as we pulled back on advertising during the time, our stores were closed and expense leverage on full year revenue growth of 25 per cent.
This improvement was partially offset by higher.
The pre of compensation, reflecting our record performance.
For the full year adjusted operating margins improved 780 basis points to 13, 7% and adjusted net income margins improved 700 basis points to nine 7% on an estimated 52 week.
Incentives.
Adjusted EBITDA, excluding an estimated $11 6 million contribution from the extra week was 347 million or of 98%. This.
This included approximately 24 million of net benefit from rent deferrals and rent abatements related to Covid.
Week Beijing.
$16 million of which will reverse in fiscal 'twenty two.
During the fiscal 'twenty, one we drove a significant transformation of our balance sheet by delivering record free cash flow and refinancing our long term debt.
For the full year, we generated three.
19, $83 million of free cash flow compared to use of the $18 million in fiscal 'twenty of more than $400 million improvement year over year.
To put this in context heading into fiscal 'twenty, one we were targeting and modestly positive free cash flow.
The strong free cash flow generation.
300, and lower our net debt position by nearly $370 million and improved our leverage ratio to a record low 0.5 times versus three two times a year ago.
We ended the year with the $126 million in cash more than 10 times, our cash balance at the end of fiscal 'twenty.
Held 319 million and long and short term debt and no outstanding balance on our ABL revolving credit facility.
In addition, we own nine properties that can be monetized over time through sale leaseback transactions.
For reference over the last two fiscal years, we have sold 12 properties.
The average of 13 million per site.
From an inventory standpoint, we continued to improve our position.
Total inventory at the end of Q4 was down 13% year over year compared to down 20% at the end of Q3 and 30% at the end of Q2.
Despite.
As for supply chain congestion and stronger than expected sales momentum, we have been able to replenish inventory at a faster pace than we're selling it to meet demand.
Our inventory turns improved meaningfully during fiscal 'twenty, one as we continued to put greater emphasis in this area and leverage our enhanced planning and allocation.
Despite capabilities.
Looking forward, we are not providing formal guidance for the full year given the continued uncertainty related to COVID-19. However.
However, with more than half of Q1 behind us and the challenge of modeling against the unusual backdrop of store closures in Q1 last year, we are providing a little.
Bit of color on how we expect the quarter to play out we.
We do not expect to resume of formal full year outlook in the near future.
As Lee mentioned Q1 is off to a fantastic start based on quarter to date performance and expected trends for the rest of the Q1, we believe we can achieve comps of 100.
<unk> 42 to 153 per cent.
This would be an acceleration in comp trends on a two year basis relative to the two year trend in Q4, we.
We expect Q1 net sales of $450 million to $470 million versus $189 8 million in the year ago Pierre.
At the midpoint of the range would imply net sales growth of 50% over a two year period, including store growth of 18% over the same two year period.
For modeling purposes keep in mind that because of the mandated store closures during the first quarter Q1 comp store dollar.
We're only 10% of our comps for all of fiscal 'twenty one.
In terms of profitability. We believe Q1 adjusted operating income could be in the range of $55 million to $63 million, representing adjusted operating margins of approximately 12% to 13%.
As you think about the longer term margin profile of at home I wanted to provide some historical context.
Based on the new lease accounting standards, our adjusted operating margins were nine 5% in fiscal 19, five 9% in fiscal 'twenty and 13, 7% in fiscal.
'twenty one on of 52 week basis.
With 19% comps in fiscal 'twenty, one we drove more than 450 basis points of operating leverage leading to outsized margins on the other hand in fiscal 'twenty with comps down slightly our adjusted operating margins were below historic.
Historical levels.
Therefore, we tend to think of fiscal 19, 95% as more representative of the underlying margin profile of the business.
With respect of fiscal year 'twenty, two given our incredibly strong start to the year and accelerating momentum we would've expected fiscal 'twenty to adjusted operating.
To be well above fiscal year 19.
However, as Peter mentioned near term, we are of high class problem. There is record demand for our business, but also incremental freight cost to bring in products to support this demand as the team. We have worked hard and identified several offset to the freight headwinds Peter.
Described overall based on everything we know today, our best thinking is that adjusted operating margin for fiscal 'twenty two could be approximately 9%.
In terms of phasing given the two quarter lag from when we ship product to win these costs hit our P&L, we expect the impact.
<unk> of incremental freight cost to be greater in the back half of the year compared to the first half.
All other things being equal once the freight headwinds subside, we would expect our margin trends to normalize.
Overall, we couldn't be more pleased with the continued momentum in our business and we look forward to delivering.
During the another year of strong financial performance.
With that I'll turn the call back to Lee.
Thanks, Jeff.
Our extraordinary success this past year, despite unprecedented challenges and uncertainty has demonstrated the resilience of both of our business model and our team.
We delivered incredible sales volume.
Posted three of our biggest ever quarterly comps.
Generally the significant positive free cash flow and earned our largest profits to date.
We had record sell through on our Christmas fall and Halloween product ending the year in at very clean inventory position.
Grew our loyalty numbers by over 40% to over 9 million.
<unk> successfully launched our omnichannel capabilities and opened seven new stores during the year. These.
These would have been remarkable achievements in any year the hold special significant given the difficult environment and the limited visibility we had from much of the year.
As we look forward of fiscal 2022.
We are highly confident in our strategies to propel us forward we're at.
Cutely focused on three key areas customer acquisition and retention of.
Optimizing our inventory position and the enhanced execution of our at home to point out of strategy.
Over the last couple of quarters, we have experienced the step function increase in our customer.
Or base these new customers have rated us higher than even our returning customers on kpis, such as product quality and value.
Net promoter scores in satisfaction of an equally strong among new and existing customers.
Meanwhile, our insider perks loyalty program, which was recently named as one of the top of loyalty programs in the country by.
Newsweek continues to see very strong growth.
We added a record $2 6 million members to insider perks during fiscal 'twenty one.
Inside of Perk members continue to have deeper engagement with us and of meaningfully bigger basket size the non perks members.
These factors when combined gave us increased.
Confidence in the ability to retain our customer base.
At the same time, we plan to drive additional new customer growth through.
Through our brand building and the acquisition advertising strategy.
At homes unaided brand awareness increased steadily during fiscal 'twenty, one and in Q4 was up a strong 400 basis.
Year over year of good indication of our increased relevance with home decor shoppers.
Given the unprecedented level of competitor store closings and the billions of dollars in business up for grabs our targeted acquisition marketing efforts are also beginning to bear fruit.
Our second focus is at.
<unk> inventory position, especially in seasonal categories, you may recall that our seasonal business was severely inventory constrained in the back half of last fiscal year. In fact, our Q4 seasonal comps while healthy for more than 30 points lower dinner every day comps, providing some indication of the opportunity we have this.
This year.
Being at a better seasonal inventory position is already evident in our first quarter momentum.
In addition, I'm very excited about our fall and Christmas merchandise, which adds to my confidence in our seasonal top line opportunity this coming year.
Third is the enhanced the execution of our at home too.
Out of heat to ensure we have the most effective go to market approach industry, leading prices and accessibility to our products through the most convenient channels for our customers.
As Chad mentioned, we now have a full year of learnings from over a dozen E. D. L. P plus campaigns in fiscal 'twenty one day.
Learnings are helping us refine our approach and.
Building on our success just as we did recently with our bed Bath <unk> <unk> storage event, we of exciting new reinvention collaborations and price to announce in the coming months.
For competitive reasons, we plan to discuss these closer to launch we continue to enhance the omnichannel offering, which we launched only a year ago.
And we plan to test.
Ship from store in the fall of this year and drop ship next year.
With respect to unit growth I'm excited we have recently resumed at new store openings reigniting, our key growth engine.
Year to date, we've already opened six net new stores.
The increased visibility, we're now confident and the opening 15 net.
Net new stores this year, the upper end of our previous target of 12 to 15.
The additional stores will open in Q3.
In total new store openings will be equally split between new and existing markets, reflecting a thoughtful and balanced approach.
We are of a robust real estate pipeline with the clear line of sight for the next.
Several years and our opportunities are only getting stronger.
We have said before.
Next year in fiscal 'twenty, three we plan to resume 10% annual unit growth.
As we reflect on the long term, we are excited to be in a large and growing industry.
We believe the tailwind of strong home sales.
Nesting and D urbanization are likely to continue to benefit our industry over the foreseeable future.
However, as was evident last year. This rising tide is lifting all boats equally.
At homes differentiated model and effective execution has helped us to emerge as the key winter in our category.
We've always.
We said that our unmatched breadth and depth of assortment at everyday low prices and our low cost operating model set us apart. In addition, our warehouse like stores provide tremendous flexibility to pivot and adapt to Omnichannel, which we believe is the most sustainable long term model.
We're still in the early innings of many exciting initiatives and remain focused.
Focus on delivering strong and consistent results.
We continue to see a long runway with potential for 600 plus stores over time up from.
225 stores today.
Based on the current performance of some of our more mature markets. We think there is the potential for sales per store to average $10 million of more over the.
The long run, especially with a robust omnichannel strategy that we can increase of our customer reach.
In other words at 600 stores, we have the potential to be an omnichannel retailer with more than $6 billion in annual revenue.
We have never been more confident in our customer value proposition.
Our competitive positioning and our ability to capture this large opportunity ahead of it.
I'd like to close by thanking our team members and shareholders for your continued support of at home with.
With that operator, please open up the line for questions.
At this time, we'll be conducting a question and answer session.
If you would like to ask the question. Please press star one on your telephone keypad at confirmation tone will indicate your line is in the question to you made the class starts. So true most of your question from the true for participants using speaker equipment and may be necessary for you to pick up your handset before pressing the star keys, well known at all.
Physician for questions.
The first question comes from the line of Sterling Gutman with Morgan Stanley You May proceed with your question.
Hi, everyone nice results and the start to the year my.
My first question, maybe for Jeff if if freight costs werent.
The incremental headwind.
Can you give us a sense, where you would be guiding the margin and are there any other puts and takes relative to you know going back to that 9%, meaning selling margin, you're just making a planning assumption that mark you know that maybe selling margins will also be under some pressure.
Yes, I mean, you know as we.
The full prepared remarks, we would've expected it to be well above the fiscal 19 margins of nine 5% you know when you think about the puts and takes in the P&L certainly are afraid is the largest one there and theres really nothing other unusual going on outside.
Certain of the incremental freight that that's dragging us to be below normal this year and our outlook.
And the follow up to that and I respect. If you want you don't want to be that specific but can you can you put maybe some guardrails around the freight you know in terms of 100 basis points 50 basis point anything more the.
Outside of the granular.
We won't be that specific I would say, obviously when we point you back of the 95 per cent and fiscal 19, and the 9% outlook. This year I would say because we're expecting this year to be above average you know by definition. It is greater than 50 basis points, but you know at this time you know we're not.
The amount of fine at and you know the full impact of that headwind is embedded in the 9%.
Fair enough and then if I can maybe can pivot onto the sales.
Wondering if you have enough data unlike customers and want the so so when you look at your you're spending whether it's this.
Not corner, you know a couple of quarter ago, whether it's the same customer.
Who is spending with you during the pandemic versus new ones and then what items are they buying.
You know as you I'm sure you contemplated some of this as you put your plan together for this year.
Sure thing meaningfully because we've seen a lot of new customer growth.
You're at three grew about obviously some significant increase in the industry overall, but overall if you take all of the home decor and home furnishings players their growth combined was really from existing customers coming in and spending more often we saw that as well our existing customers coming in and spending of spending.
The spending more with us, but we also saw of.
The industry of new customer growth, we had at 40% increase and the insider perks membership that would tell you that those are new customers. So we're really pleased with that new customer growth and the existing customer coming in and coming in slightly more often in your basket size for bigger to really please with the out performance overall.
The forward obviously.
Significantly we retain these customers that's going to be a key focus of ours going forward. We've had we our brand is super healthy right now are our new customers indicate strong satisfaction and high intent to repurchase.
The rate is higher than kpis like product quality and value in our NPS score is up significantly. So we feel like we've got momentum with those new customers.
And a great deal of the satisfaction with our existing customers from the performance, we had last year as well as obviously the momentum were seeing moving into the first quarter.
Yeah.
Great. Thank you good luck.
For me.
Our next question comes from the line of John Peyton Boswell at Guggenheim You May proceed with your question.
So let me start either for Lee of chatter. Both of you guys. When you wouldn't even think about assessing and trying to figure out demand for the back half of the year.
I know you are you where you got a flow of inventory in three of them three or four waves, but you think about.
The things people can spend money on in the back half of the year right.
Travel and so forth, which they couldn't last year.
What what challenges at present, and how do you think about demand.
At the back half of this year of how do you want to plan for that.
So for us the.
The past back half of the year was inventory constrained significantly obviously would 90 per cent full price selling and.
Christmas I would tell you that there was a lot more business to be had if we'd had the product so.
So we've looked at what our out of stocks, where and when those dates where by store and have seen a lot of opportunity. So yes people have more options to choose to spend their money, but we left a lot of money on the table. So we're really pleased with the tools that we put in place in the inventory.
Planning and analytics standpoint that helps us look at the business and as we've looked at our performance at last fall and we look and plan for this coming fall, we take those opportunities into into the into our thought process. We also put in multiple flows we can read the business throughout spring and through the summer.
Summer so if we need to clip orders if there is if there is you.
You know lets say less demand than we originally planned and we can we can adjust those upfront.
So we have less risk we can also allocated to where the businesses and with those later flows we can allocate at where the demand is so we feel like we've risk mitigated those situations at the same time.
Really leaned into the opportunity there was a lot of money left on the back on the back side last year and as you know we buy in halves. So patio is in spring and summer and Halloween harvest and Christmas is in the back half than the first half of the year, we got an easy compare.
From the zero point of three comp in the back half we've got.
We're challenging compares but not when it comes to seasonal if theres a theres a lot of opportunity there for us to buy.
Maybe as a follow up to that so seasonal of the fourth quarter I know you'd planned at to be up low single digit I don't think it was up double digit right. It was probably up five to 10 and do you think next year could it be up substantially greater.
Morning.
You know it was low doubles.
The on the seasonal side, which we were really pleased.
And it was better full price selling it wasn't like we could get any more product. So we're pleased but theres just a lot of money left on the table until where we're buying behind those ideas.
We've learned a lot we learned what the customer.
Other than the ones, especially with these new customers to what were the interested in buying and so we've been able to plan our assortment accordingly and go after that opportunity.
And then maybe just lastly, when you think about marketing and not so much marketing dollars I think more outreach right E Mail E mail outreach to customers.
How will this year be different.
Customer last year right you've acquired a lot of customers is the idea of it hit them on each of the events.
And so you can get some.
Some engagement on at least some of those events as at the primary focus.
Well, there's a number of things we're focused on in marketing first is we're going to spend more money we were targeting three five.
<unk> net of sales that will help continue the momentum forward, we've not spent that level in our history, we wanted to.
Oftentimes sales has outpaced that so we're going to be spending more money are creative is focused on acquiring new customers and keeping the insider perks members that we gained engaged.
Our brand voice team you may have noticed.
The 5% back half of the year, it's far more fun and playful and it reflects our brand personality and a lot more of what we say more southwest Airlines less of American Airlines at will differentiate us we don't take ourselves very seriously I mean in our space. Most people are very serious they are seldom been sold and fancy stores.
And the commission sales folks were not wear.
Certain of the concrete floors metal shelves itself.
At self help model, so why take ourselves seriously. So the tones different we're going to spend the money against supporting <unk> plus events. We've seen at that's drove traffic, which has moved one in frequency, which is what we need.
We were going to be able to talk about our new news around seasonal and collaborations.
The collaborations you you had some cut through with that the value proposition has continued to be enhance we've got our best price promise in the store of household free returns, but prices are going to be larger and there we've actually changed the size of our hang tags on our product and our packaging to be bigger on the prices. So.
So these were loud and proud about our prices our direct mail campaign are you going to be very targeted.
The the the loyalty team our CRM team, we now have the team and we're focused on how do we get.
More out of each decile and so that's going to be focused effort on our part and more.
We've targeted and customized for the customer and digital always is it's more than half of our customers are coming to the website before they even come to the stores. The digital Super important so maybe a long answer to a short question, but that's the comprehensive approach that we're taking the marketing because we feel we can gain more customers still this year and keep.
Most.
The customers that came in last year, and havent spending more than last year.
Thank you guys.
Thanks, John.
Our next question comes from the line of David Bellinger with Wolfe Research you May proceed with your question.
Okay, great. Thanks for taking the questions here.
You mentioned the acceleration.
In January comps.
On into Q1, so can you comment on the any impact from the adverse weather in Texas from the surrounding markets and just how much of the headwind has that been quarter to date at good sales have been even stronger than some of the expectation would be that line for Q1.
Sure I mean, obviously it was a tough time for our home state.
Of the car sympathies are with those that were affected there was a lot of people affected broken pipes and people have significant home damage.
Many of our team members had that too. So we're very sensitive to that with several stores that were closed or limited hours for a couple of days during the storm.
The business rebounded as soon as the temperature warmed up business.
<unk> business bounce back to as soon as people got power back. So our comp guidance includes the February weather impact. So you can see that obviously, we had strong momentum in January.
A slight step back just because of the storm, but that was the only step back. We've seen has been really strong business for us, especially when we're talking about comp.
Comped over.
<unk> 40 for the for the quarter.
Got it and then just another one on the freight costs here.
How are you assessing the the tradeoffs of incremental sales versus lower margin rates in light of these cost pressures is there. Some type of framework. We can think about there and is there even a scenario.
100, <unk>, where you you could sacrifice sales growth in order to maintain higher margin rates.
Yeah, I mean, I would say right now David I mean, we're working incredibly hard with our merchant team and Peter's team on the operations side to prioritize the freight making sure that we have the right product coming in to support our sales.
And even with the incremental freight costs and what that cost us in terms of incremental margin. The right thing to do for the business both near term and long term is to get that product onto the selling for and sell that through so.
It's not to the extent right now where we would ever sacrifice.
Or five sales in lieu of avoiding some increments near term incremental freight charges.
Understood I appreciate the help here thanks guys.
Thanks, David.
As a reminder, if you would like to ask the question. Please press star one on your telephone keypad.
Our next question comes from the line of carrier of Martin Sir You May proceed with your question.
Good afternoon.
The store.
Door footprint.
Expand and what's the the real estate opportunities out there for you all.
Yeah, there's obviously we've been doing.
Doing this for a nap years I've always seen of nice pipeline. There's a lot of stores that are available. We're excited about what's possible with our brand we can make a lot of different things work.
Because of the capability of our real estate architecture, and construction team and our store ops team.
The store that just opened just last week.
I'm in the Oklahoma City with three different store fronts side by side of Torrenting of the walls torn out between them and turn into an at home store and we're thrilled with that location already and that's the.
The example, we can take a store that was maybe smaller size and the can take some of the parking space spots out from the side of it and extend the length of the store or.
We can drop into a bigger stores and put in at fault Waller of R. Walton make at only the 85000 square feet, we need to we can be very flexible.
The pandemic is creating winners and losers out there, we've been emerging stronger and better positioned and taking share others of closing the door with one of the only really the only national.
National retailers interested in boxes the size so people call us first.
So I.
I would tell you I feel great about our pipeline of confident in our 600 plus store potential. There's so many markets, where we just starting quite frankly, California is just a few stores, we can get to over 90 stores there.
Tri.
Or we can the area. It's just getting started and we can do so many of their so I'm thrilled with what's there I am grateful for what our team can do and I don't see of constrained in terms of boxes.
And when you look at the omni channel capabilities of the your store fleet I think he mentioned the 70%.
<unk> kind of handle both of us.
What are the limitations that you see there with your existing pleasing of what are you looking for in the new locations.
So at the question again, just to make sure I get it right.
I thought I heard that you guys said you were handling both of us.
And the buy online and the Omnichannel at 70% of your locations and you just wanted to understand like what's the limitation for going fully to all the all of your stores Oh sure. Yeah, sorry. Thank you for clarifying that we have buy online pick up in store and curbside pickup at all of our locations.
We have delivered.
<unk> at 70% of our locations and that's just the constraint on our delivery partner.
And they are working on adding more markets to support us.
And Thats next day local delivery and it's with the with pick up the that's the name of the company and postpaid is also a partner of ours as well through them through their tool. So we're.
We're working on adding more markets, but in every single store you can do buy online pickup in store and curbside pickup and we look forward to testing the ship from store in the back half of this year debt to make us the essentially available nationally to anybody.
Okay, sorry, my apologies from let's look at sea or any of the.
And just lastly.
Yeah.
It's an interesting dilemma on in the sense that you are inventory constrained.
You've kind of proved the elasticity of of your product with the the 90% at full price selling.
Does that change at all in terms of how how you look at your pricing architecture going forward.
We're at.
I wouldn't say of changes our pricing architecture, we're going to focus on being the lowest price out there we need to win on price and when we do that we become more accessible to everyone and that's what we want to do what.
What I would tell you we get the price right and get the product right you can sell at at full price and it's not a markdown.
Well, we did learn with less inventory this year and we got better in terms of inventory positions throughout the year, we were down 30% in Q2 down 20% in Q3 and down roughly 13% in Q4, obviously, we've gotten better inventory position, we can actually run this business with slightly less inventory and that's what we've learned.
We can be better and smarter, that's what Chad talked about is rationalizing our SKU count volume behind bigger ideas and making sure that we've got the appropriate depth by store based on demand using a lot more of the science and the data analytics around being more efficient that's what we learned we could do better and that's what we're taking those learnings to help us continue to get the.
<unk> is ranked at the right store at the right time to drive the right outcome for the consumer and the right profit for our company.
Our next question comes from the line of Jeremy Hamblin with Craig Hallum. You May proceed with your question.
Thanks, and congrats on a great quarter and year I wanted.
Back on that last point.
About your inventory management and the adjustments.
That you've made which sounds to me like your markdown risk is probably going to be a little lower going forward. So as we think about this year at possibly by the time, we get the Q4.
We may be at a more normal.
Wanted to dig at.
The environment last Covid impact hopefully.
As we think about that differential between 10%.
Goods sold at the markdown prices versus.
30% in a normal year.
Given the change in inventory management and planning at.
Normal Ocean.
What's the kind of in your target in terms of how you would think about it and we could use Q4 of the example of how you would think about the per.
<unk> of goods that would be marked down on a normalized basis going forward and something like Q4.
Sure Jeremy what I'll talk about first is inventory.
Alex you're planning and just the the progress we've made and Jeff will cover a little bit of the margins on that but what I would say on the planning side at home to point out one of the key pillars of our at home to point out of effort was inventory management, we doubled the number of planners allocators want anymore, we one of more analytics around it and more eyes on our decisions.
Inventory put new tools in place and we created this and enhance the data analytics team looking at sales curves with Ben has provided to our buying team and the buyers I would tell you we've upgraded the quality of our buying team as well. They are just fantastic at picking great product and then our planning team is helping inform how much to buy you put those things.
<unk> together better quality product on the Mark price right and then bought appropriately youre going to end up with less markdowns. You also have the process from an everyday standpoint now. It's every other week, we do an open to buy so we can adapt quickly our orders up and down based on what we're seeing I would tell you as we think about.
As we think about our product Assortments, we're doing the assortment planning overall to make sure that we have of full and collected assortment.
When you make those decisions and then you put it through an <unk> plus program, which is when youre highlighting certain categories and then you separate your full price from your markdowns markdown sell.
<unk> been better because of the separation the full price looks fantastic. It's not it's not all of GM together with some markdown product as well so it's easier to shop in both cases and as we look at our customer of theirs bargain hunters and Theres home decor enthusiasts is the way, we're calling them the bargain hunters like the separated clearance, which is the <unk> plus.
Through as of our markdown management better we're selling more of a first mark. So I would tell you all of those things put in place is helping us have I would say less risk going forward to your quiet to answer your question around markdowns and.
And I would tell you, it's better buying from a quality of the assortment and the strategy around it.
<unk> and Tastic analytics around the the amount you buy and where you send it on the margin side, Jeff Jeremy.
At least one of the biggest learnings coming out of the Covid for US was that we could do more with less I would also say one of the other learnings is that we can cask ourselves with looking for.
They sell more at full price and our seasonal assortments in historically.
We'd look to sell 70% of the buy at full price and moving forward. Obviously, it can be very hard to replicate the 90% that we saw in the back half of this year, but.
Our merchant teams and Chad.
And his team are focused on delivering the.
4% in this coming year and that should be the new normal for us moving forward.
Great. That's what I was looking for.
And then just two quick.
Quick follow up here in terms of thinking.
Thinking about Q1 Q2 seasonal as a percentage of sales in Q1, and then the CS.
Seasonal as a percentage of sales in Q2 on the <unk>.
Typical basis.
Yeah on the typical basis, you would normally see.
Q1 would be right around 25% and then Q2 it would be closer to 30 low 30 percents.
In a normal year.
Do you expect that to be different this year more seasonal goods.
Right now it should it could vary a little bit Jeremy, but I would say, it's shaping up right now in the mix that we're seeing is pretty consistent with what we would have.
<unk> based on the history.
Okay got.
At the last one from me actually is just coming back to the the SG&A expense here, you've you've indicated you're going to do a little more marketing than you typically have.
In terms of just thinking about your.
More normalized SG&A levels, and clearly you're not going to have that.
In Q1, because youre running giant sales numbers.
But in terms of thinking about where that.
Debt level's going to be you've kind of had.
22% as.
The baseline.
There's been some years that of varied from that but generally.
Speaking 22 has been kind of the bogey.
As a percentage of sales is that still.
What you would think is the case is that is.
Is there a target that you guys have out there.
Maybe it's easier to Jeremy to talk about it in terms of dollars.
And then percentage so if you look.
If you look at the back half of the year right and whether it's the midpoint of the upper end of what we just talked about.
For Q1 and that $4 50, the $4 70 range, we did $470 million in sales in Q3, this past year and that was at 27 percentage.
<unk>.
$97 million, obviously, there was elevated incentive compensation in those dollars, but there was also lower than normal advertising expense and there was also lower than normal preopening expense, because we had pause.
Our new store development program. So when you put all those moving pieces together.
Pretty much net out in the wash in that queue, those Q3 dollars or percentage.
It would probably be pretty close to.
The typical when you look at our Q1 guide.
For for the sales level that you're looking for in Q, yeah, because of the sales level you know at the mill.
<unk> $10 million less than we actually did in Q3 revenue, we did $470 million in Q3 last year.
It's pretty apples to apples.
Okay.
Just say if the Q2 sales level was a little bit lower.
In Q1 than you would expect your SG&A, a little bit lower as well.
The dollars would be.
<unk> because of the Fayetteville, you know, yeah, obviously store labor the receipts would be a little lower and marketing expenses and those other things would would come down commensurately.
Great Super helpful. Congrats guys. Thanks, good luck.
Thanks, Jeremy.
Our next question comes.
From the line of the Curtis Nagle with Bank of America. You May proceed with your question.
Good evening guys. Thanks very much.
So.
It might be tough to segment out, but just curious lease you could talk a little bit out.
Why don't you.
So far at least the it looks like a pretty.
Pretty lights out quarter, what's driving the acceleration.
Over obviously the two.
2020, and in 2019 by a pretty good degree and how much of that is new customers. The rehab on the inventory the reinventions and where do you think of is the most incremental factor.
Sure what I would say first and foremost.
Part of the momentum continues and the gain strength since the since Q4 and now we're no longer inventory constrained like we were in Q4 on the seasonal side. So the efforts around at home to point out <unk> plus campaigns are working strong we have inventory positions, which has improved I'm pleased with that.
And I would say, we're growing two to three times faster than the industry from what our data is so you know we're gaining clear share.
And all of our departments are performing well, which we're really pleased with both the spring product So patio and garden is performing extremely well.
And as well as the everyday product.
The stimulus is helping but as you know we may have mentioned before we found that the stimulus is the only like a four week Benny.
Benefit and it's like icing on the cake its not the cake its a nice little upside for us, but it does not what's driving these numbers what's driving these numbers is our momentum in our performance.
And I'm really pleased.
And I would also tell you at some of the other things that are helping us just the macro trends housing nesting gear organization clearly is in our favor which kind of works into the industry numbers competitors closing from last years helps but I would tell you. We expect these trends to remain strong throughout the.
And it's really the work that we're doing that's making this happen versus what the industry or the stimulus is doing.
Got it.
And forgive me if you have it.
Are you already spoke to the split just.
Any commentary in terms of how does the production cash flow capital allocation.
Okay.
Quarter already put up three stores, what's the plan for.
The remainder of the year I think at Charlotte That's <unk>.
6% growth if I'm not mistaken standard.
Yes.
15, net new stores.
What our target is as of today's call. We had at 12 to 15 previously and.
And we're really happy that the pipeline and reopening of everything that's going to allow us to get to the 15 this year.
Capex for the year coming.
Coming from that.
Our capex for the year probably.
The easiest way to think about it is you know go back to fiscal 'twenty.
We opened about two times the stores.
And had gross capex of right around $250 million.
So with the vast vast majority of our Capex relates to our new store development program, so with half the stores opening.
We would expect roughly half of the Capex this year.
Alright, okay. Thanks, very much of that good luck for the rest of the year.
Sure. Thanks, Chris.
Our next question comes from the line of Adam with Wells Fargo. You May proceed with your question.
Hey, guys.
So this is the business that has historically you've opened stores at <unk>.
Very high productivity.
At any and then this would translate to a low single digit comp level, but as we look at the state of the business today and all of this change I'm curious how you think about the dynamics and whether you still think the the high productivity low comp algorithm at it's still the right way to think about this this company.
Over the long term.
Yes, what I would say is I'm really pleased with the productivity of our existing stores, we saw great performance across all vintages this year.
Our average store sales now is about $8 million it used to be $7 million. So when I mentioned debt or potential is to have 10.
The dollar stores on average we already do that we'd have stores that do.
Almost twice the company average and some markets that do well over 10.
So there's there's potential to make these stores continued to be more productive and continue to drive same store sales out of our store base and they just mature well I mean honestly the older stores.
$10 million about the company average as well as our newer stores did very well.
Rhythm that we've said is over the longer term, we still see this as a as a low single digit business.
But in the near term obviously, you can see when all the things work the way we want them to work, it's been much stronger and.
Just kind of obviously you're doing the things we feel like we need to to drive outsized performance and we also feel like there's some macro factors that help us as well that make that debt at long term algorithm I'm much more attainable and we can blow pass it.
But for the long term, we still feel comfortable with that that's.
And so the model.
Gotcha and as I look at your SG&A on a per store basis was up only about 8%. This year. Obviously it was constrained in the first half by by Furloughs, you lowered your marketing spend but as we look at the normalization.
Of of that line. This year, how should we think about per store SG&A growth.
Exactly I would say really you know SG&A is one of those things at over longer periods of time, you know what needs to be measured and there was just a lot of funny things that went on as you mentioned in the first.
And here with us cutting discretionary expenses the law.
Lack of Preopening and pulling back on marketing in the furloughed and tiered salary reductions.
I would say when you think about the back half of the year.
Talked about the incentive compensation dynamics, but normalizing.
For the five ish.
Half of the yen per quarter and above average incentive compensation, but that would be more indicative of our per store SG&A run rate.
You know I've been looking at the full year numbers, just given you know the funny dynamics between the front in the back half.
Got it so that's kind of call it at a high Twenty's right.
<unk> adjusted for the.
These items.
The high <unk> on a per store basis, I mean in total we were running in the call at the 21 per cent range of adjusted.
Adjusted SG&A. The total sales that was slightly below our historic.
Oracle average, but then to take those dollars and put it on a per store basis.
I'd have to do that math to see if that checks out.
Gotcha that makes sense appreciate at the time guys.
And things of that.
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Our next question comes from the line of Jonathan Matuszewski with Jefferies. You May proceed with your question.
Hey, guys congrats on the quarter and the early <unk> trends, thanks for taking my questions.
The first one was just curious if you've looked at trends in markets that have reopened more than others.
All of those markets with maybe a higher of vaccination.
Right.
There are some players in the industry, suggesting that the category.
He's actually.
As the performing in market.
With populations that are spending less time in their homes at the local economies of reopen so I know you mentioned geography strength is broad, but any color there would be interesting.
Yeah, what I would say Jonathan.
Is this.
The outperformance for US has been broad based it really as you know across the country and yes, we've got a nice presence in states like Texas that where <unk> been more opened an emerging presence in Florida.
But we are performing just as well in those states as we are as an upper Midwest and.
The feast, which may have be considered more slightly tighter in there and there are restrictions.
It is at the nice thing is it's been very very broad and it's been it's more about how long is at the market been opened and the more mature of the market is the stronger the market is for us.
The north of <unk> per store in terms of absolute dollars and net for US is it gives us the greatest amount of confidence in this business at these stores mature nicely markets mature nicely our brand awareness continues to grow and as we grow our brand awareness in the market the business responds and net sales per store responds and that's what I'm most excited.
At about so yes.
We look at at that way, but it's really broad based across the country.
Got you that's helpful. And then just a question on the inventory you mentioned paying up a higher freight cost to get the.
Product across the ocean and in the stores just any color.
Terms of the.
You know how your competitors are approaching this issue or not.
<unk> seen the growth that you guys are but how do you expect most of your peers to react.
The react here do you expect them to kind of also pay up at at similar rates or would.
Interact with them to be kind of left leaner on inventory.
The generalized but any color in terms of maybe what you're hearing from from your vendor partners are would be helpful. Thank you.
Yeah. Jonathan This is Peter I'd say at the global situation is not unique to us in any way and neither is.
Would you expect at rates of increase at a much faster pace than expected, but in addition to that our sales have been very very strong, causing our volume to be much higher than expected and outside of our contracted volumes.
With the current situation, we've been extremely proactive and focused on supporting our strong demand.
At the same product flow and generally we're replenishing our inventory much faster than the rate of sales each week in fact from data provided by our transportation partners. We believe our backlog is well below the industry average right now so does it get better yes. It does as our volume adjusted contracts go into place.
From my first also were the 35th largest importer in terms of the Q, which we think gives us an advantage.
The advantage right now and certainly a bigger advantage as we go forward into these negotiations.
And so I'd say, just as a reminder to the freight costs.
<unk> recognized with the turn of the inventory for us as well, but we expect things to normalize as we go into the back half an hour of contracts take place.
And Jonathan that 30 bps at the largest import or across the entire economy not just in our sector.
And we've found at Peters team and our partners in this.
We are doing a fantastic job in what I would say is people back winners and they prioritize and support winners and that's how we've been able to get our backlog lower than others is because they see the momentum in our business and they want to support winners because they know what the volume is going to continue to grow for us and so they want to support people that are going to help build their business.
Of course as that's a that's helpful. Thanks, guys best of luck for the quarter Alright. Thanks, Jonathan.
Ladies and gentlemen, we have reached the at the end of today's question and answer session I would like to turn this call back over to Mr. Lee Bird for closing remarks.
Alright, thank Laura Thank you all again for joining us. This afternoon, we look forward to talking to you.
In the coming days and weeks take care and be safe.
Thank you for joining US today. This concludes today's conference you may disconnect your lines at this time.
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