Q1 2021 Sleep Number Corp Earnings Call
[music].
Welcome to sleep Number's Q1, 2021 earnings conference call all lines have been placed in a listen only mode until the question and answer session. Today's call is being recorded if anyone has any objections you may disconnect at this time.
I'd like to introduce Dave Schwantes, Vice President of Finance and Investor Relations. Thank you you may begin.
Welcome to sleep number as Q1 2021 earnings conference call all lines have been placed in a listen only mode until the question and answer session. Today's call is being recorded and if anyone has any objections you may disconnect at this time.
I would like to introduce the shortest vice president of finance and Investor Relations. Thank you may begin.
Good afternoon, and welcome to the Sleep number Corporation first quarter 2021 earnings Conference call.
Thank you for joining us.
I'm, Dave Schwantes, Vice President of Finance and Investor Relations.
With me today are Shelly ibach, our president and CEO.
David Cowan, our Chief Financial Officer.
This telephone conference is being recorded and will be available on our website ex sleep number dot com.
Please refer to the details in our news release to access the replay.
Please also refer to our news release for a reconciliation of certain non-GAAP financial measures and supplemental financial information included in the news release, where the Navy discussed on this call the.
Primary purpose of this call is the discuss the results of the fiscal period. Just ended however, our commentary and responses to your questions may include certain forward looking statements.
These forward looking statements are subject to a number of risks and uncertainties outlined in our earnings news release and discussed in some detail in our annual report on form 10-K, and other periodic filings with the SEC.
The company's actual future results may vary materially.
We also want our free to our recently updated investor presentation, which can be accessed on our website at sleep number dot com.
I will now turn the call over to Shelly for her comments.
Good afternoon, and welcome to our first quarter earnings call My Sleep IQ score was 88 last night.
Through continuous innovation across our enterprise sleep number of winning consumers heart line and share of wallet.
We are improving lives through better quality sleep cloud delivering exceptional value for all stakeholders.
First quarter demand with more than 30% higher than prior year.
Which reflects broader and deeper brand relevance as we build on the accelerated shift in consumer trends towards the prioritization of their health faster adoption of digital products and services and increased preference for brands with an authentic purpose.
We see these trends continuing to benefit performance during the balance of this year and beyond.
Our strategic investments in leadership in sleep science are propelling the advancement of 360 smart bed features that improve sleep health and drive customer engagement.
Sleep number the culture of individuality and wellbeing provides the foundation for our mission driven team, who passionately innovate with agile learning and exceptional execution.
Our first quarter performance was driven by a significant acceleration in both consumer demand and profitability.
We are raising 2021 EPS guidance to at least $6.50.
Compared to reported EPS of.
$4, 90, and 2020 and $2 70 debt in 2019.
Net sales increased 20% to $568 million with demand growth accelerating from previous quarters to more than 30% year over year and over 40% on a two year basis.
Greater than $50 million of smart bed deliveries shifted out of the first quarter due to temporary from supply constraints.
Operating income grew 45% to $76 million.
EBITDA grew 39% to $97 million and EPS increased 85% to $2 51.
We also had record return on invested capital of 27, 6% up 850 basis points from prior year as we continue to realize compelling value from disciplined capital deployment.
To support our expanding business, we have increased our credit revolver of two $600 million.
Our purpose.
To improve the health and wellbeing of society through higher quality sleep is resonating with consumers through our brand positioning with sleep science based innovation brand accelerators in our digital ecosystem, we continue to build momentum.
Our strong first quarter demand growth represents a sequential acceleration from each of the past two quarters.
On a one two and three year basis.
By leveraging extensive research and insights from more than 9 billion hours of sleep data, we constantly advance the smart bed experience to help individuals improve their quality sleep.
Early last month, we introduced the new performance and classic theory, 360, smart beds with the digitally led marketing campaign.
<unk> at is deepening customer engagement with the sleep number 360, smart beds by connecting the health and wellness benefits of proven quality sleep.
With the knowledge from our proprietary sleep data, we recently introduced line daytime alertness feature the.
The new capability provides advanced real time insights the per a sleepers personal data with self reported information and sleep science to deliver individualized recommendations for how to improve sleep.
In addition, the sleep IQ update includes simplified navigation for customers to access other wellness features such as circadian rhythm insights nighttime heart rate variability and monthly health IQ well in this report.
The sleep experience advancements, including relevant personalized health metrics are driving increased customer engagement brand advocacy and referrals.
Lifelong relationships remain an important source of ongoing efficient growth through referral and repeat sales, which represent about half of our demand.
In addition, our digital ecosystem is enabling sleep number to efficiently acquire new customers.
The optimizing digital content, which is tailored by audience and platform and real time for efficiency and scale.
Results include highly qualified digital traffic growth of over 40% in the quarter and record levels of conversion.
Since transitioning to all smart beds, nearly three years ago, we have driven average demand growth of 14%.
Sleep timbers agile go to market strategy and exclusive direct to consumer distribution model also remain strong drivers of sustainable growth.
Our sell from anywhere model directly aligns with how customers want to shop.
In store online or by phone delivering the seamless value added experience across all touch points.
Average sales per store for the first quarter grew 9% to nearly $3 $2 million on a trailing 12 month basis.
One third of sleep number stores now average more than $3 million in 16 stores exceeded $6 million in sales with one store over $8 million.
Online sales also remained strong growing hundreds of 16% in the quarter to nearly 14% of total sales compared to approximately 8% last year.
We are benefiting from the cumulative impact of sleep number strategic initiatives within our mission driven culture.
Like most businesses, we continue to navigate the supply chain cost and availability pressures related to the ongoing global impact of the COVID-19 pandemic.
Our unique business model and high sales growth and gross margin rates give us great flexibility as we manage per total operating margin.
We have taken $20 million of pricing for 2021 and will adjust offers to drive favorable total margin true discounts financing mix and attach.
Our vertical structure affords optimized solutions as we remain focused on demand business leverage and capital efficiency.
Raising 2021 guidance reflects the strength of our first quarter performance underscores the value inherent in the convergence of our growing sleep innovation leadership pioneering 360, smart beds digital ecosystem and life long customer relationships.
More sleep data leads to better consumer insights and advancement of sleep health innovation.
Broadening relevance drive accelerating demand and increases customer acquisition retention and referrals, resulting in higher revenues and profit margin.
Growing scale improves operational efficiency and effectiveness across our core infrastructure, which is increasingly profitable with which is increasing profitability and cash generation as we expand our smart sleep ecosystem.
The remarkable strength of our highly engaged solution orientated team and vertically integrated business model demonstrates the compounding benefits.
Thank you sleep number team from.
Ongoing courage resourcefulness and passion to innovate for an exceptional customer experience.
And thank you for continuing to champion a kinder more just society for all.
As our performance indicates we have built a compelling set.
Just stick strategy with increasing consumer relevance.
The outcome supports our commitment to create and sustain superior shareholder value.
Now David will provide additional financial details on first quarter performance and outlook for 2021.
Thank you Shelly.
I'd like to add my thanks to our sleep number teams and business partners.
We are incredibly proud of your tenacity and creativity to navigate the challenges of this pandemic you.
You continue to find ways every day to improve the lives of sleep number of customers with proven quality sleep.
Since our earnings call two months ago, we have further advanced our digital capabilities business processes and performance drivers.
We introduced daytime alertness insights completed the introduction of the new sleep number 360 smart beds.
Two additional assembly distribution centers and improved more than 200000 lives.
We evolved our digital marketing and consumer engagement tools and apply to selling from anywhere retail capabilities, when snow and ice disrupted much of the country.
We protected service levels for customers by leaning into resilient supplier partnerships and efficiently expanded our revolving credit facility to $600 million through robust banking relationships.
These are examples of how sleep number teams continuously strengthen the business leading to greater than expected performance this year and beyond.
Q1 demand drove the highest quarterly sales orders in company history more than 30% over the prior year and more than 40% greater than two years ago.
This accelerated demand combined with the temporary from chemical supply constraints resulted in more than $50 million in deliveries shifting out of the first quarter.
However, full production is now expected to normalize by the end of Q2.
We continue to be pleased with the higher than expected demand growth as consumers embrace proven quality sleep from sleep number.
The strength and acceleration of performance has led us to raise our 2021 EPS guidance to at least $6 50.
Net sales of $568 million were 20% greater than the prior year, marking the third consecutive first quarter with double digit net sales growth.
Average revenue per unit grew 3% of this quarter, which is especially noteworthy given the units grew 17% and online business made up nearly 14% of total net sales.
Generating growth from both ARU and units over time is a unique strength of this business.
In the first quarter, we continued to advance customers online experience, while adding 11, new and relocated stores.
We are targeting approximately 650 stores by year end and expect sales growth from new stores to be additive in the back half of 2021 and beyond.
Interestingly many of the financial metrics for Q1 were very similar to Q4 of 2020.
So Q1 was one week shorter.
We remain committed to delivering at least 300 basis points of operating profit leverage in 2021 versus 2019.
Recall that this two year comparison is most relevant as it eliminates the noise from comparisons to 2020, which were affected by Covid and the extra fiscal week.
I'll also provide one year insights for certain metrics to help with modeling.
Our Q1 net net operating profit rate of 13, 4% Levered 570 basis points over the first quarter of 2019 on 33% two year net sales growth.
R&D spending on exciting new innovations drove a 58% two year increase but resulted in just 30 basis points of deleverage over that period.
This was more than offset by 50 basis points of G&A leverage plus sales and marketing initiatives that drove 440 basis points of leverage over two years.
Q1, gross margin expanded 110 basis points in two years two of healthy 62, 6%, while gross profit dollars expanded 36% to a quarterly record of $356 million.
It is worth noting that the Q1 gross margin rate was pressured versus 2020 by reinstated incentive comp commodity and labor inflation and constrained efficiencies from shifting more than $50 million and deliveries out of the quarter.
Despite these pressures the operating synergies of our vertical business model contributed to record quarterly operating profit of $76 million, 45% higher than the prior year.
In just two years, we have grown Q1 operating income 134% on 33% net sales growth.
Our first quarter record EPS of $2.51 was 85% higher than 2020 and more than three times. The 80 cents of earnings in Q1 of 2019.
Clearly using all performance levers is creating superior shareholder value.
We continue to prioritize investment in those performance levers both through capital spend and directly through the P&L.
During Q1, we generated cash from operations of more than $112 million, 31%.
Higher than the prior year, and 64% higher versus Q1 of 2019, even while spending more to support our near and long term growth drivers.
We also invested $12 million in capital projects and $167 million in sleep number stock during Q1.
The renewed $600 million board authorization for future investments in sleep number of shares underscores the tremendous value we see in our stock.
We continue to target leverage of two five to three times EBITDAR ending Q1 with leverage of two three times EBITDA.
Executing this unique sleep science and digitally enabled strategy is driving exceptional performance.
The increased 2021 EPS guidance of at least $6.50.
It reflects the strong start we had in the first quarter.
And the confidence in the performance of the balance of the year.
This implies one year growth of at least 40% over a record 2020 EPS, excluding the 50 <unk> week last year.
And more than 140% since 2019.
A reminder of a few other assumptions regarding the increased EPS outlook consistent with the context provided last call include.
We expect to employ the benefits of our vertical structure to deliver more than 300 basis points of operating profit margin expansion versus 2019.
This is based on two year net sales growth of at least 30%, which is above the high end of the range provided just two months ago.
This two year operating margin expansion is expected, while leaning into near and long term growth drivers, especially in R&D, which is expected to be approximately $65 million in 2021 compared to $35 million in 2019.
We now expect approximately $25 million of pressures on gross margin for the balance of the year for higher than expected commodity labor and logistics costs.
We expect to offset these pressures with approximately $20 million of surgical pricing actions and efficiency gains.
Particularly in sales and marketing.
We expect to grow top and bottom line each quarter in 2021 versus 2019 with more of the growth coming in the first half of the year.
With the guidance increase we now expect to generate record cash from operations of approximately $300 million in 2021.
We are thrilled with the progression of the business and the performance of our teams.
Our commitment to the pursuit of breakthrough performance is delivering superior and sustained value for sleep number of stakeholders.
Gabriel at this point please open the line for clarifying questions.
Absolutely.
At the time, if you'd like to ask the questions from the press Star one on the telephone keypad first question will come from the line of Peter Keith of Piper Sandler. Please go ahead.
Hi, good afternoon, everyone and congrats on the continued success.
Maybe just quickly a follow on.
It's around pricing or didn't have the <unk>.
From there.
So the $20 million that you are taking strategically.
Does that more than offset the.
The input cost inflation that you're seeing.
And secondarily of.
Couldn't you go up more than $20 million I guess mathematically that just looks like of 1% price increase.
<unk>, you've taken the 2% price increases and certainly.
Your broader industry peers have taken the substantially more so.
Good.
Dig into the pricing dynamic a little more.
Sure Peter and thank you for the question Yeah, We Cook in this pricing in early March and of course, you know we continue to learn more every week regarding of commodity pressures.
Pressures.
And we took the pricing on selected Skus and as you say debt and we covered.
It's worth about $20 million of all.
Our unique model Peter gives us a range of options as we manage for total operating margin in our business and clearly we have additional.
We certainly have additional pricing actions available to us and we can be quite fluid between our selling process discounts financing and attach that gives us the ability to trade up the line based on our adjustments or make short term real.
Time adjustment in discounting and financing, we love our competitive positioning right now.
Such a strong value equation compared to anyone across the board.
Loved the units and the acquisition we're driving.
In a lot of year in front of us and while.
While the 20 million you know with the newer information on commodity cost gets us close but not quite all the way we have so many levers to be able to pull that are yet in front of us and again, we're going to focus on a total operating margin you can see that the strong progress we've already made here in the first quarter.
And that certainly led us to raising our guidance to at least $6 50 for the full year.
Okay. That's helpful.
The second question I wanted to ask in the not not trying to sound naive, but it's the question that we're getting a lot from investors is what's changed with the.
Sleep number.
Clearly there is some demand as the result of the than the core business day at home dynamics.
At the same time your growth has been quite spectacular.
We can argue youre growing much faster than the overall industry and the and Youre seeing very nice flow through in your model. So just big picture. What do you think is driving this elevated demand and do you think there's some sustainability to the even as the vaccination of increase and people start spending on things outside the home.
Well. This is an important question Peter and we're.
We're excited debt.
This goes back to when we fully transitioned to the $3 six <unk> smart beds nearly three years ago with now an average demand over that span of time of 14% and that's all since we transitioned to the smart beds along with that we.
We also brought our digital marketing buying capability in house, and we've been perfecting and advancing that and if you think about algorithms and the precision that comes with them you know more sleep data leads to better insights and advancement of the innovations that are relevant for the <unk>.
Sumer and at the same time this additional data and knowledge that we have on the marketing side also leads to more efficient and effective targeting and qualified digital traffic, which is converting at a higher level. So these to come.
Bind are driving both the demand and then of course with the scale. That's also driving the stronger flow through and then you know I have the highlight in our big unlock on during the Covid once the Covid pandemic hit last year around selling from anywhere.
You know, we pivoted to a new model debt is very unique to our vertical model and that that was the big unlock for us in the selling and marketing expense line, which you know, we said last year and over 300 basis points of leverage and that we're going to hang on to that.
As we moved into this year and we're certainly demonstrating that we have and that we intend to and see.
See you know see greater and greater efficiency. So is it sustainable absolutely.
Is the innovation strategy that we set out.
To deliver and back in 2012 is the bigger.
Getting of this transformation of the company and and you know here, we are and I would say at the early days and this is a great opportunity to join joined sleep number and get behind US as we are early in our on our path of the sleep innovation.
Leadership, leading to connected health.
Okay. That's the great summary, thanks, so much in the good luck.
Thanks Peter.
The next question will come from Brad Thomas of Keybanc Capital. Please go ahead.
Hi, Good afternoon, everyone. Let me add my congratulations as well on and they start to the year here.
My first question was just going to be about.
The updated full year guidance.
Thank you beat consensus here in <unk> by the 60 Atms.
There's $50 million of sales that you think will happen in the compute it could have happened in <unk>.
And youre raising the full year by 50 cents.
Just to connect the dots are there any other moving pieces as we think about the balance of the year or are you all just being conservative.
The only through the strong Q. Thanks.
Yeah, Hey, Thanks, Brett.
[laughter] like every year there are a lot of moving parts and we're pretty early in the year.
We just gave guidance two months ago, and we've raised our guidance for the year by 50 cents.
We are very confident in.
The trajectory of the business and and but we're managing both some tail wins, we talked about the demand side being at the high end of our expectations actually above our high end of our expectations.
And we're balancing those against some of the headwinds that we're facing with new commodity costs that we've highlighted and.
We're taking all of that into account as we think about the full year end.
We are couldn't be more thrilled about the performance of our teams in the business in the way consumers are reacting to the superior sleep that they get through sleep number.
Products.
We are also very happy with a big shout out to our supply chain teams I mean, it's been really challenging to navigate through the supply chain challenges globally, not just ours, but this.
This is happening across businesses everywhere and our teams have done a phenomenal job working with our.
The partnerships with our suppliers and making sure that we get more than our fair share of supply and make sure that we're serving our customers. So you know.
All in we.
We did get a bit more tax benefit in Q1 than what we had expected.
That's built into the full year thinking as well.
In fact, it full year by about a dime compared to prior year.
So all in we're going to use all of our levers to deliver superior financial performance.
At least $6 of 50 cents of EPS, which is as I said more than a 140% of just two years ago in 2019, when we were running clean in 2019.
Yeah, Brad I'll add on I'll add on for the demand side, we continued to see momentum in demand here in Q2, it's obviously early but I think it's important to underscore that end of where we're excited about what is yet to come.
You know the.
<unk> raised to 650 here early in the year and also we recognize that you know people are out more and they're spending more and that bodes well for us it's working great.
And we were excited about you know what.
That will mean for us for the remainder of the year.
That's very helpful.
And then the two to estimate is going to be a top line. Thanks, all of us to get our arms around you than you had stores.
Close to the math of it than last year.
We looked at having grown 30% versus about two years ago, and then layering on another $50 million of orders that can come in you can get a revenue number of over 500 million for <unk>, obviously, it's a pretty big growth rate.
Can you help us get anymore.
Think about modeling the second quarter.
Brad you are thinking about it the right way we talked about.
This year in our original guidance two months ago debt for the full year of about four to five points of our growth was going to be.
Because of the strong ending backlogs that we were servicing here in the first half we've always said that we expected more of our growth.
To come in the first half of the year.
But we do expect growth top and bottom line.
Every quarter versus 2019 here in 2021, so directionally, you're thinking about it the right way. It's we expect to have a pretty big quarter in second quarter.
Thanks, so much.
Thank you.
The next question will come from Bobby Griffin of Raymond James. Please go ahead.
Good morning, Greg.
Good day.
And the follow up on the backlog question.
All of the term strategic question.
Both of the backlog the.
Thank you growth call it like the 90 million books, while non-GAAP.
And the out of them.
Understood that you have.
It's been the total.
And on the back down below the normalized level of <unk>.
Even if the materials of bad debt.
The issue.
A couple of quarters.
Yeah, Bobby Youre, breaking up a little bit I'm pretty sure I heard your question. So I'll do my best but if I I think if I Miss anything.
No no I'm good.
I think youre asking about whether the the backlog impact for the year was about 80 to 90 million that's directionally right.
And then.
Thinking about when that would be serviced in terms of how all of that would benefit our first half of the year. This year.
We do expect a more normalized type of backlog, but our growth has been exceptional and so.
We're having higher backlog than we've ever had.
It's just going to be the state of the Union.
We expect during the course of the year, that's all baked into our thinking of house.
We're going to deliver more than $6.50 of.
EPS here in this year and plan to do even better than 90 years beyond.
Yes.
That was part of the bed that's the second part of the split the.
And on the fifth.
Do you have the look like if all of the materials.
Everything they're doing the available which is the big I understand that but.
That's the path that you could get all of that.
Naturally we're going to have the Bloomberg the couple of quarters.
That's true.
And then relative to the business.
Hey, guys.
Okay.
Yeah, well, Bobby some of that backlog was service clearly in the first in the first quarter.
And what we're saying is that relative to where we expect it to be.
<unk> carried $50 million of deliveries.
Out of Q1.
So thats really what to think about how to think of it.
Okay.
That's helpful and then moving.
I think the long term targets of gross margin.
The people of defense last quarter was kind of debt.
Okay.
The floor.
Some of the drivers.
Okay, Bobby I think we lost you.
The answer the question no debt, where I think you were headed Gabriel we're still on the line is that correct I assume we just lost Bobby.
Okay. So so I'll go ahead and answer his question about gross margin.
Our long term slide in our Investor Relations materials, we say, 62% to 64% gross margin rate look we've said this many times over the course of history that we're not going to.
Corner ourselves by trying to chase gross margin rate, we're going to use all of the levers of our business model to pursue.
Sustainable and superior shareholder value creation, and that's through the full bottom line that's through the full P&L Shelly highlighted that.
We've got a lot of levers to use not just pricing.
To get after.
Covering our commodity cost pressures that we're absorbing here in 2021.
We're going to use them all and that's of Great thing with this business model that we will certainly have.
We have a lot of levers at our disposal to deliver superior shareholder value.
We expect to use them all here in 2021 we're not guiding to a gross margin rate were telling you that we are committed to delivering more than 300 basis points of net operating profit expansion versus 2019.
And of our Alpha certainly not shying away from our very strong gross margin rate and it will continue to be an important source.
So would be realized with that let's.
Don't know if Bob you got back on the line, we can check of fees. There are we can move onto the next question.
Uh huh.
Not quite yet so we can move on to the next question from two of them. The actuary of UBS. Please go ahead.
Good evening. Thanks, a lot for taking my question so versus your guidance two months back.
Taking up the revenue estimate.
Right a bit, but you're keeping the margin expectation the same.
Guess, what has changed that would cause.
The operating leverage to be limited.
Cost per seats growth I understand the input cost pressures, but you are taking of pricing in response to that sooner. So why why should there be not more leverage on the cost per se.
Well of the tool.
You know, we're certainly going to drive that.
The idea of being this early in the year and taking up our <unk>.
Guidance for the year by 50.
Is a pretty significant move we're saying at least $6 50.
We think we've got levers to drive stronger performance had been that but we think that that's the right place to land all things considered we talked about.
Managing of full year and managing all of the puts and takes that happened during the course of the year. There's a ton of year left we're thrilled with where we are we're thrilled with demand we're thrilled with how the company is performing well.
Yes, we have some uncertainties about.
<unk>.
Of where the.
The commodity cost pressures might go we also are thinking about.
Potentially changing consumer behaviors, we don't know, but we know that we can operate well in any environment and that's what gives us confidence about the numbers and the color that we provided for the for the guidance today.
The net.
At least it's fixed it's 50 of EPS he of Reed.
Reflects at least the 30% growth on the two year basis for the full year.
And.
And of 300 basis points of operating margin leverage.
Sorry, the 650 is.
Yeah.
Yeah.
Okay Alright.
Yeah.
Yes.
Yes.
As a follow up flow.
The talk of 12 months first quarter 'twenty results I think you mentioned that it from 'twenty 'twenty was down.
About 50% or so are you able to provide a quarter to date comp for the.
Correct.
From 2021.
Sorry could you repeat that question.
So I think in the month of April of 2020, I think your comps were down 50% of of Citigroup.
The closures are you able to provide the quarter to date number for this month.
Yeah.
Well, we don't provide a lot of insights on an interim basis because of a couple of weeks don't make up the month or quarter and but we have said debt. The strong growth that we saw in the first quarter has continued here in the so far in the second quarter.
And that is.
Even on a two year basis, our or three year basis, even so.
That's why we provided those referenced.
So that you can take out the.
The impact of Covid.
And the shut the closed stores last year.
Reflecting back on your previous.
The comment I, just wanted to clarify that the two year growth and EPS at at least 650 is at least 140% increase over 2019 $2 70.
Got it.
And good luck with the sphere.
Okay. Thanks, a lot.
Yeah.
Our next question will come from Curtis Nagle of Bank of America. Please go ahead.
Thanks very much.
A couple of clarifying questions. One just on the the comment about the growth in every quarter.
From 14 does that include a lumpy towards the impact of a whopping index.
Yes.
The.
The comment is about 2021 versus 2019, not 'twenty one versus 'twenty.
And so because theres so many changing dynamics in 2020. It makes it very unusual and it is I really encourage you to look at your models versus 2019 use the color that we provided today and use it and go from there.
Okay.
Sure.
And then just a clarifying all of them.
Of course.
Yes.
The practical my brothers that would be true.
Yes.
Just two please.
Sort of won't be looking at the MSR piece of the beds.
Usually don't tell the I'm not sure people looking at that it doesn't look like it's changed from the past.
For the 2018 so.
The more specific about where the tactical price increases are coming from.
Yeah.
Well we were very.
Very laser focused on certain debt sizes and certain models and you may not see that in the list prices that you are looking at.
Okay.
The bulk.
Okay you bet.
Your line question comes from Seth Basham from Wedbush. Please go ahead.
And good afternoon.
Part of your question is just thinking about the <unk>.
Backlog again, just to make sure I'm clear so $50 million carried out of Q1, where do you expect the backlog to be added Q2.
The more normal level of.
We.
In the 50 million isn't sort of reflection of our backlog is the reflection of where we thought we would be versus where we landed.
Just want to make sure that we're clear on that right.
Okay.
Two weeks of delivery.
Got it so you don't expect any excess.
The backlog or deliveries.
The other outstanding coming out of the second quarter.
Yes, Directionally, we believe that our backlog will be more normalized and we are experiencing pretty phenomenal demand and that can always affect the timing of when deliveries are made but.
That's how we're thinking about it in terms of the supply chain challenges that caused a hiccup and the making deliveries here in the in the.
First quarter, we don't we expect those to be resolved here in the second.
Got it so when you think about the vertically integrated model that you.
Our.
So you have you definitely do not have phone productions of Tom.
Tom into these challenges are the other areas with providers.
Providers of yours, the suppliers of yours that you've been Panther challenges.
So look it's a challenge isn't even the result of the farmers it's not their problem. It's the it's.
The challenge with the chemical producers and you saw that's been a trifecta of bad luck for those for those producers and they are coming back online and their production capacity is very strong and we expect here in the second quarter debt. That's all stabilized we've already seen some improvement in our delivery.
Our windows and our levels of service and our.
Our first available data is about 17 days right now and that compares to normally even around 14 day. So we're not that far off.
Right, now, where we where we'd normally would be so.
In terms of just our broader supply chain, we have great relationships with our suppliers we have.
Have a very flexible supply chain, we've been strategic about which parts of the business. We have included in our vertical model.
But these are folks that specialize in different areas and and it makes sense for them to be and the.
The business there isn't enough to be in ours, but we work really closely together and and we have multiple factories across the country and around the globe. So we feel good about our supply chain, it's not easy given the environment, but our teams are managing the every day.
Got it okay and the other area of questions I'd like to address is sales and marketing. The first on advertising did you get any more data as two of your advertising leverage in the quarter of year over year.
To help us understand some of the moving pieces.
Yeah, we leverage it.
And the specific media line, Seth we did lever on our 20% net sales.
Obviously, it's substantially more when you look at the demand and you know this is an area, we're going to continue to lean into with our strong value proposition.
We're really excited about the unit growth and the ARU growth in the quarter.
And an area of ongoing efficiency and effectiveness for us.
Maybe asked a different way you Shelly did your media spending a library of more than the rest of the sales and marketing.
Total total sales and marketing was higher media leverage with the a piece of it.
Yeah, I'm, just trying to get some color around some of the key drivers there between media and.
Your leverage on your Labor force, but I guess moving above that.
Well you know we've touched on this a little bit before us in the sense debt.
We've.
Of the digital capabilities that we've put in place during the pandemic have served us extremely well and we've got a number of different tools that we're now using including workforce management throughout our sales force retail operations.
That is proving to be extremely productive.
And we.
We will continue to that's part of how we are delivering the robust net operating profit margin expansion.
And we look to we're excited about where we are and where we're at it and the higher demand.
It all starts with demand with this model no doubt.
The banks started.
Thank you very much appreciate it and best of luck.
Thanks very much of it.
You have no further questions at this time I will now turn the call back over to the presenters for closing remarks.
Thank you for joining us today, we look forward to discussing our second quarter 2021 performance with you in July sleep, well and Dream Big.
This concludes today's conference call. Thank you for joining you may now disconnect.
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