Q1 2021 Foot Locker Inc Earnings Call
All participants will be and listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note. This event is being recorded and I'd like to turn the conference over to Jim Lance. Please go ahead.
Thanks, operator.
Welcome everyone to Footlocker East first quarter earnings Conference call.
As described in today's earnings release, we reported first quarter net income of $202 million compared to a net loss of $110 million for the first quarter of last year.
And net income of $172 million for the first quarter of 2019.
On a per share basis first quarter earnings were $1.93 cents compared to a loss per share of $1.06 last year and earnings per share of $1.52 cents for the first quarter of 2019.
This year's quarter includes pretax charges of $2 million related to the impairment of 1 of the companies minority investments.
And $2 million, primarily related to severance costs in connection with the reorganization of certain support functions.
Excluding these items first quarter non-GAAP earnings were $1.96 cents per share.
A significant reversal to the loss per share of 67 cents.
For the first quarter of last year, and up 28.1% compared to earnings per share of $1.53 cents for the first quarter of 2019.
Unless otherwise noted that figures and rates mentioned during our call today will be based on non-GAAP results. A reconciliation of gap to non-GAAP results is included in this morning's earnings release.
We'll begin our prepared remarks, with <expletive> Johnson, Chairman and Chief Executive Officer.
Any gray executive Vice President and Chief Commercial Officer will then provide additional insights into the business drivers in the quarter.
Andrew Page Executive Vice President and Chief Financial Officer will then review our first quarter results and provide some directional color around the second quarter and full year 2021.
Following are prepared remarks, <expletive> and Andrew will respond to your questions.
With that I'll now turn it over to <expletive>.
Thank you Jim.
Good morning, everyone well, thank you for joining us.
Before I begin I'd like to welcome our new E V. P. M C F O Andrew page to his first <unk> call with the company.
We're excited to have him on board.
Last quarter I talked about answering our fiscal 2021 with momentum.
That was certainly the case of our first court.
Well the momentum gained strength cause the quarter progress enable us to deliver exceptional top line and bottom line results.
Even against the ongoing challenges of store closures in Europe, and Canada, and congestion that the U S ports waiting to abnormally lean inventory levels.
Ah the sequential basis hamster radically accelerated through the quarter.
Goodbye or stores.
Ah mid teens decline in February the mainly to launch calendar shifts and tax refund delays.
Gave way to store triple digit gains March and April as we lap the onset of the Covid pandemic last year and the disruption caused by the shutdown of our store flu.
But our store was worth the only highlight.
Ah digital business also remained quite strong up 43% that account basis and landing at a penetration ready to 25% of our total sales, which was higher than our expectations coming into the quarter.
Perhaps more impressively, even with the challenges I mentioned, our sales performance was model is strong relative pilasters unprecedented first quarter, but also versus Q1.2019, where we saw low single digit growth versus a strong result that year.
F leisure fitness consumer trends continue to drive strong demand across genders perform as a business.
Although our inventory levels were lower than we would have like the compositional quality of goods was fresh.
That consumers responded very well 12 merchandise assortments.
This resulted in higher inventory productivity significantly less promotional activity, enabling us to deliver healthier margins and a truly impressive bottom line performance.
Finally, we believe U S government stimulus and tax refunds provided incremental positives in the quarter.
This stellar performance would not have been possible without all of the associates, whose dedication to the success of our company and his passion for creating incredible experiences for our customers drives our business every day.
I often say we have the best team in retail <unk> performance in Q1 serves as a testament to the strength of our team.
As we expected covered related restrictions pressured our business in Europe throughout 2.1.
<unk> was open only 39% possible operating days in the quarter.
But I'll be channel both was positive nonetheless.
And then pockets, where lockdowns began to ease such as the U K, we saw pent up demand drive growth at the store level as well.
Leaving us optimistic that the trend will continue as the region opens back up.
To that and we continue to break exciting new ground in Europe.
Including today is opening of our first high profile store in Barcelona.
The store features dedicated women's and kids spaces, woeful artwork alteration and enhanced connectivity, including a digital interactive so and both of slackers.
Additionally, we refresh several stores across a me a during 2.1 with upgrades to fixtures layouts and light touch improvements as we anticipate the broader reopening of the economy in the mail.
Looking ahead, we continue to have strong product tailwind led by the culture of basketball and footwear comfort trends in apparel, and new and exciting strategic brands in our portfolio, which Andy we'll talk to in more detail.
While we continue to manage against the remaining port delays and gradual re openings in Europe and Canada.
These are transient nations and we remain optimistic about our prospects as we move through the year.
As it relates to the West coast ports, there's some good news to share.
Inventory Flolan received velocity did improve as delays began to ease through the first quarter.
And we expect further improvement in queue to which should reflect positively on or inventory levels.
In the meantime, we have been working with our vendor partners to utilize ultimate ports, an expedited rail and truck services to accelerate the flow of goods.
Now, let me provide an update on our strategic initiatives and technology milestones.
Beginning with F L X.
We continue to see enrollment increase with over 20 million members now enrolled in the countries where the program is active.
We also continue to refine the K P. I will define success for F. L X moving forward.
Including customer retention and satisfaction.
In addition to growing membership in 2021, we will also focus on expanding to additional countries.
Driving engagement and incremental spend by connecting with more relevant waves with our customers and integrating F. L X deeper into the customer experience with pull that correct.
Adding value to programs like both of Us launch reservation.
Not for some highlights on a key technology emissions.
First we continue to build on a new payments platform, adding ideal zero pay entire pay to our selection of payment options in Europe.
Providing increase convenience and flexibility for a consumer remains an imperative for us.
And these new options will cancel it the successful rule out of Apple pay and Google pay last quarter.
Second is part of our digital cameras transformation, we deployed new websites and poor additional European countries.
The U K.
<unk>, Germany and France.
To build off the modernized platform relaunched North America last year.
The new sites are easier to personalize to local markets less costly to maintain and better leverage data analytics.
Finally, we expanded the S. K use we offer an east Bay as part of the Nike drop ship program, we announced in February.
And we're working towards getting additional banners up on the program in the coming months.
Having the right product at the right time is fundamental to our business.
This program is 1 step toward providing more flexibility to meet customer demand.
No I'd like to discuss an important updated organizational evolution.
We've talked a lot about how the accelerated shipped to digital throughout the pandemic pushed us to more quickly adapt to our consumers changing preferences and to create stronger connections with them.
It's also let us to proactively accelerated our initiatives to optimize our real estate portfolio and our best performing banners and across the most valuable locations.
To competitively position our store fleet for the future.
The decision to Shudder Rutgers point in Europe, <unk> 2020 is an example of this ongoing effort.
<unk> was the decision in the U S to more closely align Champs sports and you say.
With that in mind during the second quarter, we have made the strategic decision to wind down her foot action banner over the next 2 years and focus our resources on the right kind of concepts foot locker kids foot locker Champs sports and you spent.
We are currently in the process of assessing to put actions. Please to determine the best decision for each location.
First as we've discussed on prior Paul's the flexibility we have with respect to our portfolio management will allow us to take advantage of a number of lease expirations over the next 2 years.
Second we plan to convert approximately 1 third of the top performance put actually locations, it's a new foot locker stores, establishing a boulder women's and kids presence as well as new Champs sports and kids foot locker stores.
We are excited about the opportunities to expand our women's and kids presence within a foot locker and Champs sports Panthers.
But a decision like this is never easy.
I'd like to personally thank and commend to put action team for their tireless efforts over the years.
To their contributions we've gained valuable learnings and consumer insight.
As we look ahead, we see this as an opportunity to stripes or a global portfolio of brands.
Increase our valued to our shareholders and vendor partners and ultimately position put lack of a better serve our consumers and a postcode marketplace.
As part of our broader brick and mortar strategy. We will also continue to flex a powerful and expensive real estate portfolio to our advantage to accelerate our pivot off mall, while continuing to invest in our community and power store offense.
We also intend to grow the Champs sports Homefield sensor with extended assortment for men's women's and kids that will expand to include lifestyle with performance category.
Before I turn the call over to Andy Let me say that I'm extremely pleased with our strong start to the year and our ability to perform at such a high level, even in the face of ongoing macro headwinds.
It truly speaks to the power of this category.
Consumers appetite for cool premium product.
For over a year now we have been tested by the Covid pandemic and if prevailed as a leader in our industry.
Most importantly, Coca has taught us to innovate to move faster.
Go above and beyond for our consumers as we strive to inspire and empower youth culture.
As we look ahead, we must acknowledge that although the light at the end of the tunnel is getting brighter the path back to normal is only just taking shape.
Many parts of the world are still dealing with lockdowns due to emerging cold at variance and the uneven vaccine distribution.
We continue to feel that impact on our business in Europe, and Canada, where roughly 230 stores are temporarily close.
That said, there's a lot to be excited about right now in our business and industry.
Trends in momentum are strong a strategic direction and focus have never been sharper.
Ah financial position is in excellent shape.
And a bunch of talents as deep.
I'm confident in our team's ability to take advantage of the many opportunities we see as the your progressive in the world continues to recover.
With that let me pass it over to Andy.
Thanks. Thank you good morning, everyone.
Let me also extend my welcome to hundred I'm looking forward to the partnership ahead.
Larger we remain focused on our strategies to strengthen our competitive advantages 1 reinforcing our existing relationships and bringing you consumers into our business.
We did that by building on 3 T eighties of strain.
Our product leadership and diversity continuing to create a pipeline of new products, New Brian you categories, new ideas to take on consumers.
Our army Expediencies utilizing on global scale, embankments and hands and further connected digital and physical journey for our consumers.
And our commitment communities being all of the community and in the community and parents minds in our relationships to make a meaningful impact on consumers lives.
All of that was evident in the first quarter I'd be delivered new product you content and you expediency to delight on consumers.
In total all of our families business what's wrong.
After their business increased over 70%.
<unk> <unk> <unk> <unk> <unk> <unk> triple digits.
Bone finally, the business also increased as compared to 2019.
Is trained to footwear with broad base with game, because all regions Lane by North America I need your specific.
Similarly, we saw strong double digit increases across men women and kids sit there with a woman's business drive in a large scheme.
By category.
Maine basketball continue to see healthy momentum delivering a high double digit increase made by the Jordan, Brian key Nike icons, and some compelling new initiatives by Puma and rebo.
Additionally, we brought new consumers into the business with an increased focus on our seasonal category. This help to drive a triple digit increase with gained an uncle broke installed a new Brian introductions, including trunks.
Meanwhile, manned running increased strong double digit led by the key franchisees of Max here I need to ask Nomad Puma, alright, thanks, and strong momentum and our partnership with your bounds.
It was also a strong quarter for our apparel business, which was up triple digits compared to the first quarter of last year and up double digit, especially the first quarter of 2019.
Main thing kids lead to weight off the triple digits, while women's increased strong double digits.
Casual aviation of society remainder capitalist for our business and we saw all major categories increase with sharks, driving the largest game with momentum across many brian including our own.
And across all product idiot, our customers continue to respond well to elevated storytelling with our consumer contact offense delivering exciting exclusive programs.
These included Sippy to the world from Nike and all day I dream of votes sneakers without even as we bold feature unique belgians of their respected iconic symbol ways.
We also partnered with we need leaders and you're bound to be home <unk> to the leaders of the street running movement and we created some fun with our stance to be street and champion collaboration.
Looking ahead, there's a lot coming to market to keep our consumers engaged.
The culture of basketball remains strong with new launches from Aida Puma in your balance, bringing further dimension to the Kathie Lee.
We are continuing our seasonal expansion of cramps commerce in bands and we have a very strong pipeline of ideas and imagery in a pattern to maximize the ongoing momentum and mechanically.
And we will continue to enhance our storytelling in queue too.
Through our celebration of the 25th anniversary of the Griffey, 1 with a Nike contact.
On our second installment of all day I Dream of Bugs me comes with I need us.
We also have an exciting collaborations in the paint mine with the likes of kids are immigrants and then.
Louis Guzman, and new balance and Puma and White castle to name a few.
Beyond product I also remain enthusiastic about our community initiatives and who we continue to lead with purpose.
And extend our community stores across the globe and expand our local G. O teams to ensure that we are more deeply rooted in the neighborhood to be sir.
That includes local expediencies local products and local give back.
And we continue to bring this Hawaii for the opening the food Walker and kitchen Walker, an old Spanish feeling Houston, and <unk> and the <unk> mall in Chicago.
We also continue to fuel the future of our industry for the next generation of creators through our greenhouse incubator in our home grown and leap initiatives.
On the latter in addition to our work to advance education and economic opportunities for the Black communities. We <unk>. We have also established partnerships with 45, new black on Brian and creators to provide a platform to showcase their design collaboration this year.
Mixture that we also continue to advancing growing our membership and enhancing on consumer journey through the geographic rule life or anything I links and adding millions of new members to our business in Q1, expanding our drop ship initiative elevating on mobile App expedience enhancing.
By online and take them in store journey, providing your payment options and much more all debate our staff Arkansas.
So a lot of work against our key strategic initiatives as we continue to push our consumer offense forward.
It's a combination of product leadership and diversity are enhanced omni capabilities and our focus on community and purpose to do keep us moving forward and strengthen our relationship with Arkansas.
Let me know past the call over to Andrew.
Thank you Andy.
It is my pleasure to join you today to discuss Ah first quarter results.
As a consumer of this brand footlocker always stood out to me as a source of inspiration and empowerment of youth culture.
Now as a member of the foot locker family. This is more evident than ever and I see that passion and all that we do.
In my short time with the company my observations have reaffirmed my belief that this is a very special organization.
When did this position for ongoing success and value creation.
It's no secret that the retail environment, it's rapidly changing.
The pandemic is only accelerated to change.
Everything from the customer journey.
The process of discovery and the magnitude of the digital engagement has evolved and intensified.
It's clear to me that our team is focused on key initiatives that amplify the consumer experience across all of our touch point.
Supported I transformative initiatives is our financial position.
Which is a strong as it's ever been and will allow us to remain opportunistic as we pursue extra teaching plant.
No doubt, they're a challenge at the stand before us as well as key strategic decisions such as the rationalization of a real estate portfolio that <expletive> mentioned earlier.
But as we continue to emerge from the pandemic.
Our objective will center around executing a growth strategy.
Amplifying are unique value proposition to our consumers and then their partners.
And returning value to our shareholders.
Let me say once again.
I'm glad to be here working with <expletive> and brought a tape and I look forward to sharing more as we continue to evolve the omnichannel retail experienced before I can so.
Before we get into the numbers.
I'd like to note that in addition to compare and I resolved the last year.
I will also records comparisons to the first quarter of 2019, where it's helpful.
Now, let's talk about our performance in the first quarter.
We deliberate exceptionally strong top and bottom line results in Q1.
Especially when considering the impact the pandemic continue to have 1 of operation.
Our comp sales increased 80.3 per cent.
In spite of store closures in Europe, and Canada, a supply chain pressure than the U S and a media.
The combination of robust demand for our assortment and leave the fresh inventory composition led to significantly lower levels of promotional activity this quarter.
As a result, we had strong gross margin recovery compared to Q1 of 2020.
As well as expansive versus Q1 of 2019.
This coupled with leverage on our SG&A expense drove a meaningful swing in first quarter earnings per share versus last year loft.
And a nearly 30 per cent increase over to 1 of the 20th 19.
Taking a closer look at our results total sales increased 83% over last year and 3.6% over Q1 of 2019.
On a constant currency basis sales increased 79% over Q1 of 2020.
The strict with primarily driven by our stores, which increased 99%.
Let me remind you that our fleet with open 83% of potential operating days in the quarter versus 48% last year.
While R U S in Asia Pacific bandwidth, where essentially fully open.
Ah me in Canada continue to face pressure due to covert restrictions open roughly 39% and 75% of potential operating days respectively.
Our direct to consumer channel remained quite healthy as well with sales up 47% at customers truly embraced omnichannel offering.
D. T C was 25% of total sales for the quarter compared to 31% last year.
Despite being much much less promotional average selling prices were down low single digits in the quarter while units nearly double.
The decline in a S. P was driven primarily by product mix.
We had a higher level of apparel and accessories and I mix this year versus last year.
In general apparel and accessories carry lower a S p's footwear.
In addition, we left the last you have strong digital performance, which was heavily penetrated in footwear.
Clicking down to Ah regions, North America, Salt impressive growth nearly across the board led by chance where comps increased triple digits.
The rest of the U S. Ban is follow up with concepts up over 90 per cent and foot locker, Canada posted a low 70 per cent game is it contingent with store closest we previously discussed.
East Bay without middle single digits for the quarter, which was an improvement for recent trends.
The gradual return to group sports participation spark sales of hard goods and team performance products.
Recall that unlike other band is east Bay did not comp against store closest last year.
But like it Asia deliberate a triple digit comp game, while foot locker Pacific increase in the mid 90% range.
Trying to Europe.
Despite extensive covert restrictions.
Foot locker, you're still posted a high 30% cough increase.
<unk> that which experienced the most store closures decrease in the high teens.
Encouragingly.
The direct businesses remain very strong for both bands.
Moving down the income statement gross margin with 34.8 per cent compared to 23.0% last year.
When compared to a more normal Q1, 2019 gross margin improved 160 basis points.
Our merchandise margin right improve 250 basis points over the last year and 80 basis points over 2019 at the meaningful reduction in markdowns more than offset the higher freight expense that comes with increased penetration of digital sales.
Looking ahead.
We expect the promotional environment to remain favorable through most of the year, but to a lesser extent that what we experienced in Q1.
As a percentage of sales occupancy and biased compensation returned some more normal levels first is last year's abnormally high rate.
Inclusive of approximately $5 million, a covert related rent abatements in the corner.
<unk> occupancy costs, Lebron 80 basis points over Q1 of 2019.
R. S G and a expenses right came in at 19.4% of sales in the corner as a strong sales results provided us with 750 basis points of leverage over last year, and 60 basis points of leverage compare the 20th 19.
In addition to careful expense control.
We received approximately $10 million in government subsidies, which partially offset nearly $2 million of incremental P. P E expert and 90 basis points of higher bonus expense.
For the quarter depreciation expense was up slightly to last year at $45 million.
Net interest expense increased $1 million compared to last year due to lower levels of interest income on our cash ballot.
As we previously disclosed given the considerable improvement in credit markets, we amended our credit facility, which will result in lower fees moving forward.
Our tax rate came in at 28.7% versus 22.0 per cent in Q1 last year.
We ended the quarter and a strong liquidity position with over $1.9 billion of cash.
An increase of $951 million as of the end of Q1 last year.
Our higher inventory turn and slower rich the flow rate was a significant source of cash building upon the cast we accumulated throughout preservation efforts last year.
We currently have no outstanding bar with on a 600 million dollar credit facility.
At the end of Q1 inventory was down 30% compared to last year.
However.
Keep in mind that at the end of Q1.2020.
Our inventory with up 20 per cent, which was due to the elevator store closures, resulting from the pandemic.
We expect our inventory levels to begin building back up and cute it.
We invested approximately $51 million into our business during the quarter.
This funded the opening of 12 new stores.
As well as the remodeling of relocating the 15th stores.
We also clothes 58 stores in the quarter, primarily in the U S.
Leaving us with 2952 company owned stores at the end of Q1.
So the full year.
We now expect to open approximately 160 stores.
Remodel or relocate 120 and clothes 240.
These amounts reflect the foot action stores, we plan to close or reposition in 2021.
Looking ahead, we get tracking towards approximately 275 million and capital expenditures this year.
In line with that prior guidance.
In terms of shareholder returns, we pay it out $21 million in dividends this quarter and repurchased approximately 620000 shares for $34 million.
Given the ongoing uncertainty of the pandemic and it's continue impact on our visibility across our global portfolio. We are not providing detailed guidance at this time.
However.
The following directional considerations for Q2, and a 4 year may be helpful.
Well the second quarter.
Looking at sales keep in mind that our comscore up nearly 19% last year and what is historically, our lowest volume quarter of the year.
This was due to pent up demand.
Hi, promotional activity and government stimulus.
Due to delays and inventory receipts and Q1 of the current year. Some sales have shifted into cute too and as a result, we expect you to total sales to be relatively in line with last year.
With respect to gross margin.
Given the level and freshness of our inventory, we expect less promotional pressure on merchandise margins as compared to queue to last year.
Please keep in mind that we face a 6 million dollar headwind for rent abatements, we obtained in queue to last year.
Compared to the second quarter of 2019, we expect to see some modest gross margin expansion.
With respect to S. G N a bear in mind or strong Q2 sales latched you helped to provide leverage beyond our expense management efforts.
We anticipate S G and a to be elevated.
<unk> compared to 2020, as we left that unique elements that benefited queue to last year, including $17 million in government subsidies and reduce store operating costs.
Given our strong striped assist with 2021 and assuming a continued recovery from the pandemic.
Our current high level of expectations for the full year are as follows.
Total sales to increase at a low double digit to low teams right over physical 2020.
Meaningful gross margin expansion over fiscal 20th 20, largely reflected a more rational promotional environment.
When compared to physical 20th 19, we expect to see modest gross margin improvement.
S G and a rate to be roughly in line with physical 2019.
Looking at our non-GAAP tax rate for the full year, we expect it to be lower than physical 2020, but somewhat higher than physical 2019.
With that operator, please open up the call for questions.
Thank you we will now begin the question and answer session.
To ask a question you may <unk> send 1 on your Touchtone phone, if you're using a speaker phone. Please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then too.
This time, we will pose momentarily to simpler roster.
Our first question comes from Janine Stichter from Jeffries. Please go ahead.
You're welcome and you.
And what to ask a bit about the decision to close to that action curious.
Well, how you went did this start process, maybe you can share some details on what the overlap is and the change foot action a survey and the same mazdas its foot locker any overlap on customer base and then add any.
A sense of how much sounds good. Thank you can transfer I view as your <unk>. Thank you.
Okay. So the question Janine.
<unk> periodically go through the portfolio review process the banner of your process.
And as we did in 2020 with the closing of runners point, we identify key points in time that if we have to make 1 of those that would make me so.
I think the the math tells us that 85% of our foot actual stores are located in proximity of 1 of our other banners.
So there is a fair amount of overlap from a store base, there's a fair amount of overlap from a consumer base.
Great work that the foot action team has been doing of late to try to separate with different product to start looks et cetera.
Yeah, we we went through the process in 2020.
Testing some shifts from foot action in the foot locker, specifically and the L. A area on what are your boulevard in a Broadway downtown L. A and and got some plaza in Harlem and we saw those spaces become more productive so given the the timing of the lease expiry is given the timing of the of the digital effort.
We've seen this is the the time to make this decision would obviously as we go through the process, we know that will relocate or I'm, sorry, the repossession, probably a third like a little bit more than a third of the.
Foot action banners into either foot locker Champs sports, which will allow us to elevate a women's and kids presence in our apparel presence in those stores.
And we'll be able to because of natural this expiry is probably move out of in the next 2 years approximately 40 per cent of the production stores that natural this expiry. So we've got a little bit of a residual that we'll have to deal with but just given the timing of the the the lease expires that we know a couple of the tests that we did to see the productivity.
<unk> and a portfolio review on the ship to digital that we've seen.
That was the logical type to make the decision.
As difficult as the decision as to do that it's the right thing to make sure that we continue to drive.
Value for our shareholders and we continue to drive productivity up for for all of our banners that are related.
Okay, Great and then anything you can share in terms of the profitability as I've said action versus the rest of the banner.
I I can we can share that the profitability and productivity a foot action trails the portfolio. So you'll get it as we review the the entire portfolio and we have doors that we were planning to close in 2021, regardless, but as we review the the entire portfolio.
Put actions productivity and profitability run below the <unk> the the portfolios average.
Okay, great. Thank you very much and at the back.
Thanks Joel.
The next question comes from Omar Sod from Evercore ISI. Please go ahead.
Good morning, Great quarter. Thanks for taking my question I wanted to actually.
Hi, good morning.
I wanted to ask you know follow up on goat get you guys could give an update their did you see opportunities.
You know behind that kind of strategic partnership side.
Joined ventures, Youre doing together any any opportunities to link inventory between stores and website and I also wanted to ask a follow up or around your plans to expand the skews online by adding more product into that drop ship program is that a sign of maybe moving towards more of a shared inventory 3 P..3 P system in your digital ecosystem.
Thanks.
Well I'll start with gold omara.
We've talked about you know our our responsibility is to make sure that we have a clear line of demarcation between the primary market that we service so well in the secondary market that gold services. So we continue to work with anyone on the team how to go to learn about customer experience, how it can enhance that experience.
How they can leverage some of the supply chain have that we have.
At the same time.
We look at how we can <unk> some of their what their personal experienced principals into our business. So the the the relationship is currently continue to evolve with them.
<unk> and editing the team are doing a great job, but we really were focused on making sure that there is a clear line between the primary market in the secondary market. So as much enthusiasm as we have for the relationship we move very slowly to make sure that we don't to run a fall of any customer expectations on either side.
<unk> the second question around the the like you drop ship program with subtle good progress in the quarter and we added more skews. The the vast majority of the stools were added in the performance category and it ended up being <unk> excuse that we had we might not have had a size or might not have had the in stock at the.
A moment so as we continue to extend into the you know expand into the extended I'll have you with the the Nike drops a program with instead of creates a great opportunity to offer our customer more product.
<unk>, great connectivity with our partnership at Nike and continues to take care of our customers, which is ultimately what we are here to do is make sure that we satisfy their demand. So good progress during the quarter will work because we talked about it or are prepared remarks to add a couple of the other banners to the drop ship program.
Forward and.
Again, making the inventory and the broader sneaker ecosystem more productive helps all of US you know from from.
Keeping the market clean and making sure that the customers get satisfied with what they're looking for so getting progressively in both cases Omer never moving as fast as we'd like.
And are you like agnostic financially you know whether the sale comes through 1 mechanism or the other is it is it really just.
Relatively neutral and all about the customer experience.
It's about the customer experience absolutely <unk>, you know as we work to the getting the volumes up the economics, what will balance out pretty well. So at the end of the day. It's about once we've got a customer into our ecosystem, making sure that we take care of that customer and giving them what they want so you'll get the the Bible was not significant.
Yep as we make sure that the <unk>. So as I said those we have more.
As we have more seriously extended I'll, we believe that the volumes will get up and truly will be ignostic on economics, and we'll take care of a customer better.
Great. Thanks Nice work.
Thank you <unk>.
The next question comes from Kimberly Greenberger from Morgan Stanley. Please go ahead.
Hello, Kimberley usually muted.
[noise].
Hello, Kimberley yeah.
Is your name you did.
Alright.
Our next question comes from <unk> from City. Please go ahead.
Hey, Thanks, guys I'm curious what level of sales do you think shifted out of 1 Q.
Into 2 Q.
Also curious about how you're thinking about merch margin in 2 Q.
Versus last year, but also versus F 19, and I think you made a comment that you're a hours for down. This first corner curious if maybe you can talk about that versus uhm 19, as well and within that for wherever <unk> apparel. Thanks.
Yeah War.
Sales of the inventory that we know push from Q1 to 2.2 but again based on the port.
Situation, which we see improving yeah. We know that there is a fair amount of receipts that move which you wanted the queue to which will fuel. The started 2.2 and obviously the end of the back to school season, and I think he hasn't talked about in the hills opening remarks, or Andy did that our inventory will start to improve our regulatory levels will start.
To improve in the second quarter and some of that is the pushed out inventory. Some of it is the cleaning up at the port So I'll sort of over to Andrew to let them talk about.
Which retail it and talk about some of the other questions that you have.
Well. Thank you yeah as I as I stated are prepared remarks R. A S p's, where download single digits in Q1, when compared to Q1 of last year and and that was really driven by product mix. We definitely we we sold a lot more apparel and access.
Teresa in Q1.