Q2 2021 Big Lots Inc Earnings Call
[music].
Ladies and.
Good morning, and welcome to the Big.
Our second quarter conference call.
Currently all lines are in a listen only mode.
A question and answer session will follow the prepared remarks.
If you require operator assistance. Please press star zero on your telephone keypad as a reminder, this conference is being recorded.
On the call today are Bruce Thorn, President and CEO and Jonathan Ramsden.
Big lots, your vice President Chief financial and administrative officer.
Before starting today's call the company would like to remind you that any forward looking statements made on the call involve risks and uncertainties that are subject to the Companys safe Harbor provisions.
And in the company's press release and SEC filings.
And that actual results can differ materially from those described in the forward looking statements.
Executive people would like to also point out that where applicable commentary today is focused on adjusted non-GAAP results reconciliations of GAAP to non-GAAP adjusted results are available in today's press release.
Effective from the second quarter of fiscal 2021 company has realigned its merchandise organization and corresponding reporting structure.
It will now report.
Reported results for food consumables seasonal soft home and hard home furniture, and a final grouping of apparel electronics and other.
These changes will be reflected in todays commentary and in the company's Form 10-Q to be filed in September.
The company's second quarter earnings release and related financial information are available at big lots Dot com slash corporate.
The clusters.
So available on the website is an investor presentation, highlighting key themes from this call.
I will now turn the call over to Bruce Thorn, President and CEO of Big lots Mr.
Mr. Thorne. Please go ahead.
Thank you and good morning, everyone as I review this past quarter and provide insights into our current quarter's business.
Slashing I want to reiterate that we will be providing comparisons to about 4039.
Giving the periods of quarantining and stimulus that impacted the business in ways last year, we are anchoring comparisons to 2019 to show underlying business trends.
To that point I am pleased.
Second quarter performance as we continued to demonstrate strong growth versus 2019, proving out our operation North star strategies, demonstrating progress in our core assortment and underscoring the relationships that we are building both online and in store with our existing and newly acquired customers in the quarter we.
With our strong double digit two year comps in furniture, soft home and hard home and apparel electronics and other.
Consumables also posted a positive two year comp while food was down mid single digits reduced on square footage basis by our Panther reset last fall.
As a result, while down 13% to last year.
On a comparable basis comparable sales for the second quarter increased 14% to 2019. Additionally, we delivered diluted earnings per share of $1 nine within our guidance range. Despite ongoing supply chain and distribution headwinds that were greater than expected at the beginning of the quarter and cost us at least a point.
Okay.
Well the big lots team is always busy we were really busy over the past quarter engaging with customers leaning into our store count growth continuing to upgrade our omnichannel offerings and removing friction from our ecommerce channel launching a new warranty offering through Allstate rolling out additional what an <unk> line stores preparing.
And for the launch of our two new forward distribution centers and project refresh at the start of the third quarter further rolling out our <unk> brand activation campaign, and navigating a challenging supply chain market.
While addressing these initiatives and macro forces our teams remain unwaveringly focused on our customers'.
Needs continuing in our mission to help them live big and save lots, we are dealing with now in navigating the dynamic and ever changing complexities of the supply chain, but at the same time, we are leaning into and investing in our future and our promising long term growth opportunity I speak for all big lots leadership, when I convey how indebted.
We are to the over 30000 big lots team members. We remain very excited about the huge white space opportunity ahead of us and know that investing in our customer our people and our infrastructure will be critical to bringing that growth potential to fruition.
Turning to some more specifics on second quarter, we saw continue.
Strong basket as furniture outperformed most other categories as reflected on page six of our investor presentation for.
<unk> freight headwinds weighed on gross margin for the quarter and in addition, our performance for the quarter was also impacted by labor challenges in two of our regional distribution centers. This dynamic is improving as we enter.
Q3, and stress on our network will be further reduced by the opening of our first two forward distribution centers in.
In addition to alleviate immediate supply chain pressures and maintain speed to market. We have set up a nimble and agile temporary DC bypass program for the fourth quarter that will increase the efficiency of our Dcs and.
Passenger to our network.
Meanwhile, we remain excited by our merchandising opportunities and we are focused on driving customer centric deals every day, we continue to expand our ability to find closeout product in most areas of the store. We are working hard to find great deals and big buys for our customers, whether we source them from Closeouts engineered closeout.
Closeouts are just incredible product, we find that value in the market, we see the potential for closeout opportunities to grow in 2022.
As we focus on item merchandising in key value messaging, our customers responding well for example, our increased investment in apparel is leading to the acquisition of customers that are exploring.
More and more of the big lots assortment. Additionally, this is a great example of increasing merchandize productivity within the box driving incremental sales with a strong initial markup and expanding our brand recognition with quality product.
Turning to our category performance food and consumables, both declined versus Q2 2020.
'twenty as we lap last year's Covid impact that consumables were positive on a two year basis and both categories exceeded our beginning of quarter expectations and food. We have continued to see a shift away from grocery and baking categories and into more snacks beverage energy drinks and on the go food and consumables, we saw a rebound in.
Household chemicals category as well as cosmetics, while paper sales demand on Bath tissue and paper towels continues to be a bit challenge driven by the prior COVID-19 related stock ups.
A year ago, we reset food and consumables across the store and this is performing well as we approach lapping this reset we continue to.
The opportunity to improve overall productivity and improve value with big deals owned brands and everyday low prices on brand names.
Our seasonal assortment, which includes patio lawn and garden and summer categories like Kohl's and fourth of July things goods was challenged for the quarter due to shipping delays and inventory availability.
<unk>, the overall category Comped down 15% to last year, but up 4% to Q2 2019 moving into Q3, our inventory situation has improved and we have seen a resurgence in sales with early strength from our Halloween and harvest assortment, although supply chain pressures related to Asian port and manufacturing disruption.
<unk> will continue to create challenges we are much better prepared to win at the all important holiday season.
Soft home comps were up 14% versus 2019, while we saw softness in fashion bedding, all other categories met expectations, Bath rugs, and towels patio rugs and floor mats were particularly strong.
This quarter also noteworthy with a candle collection categories within home decor with strong double digit growth to 2019.
Hard home comps were up 13% in 2019 exceeding our expectations with appliances and home organization delivering double digit increases in 2019 key classifications such.
As floor care kitchen appliances storage dinnerware, and cookware continued to trend strongly partially offset by lower but positive comp sales to 2019, and tabletop food prep and home maintenance Closeouts and hard home were up even more over 2020 with appliances cookware home organization all doing.
Bell toys now rolled into our hard home category. Following our merchandising organization also performed quite well and ahead of expectations.
Furniture delivered another very strong quarter with comps down 10% to last year, but up 30% to 2019, the furniture team did an outstanding job.
Mitigating inventory challenges, primarily as a result of chemical shortages affecting film production and we achieved our strategic goal of winning memorial day weekend with positive comps to last year and two years ago.
Poultry was particularly strong in Q2, delivering a flat comp to 2020 and up almost 40% to 20.
2019, driven by high demand for sofas, and sectional anchored by the Broyhill brand, which continues to gain share. It is now over 40% of total upholstery sales.
Apparel electronics and other also performed very strongly up 15% to 2020.
Payroll delivered a 90% comp for the quarter with cash.
Casual and athletic lifestyle dressing dominating the women's business.
Although tops remained strong we saw high sell throughs in capris and shorts as well men's active tops and shorts performed well.
<unk> continued to build within the assortment offering valued breath and new classifications accessories saw nice increases.
With her and jewelry. Additionally, luggage was introduced as a new category in July with strong sales results that will provide additional growth as we look toward the back half of the year and into 2022.
<unk> continues to strengthen as delighting, our customers with fun innovative treasures, just right for life's occasions, while delivering nearly.
2% of the company's sales in the quarter.
We executed a camping things set in and Estelle just set during the quarter, both of which resonated well with big hits from National brand camping suppliers novelty small appliances and unexpected find such as popcorn themed items a television projector large video.
Again units and novelty pet styles.
I would now like to turn to our longer term growth strategy. We remain excited about the tremendous progress we are making under operation North Star, where our growth drivers are growing our customer base, improving our e-commerce conversion, improving merchandise productivity and increasing our.
Our store count.
With regard to customer growth, we are thrilled with the continued rollout of our beer Big generic brand campaign that we gave a glimpse of last quarter.
This program is grounded in extensive consumer insights around why customers love to shop us She sees us as the home of the hunt for exceptional bargains and surprising.
Treasures I'm delighted to share that this campaign is driving a 2% lift in transactions in the markets, where we have rolled it out new <unk> visiting big lots for the first time are driving 60% of these incremental transactions that campaign has also increased brand awareness consideration and purchase rates.
Showing that we are gaining relevance.
Our first campaign featured writer, who successfully transferred her relate ability and humor from good girls and parks and recreation into our big and Air campaign as we gear up for this holiday you can expect to see additional stars hunting for bargains and treasures at their neighborhood big lots.
Coming soon you'll see Eric Stone Street, most famous for his role in the beloved comedy modern family and Molly Shannon Best known for her fantastic characters on Saturday Night live both Eric and Molly embraced the big lots personality, we cannot wait to share future details with you soon.
We're also thrilled that the campaign is resonating.
Resonating with the younger audience and our demographic distribution, we've seen a 600 basis point share increase in new customers Ages 25 to 39 with the distribution shifting from those 55 and older savvy shoppers of all ages are discovering big lots and they love that we provide everything for their home with incredible value and.
And superior style.
Meanwhile, our rewards membership continues to contribute productive growth to the business with active membership up 8% versus the second quarter of 2020, adding $1.8 million more new members. This past quarter with rewards membership currently at 21.5 million <unk>.
Additionally, rewards customers.
And total spent 16% more than last year and 7% more per customer.
Over 72% of our sales this past quarter were attached to our rewards membership that penetration to sales is up 400 basis points to the same quarter last year.
Finally, we continue to see great reactivation through thoughtful win back programs.
Capture lapsed rewards members and keep them coming back.
Turning to ecommerce demand increased 10% over the second quarter of 2020, representing over 400% of growth to Q2 2019, while site visits declined in the quarter versus Q2 2020, as we lap the height of the pandemic.
Response in 2020, the declines in traffic were more than offset by increases across conversion in basket size demand for our seasonal lawn and garden assorted and for furniture continue the momentum that we saw in the first quarter.
E Comm growth is supported by our investments in the channel to further improve search purchase and fulfillment capabilities.
Buy online pickup in store curbside pickup and ship from store and same day delivery with instant card and pickup they've all been very successful and drove over 60% of our demand fulfillment.
To support holiday, we are increasing the number of stores providing ship from store fulfillment to 65, we are further reducing transaction friction.
By introducing our third mobile wallet payment program Paypal in time for holiday, joining our lineup of Apple and Google pay and we expect to introduce a new buy now pay later offering later this quarter. Additionally, we have updated the look and feel of the web site to match.
And enhance the upbeat feeling of our brand and.
Your campaign.
Turning to merchandise productivity.
Momentum remained strong within our growing broyhill businesses as the assortment drove a $194 million in Q2 sales. This represents a $77 million increase to Q2 2020 at which point we had just launched the brand we.
And the big thrilled with broyhill trajectory and continue to see strong growth ahead for the brand with over $400 million in year sales to date up to last year's full year performance and showing continued acceleration to becoming a $1 billion brand. In addition, it's important to call out that broyhill is just one aspect, albeit a huge focus of our own brand.
We remain.
We're also leaning heavily into real living a private brand and our furniture and home goods area of the store with a lower price point than broyhill, we're seeing early growth in this brand by consolidating our offering of unbranded goods and transitioning from other private labels currently in the store.
We are also introducing new.
Alex and make sure we have a complete offer in the real living brand real living has ramped up quickly generating over $400 million in sales year to date, and we are confident that it too will become a $1 billion on brand for big lots.
A lot in the queue line front end strategies are now rolled out to approximately 1000.
225 stores. These initiatives act as innovation labs with newness that plays into the rest of the stores assortment strengthening customer engagement the lot and Q line continues to drive 3% incremental combined lift to our store performance. Additionally, both have become established aspects of the big Lotte shopping experience as transact.
Transactions containing items from the Lotte tend to be a larger value include more items and attached to more of the balance of the assortment. While the queue lines are driving strong incremental unit impulse buying upon checkout in prior calls we introduced you to our next generation furniture sales team test that puts dedicated furniture focused associates.
Associates on the sales floor to help educate our customers about the breadth and quality of our home furnishings I am excited to announce that this test now and over 80 stores continues to perform very well delivering around a 15% furniture sales lift we expect to roll. This next generation model to several hundred stores in 2020.
To delivering at least a point of comp to the total company on an annualized basis.
Finally, with regard to store count.
Our growth is accelerating this year and we will further accelerate in 2022 and beyond based.
Based on all the work that we've done in recent months.
We are confident that there is white space to grow our store.
Door count by hundreds of stores in the coming years with two to three times. The net store growth. In 2022, then the net increase of around 20 stores, we expect to achieve this year.
At the same time, we expect to continue slowing our rate of closures as a result of our story intervention program, which this year will be only around 15.
15 stores all of these growth drivers are supported by key enabling investments earlier. This year, we announced that we would be opening mid year, two for bulk and furniture distribution centers to support our growth and relieve pressure in our current regional distribution centers. We are pleased to announce that our first FTC opened in early August.
August and our second will be receiving inventory early next week. Additionally, we are pleased with the performance of our new transportation management system, which has been crucial to mitigating the pressures that we've experienced within our distribution network.
Meanwhile, during Q2, we initiated a multiyear program, which we're calling project.
<unk> refresh to upgrade our approximately 800 stores not included in our 2017 to early 2020 store of the future program. These stores will get new exterior signage interior repainting and floor repair a new vestibule experience remodel bathroom and interior wall graphics, all at a much lower cost than.
Our prior store of the future conversions. This will create a consistent brand experience across our stores and enhance our brand for the long run the average cost per store will be around $100000 much lower than the prior store of the future program.
As I hope I have impressed upon you both in this quarter's discussion and in previous calls we have resolute.
We've in our white space potential and in the continued growth opportunities that operation North Star presents the underlying progress we are making is increasingly evident.
Before handing over to Jonathan I want to turn back to the supply chain and distribution headwinds, we've discussed, which we expect will continue to impact our business in Q.
Three in Q4 prior to the recent global resurgence of Covid, we were seeing increased input costs driven by a global increase in demand for ocean freight over the past few months, we have seen that dynamic exacerbated by the temporary shutdown of the port at Aunty, Ann China and temporary factory in port closures elsewhere in Asia.
Vietnam, where segments of our furniture and seasonal categories are sourced is currently under COVID-19 restrictions that impact our suppliers' ability to produce at scale. The Vietnamese government is targeting September 15th as the day to ease restrictions. In addition, the port of Ningbo, China experienced a terminal closure in mid August.
Although has now reopened.
These developments highlight the fluidity of the situation and the ongoing uncertainties caused by COVID-19.
While these pressures are expected to be transit they are resulting in both cost increases due to an imbalance of container supply and demand as well as sales impact due to delayed inflow of product.
Particularly from Vietnam, the guidance that Jonathan will cover in a moment bakes in our current estimates of these impacts and.
In summary, we are facing some near term challenges, but our underlying business remains strong as evidenced by our strong two year comps in the second quarter, which has continued into Q3.
We are as confident.
And as ever that our operation North Star strategies will drive significant growth in the coming years supported by key investments, we are making I'll now turn the call over to Jonathan for more insight on our financial results for the quarter and our outlook.
Thank you Bruce good morning, everyone and thank you for joining us.
So as Bruce referenced Soma.
Was accomplished this quarter as our teams remained focused on providing a great experience, great assortments and great value to our customer.
I want to add my thanks to all of our associates for their incredible efforts.
The summary of our financial results for the second quarter can be found on page seven of our investor presentation.
Net sales for.
<unk> quarter were $1.45, 7 billion, an 11, 4% decrease compared to $1.64, 4 billion a year ago.
Decline was driven by a comparable sales decrease of 13, 2% as we lap stimulus impact in 2020 on the height of last year's listing activities.
Partially offset by 180 basis points.
For the second permit store openings and relocations.
Our comp result was slightly off our negative low double digit guidance driven by labor challenges at two of our regional <unk> regional Dcs, which adversely impacted store inventories.
Sales in total were up 16% to 2019 is one to five 2 billion.
The impact of the two year comp of 14% driven by basket size.
As a side note when we referenced two year comps going forward, we will be doing so on a multiplied rather than an additive basis.
Two year comps referenced in this call are calculated on that basis.
Net income for the second quarter was $37 seven.
Compared to $110.1 million in Q2 of $2040.6 million in 2019.
Diluted EPS for the quarter was $1 nine within our guidance range coming into the quarter.
As a reminder, we reported adjusted EPS of $2.75 last year, which excluded the gain on the sale.
A full owned distribution centers.
EPS for this year's second quarter reflected continued strong control of expenses, which offset the slight miss on sales.
In addition, we got approximately <unk> <unk> benefit from share repurchases during the quarter.
Gross margin rate for Q2 was $39.
Sale of a percent down 210 to 200 basis points from last year's second quarter rate and 20 basis points below 2019 in line with our guidance.
Margin rate reflects freight headwinds, partially offset by first cost benefits pricing increases and judicious markdown deployment.
16 headwinds were greater than initially expected with trade costs, causing close to 200 basis points of gross margin contraction year over year.
Total expenses for the quarter, including depreciation were $524 million down from $534 million last year on slightly lower than beginning of quarter expectations.
Chris bite to distribution and transportation cost pressures.
Well deleveraging versus last year expenses leveraged 120 basis points versus 2019.
All of the above drove us to an operating margin for the quarter, a three 7% versus $9, one last year and two 6% in 2019.
<unk>, excluding the freight headwinds our operating margin would have been closer to five 7%, a 300 basis point improvement to 2019.
Interest expense for the quarter was $2.3 million down from $2.5 million in the second quarter last year.
In light of our strong liquidity position and current market conditions on June 7th we prepaid.
The remaining $44.3 million principal balance under our 2019 term note secured on the Apple Valley distribution Center equipment.
In connection with the prepayment we incurred a 0.4 million prepayment fee unrecognized 0.5 million loss on debt extinguishment in the second quarter.
The income tax rate.
<unk> third quarter was 26, 7% compared to last year's rate of 25, 8%.
With the increase primarily driven by the impact of the section 160, <unk> executive compensation add back.
Moving onto the balance sheet total inventory was up 32% to $943.8 million slightly ahead of.
And second quarter guidance.
The increase was driven by the lapping of a typically low inventory levels at the close of the second quarter in 2020.
Inventories were up 8% to Q2 2019, maintaining a strong to your improved maintaining a strong to your turn improvement while supporting our ability to drive third quarter performance.
During Q2, we opened 12, new stores and closed seven stores. We ended Q2 with 1418 stores and total selling square footage of $32.3 million.
Capital expenditures for the quarter were $45 million compared to $41 million last year.
Depreciation expense in the quarters was $35 three.
Approximately $1.3 million lower than the same period last year.
We ended second quarter with $293 million of cash and cash equivalents and no long term debt.
As a reminder, at the end of Q2 2020, we had $899 million of cash and cash equivalents were $43 million of long term debt.
The year over year reduction in cash levels reflects the deployment of proceeds from the sale leaseback of our distribution centers towards share repurchases and the payment of taxes on the gain on the sale and leaseback.
We repurchased two 4 million shares during the quarter for $153 million with an average cost per share of $63.57 under.
Previously announced $500 million authorization.
There is approximately $97 million remaining as of the end of the second quarter 2021.
For the program to date, we have repurchased seven 3 million shares at an average cost of $55.19 include.
Including Commission.
As announced in a separate really.
Under our board of directors declared a quarterly cash dividend for the third quarter of 2021 of 30 cents per common share.
This dividend is payable on September 24, 2021 to shareholders of record on the close of business on September 10th 2021.
Turning to guidance as Bruce noted earlier, we are facing significant.
Sales and margin challenges as a result of Asian manufacturing and supply chain disruption due to recent COVID-19 issues.
In addition, we will incur additional expense in the back half related to actions. We are taking to ensure we are competitive and hiring and retaining labor in our stores and Dcs.
Our guidance below incorporates our best estimates of all of these impacts.
Today, although they remain fluid.
The highlights of our guidance can be found on pages 16, and 17 of our investor presentation.
In the third quarter, we expect a diluted loss per share in the range of 10 to 20.
Compared to 76% of earnings diluted share for the third quarter of 2020.
<unk> full year, we expect earnings per share in the range of $5.90.
To $6.05.
This represents a decline to last year's adjusted diluted EPS of $7.35.
It represents 60% plus growth to 2019 earnings.
The guidance does not incorporate any share repurchases we may.
In the third or fourth quarters.
The third quarter guidance is based on a negative mid single digit comparable sales decline offset by a sales benefit of approximately 150 basis points from net new and remodeled stores.
On a two year basis, we expect comps to be up low double digits.
As.
Complete referenced our Q3 has got off to a good start with two year comps running ahead of Q2, but we have baked in some moderation as the quarter progresses due to receipt delays.
Yeah.
For the full year, we expect a negative low single digit comp versus 2020, which will again equates to double digit comps on a two year basis.
Bruce our full year sales outlook bakes in approximately $60 million of adverse impact in Q3, and especially Q4 related to COVID-19 related manufacturing shutdowns in Vietnam.
We expect the third quarter gross margin rate to be down approximately 175 basis points to last year, driven by freight headwinds as Bruce previously.
As we've discussed.
Versus 2019, the rating versus 2019, the rate is expected to be down approximately 100 basis points essentially all freight related.
Recent shutdowns of the port of <unk> in China resulted in a significant increase in that suite and container rates that will impact our cost of goods in Q3 and Q4.
For the full year, we now expect the gross margin rate impact from freight of approximately 150 basis points, resulting in gross margin rate being down approximately 50 basis points versus 2019.
Approximately 100 basis points versus 2020.
We expect freight pressures to abate as we move forward and we continue to see other areas.
Gross margin opportunities, including promotional and pricing optimization and shrink reduction.
With regard to SG&A that predicted sales levels, we expect Q3, and the full year to deleverage versus 2020.
Both the show heavy healthy leverage versus 2019.
In Q3 expense dollars will.
Areas of slightly to last year, driven by incremental expense investments in labor.
And in our four distribution centers.
For the full year SG&A expense dollars will be up to 2020, driven by the full year impact of the sale and leaseback of our distribution centers additional supply chain expenses, including investments in our new four distribute.
We'll be up incentives other strategic investments and higher equity compensation compensation expense.
These increases will be mitigated by more than $30 million of structural expense savings, which remain an ongoing area of focus and priority.
We continue to expect 2021 capital expenditures.
<unk> to be around $200 million to $210 million, including around 55 store openings of which around <unk> will be relocations.
Our Capex outlook also includes the first wave of store upgrades under a new project refresh program.
On a net basis, we expect total store count to grow by about 20 stores.
Distribution in 2021.
We expect to further accelerate store count in 2022 and beyond.
You said, how what our work is increasingly validated the opportunity to grow our store count materially in the coming years, and we are making the necessary investments to support that.
We continue to expect.
As andriy to increase significantly versus 2020.
Reflecting very depleted levels of a year ago.
Bruce referenced earlier, we are seeing strong early sales for a late fall and early holiday assortment supported by higher inventory levels.
We expect ending Q3 inventory to be up around 10% versus 2019.
<unk> <unk> to reflect healthy turn improvement.
We expect a similar to your inventory increase at the end of Q4, which will include some accelerated lawn and garden receipts support Q1 sales and minimize the risk of further supply chain disruption.
We know we left sales on the table and seasonal over the past 12 to 18 months.
We're heavily focused on recapturing those sales as we go forward.
As well as the impact in Q4, ending inventory. These early receipts will drive around $6 million of additional supply chain it expense in Q4.
Overall, our third quarter will be a challenging one driven by supply chain challenges, resulting sales.
And relax and cost increases.
However, we expect our underlying business measured by our two year comp trend to remain strong with healthy margins. After adjusting for freight effects supported by continued strong expense management.
We continue to work very hard to ensure we are well positioned as well positioned as possible to the all important.
<unk> season.
And we look forward to continuing to demonstrate strong underlying performance in 2022 and beyond.
I'll now turn the call back over to our moderator. So that we can begin to address your questions.
Thank you.
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Our first question is coming from.
<unk> with Wolfe Research. Please proceed with your question.
Good morning. This is Spencer hanus on for Greg.
Just wanted to start with freight many of your peers had called out challenges in that area and you talk.
Another 175 basis points headwind in <unk>, but if we look out 12 to 24 months are you expecting any long term impact on the earnings power from the business and then any color on the sales impact from from the supply chain issues that youre seeing.
Yeah, Hey, good morning expenses. Thanks for the questions. Yeah. So look yeah, we expect that the freight.
Just returning to being a tailwind.
Don't forget that on top of what we're seeing this year. We also had some impact in the back half of 2020. So cumulatively, it's a really really big number in terms of the impact we've seen to date, we're not sure exactly when that's going to turn but we do expect that at some point, there's going to be a normalization in a rebalancing of supply and.
Demand.
We will have a tailwind at that point and then there are many other.
There are potential headwinds, we think we have on gross margin with regard to sales.
The biggest single issue. We have this year is with regard to Vietnam the shutdown in manufacturing.
Which as we called out in the prepared remarks is that a loaded impacting is around 60.
In sales due to receipts that we.
Yeah, we're not expecting to get in time for the normal selling season for them than.
Then we had some impact in Q2 from Sharon we talked about which.
D C, there, which cost us at least a point of call them, we think in Q2.
And then there are other slower.
Slower impacts overall, some big headwinds.
We're working through.
We expect all of those headwinds to turnaround over time and some of them sooner rather than later.
Okay.
That's helpful and I think in the script you mentioned that you've got strong comps start to start. Thank you can you provide just some more color on where comps are quarter to date and then how are you thinking about.
About the fourth quarter and weighing all of these different puts and takes out there from inflation snap back to school at night in Brighton Delta cases, and all these other things that are that could impact the business.
So our two year comp expense in Q2 was plus 14%.
In Q3, we are today, we are running ahead of that what we do.
We anticipate that's going to moderate the delayed receipts from Vietnam will start to hit US late in Q3, and then I have a bigger impact in Q4, but there is some impact for that bakes into Q3, and then baked into our guidance for the full year the implied sequential deceleration into the sort of mid to high single digit comps right range on a two year basis in Q.
Q4, again that Vietnam impact is playing pretty heavily in that.
And that's the primary primary driver of the sequential deceleration from Q3.
Got it that's helpful. Thank you.
Thank you.
The next question comes from.
From the line of Peter Keith with Piper Sandler. Please proceed with your question.
Hi, Thanks, good morning, everyone.
Just a follow up on that last line of questioning around.
Yeah, the freight pressures and maybe even looking at next year. So we understand you're pulling in a lot of your spring merchandise here before year ends I presume.
That's what the elevated freight.
It is this type of gross margin impact that you're seeing.
Would you expect this type of magnitude to continue then as we look out to the first half of next year.
Yeah. So let me parse that a little bit because there's a couple of different things going on in there. So the so theres the generally.
An increase in freight which is directly reflected in gross margin that we've got some additional expenses that have distribution and transportation for domestic freight rates, which were also higher and higher processing costs because of higher labor costs.
D C. And then we have this one of the specific things, we called out which is $6 million of expense in Q4.
Related to bringing in some seasonal receipts early so we don't clog up the supply chain and we can be confident we're going to have that seasonal inventory, which is what we're bringing in and trying to sell in Q1. We know we under sold in Q1 last year.
Seasonal going back further than that because we want to make sure. We have that inventory so inventory will be a little bit higher at year end, we will incur.
So you effectively have kind of a onetime expense in 2021 related to sales we're going to have in 2022 coming back to your specific question about gross margin rate in 2022 in general.
Again I'll go back to a prior comment that we do expect freight rates to normalize over time.
Exactly when that will transpire, but we have a very significant accumulation of freight impact in our gross margin rate now covering both the 2020 one impact.
So we do expect that to turn around but we just don't know exactly when that's going to be hey, Peter This is Bruce So I'm just going to add a little bit more I think it's important to reiterate how much we baked.
Into the back half forecast for this year, given all the supply chain.
Constraints that we've seen out of hand, Tan in Ningbo, China, and Vietnam, and what its Matt you know in terms of containers cost, calling four times, what they were pre COVID-19 and in a race for product to get it in before holiday with long lead times of four to eight weeks.
So all of that has led us to obviously increase inbound freight that's all baked in there as well as our expediting other product once it gets state side through a pop up holiday DC bypass. So we ensure at fourth quarter as well as the addition of our new FTC's, so going into 'twenty two.
Two we believe that the freight will normalize this inbound freight in this cost of goods increases will normalizing and should be actually a pretty good tailwind and we won't be in a much better supply chain network situation after our investments in supply chain.
Okay.
And then maybe just a follow on so I.
I think what you said at the full year impact of about 150 basis points.
First at the gross margin.
Guidance for down 100, so netting it out your you're still seeing underlying improvement of 50 basis points from some of your initiatives could you maybe flesh those out and how those are trending with regard to reducing shrink.
Price optimization and then even on those forward D. C did that does that build is it gross margin drivers looking out to next year as well.
Yeah, Peter I'd say the biggest benefit we're seeing has been from lower markdowns and lower promotional intensity, we've got better targeting those as we pulled back from the traditional whole house.
<unk> friends and family events.
But move more towards that targeted pick your davids, they're just much more efficient from a promotional dollar standpoint, we're getting more scientific.
Without our customers and how they respond to different promos. So so we've had a nice tailwind from promo and markdown, who you were lapping a pretty nice benefit, but we continue to get a nice benefit from that in.
In Q2, so that's certainly been a positive driver and we continue to believe there's more opportunity there over time as we can.
Implement incremental promo markdown optimization type tools relative to what we've had in the past shrink has been relatively flattish.
Little bit of a tailwind, but sort of basis basically flat.
We had a mixed benefit given the distortion, we seem to furniture and seasonal factors.
Food and consumables, which are our lowest margin categories are relatively low in terms of two two year comps. So thats helped us a bit too.
Some of those impacts will continue to roll through the balance of the year.
I'd like to just add a little bit more on the pricing just keep.
In mind, we have raised prices since spring and put those out to our tour to our stores, we're taking more in Q3 and Q4.
We definitely are focused on anchoring our value entry price points.
Timeline and Gary.
And our balance between cost increases obviously had strategic.
TJ value pricing.
We've basically taken increases across the board and.
And pretty much focusing on more inelastic products and harder to price shop products uniqueness that we offer and the value we offer to our customers. The markdowns have not seen any resistance at this point I think they are extremely.
Mainly competitively priced keeping our value proposition to our customers.
And despite the headwinds in freight and the supply.
Our stores continue to the wild for customers in terms of getting them much needed furniture. During this nasty trend and with that with customer satisfaction levels are at all.
Timeline.
Okay. Thanks, so much for all the feedback good luck.
Okay. Thank you.
Yeah.
Our next question is from the line of Joe Feldman with Telsey Advisory Group. Please proceed with your question.
Hey, guys. Thanks for taking the question wanted.
Wanted to ask.
Ask you about the consumer.
And the health of your core consumer it seems like you know that they're still able to spend in <unk>.
Hi, how are you seeing that consumer in the second half of this year and importantly into next year as you start to lap, whereas the consumer lapse a lot of the stimulus that they had from last year. How are you thinking about that.
Yes.
Hi.
Joe I'll take that question, we believe the customer remains healthy.
Obviously, there are trends have changed a little bit baskets up.
It's some trips to consolidation in the industry and that's really driven because E. Commerce through this COVID-19 pandemic have made shopping easier we're seeing that too as our E. Commerce business is up over four.
In fact since 2019, they're also spending a little bit more on services guiding out and things like that because they're open now and they're focused on their home you know boat.
Big ticket items were seeing that benefit as well as we see our broyhill lining and real living grow tremendously there's less promotions.
They know that because of the product is a bit scarcer and and they're seeing we're seeing the shift to their shopping patterns going from weekends too.
Weekdays and that started pretty much since last year with the pandemic and less promotions.
She is ready for holiday she wants to holiday at this point the harvest and.
And how are we for US has been very good out of the gates and we're getting a really good start to Q3. This all typically leads to a very good holiday season. That's why it's so important to expedite the product coming off shore, our Christmas product our holiday product in time for fourth quarter, we anticipate to be in that position.
We also see the customer trends.
And certain vacation spots, where they've been vacationing doing better than you know, maybe California, where theres been more restrictions and lockdowns.
That.
There'll be some moderation to buying as we cycled through all the stimulus checks, but feel really good about our customer.
Just to note we said this before our rewards.
New to file continues to grow were up 8% Q2 versus last year and this lifting the customers. They represented 60% of our transactions in Q2 is 72% of our sales in Q2, they are getting younger as well we've seen a 600 basis.
Plant growth and in our customers' aged 25 to 39.
And these new customers in Q1 and two in Q2 of 2020 that we that we captured due to the pandemic and the restrictions and Lockdowns spent 25% last year, but now have also increased their spend.
Customer, 18% in the first half of 'twenty, one so I think going into into 'twenty. Two I think we've got a good customer proposition good marketing going on good merchant assortment, we're becoming the home of the hunt for bargains and treasures and wildlife stimulus checks will subside our in stocks will improve our valuable.
Third to prove and our store count will improve and I believe that we're going to continue to grow in the future.
Okay. That's great. Thanks, so much for that Bruce.
Just a follow up.
Wanted to ask about the you mentioned labor being a little tight at some of the Dcs and I was just curious.
What you're doing to attract labor and how are you dealing with it. It sounds like you you gave a few examples that's creating some efficiencies, but just wanted to dig in a little deeper on that.
Well look first off I think we've got a great team out there.
Got a great culture and people want to work with big lots for big lots.
Our D.
Yes.
I think have the stiffest competition, just naturally because of the high concentration of labor and a small areas and typically most most companies basically find the same distribution points across America, one of our Dcs in <unk>, Pennsylvania.
Is the one with the.
The stiffest labor competition, but we have done things like increased base wages.
Incentive systems in place that that help us compete effectively.
We've also increased our sign on bonuses, we doubled our referral bonuses for those that have left.
That are very productive when they come back in.
And new hires we also extended our employee discount which is a great.
Right.
Great incentive for our employees from 20% to 30% through the end of the year our stores as well.
<unk>.
A much lesser degree.
We think we've got about we know we've got about 10% of our stores.
Or is that might have a few more openings than we want once again, there we've got Swat team set up there.
That we do centralized hiring so we help those store managers staff back up again.
Actually started hiring miners in our stores.
And to date have over 1000, new hires in the minors.
Minors.
Miners, we've got retention bonuses in place once again the associated discount we're also exploring and working on on gig hiring and also same day pay so a lot of good things going on there our headquarters building just to round. This out and give you. The full picture we remain in pretty good shape, there I'd say much turnover at the team is really.
Solid even though they're working from home just committed to our long term growth. So yes, we are dealing with it.
We do think it will normalize it will subside a little bit but their stickiness when it comes to base wage increases and we're planning that into the future.
All right. That's helpful. Thank you so much and good luck with this third.
Okay.
Thank you.
The next question comes from Jason Haas with Bank of America, Hey, guys.
Proceed with your question.
Good morning, and thanks for taking my question.
Great. Thanks, Good morning, I wanted to Hey, good morning, Chris I wanted to follow up and get some more color on the real living brand.
That you rolled out.
Can you just state those numbers you've got about how it is performing and then I'm just curious what was the rationale for this strategy of rolling out this entry level brand <unk>.
Obviously, it doesn't broyhill, so I guess I'm just curious if you see any risk of this brand cannibalizing some of those very hotel.
Great question Jason.
And really living is.
This is actually turning into a really good brand for us in our private label brand as we call. It. It's an entry level home brand for US is basically been put together through the consolidation of unbranded goods and a few branded goods that just makes sense to pull together under.
Under one private label brand real living a Congress furniture soft home hard home among other categories, great quality and great price points comes in below the Broyhill line, which is good for entry level entry level price points and customers that want great value at even lower price the sales.
Through the first half of the year, our over $400 million in total.
It's growing we expect this to be a $1 billion brand and we will be able to consolidate our marketing our signage in our efforts around this.
And we do expect it will be $1 billion brand relatively soon.
Once I set once again, it's a nice complement.
To broyhill, which plays in the better and best categories, which is also.
Over $400 billion in sales year to date, which is all which is more than all of last year's sales.
Once again.
Is doing quite well so that's how we positioned it we've got Jack this stellar as our chief merchant.
He's got a long history.
On brands or private label management, probably the best out there in retail and this is really going to make us more predictably productive and be a great value offering for our customers.
Great. Thank you and then as a follow up I'm curious if you could talk about what youre seeing in the closeout environment.
Sounds like inventories are definitely tight.
I know youre growing off of a relatively low base, there and so I got some of the categories you weren't as big in.
In terms of close outs.
Just curious about the availability that you're seeing there.
Yes first off.
We're kind of changing the way, we talk about closeouts and calling them.
Big buys and they go they go hand in hand with our.
With with the rest of our assortment, but I guess the first one I'd like to explain it is that big buys are made up of traditional closeouts engineered.
Engineered closeouts and value sourced products are traditional closeouts, we're seeing really good source of supply.
I still in food and consumables, a little challenged given the given the tight constraints from COVID-19, but in all other categories. We continue to see great opportunities and we all know that this is going to just open up as we go into 'twenty two so the opportunity to get more of these types of deals into 'twenty, two especially with a backup supply chain.
In the back half of this year, we're going to see a nice healthy market I believe in 'twenty to these traditional closeouts are basically like you know product overruns distressed product or product cancellations. Some of the examples we had a great TV close out where one of the big retail appliance.
Sellers.
Sellers canceled their orders, we're seeing things like T shirts graphic Tees branded.
The other type of closeout, our engineered Closeouts. These are collaborations that Jack and the team does with our manufacturing sources.
For any leftover product they have or parts that they can put together a really nice product value.
You'll see a lot of offer.
Its fashion bedding sheets, and towels and there's a lot of opportunity in this off price area, you'll see patio furniture pop up in these things we're seeing a lot of opportunity to continue to grow that and then we've got the value source and this is something that Jack and his team works.
With long lead times with manufacturers and it's really a neat way of brink.
Bringing value to our customers, which helps them to manage their manufacturing absorption, obviously, they've got peaks of malls and their manufacturing cycles, but we'd like to do is go see them during their walls and.
Put in long long lead time orders that will help normalize their demand and we will see things like garden hoses.
<unk> and coolers are cycle that will get great value on and bring to our customers. All of this together is really making us the home of the value and treasure Hunt and we expect this penetration to grow.
A meaningful way.
In 2022, so we see the opportunity for these.
Big buys.
To just continue to grow.
Great color. Thank you.
Thank you.
Thank you. The next question comes from the line of Anthony <unk> with Loop capital. Please proceed with your question.
Good morning, and thanks for taking my question.
Looking for.
I'm just a little clarification, you talked about the labor challenge.
Either.
Well that just turnover or was that.
The work stoppage and the second thing.
No.
You mentioned.
He can compensate some peers.
You mentioned a lot of thought thank.
I'll take the first part of this and maybe Jonathan can add a little bit more with respect to the Dcs. Yes. There were two the northeast southeast and when we do a lot of business in the northeast and southeast, but but the real focus was in the northeast, Pennsylvania area and it was strictly due to the fact that our customer demand.
Man and the throughput we need to put through that DC was immense.
And the labor fight for labor was immense as well so so those two things coming together.
Caused us to to lead sales on the table. Since then we've just opened up for distribution center in the northeast is receiving.
<unk> product will be shipping is going to be fully functional in Q3, and Q4 and what that does it takes some of the big bulky stuff like the furniture big palaces step away from that regional DC in Pennsylvania and ship it directly to the store in a much more seamless way and frees up massive capacity and keeps it in a variable model.
For the three PL.
That's going to continue to improve our ability to get product to our customers and increased sales and also keep FTC.
And in stock.
And capacity. So we're doing that we're doing the same thing down in the southeast we've opened up our or for distribution.
<unk> center, there, making the existing RTC and a really good place going forward and we will continue to add these FTC's.
As they make sense and simplifying our distribution network. So we can meet customers demand and also grow with the growth of our company in terms of the competition I think you're.
We're asking at the competition and stores flavor is that correct.
Oh, no I was just asking about.
In stores.
Something about increasing wages and I was just wondering if you could just give a little bit more detail on that thank you.
Yes.
Stand across the.
The board.
Companies out there raising raising base wages over $15, adding other incentives like college tuition payments and other things we too have raised in selective markets, where it makes sense given the competitive.
Situation, we've raised our base wages, we continue to.
To think about it in a total rewards.
Things like <unk>.
Adding adding.
Adding stay bonuses through the holiday season, as well as increasing our employee discount to 30% up from 20% and that's a massive deal I mean, I think we probably have one of the best discounts out there and given the product lines that we sell.
It's the basic needs of anyone needs. So it is a massive incentive for them and they enjoy that so.
So you know we're fighting the good fight.
We continue to hire people that want to join the team we enjoy competitive.
Competitive staffs when it comes down to two labor wages.
And.
And I think what's more important about this is through this whole thing we've reached all time highs.
Employee engagement record highs, if you will and this goes down to the store level store manager level.
That's helpful. Thank you.
Thank you.
Next question is from the line of Karen short with Barclays. Please proceed with your question.
Hi, This is Zane broadcom for cash Mark. Thanks for taking my question, maybe one financial question for Jonathan and a two part for Bruce.
Jonathan relative to.
To your results in 2019, your EBIT growth far surpass sales growth in the first half this year.
With your current outlook, obviously, a lot of it depends on certain assumptions, but it seems like based on your guidance your EBIT dollars could be down anywhere from high.
Single digits to low double digits.
Back half versus 2019, despite sales being higher.
By high single digits to low double digits I.
I guess can you help us understand why EBIT dollars are taking a big hit in the back half when we compare your business too.
2019, maybe beyond the freight impact yes.
Yes, I'd be happy to give some color on a couple.
A couple of dynamics in play.
I'll, let sales two year sales comps in the first half of the year will be significantly higher than in the back half of the year and we've referenced some of the drivers of that in the prior comments, we did have in the first.
First quarter this year in particular, the kony as stimulus benefit relative to.
Second quarter weather that was much less significant in the back half of the year, we don't assume any stimulus benefit. So that's one reason why that dynamic is a little different than we've always got these very specific challenges in the back half of the year, including the Vietnam issues, we've talked about which is going to impact us.
Around $60 million in sales in very significant flow through impact of that freight charges.
Can be significant in the back half of the year on a year over year basis, although the incremental $6 million of supply chain expense, we talked about which is essentially a pull forward from 2022, which will hit us in Q4.
The opening investments.
Of the four distribution centers is also something incremental in the back half of the year.
That's absolutely the right thing to do and will support our future sales growth, but it does impact our expense structure in the back half of the year in a way that we didn't have that impact in the first half of the year. So there's a bunch of different dynamics passing through in the back of the year. We think most of them are transitory.
They are the primary drivers of what we what do you see that deceleration in the back half of the year.
Okay. Thank you that's helpful.
I know, it's maybe a little bit early to talk about 2022, now that you rolled out the Lagonda Q O Q.
Initiatives to the vast majority of the chain.
I guess what are some of the initiatives that you're most optimistic about for 2022 to the extent that you share and are related to that.
And maybe this one is for Jonathan if those initiatives are not enough to drive positive comps in some of the quarters next year, what kind of levers do you have within the variable SG&A.
Shannon you bucket.
Minimize the leverage.
I'll take the first part of that and then hand, it over to Jonathan I, just want to reiterate for Jonathan what he just said a moment ago, despite those headwinds and impact will deliver a year that's between $5.96 five.
Fully loaded with all that we know that could impact us and that's a pretty darn good year and when I think about that from where this company has been in the past and where it's going I'm excited I'm also excited about what's going on but what is now in the queue line is now in over 200 stores theyre, adding three points of lift to those stores.
They continue to do very well the launch an innovation lab, we've had great themes like you've heard me talk about camping theme with Coleman good old days in July with arcade games have got Gallagher ease our life's moments that we're celebrating its good stuff, we got licenses out there right now with Disney frozen.
Spiderman, all the things you'd want to see for year and half for your kids holiday is getting refined get out there and shop a lot in the holiday.
We've got a bacon toaster, if you can imagine that and we will follow it up and new year's with living better with Mario Lopez fitness equipment, and so you can burn off that bacon.
And.
We just continue to see that with longer lead times and more planning.
The lot continues to Wow our customers.
It's extremely productive innovative space for us the front end continues to get better and better in the queue line.
We're adding seasonality that Q line, bringing in theme.
From the season, so you'll see more and more stuff coming in there the impulse items.
Adding a point of lift.
To the to the to the store we continue to see that both of these two things getting better through to 'twenty two broyhill continues.
To grow I'm excited about what broyhill can be.
As it expands across other categories.
Keep in mind, you know not only did we consolidate some brands when we launched this but we've got incremental furniture sales as a result of trade ups, we're starting to get more and more customers trading up to us.
And coming to us and it's a great customer generator new broyhill.
<unk> customer and what I'm excited about in the 'twenty two they spent 132% more than a non broyhill customer with us and they are stickier than loyal and they are smart customers real living the same thing is doing the same stuff. We've got space planning work that we're doing so we can really optimize the box in 'twenty two and beyond.
When we're thinking.
About how we can better allocate products more efficiently replenish product more efficient sufficiently build store clusters more effectively to the clients and what the trends are in the market area localized pricing eventually great value Big buys I love, how we're thinking about our big buys the whole way we're doing.
They're really bringing more value that's not as clear as it should be today and Jack and the team are doing very nice job as I mentioned with traditional closeouts engineered closeouts value source products I think we can grow this penetration significantly and offer our customers more than ever and don't forget Joyce and the team.
<unk>.
<unk> seen just continues to make our marketing more efficient as we go into 'twenty two our marketing is just getting better and better we got the Big Air brand campaign. When we tested this with Ryder from good girls and all the value that we have in the assortment. We've curated we saw 2% lift in transactions just want to reiterate that and at.
At 60% of that once again, new customers, 72% of that from us.
And sales and we're continuing to see our customers loved historic rediscover the store those that have never been are finding it and those who haven't seen it for a while are very very excited about it we're going to have seen more celebrities bringing that to life.
I think thats going to go.
Bode well for us in 2022 won't pick up more customers during the holiday season and keep in mind. We've we've held back a lot on our marketing because we didn't have the right duration of content and newness and innovation. After operation North Star has gained traction after a year or two we now have content going into 'twenty two.
That's going to help us drive the traffic and transactions in our stores. So it's just so much to talk about I won't have that much time.
Continue to remove friction in E Commerce, we've added mobile wallet, Google pay Apple pay.
Paypal, we're going to have buy now pay later in Q3.
Our convert.
Conversion rate on E. Commerce has gone from in 2018, 2% to now 1% were outerwear to 2% that's a big deal and we're watching the funnel how customers shop, and we're curating more and more for them through.
Through new tools and ways that they can improve their shopping experience with us. So we're excited.
And about what we're offering and feel really bullish about how we're going to grow in the future.
Just on the cost part of your question Zane Yeah. So there are some investments we're making in the business with the food distribution centers being a key one that we've talked about incremental marketing spend being suddenly we're looking at very closely.
We are going to do.
Everything we can to offset those with structural cost savings and we continue to believe there is a significant structural cost reduction opportunity as we go food.
I think the big point, though is.
It's really the leverage opportunity we have going forward all of these initiatives that Bruce just referenced we believe can give us a sustainable ongoing increase in productivity and we know that we.
You can get a tremendous leverage benefit when we do that because.
Relatively low productivity relative to many of the peers, who as we saw in 2020, when we can drive the top line the incremental expense associated with adding sales is relatively low. So that is what will these foundational investments are enabling us to do going forward and we absolutely believe.
Please.
We've got a strong productivity growth opportunity based on all the initiatives we have in the pipeline.
I'll just add one more thing sorry to add late but I think it's a big thing.
We're at 422 stores.
Today at the end of Q2 versus 14 in four stores.
As back in Q2, 2020, that's 1% unit growth over 1%, one 6% square footage growth, we're going to increase our fleet our customers want us to in fleet or increase our fleet that growth rate will be around 20 incremental this year going into 'twenty. Two that's going to go to three two to three X and <unk>.
To accelerate beyond that we've got an opportunity as Jonathan mentioned it was talked about in the script huge opportunity to be more relevant by having more stores out there across the United States and and so that's going to be that's another $1 billion.
Project for us well over $1 billion project for us several hundred stores.
Stores in the next five years is is it is very good.
Thank you very much and good luck.
Thank you.
Thank you.
Final question is coming from the line of credit Thomas with Keybanc capital markets. Please proceed with your question.
Okay.
Hey, good morning, and thanks for running a little long and taking my questions.
One on capital structure for you all.
You've done about $400 million to $500 million share repurchase program.
Bruce can you talk a little bit more about your thoughts on capital structure and potentially.
Yes.
Yeah, Hey, Brad.
Yeah. So to your point, we still have a little under $100 million remaining on our current.
Authorization, we said anything we have excess liquidity today relative to our core liquidity needs and we don't intend to sit.
In an excess liquidity position on a.
Ongoing basis, so we plan to deploy that capital.
We also want to make sure we have adequate capital to fund until the investments and we see a ton of opportunities.
Particularly in our store count growth that we want to make sure. We found project refresh supply chain investments. So we want to make sure. We are prioritizing funding those high return until projects.
But then we continue to expect to return capital.
The shareholders through brokerage share repurchases what are filters will be.
About valuation and liquidity, but right now, we certainly feel very comfortable with our liquidity position.
Okay, Great and one last follow up just on the outlook for SCOR Q encouraging to hear that.
The Halloween harvest is doing well.
Just to be clear at this point are you all assuming any headwinds from leaner inventory or delays in merchandise and at what point.
Do you think.
You need to be locked and loaded when we know that we've gone through this unusual.
Usual period of time before the holiday.
Yes, Brian good question.
We.
We feel like we're in good shape with what we know right now obviously, Vietnam peds backing up.
Their timeframe, but anti ending those recovering we plan we.
We plan Accordingly, we know Theres four to eight weeks lead time, and so what we've done and what we've been doing is prioritizing holiday and our shipments I mean for example, you know 98% of our Christmas trees come out of <unk>. So you want to make sure that that is prioritized and in market and timing I think we've done a very good job with that and so I feel good about.
Plus anything else that lingers like we've mentioned before we've popped up a very nimble and agile.
These holiday DC bypass networks so.
It's a it's a handful of Dcs that mirror our D C that literally expedite product right to our stores to make sure we're ready and we.
We got those two FTC that are fully functional.
In Q3, and Q4 ready to go so once it hits the U S. We expedited and we'll have it in store and it's so important we've got to play to win to get this market share it's going to be good holiday season people want a holiday this year and into the early signs show that in and we also left sales on the table.
And the last year and so we want to make sure we're in good stock too.
To comp that in a meaningful way and then bringing those new customers, we attract from Q4 into 'twenty two and beyond so we're feeling good about it.
Very helpful. Thank you so much.
Thank you Brett.
Thank you.
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