Q2 2021 Joann Inc Earnings Call

[music].

Welcome to the fiscal year 2022 second quarter earnings call. My name is Daryl and I will be your operator for today's call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer effect that during the question and answer session. If you have a question. Please press <unk>.

Then one on your Touchtone phone. Please note that this conference is being recorded I will now turn the call over to a J chain a J you may begin.

Thank you Darryl and good afternoon, I would like to remind everyone that comments made today may include forward looking statements, which are subject to significant risks and uncertainties that could cause the company's actual results to differ materially from management's current expectations. These statements speak as of today and the company undertakes no obligation to update or revise any forward looking statements to reflect subsequent event.

New information or future circumstances. Please review the cautionary statements and risk factors contained in the company's earnings press release and recent filings with the SEC. During the call today management may refer to certain non-GAAP financial measures a reconciliation between the GAAP and non-GAAP financial measures can be found in the company's earnings press release.

Which was filed with the SEC today and posted to the Investor Relations section of <unk> website at investors <unk> Joanne Dot com on the call today from Julien, Our Wade Miquelon, President and Chief Executive Officer, and Matt <unk> Chief Financial Officer.

Ill now turn the call over to Wade. Thank you AJ good afternoon, and thanks to everyone on the call today for your interest and Joanne.

This is an especially exciting time in our organization as we continue to rollout a wide range of new growth initiatives is the nation's leading selling and crafts retailer or.

Our second quarter results reflect the combined efforts and dedication of all our team members. Some of the factors underpinning. Our continued momentum include our excellent merchandising and store operations execution, and a robust omnichannel capabilities, resulting in record net promoter scores.

Through the strength of our brand our unique product offerings and truly one of a kind omnichannel shopping experience, we are driving significant growth in customer engagement from our most loyal customers and also from our newest Joanne sellers and crafters.

Matt will cover our financials in more detail, but I also wanted to take the opportunity to highlight the continued strength of our financial performance. Our adjusted EBITDA for Q2 was $28.0 million, an increase of $35.0 million compared to the second quarter of fiscal 2020.

Joanne also reported the highest gross margin percentages in our company's operating history during the latest quarter, reflecting a 460 basis point improvement on a two year stack.

As a result, we reported a 17, 8% increase in gross profit dollar growth on a two year stack during Q2.

It is an acceleration from our 13, 5% growth in the first quarter of this fiscal year.

Joanne remains ahead of our internal plan for adjusted EBITDA for the first half operating results and financial performance, which positions us well to deliver on our planned earnings for the full year.

In Q2, we took meaningful steps to further strengthen our balance sheet with a new term loan that offers extended debt maturity and improved pricing terms. We also completed a sale leaseback of our distribution center in Opelika, Alabama. The net proceeds for this transaction were used to pay down our existing bank debt. These measures and the strength of our business will allow us to continue to invest in our growth initiatives.

And also support our new dividend policy, which we recently announced we are especially excited by the initial results from the launch of our international E Commerce platform through which in a matter of weeks, we were already shipping 29 countries and across every major product category.

Though we are very early stages of expanding our geographic presence increased global reach will provide joanne with margin enhancement and growth opportunities going forward.

We expect to ship two additional countries later this fall with the next phase of our international E Commerce rollout outside of the U S. There is simply no. Other company that offers what Joanne I can in terms of breadth of assortment and our related value proposition in particular across the selling space and we intend to leverage our offerings accordingly.

Historically, the second quarter as Julian has lowest quarter in terms of sales and earnings contribution due to the inherent seasonality of our business for perspective, Q2, typically represents 10% or less of our annual adjusted EBITDA last year was of course, an exception as we had an unprecedented sales growth due to peak levels of spending on PPE by consumers as well as a temporary.

Closure by one of our major competitors across all of their store locations.

As a result, our total comparable sales increased by 54% in Q2 of last year, while Q2 was by far our most anomalous quarter last year, we don't expect year over year comparisons to fully normalize into the beginning of the fiscal year ending January 2023.

For the balance of the current fiscal year, we continue to believe that the two year comparisons are the most appropriate framework from which to evaluate our performance.

We've had some large selling categories negatively impacted by the Covid Delta variant, we continue to see solid overall sales trends on a two year basis, we reported eight 1% total comparable sales growth versus the second quarter of fiscal year 2020, while this was below our expectations. The revenue shortfall was largely offset by our stronger than planned margin performance customers also can.

Respond favorably to our Omnichannel capabilities Omnichannel sales grew by 115% on a two year stack and reached $58.0 million in the second quarter, representing 11% of our sales in Q2 compared to 5% over the same period in fiscal 2020.

Our <unk> penetration now accounts for around a third of our total omnichannel revenue and our curbside pickup is now ranked as the best in class service.

Importantly, in Q2 customer retention and acquisition metrics ran ahead of pre COVID-19 levels from our top $3 million in newly acquired customers. Our sales trends were up double digits on a two year basis at or above our expectations.

Sequential basis, we experienced a sharp increase in the number of new customers doubling their growth from the first quarter also during Q2, we did experience a pullback with noncore customers, who tend to be more seasonal in nature and their shopping habits are data indicate that these noncore customers were more engaging other leisure time interest and services during the quarter, such as outdoor activities and summer travel given the postal.

Explanation reopening environment.

As I mentioned earlier I'm, especially proud of the continued progress in customer satisfaction at Joanna <unk>.

Net promoter scores are consistently improving each consecutive month throughout this year and achieved record highs within the quarter I would like to acknowledge these results, especially in light of all of our team members' efforts and following appropriate COVID-19 protocols with the goal of keeping our customers safe.

We're also pleased with the sales and financial returns to date from our recent store remodels, which are exceeding their pro forma targets and our transformative selling arts and crafts customer experience, while we're still in the very early stages of our multi year store refresh initiative, our net promoter scores at newly refreshed stores are meaningfully outperforming our store fleet overall.

Looking forward, we will continue to carefully monitor and identify ways to mitigate inflation.

We have been effective in managing overall inflationary pressure, despite the well documented pressures on feedstocks labor and logistics and.

That vein the most critical shorter term issue. We're currently facing is the overall highly stressed supply chain at the epicenter of which is ocean freight availability and related costs.

For perspective, we are currently required to pay as much as 10 times, our historic average container rate to secure overseas shipments.

Nevertheless, we have done what is required to ensure that we will be in a strong in stock position for the all important back half of our year.

And while we face these issues in the short term, we're managing through it by striking the right balance between driving topline growth and gross margin improvement.

Ultimately, we expect these near term supply chain headwinds will prove to be transient and will ultimately become tailwind until then we'll continue to drive smart enterprise choices to keep our customers engaged and also create value for Julien.

And finally, I would like to express our concern for all joined team members and others, who have been impacted by hurricane item.

Please know that you are in our thoughts and we continue to be there ready to help you in any way that we can.

With that I'd like to turn the call over to Matt to discuss our second quarter financial results in more detail.

Thank you I'd now like to reaffirm with comments on complement all team members across our entire organization under dedication and support of our customers and all of our key constituents here at Joanne.

I'll first cover key highlights of our second quarter performance in fiscal 2022.

We reported net income of $7.0 million in the second quarter with diluted earnings per share of <unk> 12.

Adjusted EBITDA was $28.0 million versus $94.0 million in our most impacted quarter last year from the pandemic on a two year basis, our adjusted EBITDA improved by $35.0 million.

As we've mentioned we had record gross margin performance in the second quarter at 53, 7% of sales an improvement of 100 basis points compared to the first quarter of fiscal 2022.

On a two year stack gross profit dollars increased 17, 8% to $274.0 million.

Which is an acceleration from our 13, 5% growth in the first quarter of this fiscal year.

Other key development in the latest quarter included the relaunch of our store refresh program that was previously slowed due to the COVID-19 pandemic, we completed seven projects in the past three months and we will complete seven additional projects in the third quarter as we build towards a full schedule of approximately 60 projects next year.

We also refinanced our term loan with a new covenant light $675 million credit facility, extending our maturity to 2028 and lowering our interest rate.

Additionally, we completed the sale leaseback transaction for our Opelika, Alabama distribution center, which generated $48 million of net proceeds that we used to reduce borrowings on our revolving credit facility.

The $29.0 million gain related to this transaction was recorded as a onetime item in our income statement.

Finally, we paid our first quarterly dividend as a public company of <unk> 10 per share our dividend of the same amount for this quarter was just announced.

I will now provide more detailed color on our quarterly results.

Net sales decreased by 29, 8% compared to the same period last year to $505.0 million.

With total comparable sales decreasing by 29, 9%.

As a reminder, sales in the second quarter last year benefited from unusually high spending on materials to produce facial masks and other PPE by our customers as well as high numbers of competitor store closures driving total comparable sales growth last year in the second quarter a 54%.

On a two year stack total comparable sales increased by eight 1% from the second quarter of fiscal 2020.

This growth was broad based as all product divisions geographic regions and both channels grew on a two year basis.

As we mentioned in our ecommerce business was a particularly strong contributor to our two year trend growing at a 115% on a two year basis, and comprising 11% of total company sales for the quarter.

We accelerated gross margin expansion during the quarter as a rate to sales grew by 410 basis points compared to the same period last year and by 460 basis points over two years ago.

As a result, we grew gross profit dollars by 17, 8% on two year basis, we continue to optimize promotion reduce shrink and effectively managed clearance inventory to drive these results.

We expect the factors that are currently driving our gross margin expansion to continue into our peak fall and holiday season, which will work to offset significant cost challenges introduced by unprecedented supply chain constraints driven by the COVID-19 pandemic.

We remain committed to providing robust and exciting basic assortments as well as fashion and seasonal merchandise for our customer with most of those products being imported from overseas.

Despite challenges we have successfully obtained bookings for ocean freight on over 90% of merchandise, we will need for our peak third and fourth quarter selling season to.

To accomplish this in the current environment, we are having to absorb rates for ocean freight and some cases up to 10 times higher than historical levels as well as incur additional cost to move product through congested ports and temporarily shutdown rail networks.

All of this effort will allow us to move product through to our distribution centers and stores ahead of key sales events.

These incremental costs are beginning to impact the value of our inventory on our balance sheet impact on gross margin was muted in the second quarter.

Starting in the third quarter. These costs will be much more pronounced as we expect to see one time negative impact on gross margin of approximately $30 million in the back half with our peak fourth quarter holiday seasonal business most heavily affected.

We plan to isolate the onetime impact of these incremental supply chain cost as a reconciling item for adjusted EBITDA and our upcoming quarterly reporting until these costs normalize.

Our second quarter, selling general and administrative expenses decreased by 13% compared to the same quarter last year.

Production expenses was driven by lower sales compared to the second quarter last year, but also through enhanced store operating and other cost saving initiatives and the fact that we are no longer incurring where significant pandemic related costs last year.

We feel very good about our ability to manage inflation over the longer term, we have held expenses to an increase of three 4% over the second quarter two years ago after normalizing for incentive comp and depreciation while total comparable sales grew eight 1% over that same time period.

The majority of our modest growth in expenses had been to increase wage rates in our stores and distribution centers to allow us to be more competitive in those key labor pools, which has allowed us to maintain healthy employment levels and deliver strong customer service.

Depreciation and amortization increased by 2% over last year to $21.0 million.

Driven by ongoing investments in stores technology platforms, and our new multipurpose fulfillment center in West Jefferson, Ohio that new facility is already supporting key seasonal product flow to our stores.

And is on track to also support direct to consumer and international ecommerce fulfillment next spring.

Store Preopening and closing costs increased by 700000 versus last year to two $8 million for the quarter as we have restarted our store refresh initiatives.

Interest expense for the quarter decreased by $8.0 million versus the same quarter last year to $22.0 million.

The decline in interest expense reflects our lower average debt levels compared to last year as well as a lower average interest rate due to the cumulative effect of our recent refinancing activities.

We continue to maintain a strong balance sheet that provides us with the flexibility to fund our strategic objectives and provide a return to shareholders all while absorbing the nonrecurring supply chain costs I described earlier.

Our long term debt was $773.0 million as of July 31, 2021, a decrease of $141.0 million from August one 2020.

During our latest quarter, we completed a significant refinancing of our prior first lien term loan facility, which was due 2023.

Our new $675 million term loan was leverage neutral to our balance sheet as the proceeds were used to repay borrowings on our prior first lien term loan and the balance to partially pay down our current asset base line of credit.

Our new term loan facility comes with an extended maturity to July seven 2028, with more flexible business terms and favorable pricing of 50 basis points on the interest rate compared to our prior term loan.

As of the end of the second quarter. The trailing 12 months adjusted EBITDA as reported under our credit facilities was $303.0 million, resulting in a reported leverage ratio for net debt less cash to adjusted EBITDA of two seven times as we have shared earlier, we generate a substantial portion of our free cash flow during our.

Our fourth quarter and will have capacity to reduce debt leverage further by the end of our fiscal year.

We continue to execute on our initiatives to drive working capital efficiency. We ended the second quarter with inventory, 15% below the same quarter two years ago, despite absorbing nearly $11 million in additional landed cost within our inventory related to the COVID-19 driven supply chain issues.

Merchandise inventory turns also improved by $2 one times as of July 31, 2021 versus one nine times a year ago.

Capital.

<unk> were $34.0 million through the second quarter, driven by investments in our new distribution Center and information technology, We still expect total capital expenditures in the range of $65 million to $70 million for the full year as we work to complete their new distribution Center project rollout of new store point of sale system and ramp.

Our store refresh initiative to what we'll be full speed by early next year.

Our first quarter dividend.

<unk> per share was paid on June 25, 2021 to shareholders of record on June 11.2021.

Our board of Directors recently declared a cash dividend of <unk> 10 per share for the second quarter payable on September 24, 2021 to shareholders of record as of close of business on September 10.2021.

While we are not providing formal guidance on revenue or earnings at this time, we did want to provide our updated expectations for our full fiscal year 2022, and some specific items that may be useful to those modeling our business.

For capital expenditures, we expect a range of $65 million to $70 million for the current fiscal year.

Pre opening and closing expenses are expected to be in the range of $9 million to $11 million.

Depreciation and amortization is expected to be between 80% and $82 million.

We estimate annual interest expense of $50 million to $52 million.

An effective income tax rate of 22, 5% to 23, 5% for the full year.

Weighted average basic and fully diluted shares for the third and fourth quarter are projected to be approximately 42 to $51.0 million respectively.

Weighted average basic and fully diluted shares for the full year are expected to be $41, two and $50.0 million respectively.

In summary, we are pleased with our financial performance through the first half of fiscal 2022, we remain focused on preparing our business for a successful fall and holiday selling season through what our unprecedented global supply chain challenges with that we'd be happy to take your questions.

And if you have any question.

You can press Star then one on your Touchtone phone.

Dan if you have a question.

Star then one on your Touchtone phone.

And our first question is from Liz Suzuki from Bank of America go ahead Lynn.

Great. Thank you.

Specific categories of products, where you are unable to procure enough supply to meet demand and if so how much do you think that may have cost you in sales.

A lot have been left on the table.

I would say for Q2, I mean, we've been in pretty good shape, we have been investing to do that what I would say there's nowhere. If you look at like last year, we had kind of all a lot of benefits from Covid.

Say that right now we're in a position where we are seeing really the negative.

Is the Delta variant wanes, and we think that we're going to be in an even stronger position. So for example, fashion apparel special occasion related notions about 20% of our cabin categories.

<unk>.

Are coming back we're coming back very fast for example in the south.

Or.

The southeast for example, so it looks like Q2 southeast with.

Number one performing region high teens in those businesses were rebounding because they are really tied to things like cosplay events.

<unk>.

Weddings.

Nick.

And now that's pulled back very far in that region. So I would say that we are actually very good stock. We're flowing product, we expect to be and goes back to the balance of the year, but those businesses.

Are the ones that are really dependent upon people being able to again add problems and weddings and those kinds of events.

Specifically on your question about inventory position, we've been able to maintain basic in stocks.

At ranging between 93% to 95%, which given our SKU count is actually pretty good in where we normally kind of like to be.

Where we probably had some impact on the quarter is.

Again, we mentioned we've done I think a really good job of getting bookings for our back half seasonal programs. We did have some of that for fall and Halloween arrived a bit later, we don't get a ton of sales in the second quarter on those but we do get some so there was a little bit of hurt there. The other thing I would say is.

When we are seeing that product arrive or sell through has been really strong. So it gives us a lot of encouragement for the back half and those programs, but we did get a little bit of a later start on being able to sell those items that we normally do I mean, as you know that global supply chains are.

Disruptive beyond belief I think that's been part of our decision to really.

Go after margin versus being more aggressive on sales there is really no point.

And promoting.

Any more than we have to just end up adding a stock or a hole for product.

In the back half so I feel like we stuck a pretty good balance on that and pretty pragmatic.

Given just the entire nature of the supply chain.

Great and that actually leads me right into a followup with design just.

Early read on quarter today in Halloween fall, followed the core demand how are you thinking about costume related materials, given that last Halloween, it's probably a bit more locked down in the mid tiers is likely to be and then just any thoughts about the promotional environment for holiday versus two years ago, whether you think it's still likely to be.

Little bit little bit lower a little tighter and promotion yes.

<unk> guidance over the back half of that is probably the best promotional environment, we've been in with via changing I think.

Just a very rational environment as people, probably keep one eye on potential inflation and again, we've been able to manage.

Manage it broadly outside of Ocean freight very very well, but early reads that we have.

Halloween for example are extremely strong.

And.

Again, I mean last year, there wasn't really a halloween, but we're feeling good it's still early days importantly, again, we're going to be.

Very well positioned with our merchandize.

I'm also optimistic that people are ready to be together and do events, which didn't fall bleed into the fall as well as into Christmas. So.

As we look at it here, we're feeling pretty good.

Great. Thanks very much.

Excellent.

And our next question comes from <unk> <unk> from Credit Suisse go ahead.

Hi, everyone. Thank you for taking my questions.

Firstly on the second quarter results I mean can you provide some more color on the specific categories that are doing really strong last year. How did those performed considering the customers purchasing multiple machines last year and related in terms of Q3.

OLED Fab you are seeing anything specific to comment on those categories as well. Thank you.

Yes, all of our divisions were up two year stack basis.

And our channels were up and again, our 3 million customers and our new customers.

Meaningfully.

So that's a good picture on the.

The arts and crafts and seasonal businesses was up meaningfully more than the selling business and the selling business. While it was up on a two year stack basis.

Really if you look at where the issues are it really is related to as big or that it's related it's what we call our special occasion.

Our fashion apparel and related notions.

Those businesses.

Our lagging where they need to be again those are really based on events as I said before is the southeast was opening up if you looked at our Q1 those businesses were roaring back.

Now that Covid hit that area, maybe harder than most areas.

Youre seeing those curves again, so we're optimistic on those businesses.

Because again, there will eventually be events.

Again, our early reads on Halloween are pretty exciting.

We see people potentially evolving into their next project.

We're feeling good about that.

And as we go forward I think we're feeling that the picture probably is again, we're set up very well for the back half early reads are pretty positive.

This is the day and put everything starts to turn actually.

As we go into.

The holiday weekend here and we see actually historically, a Macintosh who has been here 25 years those noncore customers.

Youre competing with summer activities and summer camp and vacation and travel a drop out but now as when those noncore customers actually start coming back as kids go back to school and the weather starts to wane. So yes, I think another key piece to your question is.

Just the customers that bought a record number of customers that bought.

Crafting and so any technology in the past year.

We're continuing to see their follow on purchases of supplies and materials be.

To be quite strong I would say what we have seen is the sale of some of those machines, particularly on the craft side still be very strong on a two year basis, so well above pre pandemic levels, but certainly not as kind of as hard as they were last year.

Got it as a follow up just on the margin piece.

I mean for 150 basis points off onto your basis can you sort of unpack some of the key items within that and what should be embedded for the back half. Thank you.

Sure about about a third.

That growth or kind of some of the non pricing pieces of that so our shrink is improving substantially and we're much cleaner in terms of clearing so kind of markdown impact in clearing discard impact on margin about a third of that improvements from there really the balance of it is what we spoke to earlier, we're kind of in.

Unprecedented lead favorable promotional environment I think we're also.

Got a lot of work over the past two years to put ourselves in a much better position to take advantage of that and really understand.

Promotional activity around a lot of our key categories. So that's really driving kind of the other two thirds of that growth. So I think to <unk> point that promotional environment piece and our ability to leverage that super confident in we can continue to drive that into the back half we continue to be favorable in terms of our inventory.

Finally.

Our ability to drive down shrink so we feel good about those again will talk we talked a little bit about those we assume will probably take a few questions here.

Net import freight piece of everybody's.

Dealing with is going to be meaningful.

Scope, what that looks like but roughly around 200 bps.

A margin headwind for the back half will.

It will be kind of offsetting those tailwind.

Matt said, it but I think it would be.

Overstated our inventories at.

At least not any recent memory been cleaner.

And that's really important because not only is it less discard it also.

Means that we're able to have strong pricing power and don't need to move goods.

With other fashion and seasonal goods coming behind it so.

That's just a great place to be and I think we will be able to stay in this position for a long time.

Understood. Thank you so much.

And our next question comes from Paul Kearney from Barclays Go ahead Paul.

Hi, everyone. Thanks for taking my question.

Okay, that's great and just look at the two year stack on sales.

It seems to suggest that.

Deceleration from Q1 into Q2.

I'm just curious whether revenue can provide a monthly cadence of how that played out with weather.

You view this.

The main driver of that is the delta variant or is it people pursuing other activities those things reopened.

I think it's a little bit of old you can you can digest some of the core business as I talked about the delta very surprising a couple hundred basis points of growth.

They were starting to move now, they're kind of going sideways, a little bit with that but they will come back.

Again that noncore customers that other piece, that's about 25% or so of our customers.

Again, if we look at our top 3 million that are new to Joe and the new active as that came in but they were up meaningfully and then in the teens.

And beyond so that's very strong but that group is a group that kind of fades a little bit again, I think being cooped up for a year.

And then being able to travel and do other activity just kind of natural we do feel that that group will come back to the historically do but it's really split between those two things.

Okay, and then just curious on kind of the quarter to date trends are there any kind of categories Youre seeing particular strengthen especially goes.

Back to school and just.

Back to work or anything that you're seeing quarter to date that kind of gifts.

Confidence in the outlook.

Like I said, all the art, congrats and seasonal businesses.

They are doing very very well.

And we think that will continue for a long time and selling you can take away those.

Those categories that are really driven by those big events selling is doing well so.

We're feeling pretty good and really in the back half of the main event for us is being able to stand strong.

<unk> for the season.

That inventory, that's where we do use disproportionate amount of our business and our EBITDA and.

We have made sure. We had we had we've moved heaven and Earth to make sure that we're sending to all we feel that in many areas we are gaining share.

Don't feel that we're losing share anywhere and we don't want to lose that momentum.

I think in <unk>.

Looking at the third quarter August really performance much more like our second quarter. It's typically kind of in that slower time period for us our business accelerates significantly kind of starting this weekend to day Labor day weekend.

Through through the balance of the year starts looking much more like our.

Our fall in.

Today traffic, which again.

Accelerated significantly from what we see over the summer.

Thank you.

Okay.

And our next question from.

Zach Adam from Wells Fargo.

Hi, This is David Lance on for Zach Thanks for taking our questions.

Through the early days of the International E. Commerce launch can you provide additional details around kind of what you've seen in terms of customer purchasing patterns and how those vary versus U S customers.

Yes, I mean, it's early days, but we're seeing a really.

Exciting ramp here on what I would say, it's probably a couple of different patterns. We're seeing is.

The English speaking countries.

Clearly support unit.

Including in countries, where people speak dual language like Israel surprisingly in Germany, and others, but I think Thats, one thing, which gives rise to the fact that.

There is global demand for what we do especially in selling but thats easier. The other thing is we're seeing really big order size.

And that's in part because we were able to discount.

The freight.

For the large orders and make it a win win for everybody.

But the order size is meaningfully larger than what we do domestically.

But again, it's exciting we are seeing again as we've said across all of our categories. We have seen.

Purchases, which is also I think kind of exciting for us.

That's great and then just a follow up also so we're getting to SG&A per store growth down in the mid single digit range. In Q2 I was wondering if you could provide some additional color on how youre thinking about that over the next few quarters.

So just to make sure I'm following the question.

Our trend on a two year basis for SG&A growth.

How do we see that persisting.

Exactly yes.

Yes, so I think.

Again, continuing to kind of ensure we're competitive for labor. So I think thats always.

Something we need to stay on top of and if required.

We would lean into there.

Absent of that we don't really see any anything meaningful.

That would derail us from the trend we've been on recently.

What I would say is we feel.

Im sure Youre hearing lots of stories about harvest to get labor.

Labor and that is true they are out there.

I do feel that over the last couple of years, we have made pretty good strides.

Our wage rates with our store employees in our Dcs Big step ups, there versus what's been kind of an average again last year, Japan, the premium to hourly employees not furloughing anyone.

They were with us it may support us.

But I think Thats also been I suppose probably more difficult for another laid people off to get people back and that is if you continue.

Just keep them. So I think we feel in a pretty good position in terms of both the progress we've made in terms of.

Trying to increase wages systemically as well as the ability to retain good people.

Great. Thanks.

And our next question comes from Cristina Fernandez from Telsey Advisory group.

Yes. Thank you I wanted to follow up on sales.

And in the past I think last quarter, you talked about achieving mid teens comp on a two year basis.

The next couple of quarters for the back half in light of how the chicken.

Quarter unfolded in August to date do you still think that sort of like mid teens competent to your stock is doable.

The third and fourth quarters.

I think we see the back half as we're probably going to be in that where we're targeting that kind of mid teens gross profit dollar increase.

Which is about kind of what we did the last two quarters. So we see that maintaining.

That's kind of how we see it now to what extent there is a sales tradeoff versus the margin.

I think we will see again.

Our bias right now is a little bit heavier in the margin than sales just because of the supply chains and.

The.

We want to be selling something below where we have to not have any product behind it but I think that's the way. We're modeling it is on a two year stack basis, we kind of see the dust settling this year as we've always said it's kind of.

The quarter's pretty consistently somewhere in that kind of mid teen gross profit dollar versus two year stack, yeah, sorry said another way, excluding excluding that that freight anomaly right, but other than that yes, correct. So yes, I think excluding the kind of.

Nonrecurring freight costs, we dimensionalize it.

Are we seeing where we expected several months ago.

Link sales a bit slower than we would expect maybe relative to what we expected that in sales a bit slower, but certainly we've been able to accelerate gross margin expansion at a much more rapid pace than we thought at that time as well, but we are calling kind of the normal.

Great for what it's worth is more than double what we've seen over the last decade. So.

I hope that's conservative, but we're assuming that ultimately isn't.

Isn't that a settled where it was but and thats what were building into that base.

Yes, that's helpful.

Trade can you remind us I don't know if you've shared this before how much of your capacity is contracted.

Purchase more on the spot market and subject to fluctuations I'm, just thinking at sort of the increase you're seeing for the fourth quarter.

Something that we should expect as we go into 2022.

Thank you.

Really.

$64 million question I think.

So as we kind of break this down we typically.

Even through our peak time would be contracted for well above 50% of our needs.

<unk> you are having right now is that capacity is not there. So were some weeks fortunate if we can be a 20 or 25% of capacity under contract. So therefore, you're into these brokered markets, which those costs are just astronomical right now so we're having to pay them to ensure we get product in country that we desperately need.

That is exactly how this is going to.

Normalizes, we're going to be able to get back.

A majority of our products being able to be procured on contract rates and shift on contract rates.

Those rates as we mentioned have actually doubled.

This year, and we're treating that as kind of normal way cost, but again.

We need to be able to get the capacity we contract for.

For those costs to normalize and certainly right now we're not anywhere close to that.

Yes, I'm sure you're hearing this from others as well.

Of.

Which carriers may or may not be compliant with the contractual obligations, which is probably another discussion for another day.

But again in the meantime.

Making sure we're doing what we're doing to be strong stock because we really think the customer is going to be there and we're going to be there for the customer.

Thank you.

And our next question comes from.

Steven Forbes from Guggenheim Go ahead Stephen.

Good evening.

So maybe taking a step back right.

We think about the growth algorithm of the business.

Laid out at the during the road show and the whole IPO process that two to 400 basis points of long term secular growth.

The building blocks within.

Addressable market growth.

Price and promotion optimization et cetera.

And then sort of any changes of late that would impact how you think about those various growth factors or is that two to 400 basis points still the right.

Long term algo for the business as you currently see it.

I think we still believe it.

If we look at just what we think the underlying growth is the place where we can still take share what we're seeing in terms of the lift on our store refreshes all of that.

Feel pretty confident about that and like I said before I mean last year I mean.

Obviously COVID-19 was a tailwind for us as you had PV in mortgage we're getting into our space and the like.

I think that walking space right here I don't think it's getting worse, but we're actually getting it out.

Only headwinds from it again from <unk>.

Select closures people being a little bit we see curbside spiking, a little bit of anxiety about going out and again these businesses, 20% of our businesses actually law from when the world opens up so.

So all that said no. We're feeling we're feeling very good about that algorithm.

And then just a follow up on important freight costs.

I appreciate the quantification of the headwind for the back half, but any sort of initial thoughts on the timeline behind the anticipated normalization given some of the concerns around the Chinese new year.

That's important labor negotiations are in and the ports for next year I mean to say.

Six months 12 months 18 months, how long do you sort of expect it to last for.

I mean I can tell you my point of view, but I don't know if its worth much given everybody probably has a point of view.

I do think if you just look at the whole thing and the fact that 20% to 30% of the capacity came out of the system you didn't have planes flying.

The market has been really Chris cost this year and then you add in the Suez Canal.

At La Porte, Jim because you Couldnt ask for anything worse than that $30 million of Matt had actually about $8 million is what we call trans loading because the Chicago rail system in Cleveland and other rail systems basically shut down eight.

$8 million, so just to take it off of one container and put it on whether on the trial.

Which has never been done before but if you want the product in some cases, that's what you have to do so.

What I would say is once we get to kind of.

Late October November for US the main event is over.

We don't ship a lot.

Then for many months and so you're going to be coming out when there is more capacity coming on.

Not only our demand, but other demand is going to start to fall and so this thing will start to reset I don't know that that means it's going to be.

100% shared in January February next year, but I got to believe would be much better than we are.

We're taking steps in doing things to get ahead of us for the next year, but as Matt said, what we're building in our base right now and what we're building in our forecast is more of a <unk> of what we've ever paid.

We will ever go back to where it was.

I don't know that might be.

Few years as I understand in a few years theres a lot of capacity coming online, but I think it's kind of surfing away, but again the good news for us is that.

Once we get through the next 60 days or so.

Whatever 80 days 90 days.

Were you above 90% of it.

Don't have a lot of volume that flows after that for quite a while.

Yes.

Yes, that's definitely the capacity the capacity normalizing.

Two demand is really what's going to drive drive these cockpit download. So I think if you are kind of following this going forward. That's that's what you want to be looking for in terms of when retailers are going to be able to be on more normal contracted rates again, just to give you. Some numbers. I mean this is just kind of give you a round cowboy math, but let's just say historically.

Wasteful broker and contract where again, let's call. It 3000 here, depending where you are bouncing around that for most people.

The last several months into the next several months.

Your bank at least in the mid teens, but it can be as high as 25.30.

Yeah.

And you may have.

<unk> load on top of that.

And air LASA checklist between 120 to $140000. So.

It's it's.

Won't be situation, but.

Again the decision. We made is we feel we've got a lot of momentum with the customer we've got some share we can take and what we didn't want to do because we don't want to lose that by not spending the money.

And our best position with the customer.

Thank you.

And our next question comes from.

Daniel <unk> from William Blair.

Go ahead.

Good afternoon.

Just if I can ask maybe a.

Little bit of clarification.

Maybe amplify.

The sales were substantially different than expected in the second quarter could you just maybe just rank ordering of possible put some numbers around the biggest factors altogether. I know you said fashion was a part of it but not a big part.

And to what degree was it all.

All demand related or was it partly supply constraints.

The part also just wasn't quite clear was it sounded like you said people going out and doing other activities was a negative which is understandable, but then it sounded like you were saying the Delta variant is also a negative and it might seem like it would work the opposite right. So.

That would be up.

First question.

Yes.

Again, this is rough math, but I think of kind of that three to 400 basis points, where we probably again below expectation on it you can kind of split down the middle of these businesses again about 20% of our business.

Our big businesses like fashion apparel like special occasion related notions and other these are businesses that are driven again by weddings by large events by cosplay conventions.

A lot of that I think you can kind of you can blame on COVID-19 and kind of on the Delta area, where things get being delayed and stop the delay. So I think thats about cowboy math about half of that the other half of it I think it was just again these noncore customers, who always kind of drop out.

At this time in the summertime.

They dropped out a little bit deeper now, but again I think it stands to reason that if you haven't been able to go outside or travel for year end.

Dan.

That's going to take higher priority than some of the things that we do but we feel pretty confident that they'll come back.

Kind of starting now when kids are in school in the fall season Hansen.

For seasonal.

Other events so.

I guess the other pieces again.

I think we're we feel very good honestly is sequentially again, we went from what was a great quarter last quarter.

14% gross profit dollars on a two year stack to 18, I mean, if we normalize that and put that money back could we have driven some sales.

Yes at a lower margin.

But I don't think it would have been necessarily paid out.

And also again I think we're at a point here where.

SKU by SKU business by business, we're making sure that we're being smart about how we promote themselves. So that we actually have inventory behind it.

Yes, I think one of the things you mentioned I'd like to kind of addresses.

A very intuitively assume hey, maybe the Delta Varian spiking is actually helping our business because we had some pandemic benefit last year.

That's really just the nature of what's going on now is not the case anymore.

We don't have any we don't have customers coming in and buying large making PV.

You can buy finished mass everywhere I don't think people are anticipating they're going to be wearing them for extended periods of time like they might have assumed last year.

So we're really not seeing there's very specific categories that spike when that's happening and we're not seeing lifts in those at all.

If anything we are fully discretionary business right. So going if people had anxiety are answered by going out.

Additional fear about Covid Delta variant.

I would say.

General that's more negative than positive for our customer.

But it sounds like you think that there is likelihood of some re acceleration as we get away from the summer and the more kind of typical period going forward.

Yeah, what I would say I think we're ecstatic as honestly for us the very most important is that top 3 million customers.

And then those new customers to Joanne that came in last year. The FG active engaging spending more now than typical customer those two segments are well into the teens and the IR team. So.

That's good if I had to pick.

Two of the three to be very healthy right now those are the two IPO.

On the other case I would say is our acquisition of new customers actually continues to accelerate.

We've trended in terms of that addition of new customers to where we would typically do pre pandemic in the first half were up 15% on a lot of those customers again are.

<unk>.

Share growth customers for us, there and arts and crafts and a lot of seasonal categories. So.

To be excited about that so I think we've got some signs that if that more casual customer in our in our industry.

Strengthens again in the back half.

I think there is some positive indications for us.

Okay and then my other question just relates to the Remodels and refreshes.

I know that's supposed to accelerate more starting next year, but can you any updated thoughts there on what that what they might contribute.

Sales and profitability standpoint relative to kind of <unk>.

Status quo.

Yes, so I think.

As we've said we're kind of early in kind of a relaunch of that please again very early on what we're seeing from the projects. We have done so nothing to indicate we shouldnt.

See the strong high single digit lift in our in our kind of lower tier projects that we'll do up to well above double digit lifts for stores we relocate.

We have no indication that.

We won't see that we are well into our planning for the 60 projects. We intend to do next year, if identified most of those already and.

Pro forma expectations, we have with those are in line with those types of lives.

Okay. Thank you very much.

And our next question comes from Jordan Fine Anchorage Capital go ahead John.

Hey, Thanks for taking my question.

I guess relative to the first quarter.

<unk> was kind of flat.

Despite the decline in sale and I guess I was wondering you could maybe provide some color.

Clarification as to why that might have been if it was.

Because you had more employees than you expected.

The sales mix or whether it was wage inflation related.

Yes, nothing really in terms of.

Inflation in costs.

One thing I would say is.

Our average weekly sales don't fluctuate that much quarter to quarter. There is a base of G&A.

G&A it takes to operate our chain operator stores operator, our Dcs the other thing that does occur, particularly in our store.

Store operations as we do a lot of projects in the slower sales time to get ready for that back half, we reset a lot of planning grams.

We.

We take care of a lot of the other projects that we'd like to avoid doing in the back half because we want our teams focused on primarily on driving sales. So there is a.

A limited amount of leveraging we can do in sales dip in that quarter because.

If we were to cut too deeply you are kind of putting our readiness for the back half at risk and we don't we don't want to do that at all cost and a lot of costs like our occupancy and stuff are there.

They are fixed though.

Got it Okay and then.

In terms of the.

Cohort of people that made machine purchases last year and the follow up demand that you expected from reusable how does those cohorts kind of compare to what your expectations were.

We keep running that in.

It compares pretty favorably I'd add a little bit lower in the last few months.

The two quarters prior were on par with our algorithm and I think in the last month or two as little bit below but there were so many machine sales last year.

That it would have to be well below what we're seeing to not be substantial benefit going forward.

And a chunk of those machines were bought by these customers. We described they are a little bit.

Less engaged on average than our core customers. So we did see that dip with that customer again.

I would expect that debt as it usually does for us will pick back up in the in the back half, but theres really I've seen a few studies on it too there is nothing that tells us that selling in the arts and crafts space are alive, and well with more enthusiastic than it had.

Going into this pandemic.

And so we're again, we continue to feel pretty good about if we can play our game.

It's going to be good for us.

Okay got it and then I guess the last one for me was just how you kind of viewed your performance relative to kind of the the rest of the industry just because it seemed like the expectations for.

For some of your peers were a little higher than where you guys shook out for the quarter.

But we definitely know we gained share in February areas I don't know any area, where we feel like we've lost share in particular.

And we are.

Methods, you probably have your methods to try to figure that out so.

And again, when we look at our different businesses in our different segments, we try to benchmark against apples to apples segments, but I think we're feeling pretty good about that.

Okay, great. Thanks.

I would say also there's one that we have.

One very.

Good competitor, who is heading up the.

The seasonal decor.

And they've also had a very good rather but as we kind of look at their business. They are been really a great benefactor of one of the closures of those seasonal decor player. So I think.

The market between the different segments to be able to understand.

Selling versus arts, and crafts versus seasonal versus core versus whatever but again I think like I said, we feel pretty good that we build our own our gain share pretty much across the board.

And we have no more questions at this time.

I'd like to turn it back to management for closing remarks.

But I will look I just want to thanks, everybody for being on the call.

We remain very optimistic about the future here.

A lot of good things happening and it takes.

527000 people to pull it off so.

For all of our employees too.

Not only to be purely a lot of momentum with our customer.

It does show up in those results, where we keep gaining strength in that net promoter and all of the indicators underwritten at the end of the day.

Our job to make those customers happy and we think we're going to have really strong right. So I appreciate it.

Look forward talking more later thank you.

Thank you ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect.

Okay.

[music].

[music].

[music].

Welcome to the fiscal year 2022 second quarter earnings call. My name is Daryl and I will be your operator for today's call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer the fact that during the question and answer session. If you have a question. Please press Star then one on your touch.

Phone. Please note that this conference is being recorded I will now turn the call over to a J chain H H you may begin.

Thank you Darryl and good afternoon, I would like to remind everyone that comments made today may include forward looking statements, which are subject to significant risks and uncertainties that could cause the company's actual results to differ materially from management's current expectations. These statements speak as of today and the company undertakes no obligation to update or revise any forward looking statements to reflect subsequent.

New information or future circumstances. Please review the cautionary statements and risk factors contained in the company's earnings press release and recent filings with the SEC. During the call today management may refer to certain non-GAAP financial measures a reconciliation between the GAAP and non-GAAP financial measures can be found in the company's earnings press release.

Which was filed with the SEC today and posted to the Investor Relations section of <unk> website at investors <unk> Joanne Dot com on the call today from Julien, Our Wade Miquelon, President and Chief Executive Officer, and Matt <unk>, Chief Financial Officer, I will now turn the call over to Wade. Thank you AJ.

Good afternoon, and thanks to everyone on the call today for your interest and Joanne isn't.

This is an especially exciting time in our organization as we continue to rollout a wide range of new growth initiatives is the nation's leading selling and crafts retailer.

Our second quarter results reflect the combined efforts and dedication of all our team members. Some of the factors underpinning. Our continued momentum include our excellent merchandising and store operations execution, and a robust omnichannel capabilities, resulting in record net promoter scores.

Through the strength of our brand our unique product offerings and truly one of a kind omnichannel shopping experience, we are driving significant growth in customer engagement from our most loyal customers and also from our newest Joanne sellers and crafters.

Matt will cover our financials in more detail, but I also wanted to take the opportunity to highlight the continued strength of our financial performance. Our adjusted EBITDA for Q2 was $28.0 million, an increase of $35.0 million compared to the second quarter of fiscal 2020.

Joanne also reported the highest gross margin percentages in our company's operating history during the latest quarter, reflecting a 460 basis point improvement on a two year stack.

As a result, we reported a 17, 8% increase in gross profit dollar growth on a two year stack during Q2, which is an acceleration from our 13, 5% growth in the first quarter of this fiscal year.

Joanne remains ahead of our internal plan for adjusted EBITDA for the first half operating results and financial performance, which positions us well to deliver on our planned earnings for the full year.

In Q2, we took meaningful steps to further strengthen our balance sheet with a new term loan that offers an extended debt maturity and improved pricing terms.

Also completed a sale leaseback of our distribution center in Opelika, Alabama. The net proceeds from this transaction were used to pay down our existing bank debt. These measures and the strength of our business will allow us to continue to invest in our growth initiatives and also support our new dividend policy, which we recently announced we are especially excited by the initial results from the launch of our international E Commerce platform.

Drew which in a matter of weeks, we were already shipping 29 countries and across every major product category.

Though we are very early stages of expanding our geographic presence increased global reach will provide joanne with margin enhancement and growth opportunities going forward.

We expect the shift to additional countries later this fall with the next phase of our international E Commerce rollout outside of the U S. There is simply no. Other company that offers what Joanne I can in terms of breadth of assortment and our related value proposition in particular across the selling space and we intend to leverage our offerings accordingly.

Historically, the second quarter as Joanne as lowest quarter in terms of sales and earnings contribution due to the inherent seasonality of our business for perspective, Q2, typically represents 10% or less of our annual adjusted EBITDA last year was of course, an exception as we had an unprecedented sales growth due to peak levels of spending on PPE by consumers as well as the <unk>.

Perry closure by one of our major competitors across all of their store locations.

As a result, our total comparable sales increased by 54% in Q2 of last year, while Q2 was by far our most anomalous quarter last year, we don't expect year over year comparisons to fully normalize into the beginning of the fiscal year ending January 2023.

For the balance of the current fiscal year, we continue to believe that the two year comparisons are the most appropriate framework from which to evaluate our performance.

We've had some large joint categories natively impacted by the Covid Delta variant and continue to see solid overall sales trends on a two year basis, we reported eight 1% total comparable sales growth versus the second quarter of fiscal year 2020, while this was below our expectations. The revenue shortfall was largely offset by our stronger than planned margin performance customers also COVID-19.

Respond favorably to our omnichannel capabilities.

<unk> sales grew by 115% on a two year stack and reached $58.0 million in the second quarter, representing 11% of our sales in Q2 compared to 5% over the same period in fiscal 2020.

Our <unk> penetration now account for around a third of our total omnichannel revenue and our curbside pickup is now ranked as the best in class service.

Importantly, in Q2 customer retention and acquisition metrics ran ahead of pre COVID-19 levels from our top $3 million in newly acquired customers. Our sales trends were up double digits on a two year basis at or above our expectations.

<unk> basis, we experienced a sharp increase in the number of new customers doubling their growth in the first quarter also during Q2, we did experienced a pullback with noncore customers, who tend to be more seasonal nature and their shopping habits are data indicate that these noncore customers were more engaging other leisure time interest and services during the quarter, such as outdoor activities and summer travel given the posted.

Explanation reopening environment.

As I mentioned earlier I'm, especially proud of the continued progress in customer satisfaction at Joann <unk>.

Net promoter scores are consistently improving each consecutive month throughout this year and achieved record highs within the quarter I would like to announce these results, especially in light of all of our team members' efforts and following appropriate COVID-19 protocols with the goal of keeping our customers safe.

We're also pleased with the sales and financial returns to date from our recent store remodels, which are exceeding their pro forma targets and our transformative selling arts and crafts customer experience, while we're still in the very early stages of our multi year store refresh initiative, our net promoter scores at newly refreshed stores are meaningfully outperforming our store fleet overall.

Looking forward, we will continue to carefully monitor and identify ways to mitigate inflation.

We have been effective in managing overall inflationary pressure, despite the well documented pressures on feedstocks labor and logistics in that vein. The most critical shorter term issue. We're currently facing is the overall highly stressed supply chain at the epicenter of which is ocean freight availability and related costs.

For perspective, we are currently required to pay as much as 10 times, our historic average container rate to secure overseas shipments.

Nevertheless, we have done what is required to ensure that we will be in a strong in stock position for the all important back half of our year.

And while we face these issues in the short term, we're managing through it by striking the right balance between driving topline growth and gross margin improvement.

Ultimately, we expect these near term supply chain headwinds will prove to be transient and will ultimately become tailwind until then we'll continue to drive smart enterprise choices that keep our customers engage and also create value for Julien.

And finally, I would like to express our concern for all Joe and team members and others, who have been impacted by Hurricane Ida.

Please know that you are in our thoughts and we continue to be there ready to help you in any way that we can.

And with that I'd like to turn the call over to Matt to discuss our second quarter financial results in more detail.

Thank you and I would like to reaffirm wade's comments and complement all team members across our entire organization under dedication and support of our customers and all of our key constituents here at Joanne.

I'll first cover key highlights of our second quarter performance in fiscal 2022.

We reported net income of $7.0 million in the second quarter with diluted earnings per share of <unk> 12.

Adjusted EBITDA was $28.0 million versus $94.0 million are most impacted quarter last year from the pandemic on a two year basis, our adjusted EBITDA improved by $35.0 million.

As we've mentioned we had record gross margin performance in the second quarter at 53, 7% of sales an improvement of 100 basis points compared to the first quarter of fiscal 2022.

On a two year stack gross profit dollars increased 17, 8% to $274.0 million.

Which is an acceleration from our 13, 5% growth in the first quarter of this fiscal year.

Other key development in the latest quarter included the relaunch of our store refresh program that was previously slow due to the COVID-19 pandemic, we completed seven projects in the past three months and we'll complete seven additional projects in the third quarter as we build towards a full schedule of approximately 60 projects next year.

We also refinanced our term loan with a new covenant like $675 million credit facility, extending our maturity to 2028 and lowering our interest rate.

Additionally, we completed the sale leaseback transaction for our Opelika, Alabama distribution center, which generated $48 million of net proceeds that we used to reduce borrowings on our revolving credit facility.

The $29.0 million gain related to this transaction was recorded as a onetime item in our income statement.

Finally, we paid our first quarterly dividend as a public company of <unk> 10 per share our dividend of the same amount for this quarter was just announced.

I will now provide more detailed color on our quarterly results.

Net sales decreased by 29, 8% compared to the same period last year to $505.0 million.

With total comparable sales decreasing by 29, 9%.

As a reminder, sales in the second quarter last year benefited from unusually high spending on materials to produce facial masks and other PPE by our customers as well as high numbers of competitor store closures driving total comparable sales growth last year in the second quarter up 54%.

On a two year stack total comparable sales increased by eight 1% from the second quarter of fiscal 2020.

This growth was broad based as all product divisions geographic regions in both channels grew on a two year basis.

As we mentioned in our ecommerce business was a particularly strong contributor to our two year trend growing at 115% on a two year basis, and comprising 11% of total company sales for the quarter.

We accelerated gross margin expansion during the quarter as our rate to sales grew by 410 basis points compared to the same period last year and by 460 basis points over two years ago.

As a result, we grew gross profit dollars by 17, 8% on two year basis, we continue to optimize promotion reduce shrink and effectively managed clearance inventory to drive these results.

We expect the factors that are currently driving our gross margin expansion to continue into our peak fall and holiday season, which will work to offset significant cost challenges introduced by unprecedented supply chain constraints driven by the COVID-19 pandemic.

We remain committed to providing robust and exciting basic assortments as well as fashion and seasonal merchandise for our customer with most of those products being imported from overseas.

Despite challenges we have successfully obtained bookings for ocean freight on over 90% of merchandise, we will need for our peak third and fourth quarter selling season to.

To accomplish this in the current environment, we are having to absorb raise for ocean freight and some cases up to 10 times higher than historical levels as well as incur additional cost to move product through congested ports and temporarily shutdown rail networks.

All of this effort will allow us to move product through to our distribution centers and stores ahead of key sales events.

These incremental costs are beginning to impact the value of our inventory on our balance sheet impact on gross margin was muted in the second quarter.

Starting in the third quarter. These costs will be much more pronounced as we expect to see one time negative impact on gross margin of approximately $30 million in the back half with our peak fourth quarter holiday seasonal business most heavily affected.

We plan to isolate the onetime impact of these incremental supply chain costs as a reconciling item for adjusted EBITDA and our upcoming quarterly reporting until these costs normalize.

Our second quarter, selling general and administrative expenses decreased by 13% compared to the same quarter last year.

The reduction in expenses was driven by lower sales compared to the second quarter last year, but also through enhanced store operating and other cost savings initiatives and the fact that we are no longer incurring where significant pandemic related costs last year.

We feel very good about our ability to manage inflation over the longer term, we have held expenses to an increase of three 4% over the second quarter two years ago after normalizing for incentive comp and depreciation while total comparable sales grew eight 1% over that same time period.

The majority of our modest growth in expenses has been to increase wage rates in our stores and distribution centers to allow us to be more competitive in those key labor pools, which has allowed us to maintain healthy employment levels and deliver strong customer service.

Depreciation and amortization increased by 2% over last year to $21.0 million.

Driven by ongoing investments in stores technology platforms, and our new multipurpose fulfillment center in West Jefferson, Ohio that new facility is already supporting key seasonal product flow to our stores.

And is on track to also support direct to consumer and international ecommerce fulfillment next spring.

Store Preopening and closing costs increased by 700000 versus last year to $10.0 million for the quarter as we have restarted our store refresh initiatives.

Interest expense for the quarter decreased by $8.0 million versus the same quarter last year to $22.0 million.

The decline in interest expense reflects our lower average debt levels compared to last year as well as a lower average interest rate due to the cumulative effect of our recent refinancing activities.

We continue to maintain a strong balance sheet that provides us with the flexibility to fund our strategic objectives and provide a return to shareholders all while absorbing the nonrecurring supply chain costs I described earlier.

Our long term debt was $773.0 million as of July 31, 2021, a decrease of $141.0 million from August one 2020.

During our latest quarter, we completed a significant refinancing of our prior first lien term loan facility, which was due 2023.

Our new $675 million term loan was leverage neutral to our balance sheet as the proceeds were used to repay borrowings on our prior first lien term loan and the balance to partially pay down our current asset base line of credit.

Our new term loan facility comes with an extended maturity to July seven 2028, with more flexible business terms and favorable pricing of 50 basis points on the interest rate compared to our prior term loan.

As of the end of the second quarter. The trailing 12 months adjusted EBITDA as reported under our credit facilities was $303.0 million, resulting in a reported leverage ratio for net debt less cash to adjusted EBITDA of two seven times as we have shared earlier, we generate a substantial portion of our free cash flow during our.

Fourth quarter and will have capacity to reduce debt leverage further by the end of our fiscal year.

We continue to execute on our initiatives to drive working capital efficiency. We ended the second quarter with inventory, 15% below the same quarter two years ago, despite absorbing nearly $11 million in additional landed cost within our inventory related to the COVID-19 driven supply chain issues.

Merchandise inventory turns also improved by $2 one times as of July 31, 2021 versus one nine times a year ago.

Capital expenditures were $34.0 million through the second quarter driven by investments in our new distribution Center and information technology, We still expect total capital expenditures in the range of $65 million to $70 million for the full year as we work to complete their new distribution Center project rollout a new store.

Point of sale system and ramp up our store refresh initiative to what we'll be full speed by early next year.

Our first quarter dividend of.

<unk> per share was paid on June 25, 2021 to shareholders of record on June 11.2021.

Our board of Directors recently declared a cash dividend of <unk> 10 per share for the second quarter payable on September 24, 2021 to shareholders of record as of close of business on September 10.2021.

While we are not providing formal guidance on revenue or earnings at this time, we did want to provide our updated expectations for our full fiscal year 2022, and in some specific items that may be useful to those modeling our business.

For capital expenditures, we expect a range of $65 million to $70 million for the current fiscal year.

Pre opening and closing expenses are expected to be in the range of $9 million to $11 million.

Depreciation and amortization is expected to be between 80% and $82 million.

We estimate annual interest expense of $50 million to $52 million.

An effective income tax rate of 22, 5% to 23, 5% for the full year.

Weighted average basic and fully diluted shares for the third and fourth quarter are projected to be approximately 42 to $51.0 million respectively.

Weighted average basic and fully diluted shares for the full year are expected to be $41, two and $50.0 million respectively.

In summary, we are pleased with our financial performance through the first half of fiscal 2022, we remain focused on preparing our business for a successful fall and holiday selling season through what our unprecedented global supply chain challenges with that we'd be happy to take your questions.

And thank you if you have any quick and you can correct.

And then one on your Touchtone phone once again, if you have a question Star then one on your Touchtone phone.

And our first question is from Liz Suzuki from Bank of America go ahead Liz.

Alright. Thank you are there specific categories of products, where you are unable to procure enough supply to meet demand and if so how much do you think that may have cost you in sales that would have been left on the table.

I would say for Q2, I mean, we've been improving shape, we've been investing to do that what I would say there's nowhere. If you look at like last year, we had kind of all a lot of benefits from Covid.

I would say that right now in a position where we are seeing really the negatives.

Is the Delta.

<unk>, we think that we're going to be in an even stronger position. So for example fashion apparel.

Actual occasion related notions about 20% of our cabin categories.

Are coming back we're coming back very fast for example, in the South east or the southeast for example, so it looks like Q2, South East West.

Number one performing region high teens and those businesses were rebounding because they're really tied to things like cost play that the problems.

Weddings.

Like in <unk>.

That's pulled back very far in that region. So I would say that we're actually very good staff were flowing product, we expect to be in the stock to the balance of the year, but those businesses.

The ones that are really dependent upon people being able to again have problems and weddings and those kinds of events.

I think specifically on your question about inventory position, we've been able to maintain basic in stocks.

Ranging between 93% to 95%, which given our speech on is actually pretty good in where we normally kind of like to be.

We probably had some impact on the quarter is.

Again, we mentioned we've done I think a really good job of.

Getting bookings for our back half seasonal programs, we did have some of that for fall.

Halloween arise a bit later, we don't get a ton of sales in the second quarter on those but we do get some so there was a little bit of a herd there. The other thing I would say is when we're seeing that product arrives our sell through has been really strong. So it gives us a lot of encouragement for the back half and those programs, but we did get a little bit of a later start.

On being able to sell those items that we normally do I mean, as you know the global supply chains are.

Disruptive beyond belief.

Our decision to really.

Go after margin versus being more aggressive on sales there is really no point.

And promoting any any more than we have to just end up having.

Stock or a hole for product.

In the back half so I feel like we struck a pretty good balance on that and pretty pragmatic.

Then given just the entire nature of the supply chain.

Great and that actually leads me right into a follow up on design.

Read on quarter today in Halloween fall, followed the core demand how are you thinking about costume related materials, given that last Halloween, it's probably a bit more locked down.

Or is this likely to be and then just any thoughts about the promotional environment for holiday.

It's two years ago, and whether you think it's still likely to be a little bit a little bit lower a little tighter progression.

Yes, I'm going to start with the back half of that.

Sorry, the best promotional environment, we've been really see it changing I think.

This is a very rational environment as people, probably keep one eye on potential inflation and again, we've been able to I think manage it broadly outside of ocean freight very very well the early reads that we have.

Halloween for example are extremely strong.

And.

Again.

Last year, there wasn't really heavily but we're feeling good it's still early days importantly, again, very well positioned with our merchandize.

I'm also optimistic that people are ready to be together and do events, which is in fall bleed into the fall as well as into Christmas. So.

As we look at it here, we're feeling pretty good.

Great. Thanks very much.

Okay.

And our next question comes from <unk> <unk> from Credit Suisse go ahead.

Hi, everyone. Thank you for taking my questions.

Firstly on the second quarter results I mean can you provide some more color on the specific categories that was really strong last year, how did those perform considering the customers purchasing multiple machines last year and related in terms of Q3.

<unk> you are seeing anything specific to comment on those categories as well. Thank you.

Yes, all of our divisions were up two year stack basis.

And our channels were up and again, our 3 million customers and our new customers were all very meaningfully.

So that's a good picture on the.

The arts and crafts and seasonal businesses was up meaningfully more than the selling business and the selling business. While it was up on a two year stack basis.

Really if you look at where the issues are it really is related to those big or that it's related it's what we call our special occasion.

Our fashion apparel and related notions.

Those businesses.

Our lagging where they need to be again those are really based on events as I said before the southeast was opening up if you look at our Q1 those businesses were roaring back.

Now that Covid hit that area, maybe harder than most areas.

Youre seeing those curves again, so we're optimistic on those businesses.

Because again, there will eventually be events.

Again, our early reads on Halloween are pretty exciting.

We see people potentially evolving into their next project.

We're feeling good about that.

And as we go forward I think we're feeling that the picture probably is again, we're set up very well for the back half early reads are pretty positive.

This is the day kind of put everything starts to turn actually.

As we go into the holiday weekend here and we see actually historically and that can tell you spent 25 years those noncore customers when you're competing with summer activities and summer camp and vacation and travel a drive out but now as when those noncore customers actually start coming back as kids go back to school and the weather starts to wane. So yes.

Another key piece to your question is.

Just the customers that bought a record number of customers that bought.

Crafting and so any technology in the past year, we're continuing to see their follow on purchases of supplies and materials B.

<unk> quite strong I would say what we have seen is the sale of some of those machines, particularly on the craft side still be very strong on a two year basis, so well above pre pandemic levels, but certainly not as kind of as hard as they were last year.

Got it I have a follow up just on the margin piece.

I mean 450 basis points off onto your basis can you sort of unpack some of the key items within that and what should be embedded for the back half. Thank you.

Sure about about a third.

That growth is kind of some of the non pricing pieces of that so our strength is improving substantially and we're much cleaner in terms of clearing so kind of markdown impact in clearing discard impact on margin about a third of that improvements from there really the balance of it is what we spoke to earlier, we're kind of in.

Unprecedentedly favorable promotional environment I think we're also.

Done a lot of work over the past two years to put ourselves in a much better position to take advantage of that and really understand.

Promotional elasticity around a lot of our key categories. So that's really driving kind of the other two thirds of that growth. So I think to <unk> point that promotional environment piece and our ability to leverage that the super confident we can continue to drive that into the back half we continue to be favorable in terms of our inventory.

Finally in essence, our ability to drive down shrink. So we feel good about those again will talk.

Talk a little bit about theres, some assume will probably take a few questions here.

That import freight piece of everybody's dealing.

Dealing with is going to be meaningful we've kind of scope, what that looks like but roughly around 200 bps of margin headwind for the back half.

It will be kind of offsetting those those tailwind.

Matt said, it but I think it would be.

You can see.

Overstated our inventories.

Not any recent memory been cleaner.

And that's really important because not only is it less discard it also.

Means that we are able to have strong pricing power and don't need to move goods with other fashion and seasonal goods coming behind it so.

It's just a great place to be and I think we'll be able to stay in this position for very long time.

Understood. Thank you so much.

And our next question comes from Paul Kearney from Barclays Go ahead Paul.

Hi, everyone. Thanks for taking my question.

A quick look at the two year stack on sales there.

It seems to suggest that.

The deceleration from Q1 into Q2.

I'm just curious whether revenue can provide monthly cadence of how that played out with weather.

Do you view this.

The main driver of that is the delta variant or is it people pursuing other activities those things reopened.

I think it's a little bit of old you can you can digest some of the core business as I talked about the delta very surprising in a couple of hundred basis points of growth.

They were starting to move now, they're kind of going sideways, a little bit with that but they will come back.

Again that noncore customers that other piece, that's about 25% or so of our customers.

Again, if we look at our top 3 million that are new to Joe and the new active as it came in that they were up meaningfully in them.

Teens.

And beyond so that's very strong but that group is a group that kind of fades a little bit and again, I think being cooped up for a year.

And then being able to travel and do other activities. This kind of natural we do feel that that group will come back to the historically do but it's really split between those two things.

Okay, and then just curious on kind of the quarter to date trends are there any kind of categories Youre seeing particular strengthen especially goes.

Back to school and just back.

Back to work or anything that you're seeing quarter to date that kind of gifts.

Confidence in the outlook.

Like I said, all the art, congrats and seasonal businesses are really doing very very well.

And we think that will continue for a long time and selling if you take away those.

Those categories that are really driven by those big events showing is doing well. So again, we're feeling pretty good and really in the back half of the remainder of that for us is being able to stand strong.

And our product for the seasons.

And have that inventory thats, where we do use disproportionate amount of our business and our EBITDA.

We have made sure. We had we had we moved heaven and Earth to make sure that we're sending to all we feel that in many areas we are gaining share.

We don't feel that we're losing share anywhere and we don't want to lose that momentum.

In terms of looking at the third quarter.

<unk> really performance much more like our second quarter, it's typically kind of in that slower time period for us our business accelerates significantly kind of starting this weekend to day Labor day weekend.

Through the balance of the year starts looking much more like our.

Our fall in.

And holiday traffic, which again <unk>.

Accelerated significantly from what we see over the summer.

Okay. Thank you.

Yeah.

And our next question comes from Zach Adam from Wells Fargo.

Hi, This is David Lance on for Zach Thanks for taking our questions.

Through the early days of the International E. Commerce launch can you provide additional details around kind of what you've seen in terms of customer purchasing patterns and how those vary versus U S customers.

Yes, I mean, it's early days, but we're seeing a really.

Exciting ramp here on what I would say, it's probably a couple of different patterns. We're seeing is that.

The English speaking countries.

Our clearly support unit.

Including countries, where people speak dual language like Israel.

<unk> in Germany, and others, but I think Thats, one thing, which gives rise to the fact that.

There is global demand for what we do especially in selling but thats easier. The other thing is we're seeing really big order size.

And that's in part because we are able to discount.

The freight.

For the large orders and make it a win win for everybody.

But the order size is meaningfully larger than what we do domestically.

But again, it's exciting we are seeing again as we said across all of our categories. We have seen.

Purchases, which is also exciting for us.

That's great and then just to follow up also so we're getting to SG&A per store growth down in the mid single digit range. In Q2 I was wondering if you could provide some additional color on how youre thinking about that over the next few quarters.

So just to make sure I'm following the question.

Our trend on a two year basis for SG&A growth.

How do we see that persisting.

Exactly yes.

Yes, so I think.

Again, continuing to kind of ensure we're competitive for labor. So I think thats always.

Something we need to stay on top of and if required.

We would lean into there.

Absent of that we don't really see any anything meaningful.

That would derail us from the trend we've been on recently.

What I would say is we feel.

Im sure Youre hearing lots of stories about how hard is to get labor.

Labor and that is true they are out there.

I do feel that over the last couple of years, we have made pretty good strides.

Our wage rates with our store employees in our Dcs Big step ups, there versus what's been kind of an average again last year containing the premium to hourly employees not furloughing anyone.

They were with us it makes afford us.

But I think Thats also it's been I suppose probably more difficult for a lot of lay people off to get people back on that is if you continue.

Just keep them. So I think we feel in a pretty good position in terms of both the progress we've made in terms of.

Trying to.

Increase wages systemically as well as the ability to retain good people.

Great. Thanks.

And our next question comes from Cristina Fernandez from Telsey Advisory group.

Yes. Thank you I wanted to follow.

So up on sales.

In the past I think last quarter, you talked about achieving mid teens comp on a two year basis.

The next couple of quarters for the back half.

Second quarter unfolded in August to date do you still think that sort of like mid teens complement to your stock is doable.

Third and fourth quarters.

I think we see the back half as we're probably going to be in that where we're targeting mid teens gross profit dollar increase which.

Which is about kind of what we did the last two quarters. So we see that maintain.

That's kind of how we see it now to what extent there is a sales tradeoff versus the margin.

I think we will see again.

Our bias right now is a little bit heavier in the margin and sales just because of the supply chain and.

Yeah.

I want to be selling something below what we have to not have any product behind it.

So I think that's the way we're modeling it is on a two year stack basis.

See the dust settling this year as we have always said is kind of.

The quarter's pretty consistently somewhere in that kind of mid teen gross profit dollar versus two year stack, yes, sorry said another way, excluding excluding that that freight anomaly right, but other than that yes, correct. So yes, I think excluding the kind of.

Nonrecurring freight cost we dimensionalize it.

Are we seeing where we expected.

Months ago.

I think sales a bit slower than we would expect maybe relative to what we expected that in sales a bit slower, but certainly we've been able to accelerate gross margin expansion.

It's a more rapid pace than we thought at that time as well, but we are calling kind of the normal.

Ocean freight for what it's worth is more than double of what we've seen over the last decade or so.

I hope that's conservative, but we're assuming that it ultimately.

Isn't that a subtle where it was but and thats what were building into that base.

Okay.

That's helpful.

Trade can you remind us I don't know if you've shared this before how much of your capacity is contracted.

To.

Purchase more on the spot market and subject to fluctuations I'm, just thinking of sort of the increase you're seeing for the fourth quarter is that something that we should expect that as we go into 2022.

Yes, I think that's really the $64 million question I think.

So as we kind of break this down we typically.

Even through our peak time would be contracted for well above 50% of our needs.

<unk> you are having right now is that capacity is not there. So were some weeks fortunate if we can be at 20% 25% of capacity under contracts. So therefore, you're into these brokered markets, which those costs are just astronomical right now, but we're having to pay them to ensure we get product in country that we desperately need.

That is exactly how this is going to.

Normalizes, we're going to be able to get back.

A majority of our products being able to be procured on contract rates and shift on contract rates.

Those rates as we had mentioned have actually doubled.

This year, and we're treating that as kind of normal way cost, but again.

We need to be able to get the capacity we contract for.

For those costs to normalize and certainly right now we're not anywhere close to that.

Yes, Im sure Youre hearing this from others as well.

In terms of.

Which carriers may or may not be in complying with the contractual obligations, which is probably another decision for another day.

But again in the meantime, we're just making sure we're doing what we're doing to be in strong stock because we really think the customer is going to be there and we're going to be there for the customer.

Thank you.

And her next question comes from.

Steven Forbes from Guggenheim Go ahead Stephen.

Good evening.

Maybe taking a step back right.

Think about the growth algorithm of the business that you laid out at the during the road show and the whole IPO process that two to 400 basis points of long term secular growth.

The building blocks within dress.

Addressable market growth.

Pricing promotion optimization et cetera has there been sort of any changes of late that would impact. How you think about those various growth factors or is that two to 400 basis points still the right.

Long term algo for the business as you currently see it.

I think we still believe it and if we look at just what we think the underlying growth that is the place where we can still take share what we're seeing in terms of the lift on our store refreshes all of that makes us feel pretty confident about that and like I said before I mean last year I mean.

Obviously COVID-19 was a tailwind for us as you had PPE in mortgage we're getting into our space and the like I.

I think we're at that walking space right here I don't think it's getting worse, but we're actually getting.

Only headwinds from it again from.

Select closures people being a little bit we see curbside spiking, a little bit of anxiety about going out and again these businesses, 20% of our businesses actually law from when the world opens up so.

So all of that said no. We're feeling we're feeling very good about that algorithm.

And then just a follow up on important freight costs.

I appreciate the quantification of the headwind for the back half, but any sort of initial thoughts on the timeline behind the anticipated normalization given some of the concerns around the Chinese new year.

That's important labor negotiations are in the ports for next year I'm going to say six months 12 months 18 months, how long do you expect it to last for.

Let me tell you my point of view, but I don't know if its worth much given everybody probably has a point of view.

I do think if you just look at the whole thing and the fact that 20% to 30% of the capacity came out of the system you didn't have planes flying.

Containers that were be railed, and then you had some 30% more demand in products where Bolton.

The market has been really Chris costs. This year, and then you add in the Suez Canal.

At La Porte <unk>.

Couldnt ask for anything worse than that $30 million of Matt had actually about $8 million is what we call trans loading because the Chicago rail system in Cleveland and other rail systems are best basically shut down eight.

$8 million, so just to take it off of one container and cleared on whether on the trial.

Which has never been done before but if you want the product in some cases, that's what you have to do so.

What I would say is once we get to kind of.

In late October November for US the main event is over.

We don't ship a lot.

For many months and so you're going to be coming out where there is more capacity coming on.

Not only our demand, but other demand is going to start to fall and so this thing will start to reset I don't know that that means it's going to be.

100% shared in January and February of next year, but I got to believe we'll do much better.

And we're already taking steps in doing things to get ahead of us for the next year, but as Matt said, what we're building in our base right now.

We are building on our forecasted morph to exit what we've ever paid.

We will ever go back to where it was.

I don't know that might be.

A few years as I understand in a few years theres a lot of capacity coming online.

I think it is kind of surfing away, but again the good news for us is that.

Once we get through the next 60 days or so.

Whatever 80 days 90 days.

Already above 90% of it.

Really don't have a lot of volume that flows after that for quite a while.

Yes.

Yes, definitely the capacity capacity normalizing.

Two demand is really what's going to drive drive these contract download. So I think if youre kind of following this going forward. That's that's what you want to be looking for in terms of when retailers are going to be able to be on more normal contracted rates again, just to give you. Some numbers I mean this is.

Just kind of give you a round cowboy math, but let's just say historically.

Rates, both broker and contract where again, let's call. It 3000 here, depending where you are bouncing around that for most people.

The last several months into the next several months.

Your bank at least in the mid teens, but it can be as high as 25.30.

And you may have.

<unk> on top of that.

And air Lessor check was between 120 to $140000. So.

It wont be situation, but.

Again the decision. We made is we feel we got a lot of momentum with the customer we've got share we can take and what we didn't want to do is we don't want to lose that by not spending the money.

B and are best positioned with the customer.

Thank you.

And our next question comes from.

Daniel Hopkins from William Blair.

Go ahead.

Good afternoon.

Just if I could ask maybe.

Little bit of clarification.

Maybe amplify.

Sales were substantially different than expected in the second quarter could you just maybe just rank order and a possible put some numbers around the biggest factors.

Altogether I know you said fashion was part of it about a big part.

And to what degree it wasn't.

All demand related or was it partly supply constraints.

The park also that just wasn't quite clear was it sounded like you said people going out and doing other activities was a negative which is understandable, but then it sounded like you were saying the Delta variant is also negative in it might seem like it would work the opposite way so.

That would be.

First question.

Yes.

Again, this is rough math, but I think of kind of that three to 400 basis points, where we probably again below expectations on it you can kind of split down the middle of these businesses again about 20% of our business.

Our big businesses like fashion apparel like special.

And then related notions and other these are businesses that are driven again by weddings by large events by cosplay conventions.

A lot of that I think you can kind of you can plan on COVID-19 and kind of on the Delta area, where things get being delayed and stop the delay. So I think thats about cowboy math about half of it the other half of it I think is just again these noncore customers, who always kind of drop out.

At this time in the summertime.

Wrapped out a little bit deeper now, but again I think it stands to reason that we haven't been able to go outside or travel for year in Japan.

Going to take a higher priority than some of the things that we do but we feel pretty confident that they will come back kind.

Kind of starting now when kids are in school in the fall season Hansen.

The seasonal.

Other events so.

I guess the other pieces again.

I think we're we feel very good honestly sequentially again, we went from what was a great quarter last quarter.

14% gross profit dollars on a two year stack to 18, I mean, if we normalize it and put that money back could we have driven some sales.

Yes at a lower margin.

But I don't think it would've been necessarily paid out.

And also again I think we're at a point here where.

SKU by SKU business by business, we're making sure that we're being smart about how we promote themselves. So that we actually have inventory behind it.

Yes, I think there's a lot of the.

So you mentioned I would like to have kind of addresses.

A very intuitively assume hey, maybe the delta variance spiking is actually helping our business because we had some pandemic benefit last year.

Thats really just the nature of what's going on now is not the case anymore.

We don't have any we don't have customers coming in and buying a large making PV.

You can buyback finished mass everywhere I don't think people are anticipating they're going to be wearing them for extended periods of time like they might have assumed last year.

So we're really not seeing there's very specific categories that spike when that's happening and we're not seeing lifts in those at all.

Anything that we are fully discretionary business right. So people have anxiety are answered by going out.

Additional fear about COVID-19 or the Delta area.

I would say.

General Thats more negative.

Positive for our customer.

But it sounds like you think that there is likelihood of some re acceleration as we get away from the summer and the more kind of a typical period going forward.

Yes, what I would say I think we're we're ecstatic as honestly for us the very most important is that top 3 million customers.

And then those new customers to Joanne that came in last year that are actually active engaging spending more now than a typical customer those two segments are well into the teens and hire teams. So.

That's good.

To pick.

Two of the three to be very healthy right now those are the two IPO.

On the other case I would say is our acquisition of new customers actually continues to accelerate.

We've trended in terms of that addition of new customers to where we would typically do pre pandemic in the first half.

We're up 15% on a lot of those customers again are.

<unk>.

Share growth customers for us, there and arts and crafts and a lot of seasonal categories. So.

Continue to be excited about that so I think we've got some signs that if that more casual customer in our in our industry.

It strengthens again in the back half.

I think there are some positive indications for us.

Okay and then my other question is as it relates to the Remodels and refreshes.

I know that's supposed to accelerate more starting next year, but can you any updated thoughts there on what that what they might contribute.

Sales and profitability standpoint relative to kind of stay.

Status quo.

Yes, so I think.

As we said we're kind of early in kind of a relaunch of that pleased again very early on what we're seeing from the projects. We have done so nothing to indicate.

We shouldnt.

See the strong.

High single digit lifts in our in our kind of lower tier projects that will do.

Well above double digit lifts for stores, we relocate.

We have no indication that.

We won't see that we are well into our planning for the 60 projects. We intend to do next year have identified most of those already.

Yes.

The pro forma expectations, we have for those are in line with those types of lips.

Okay. Thank you very much.

And our next question comes from Gordon Fine Anchorage Capital go ahead Jordan.

Hey, Thanks for taking my question.

I guess relative to the first quarter.

G&A was kind of flat.

Despite the decline in sales and I guess I was wondering you could maybe provide some.

Clarification as to why that might have been if it was.

As you add more employees than you expected due to the sales mix or whether it was wage inflation related.

Yes, nothing really in terms of.

Inflation in cost.

We have one thing I would say is.

Our average weekly sales don't fluctuate that much quarter to quarter. There is a base of <unk>.

G&A it takes to operate our chain operator stores operator, our Dcs the other thing that it does occur, particularly in our store.

Store operations as we do a lot of projects and the slower sales time.

To get ready for that back half, we reset a lot of plan O grams.

We.

We take care of a lot of the other projects that we like to avoid doing in the back half because we want our teams focused on primarily on driving sales. So there is a limited amount of leveraging we can do in sales dip in that quarter because.

If we were to cut too deeply you are kind of putting our readiness for the back half at risk and we don't we don't want to do that at all cost and a lot of costs like our occupancy and stuff are fixed.

They are fixed.

Got it Okay and then.

In terms of the cohort of people that made machine purchases last year and the follow up demand that you expected from reusable how does those cohorts kind of compare to what your expectations were.

We keep running that.

It compares pretty favorably I'd add a little bit lower in the last few months.

Sure.

The two quarters prior were on par with our algorithm and I think in the last month or two is a little bit below but there were so many machine sales last year.

That it would have to be well below what we're seeing to not be substantial benefit going forward.

And a chunk of those machines were bought by these customers. We described they are a little bit.

Less engaged on average than our core customers. So we did see that dip with that customer again with.

I would expect that debt as it usually does for us will pick back up in the in the <unk>.

Back half, but theres really I've seen a few studies on it too there's nothing that tells us that selling in the arts and crafts space are alive, and well with more enthusiastic than it had.

Going into this pandemic.

And so again, we continue to feel pretty good about it we can play our game.

It's going to be good for us.

Okay got it and then I guess the last one for me was just how you kind of viewed your performance relative to kind of the the rest of the industry just because it seemed like the expectations.

For some of your peers were a little higher than where you guys shook out for the quarter.

Well, we definitely know we gained share in February areas I don't know any area, where we feel like we had loss share in particular.

And we are.

Methods you probably have your methods of trying to figure that out so.

And again, when we look at our different businesses in our different segments, and we try to benchmark against apples to apples segments.

I think we're feeling pretty good about that.

Okay, great. Thanks.

I would say also there's one one.

<unk>.

Good competitor was very heavily in the <unk>.

The core.

And they've also had a very good Robert but as we kind of look at their business. They are really a great benefactor of one of the closures of our seasonal decor player. So I think you have to parse the market between the different segments to be able to understand.

Selling versus arts, and crafts versus seasonal versus core versus whatever but again I think like I said, we feel pretty good that we build our own or gain share pretty much across the board.

And we have no more questions at this time I would like to turn it back to management for closing remarks.

Well look I just want to thanks, everybody for being on the call.

We remain very optimistic about the future.

A lot of good things happening again it takes.

<unk> 527000 people to pull it off so.

For all of our employees too.

Not only do we feel we have a lot of momentum with our customer.

It does show up in those results, where we keep gaining strength on that net promoter and all the indicators under it and at the end of the day.

Our job to make those customers happy and we think we're going to have a really strong right. So I appreciate it.

Look forward to talking more later thank you.

Thank you ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect.