Q3 2021 Kirkland's Inc Earnings Call
Good morning, everyone and thank you for participating in today's conference call to discuss Kirk with its financial results for the third quarter ended October 32021.
Joining us today, our kirkland's, President and CEO, Steve Woody Woodward Executive Vice President and CFO, Nicole strain and the company's external director of Investor Relations Cody Cree.
Following their remarks, we'll open up the call for your questions.
Before we go further I would like to turn the call over to Mr. <unk> as he reads the company's safe Harbor statement within the meaning of the private Securities Litigation Reform Act of 1995 that provides important cautions regarding forward looking statements Cody. Please go ahead.
Thanks, Tom except for historical information discussed during this conference call. The statements made by company management are forward looking and made pursuant to the safe Harbor provision of the private Securities Litigation Reform Act of 1995.
Forward looking statements involve known and unknown risks and uncertainties, which may cause kirkland's actual results in future periods to differ materially from forecasted results.
These risks and uncertainties are more fully described in kirkland's filings with the Securities and Exchange Commission.
I'd like to remind everyone that this call will be available for replay through December nine 2021, a webcast replay will also be available via the link provided in today's press release as well as on the Companys website at Kirkland's Dot Com now I would like to turn the call over to the Kirkland's President and CEO what are your wood wood Woody over to you.
Thank you Cody and good morning, everyone.
Thank you all for joining us today and I'd like to extend my gratitude to our dedicated employees and stakeholders to continue to support our efforts and executing upon our long term transformation strategy.
We look at our performance during the third quarter, we had an unexpected softness in sales to the end of the quarter, along with ongoing macro conditions related to supply chain labor made this quarter more difficult than we originally anticipated. However, this does not affect our unwavering commitment to executing our strategic initiatives.
And achieving our long term financial targets that we've outlined.
So let's dive into the drivers of the quarter.
Looking at sales our total year over year comp was down less than 1%. This decline was primarily a result of two things. The late arrival of Christmas product, which began to significantly impact our sales in the last two weeks of October and challenges staffing up with seasonal employees to be able to execute getting that product.
On the floor.
On the first point, we entered this quarter knowing that Christmas would arrive three weeks late this year, but we plan to cover the marginal impact with excess inventory we had for harvest. However, harvest sales started the month of October slow and then fell off the last half of the month, our customers had already moved on from the heart.
Shopping season to that 0.2 holiday entertaining and Christmas.
The other related driver of the Miss was how the Christmas inventory flowed and our understaffed stores ability to handle significant receipts leg into October and early November.
For the most part the Christmas merchandise arrived in the timeframe expected on our last call. It arrived in stores not in the usual ways that add who received it.
For example, we received ornaments weeks before we had any trees and you as you can imagine it's very difficult to highlight ornaments in stores without having a tree to hang them on.
This led to our Christmas products not consistently being on the sales floor until mid November and not a normal presentations that helped the customers know how to put it all together.
Combined with this our store struggling to hit their seasonal staffing golf it became more challenging to unload the trucks and get everything in the store on display for customers to make purchases.
Our in store inventory is on average 37% better than the same period last year, but when you normalize the incremental freight cost included in those numbers, it's closer to 20%.
I would like to highlight that our third quarter two year same store sales comp was an increase of just over 8%.
Which was also a further improvement from the two year same store sales comp increase of 5% we reported last quarter.
This is important as we think of how for how far we've come since embarking on this journey and our ability to sustain long term growth with less stores and significantly reduce cost structures.
Based on what our customers are buying we're seeing great success with a higher AUR products in both seasonal and everyday categories and our price increases have not seemed to impact purchasing decisions. This important data. This is important data as it underscores our confidence in our long term merchandise transformation strategy heading.
Into the holiday season, we focused heavily on our new customer acquisition efforts nearly doubling our marketing spend in the quarter.
We believe this might have impacted the sales cycle with our current customers in hindsight the holiday quarters have such a compressed selling timeframe that we've learned it may not be appropriate to rely so heavily on new customer acquisition.
Particularly amidst our transformation journey during this period to.
To account for this we pivoted in November to spend more on existing customers, who have proven to be avid holiday decorators will continue to focus on new customer acquisition strategy balanced with a current customer retention strategy the real way to advance acquisition effort into the first half of 2022, when we were adding new merchandise.
Our furniture and overall lifestyle assortments.
As we look at category performance across both channels.
<unk> or average unit retail for furniture in the third quarter increased 18% year over year to $217, an AUR premieres increased 38% to $90.
Within the holiday Assortments, we saw strong results with higher AUR items, including upgraded reefs Hank Garland.
Despite the low inventory levels in our core furniture collection. The Jackson, we continued to see great sell throughs of our new wide collection, which includes the first sofa introduced in our stores.
Lastly, four of the top 10 sellers in the third quarter were upgraded higher AUR items that are new to the assortment. We also remain on track to source just under 40% of our products in 2021 direct from factories and we are planning further expansion in 2022.
We believe our strong focus on increasing direct sourcing for our products will continue to be a long term driver of unique to kirkland's upgraded quality merchandise that supports a higher AUR across the board.
Now given that we're a month into the quarter I wanted to discuss what we're seeing as we close out the year November started off tough for the same reasons that October ended slow with our comp for.
For the month being down nine 5%.
The week or the week of Black Friday inclusive of cyber Monday, our demand comp sales were flat. So we did see improvements from how we started the month.
Outside of the Lake Christmas arrival, they were other complementary products that have historically been strong traffic and conversion drivers, which our customers often uses gifts during this scene.
Seasonal period that Werent.
I'm able to get onto the floor. This year due to supply chain issues. One example of this was our holiday throw program. We had approximately 130000 holiday throws on order that we had planned to promote at $10. However, we simply didn't receive them in time for the holiday selling period and missed out on the boost in sales that we typically experience.
So those throws and other late arriving guests will be held at our distribution center and included in Christmas 2022.
When we provided back half guidance on our call in September we expected significant upside from being in better inventory position in December and January than we were last year, specifically in furniture and wall categories, which have a higher AUR. After prioritizing Christmas receipts, we shifted focus to these categories and our spring.
<unk> said that we expect it to be on the sales floor the day after Christmas.
We were successful in getting that product on the water, but late October began to see a significant slowdown in moving this product through the la Porte <unk>.
As a result of the challenges we've experienced we're revising our outlook for the remainder of the year lowering our year over year sales and earnings expectations for the fourth quarter. We do believe there is upside to this guidance and if we see improvement in the port throughout throughput.
Coal will provide more detail regarding this outlook later on.
Looking ahead to the first half of 2022, we're incredibly excited for some of the initiatives that we expect to rollout now the Christmas shopping is already here, we're working on prioritizing the in store for setups for the first several months of 2022 and.
And which we will be rolling out some great new product and we believe consumers will love. We initially expected to introduce our modular Soho with our Christmas collection, but given that we are still awaiting its receipt at the port we plan to introduce this in early 2022.
Tumors have expressed an appetite for this type of a sofa and it will be and when we were pricing it very favorably at $1500 versus $3500 at the competitors. We expect this modular sofa to be a cornerstone of our furniture offerings in the first half of 2022, along with our Wyatt collection, and we look forward to introducing it to our customers.
Our goal has always been to become less dependent on the seasonality that comes with holiday shopping which is why we have focused heavily on expanding our furniture and outdoor living merchandize that typically has higher sell throughs in the first two quarters of the year, the third quarter and the third and fourth quarters are examples of.
Too much heavy reliance on the limited selling period can have a sizeable impact on the results. If you don't have a more balanced selling throughout the year.
Additionally, we were excited to announce that we will be starting a brand awareness campaign to launch our rebrand of Kirkland's home in the first quarter of 2022.
This initiative will be a significant step towards our customer acquisition efforts as we look towards a bright future to give our company a brand name that more appropriately reflects our merchandize assortment, while continuing to pay homage to our past.
We look forward to sharing further details about these marketing efforts once we have officially launched the rebrand.
Our commitment to transforming <unk> into a specialty retailer where customers are able to furnish their entire home on a budget is unwavering.
As we've begun refreshing our store base, introducing a higher quality and more stylish merchandise assortment and bolstering our omnichannel capabilities. We believe we are starting to make a meaningful impression on the current and potential customers.
With a leaner infrastructure, we've put in place an aggressive customer acquisition strategy and continued progression in our sourcing efforts. We are in tune with customer buying preferences and can be quite nimble to evolve our assortment for windows preferences shift.
Overall overall, we remain confident in our long term transformation strategy and the progress we've made since we embarked on this journey since I've joined <unk> had a long term vision for what we believe this company could become and I remain incredibly proud of how far we've progressed in a relatively short period of time.
It gives me the utmost confidence in our ability to continue executing on these initiatives even in the face of macroeconomic challenges outside of our control and quarterly anomalies that may arise from time to time.
Look forward to continuing to share our progress along with this journey along this journey and I hope that you all have a healthy and happy and safe holiday season with that I'll now turn the call over to Nicole strain, our Chief Financial Officer, who will provide additional commentary on our performance in the third quarter and future detail and our outlook.
Nicole Thank you Wendy and good morning, everyone before jumping into the numbers I do want to reiterate what Woody Sharon we are in the middle of transforming the Kirkland brand and although we are not happy with our results to end the third quarter and began the fourth quarter, our plan and business model are solid and we.
We're even more confident that we're moving in the right direction with merchandise assortment change in average ticket increases the channel shift towards ecommerce and an evolving customer base. We expect that we will have learnings along the way.
And we'll have to pivot in the pace or the execution of our strategy.
To make all of these changes in the middle of the unprecedented supply chain challenges labor constraints and difficulty predicting pandemic related traffic pattern only adds to the complexity of managing through this short term challenge it well.
Well, we are happy with the progress we are making on our long term initiatives and the reason we are getting on our new products when we have them in stock.
Now getting into the details net sales were $143 6 million compared to $146 6 million in the quarter.
Klein was primarily a result of the unexpected sales decline late in the quarter and our customers moving on from harvest shopping sooner than expected.
With 3% fewer store.
Breaking down our sales within the quarter, we had a total comp decline of 5% in August a comp increase of 5% in September and a two 3% increase in October.
Looking at this on a two year comp to normalize some of the changes in buying patterns last year August was up five 5% in September up 13, 8% in October at three 1%.
Within the month of October we were trending closer to a nine 5% two year comp increase and then fell off to a 13% decrease the last two weeks of the month.
All resulted in an overall total comp decline of <unk>, 7%, which included an increase in ecommerce at seven 3% from the prior year.
E Commerce accounted for 26% of our sales in the quarter compared to 24% in the third quarter of last year.
Fulfilled in store E Commerce sales were 32% of total ecommerce sales.
<unk> to 35% in the prior year.
During the quarter, we did not close any stores that we remain in a count of 369.
We expect eight store closures at the end of this fiscal year and still expect our store count to decrease over time to approximately 350 stores.
This will include roughly 20 closures of declining stores.
The relocation of 40 to 50 stores and refreshes across the remaining store base.
As we stated last call. We expect these changes to take place over the next three to five years.
Gross profit was 34, 7% of sales compared to 36, 1% in the prior year quarter.
<unk> product margin was 58, 1% compared to 61, 1% in Q3 2020, we.
We expected landed product margin to be lower than the prior year due to the early sell through of harvest last year and the approximately 500 basis points of incremental freight in the current quarter.
Based on the slower sales of harvest moving into October we did have to sell through the remaining seasonal product at a higher discount than expected.
We were able to offset some of the 300 basis point decline in landed margin with gains in store occupancy costs distribution costs and store shrink.
E Commerce shipping increased 80 basis points compared to Q3 2020 due to the increase in ship to home sales and parcel rate increases.
That's the only Miss statements from our prior calls as our inventory position continues to improve offering incentives for pickup in store options will help these channels return to prior levels.
So our occupancy cost improved to 11, 5% of sales compared to 12, 1% in the prior year quarter.
We were sort of the expected 100 to 150 basis point improvement in occupancy costs for 2021 relative to 2020, due mainly to sales deleverage within the quarter.
As we finalize the rent negotiations for the lease is expiring at the end of the year. We expect another 60 basis points of savings next year compared to 2021.
From rent negotiations and the channel shift to e-commerce.
Have modified our approach with landlords now that all of our stores are four wall EBITDA positive to tried trying to obtain rent savings while also locking in control of the space for multiple years.
Freight costs from our D C to our stores with two 3% of sales compared to two 5% in the prior year period.
As a result of moving less freight within the quarter than in 2020.
<unk> costs were four 7% of sales compared to five 6% in the prior year period.
Operational costs were up 70 basis points as we staffed up to handle the late Christmas product, which also includes retention incentives due to hiring challenging.
However, inventory increased year over year, we had an offsetting benefit of capitalizing more of the costs into inventory.
Lastly, other cost of goods sold decreased 70 basis points, mainly due to unfavorable shrink results and the prior year quarter.
Operating expenses, excluding impairment increased <unk> 7 million from the prior year period to $40 3 million or 28, 1% of sales.
Compared to Q3 2020.
A decrease in store operating expenses of $2 1 million from fewer store and a favorable insurance claims adjustment.
An increase in e-commerce operating expenses of 100000, and a decrease in corporate operating expenses of 800000, which helped to fund $3 5 million of additional advertising expense.
The additional marketing spend with our initial investment in new customer acquisition.
As Woody mentioned, we shifted the focus of that spend from acquisition towards existing customers in the middle of November they.
Based on learnings within Q3.
We will relaunch customer acquisition efforts in the spring with our new furniture, Assortments and our rebranding to Kirkland's home.
Adjusted EBITDA, excluding impairment and other minor non operating expenses was $14 8 million or 10, 3% of sales compared to $18 7 million or 12, 7% of sales in the same period last year.
Our normalized tax rate in Q3 was 24, 7% compared to 23, 3% in the prior year period.
Adjusted earnings per share, which excludes noncash impairment normalized tax rate and other minor non operating adjustment was 51 cents compared to 66 cents in the prior year.
If we normalize the year over year freight impact within the quarter, our adjusted EPS would have increased by 23 cents.
35% compared to the prior year period.
GAAP earnings per share, including these items was 51 cents compared to 82 cents in the prior year.
We ended the quarter with $26 5 million in cash and no outstanding debt compared to $100 3 million at the end of 2020, and $37 2 million in a year ago period Iridex.
The reduction in cash was expected as we rebuilt inventory levels and repurchase shares.
We expect to end the year with $50 million to $60 million of cash depending on the timing of receipts for the remainder of the year.
Inventory at the end of the quarter was $115 7 million, which was an increase of $53 6 million from the end of fiscal 2020, and an increase of $31 8 million compared to the prior year third quarter.
The current quarter includes $17 6 million of in transit inventory that is yet to be received by our domestic facilities.
As direct sourcing increases our inventory will grow as we take ownership of that product when it leaves the port of origin.
The quarter also included a more aggressive approach to our buyback program, we repurchased approximately 806000 shares within the quarter for $16 5 million at an average cost of $20.42.
In the month of November we used another $3 3 million of our authorization at an average cost of $25 38.
Which leaves $6 7 million available on our current authorization.
Year to date through November we have repurchased over one 5 million shares or 11% of our outstanding shares to start the year for $33 1 million at an average cost of $21.44.
Now, let's turn to our revised outlook for the fourth quarter and fiscal 2021.
We had previously guided up mid single digits for the back half of the year, which was primarily driven by expected improved inventory and key furniture and wall categories with higher average retails.
We were successful in getting a significant amount of that inventory shifts as well as our new spring set that was expected to be honest floor. The day after Christmas.
But as Woody mentioned, we experienced a slowdown in receipt of the west coast Port starting about four or five weeks ago, which has delayed our ability to get these products into our stores and distribution centers.
In fact, we currently have $43 million of inventory on the water, but luckily, it's not time sensitive product for our customers.
We are lowering our expectations for the fourth quarter to a mid to high single digit same store sales decrease due to the November same store sales decline of nine 5% and the reliance we'd placed on having the furniture inventory and the spring set in January.
We do believe there is upside to the same store sales expectation if the port congestion improve then we were able to get this inventory in stores within the quarter.
If not we look forward to selling it in the first half of 2022.
Additionally, we expect a mid single digit same store sales increase for fiscal 2021 with the expected sales decline in freight impact we now anticipate earnings in the fourth quarter.
Lower than the prior year period.
I'll still expecting year over year earnings growth of approximately 50% for fiscal 2021.
As we look to 2022 and beyond we remain steadfast in our commitment to transform kirkland's and I need to believe in our current position to execute on the long term growth strategy.
When we have challenging quarters like this one.
A testament to the organization that we've created and our ability to absorb and adapt to unexpected changes in the macro environment.
We are reiterating our one to two year target with gross profit margins expected to be in the mid to high 30% range.
Our margins in the low to mid double digit range and operating income margin in the high single digits.
We believe we can achieve these targets through top line growth.
By an increase in our average ticket.
New customer acquisition strategies.
Lowering our freight rates continue direct sourcing benefit overall efficiencies and supply chain operations and continued disciplined cost control.
We look forward to progressing towards our goal and I'd like to thank all our employees partners and stakeholders.
Their unwavering dedication to kirkland's during this transformative stage.
And with that operator, we are now ready for Q&A.
We will now begin the question and answer session.
He would like to join the question queue Press Star then one.
If you would like to withdraw yourself from the question queue Press Star then two.
Please pick up your handset before pressing the keys, if you're using a speaker phone.
We will pause momentarily to assemble our roster.
And your first question comes from Jeremy Hamblin with Craig Hallum Capital Group. Please go ahead.
Thanks.
I wanted to just.
Start by going back into Q3 and an understanding.
What the retail store same store sales were for the quarter and then as we look at the quarter to date period in Q4, what's been the split thus far.
Store sales for your E com business versus your retail stores.
For Q3 that the store comp was down three 3%.
E Commerce up seven 3% for November they're about equal so I think E. Comm is down nine six in store is down nine point too.
Okay, and then what was the impact.
I know that that was that was helpful.
And then in terms of thinking about you know where we go go from here. So the supply chain, we got behind we didn't get goods in on time, we didnt have staff in stores.
To get them on shelves quickly enough when they when they did arrive.
How how should we think about.
Resolving those issues here in Q4 are you going to bring in more staff.
To get the shelves you know in the shape they need to be in to make sure that Q4.
You know isn't further burdened.
Or are we kind of like rolling forward here and.
You know kind of looking into the beginning of 'twenty two.
I see the actual store staffing improve throughout the month of November So I think it really for US was the last couple of weeks of October and the first couple of weeks of November the store sales and traffic improve throughout the month and then as Woody mentioned, we actually had demand comp that was flat for black Friday and cyber.
Monday, so yeah, we have a hiring goal when we start staffing up.
It's about a six week exercise with the intention to have the store would be fully staffed by early November that shifted later, we are actually over 90% of our hiring goal right now too you know I think we've been successful it just happened slower than we expected and combined with.
With a large amount of receipts coming during a busy period, just weren't able to keep up and get that product on the floor, Yes, Jeremy let me give some color on that because generally over the years with a high seasonal business, we've landed our products in three ways.
And that's always worked because of the intensity of getting that product through our system into our stores, there's always been a fairly intense.
Effort for the stores and this year really are truly almost came as one giant wave during the period of time, when we were still staffing up so it was kind of an anomaly.
We did do I think a fairly good job of getting it out of the ports in China and onto the water. When I don't think that we did a good job anticipating the slowdown in the in the port how how hard that we'd be getting the products through.
Until probably the second or third week of November.
Okay, and then in terms of thinking about the impact here.
On gross margins in particular, so I think what I caught Nicole was was an indication that freight.
<unk> had a 23%.
<unk>.
No.
You indicated that the EPS would have been up 23 cents.
In Q3, if not for free.
Did I catch are accurate.
Okay.
So that's a I mean, that's a pretty huge number you're talking over 35 cents of drag in the quarter from freight should we expect.
A similar impact here in Q4, and then plus.
The additional discounts or clearance selling that you might do because of the timing mismatch can you give us maybe a.
Better sense on your gross margin expectations as a as a percentage in Q4, yes. It is detail. We actually you know we had to pay more for the Christmas product than we paid for anything up to that point. So even though we had been running at about a five 4% to 500 basis point impact for the first three quarters.
In Q4 in some categories, it's 800 basis points. So it gets much more significant we were able to take some pricing on Christmas product and the challenge is.
We took pricing, but we started off the season behind so did have to add incremental.
Promotions in order to help catch up on that sell through so I would say the drag for the fourth quarter. It is higher than what it has been for the third quarter.
The good thing I would say is we are holding back some of the Christmas merchandise and that came in later in our distribution center. So we don't expect we're not pushing that out to the stores and we don't expect to have a significant margin drag I C. N from discounting out of the product, but the freight impact is more impactful.
Okay, but then some of that freight impact is going to carry over into 'twenty Two's results then correct.
It will what we're paying outside of Christmas and it worked out but a lot of our Christmas is out of one port that had gotten backlogs. So we we had to find other methods and pay extra cost in order to get that Christmas products here, what we ended up paying for furniture and the things that we'll sell in the.
First half of 2022 was back to what we were paying before so more along the lines of four to 500 basis points and we have now had time on furniture and some of those other categories too cheap.
To reflect some of that in pricing.
Some learnings during Q3 and Q4 is it's a lot easier to offset the freight impact in pulling back discounting when it's furniture in everyday categories. When you're in the middle of a large Christmas our harvest by with a really short selling season and you start off behind.
Because of late arrivals, it's very challenging to offset that impact in limited discounting because if you don't get through it early in the season, you're going to have a much higher discount rate. So we were in the first half of the year able to offset a lot of the freight impact with with other things and just harder to do that with.
Seasonal product.
Okay last one for me then I'll hop out of the queue.
In terms of just tightening up the actual total sales range, obviously, you have store count changes and so forth and not knowing the exact timing.
I think by my math, it looks like you're suggesting that sales are going to be in the.
Kind of 170 to maybe high 100 Seventy's range in Q4 can you just confirm.
Yes.
That's a good range.
Alright, Thank you best wishes.
Thank you. Thank you.
Again as a reminder, if you would like to ask a question. Please press Star then one to join the queue.
The next question comes from Anthony <unk> with Sidoti <unk> Co. Please go ahead.
Yes, good morning, and thank you for taking the questions.
Michael first of all hi, good morning, So first I just wanted to check in and so as far as your sourcing exposure. So some of the some other retailers.
<unk> talked about Vietnam, I don't think you guys have much sourcing exposure to Vietnam.
Just wanted to.
Make sure that you know.
What what that is and I think it's so you guys are still predominantly China, but just just wanted to clarify.
Clarify that.
Yeah. Thanks, Anthony for that question, because I mentioned in the script that we did have some shortages of our best selling furniture group called the Jackson and that's 100% out of Vietnam and so we did get some of the pressure where it's actually produce we just couldn't get it out.
Due to some COVID-19 shipping restrictions once it's on the water I think at this point. So once that comes in I think we'll be in pretty good shape.
But it was.
Hard to be out of one of your best selling groups and it was funny because that group is off actually moved from China to Vietnam to offset this kind of issue and there'd be a nam has some of the same issues that China had so it just seems like it's.
It's a game of whack a mole of it's very hard to predict what's going to be happening in such a turbulent environment.
But you know we have a lot of pent up demand for that product. So I'm sure. When it comes in we will do really well with it.
Got it okay. Thanks for that and then.
Or is the are the price increases that you have put in place I know you've had to adjust some of your promotional.
The activity because of that but just wondering you know.
What the level of price increases was for.
Third quarter and plans going forward to try to offset some of these inflationary issues.
Yeah, I know, it's hard to predict because.
It depends on the category that you are looking at we were able to take our Christmas products.
Up in price and we didn't seem to get any resistance. Once the product was on the floor to our higher price points I think the consumer is expecting that price points will be higher.
Some of our furniture increases that we've already taken have not cogs impact or a slowdown so I guess the toggling between making sure that we have the appropriate price increases mixed back with the appropriate amount of discounting and both of those.
What are the healthiest brands out there.
You do less discounting on better product and that's one of the.
Folks that we have and one of the things that we're experiencing.
Just to add some numbers to that Anthony we really didn't take pricing on Q3 product just based on the timing of when it was produced and win the deal.
The price that the labels were added at the factory in Christmas and in Q1, and Q2 of next year I'd say, we've offset 150 to 200 basis points of the freight impact in pricing.
Okay.
Good to hear and then so so as we prepare the stores for the new furniture and outdoor products, which categories will you be deemphasizing.
For the full year and I think we've talked about this before our Christmas buys we don't expect to go down from a dollar perspective, but we do expect harvest and Christmas to be a smaller part of the assortment and theres. Some other categories within law, making sure that we've got the right amount of law.
LOL and decorative accessories and some other small.
Smaller ticket items that we will reduce but at this point you know really hoping that if we change the way the stores are displayed it's not a significant reduction in SKU counts, we're just treating it differently on the floor.
But very honestly kidney into furniture and more home furnishings.
Right, Okay, and lastly, as far as this is a brand awareness campaign that you're planning for.
For next year.
Any sort of ballpark estimate as to how much will that cost and that will that be more digital more TV kind of what would media channels will you be using for that.
Yeah, So I think a little bit early to kind of give details of what that looks like but for this year, we're going to finish with advertising at about three 8% of sales and and we did cover some of the increase in 'twenty, one with pullbacks in other areas, while we were doing test.
I think going into the year, we will start out with a very similar budget as a percent of sales and then we'll we'll pivot as needed based on the results that we're seeing but I do think long term. The brand awareness campaign likely does include a combination of of you know many of those channels definitely.
So that also channels that are much more mass media and can get us in front of other people, but we'll continue to update you on that as we have more of more of that plan laid out.
Alright got it thank you very much and best of luck.
Okay.
Okay.
The next question comes from John Lawrence with Benchmark. Please go ahead.
Yes, good morning.
Good morning, good morning.
Yeah, what do you would you would you just take a step back here and then obviously on the.
The freight situation and then the marketing situation if you could.
Little unfair because things are moving around but.
If you if you had a chance to replay the tape again and what decisions would you have made differently say September October.
And some of this information didn't come until late October but.
In anything there that you could pay that is a different way or what you would've saw differently.
Yeah, I really feel like probably on.
On one side of the coin we did a good job of getting our products out of the very highly constrained for some time now knowing that we would have to pay more and being very diligent on making sure that we shipped out the most time sensitive products.
Seasonal.
Don't think we anticipated as well and maybe it was because it was a changing environment of how long it would take once it got out of important China and sitting in the water.
Outside of the Port of L. A that seems to be the part that surprised us both and in products.
For example, I think we use that example of 130000 throws it stopped the dollars of outflows, but those things become our traffic builders.
Are any of them every year and part of that as people come in and buy a wonderful $10 ROE and we just didn't have it this year, because we had prioritized or it was in the wrong container container more of at home furnishings versus.
So I think this has been the big learning for us that we might have been more conservative on the timing that it was going to take and we had hoped and once we got out of the Chinese kind of flow through the system and our system seem to move from a problem in China dual problem here.
Right.
So to make sure just to clarify.
What was the impact you just mentioned it.
The impact on the freight was.
23 cents is that what the number was.
Closer to 35 23 cents was just if we normalize that how much we would have been would have been over last year.
Wow Okay.
Coastal properties and then obviously.
You know not to beat a dead horse there, but the advertising decision.
Obviously, if you if you would have known that could've been a couple of million more that would've been say along with the freight correct. So that number.
You know without without those without spending the number would have been much harder.
Yes, and that was a decision we will.
Felt like half the store set with exactly what we wanted to reset.
Bringing in new customers to show them, what we're all about is a good idea, but we after we realized that the customers are still very thinking of us, especially at this time of the year.
Seasonal retailer.
Retailer, we had to pivot back and so that was smart that we pivoted, but we hadn't started that campaign, possibly a bit early we're going to pause on that for a little while and wait until it January February to start that you weren't as backup.
I think the overarching things related to that so the advertising wasn't necessarily incremental yes, we could have stopped it and flowed that through to the bottom line, but we went through an exercise internally, where we said we really want to try this where else can we take dollars from and so we did an intentional exercise to try and reach.
Yes.
Sensors, so that it wasn't fully incremental but I think the other thing and it is learnings and you know we'll continue to as we go down this path learn things and then in pivot and change, but I think if.
If we use the first half of the year, when we have new product to focus on customer acquisition.
When we're in the seasonal time period, we really can can work on trying to get those new customers back in again as well as our existing customer. So just kind of learnings on our model and how this will need to work for us going forward.
Yeah and the last question for me is the e-commerce demand.
Mentioned in the release about.
Sort of climb or any thoughts there.
Yeah E Comm interestingly so stores in November picked up week to week E. Comm was soft in the middle of the month and then actually you know was a big part of why we were flat.
In Black Friday, cyber Monday week, and even into early December and again, that's just a handful of days have continued to see e-commerce perform better than it did in Q3 or November. So again, we are providing guidance based on things that are somewhat out of our control, but we do hope to.
To exceed those numbers and that that's where our focus is.
Great great.
Good luck thanks.
Thank you John.
This concludes our question and answer session I would now turn the conference back over to Mr. Woodbury for closing remarks.
Thank you Tom we'd like to thank everyone for listening today's call and we look forward to speaking with you when we report our fourth quarter and full year 2021 results. Thank you for joining us.
The conference has now concluded.
Thank you for attending today's presentation you may now disconnect.
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Yeah.
Okay.