Q4 2021 Kohls Corp Earnings Call
We have approximately 24%.
I want to highlight some additional guidance items first from a net sales perspective, we expect sephora to be a key driver of our growth in 2022 with the opening of another 400 new shops.
Given the timing of the Sephora store openings and inventory flow normalizing, we are expecting sales growth to build as the year progresses with the second half stronger than the first half.
Second we are expecting significantly higher freight and product cost inflation in 2022.
While we will benefit from our ongoing sourcing initiatives and some pricing actions, we do not expect to fully mitigate the headwinds.
As a result, we are planning gross margin to contract by approximately 100 basis points in 2022 relative to 2021.
Third from an SG&A expense perspective, we are planning expenses to be higher in Q1, and Q2 driven by the opening of 400 Sephora stores and the related store refresh class.
And fourth our guidance assumes our plan to repurchase at least $1 billion of shares in 2022 of which $500 million is expected to be repurchased through open market transactions or an accelerated share repurchase program executed in Q2 of 2022.
For modeling purposes. Please note that we ended 2021 with 131 3 million shares.
In summary, our business remains financially strong we delivered record EPS in 2021 and returned $1 5 billion in capital to shareholders.
We will build on this performance in 2022, as we scale key initiatives and improve our inventory position.
I will now hand, it back to Michele.
Thanks, Joe before I move to Q&A I wanted to address some of the uninformed and accurate commentary regarding the board's openness to maximizing value.
We have a strategic and financial plan that will deliver substantial value. The board is testing and measuring that plan against other alternatives.
As we announced on February 4th the company retained Goldman Sachs to engage with interested parties.
That effort continues and has included engaging with unsolicited bidders as well as proactive outreach.
Engagement with those parties is ongoing.
Our proxy one filed we will provide more detail.
The board is committed to fulfilling its fiduciary duties and we will choose the path. It believes will maximize the value to shareholders.
So contrary to what others might say the board's approach is robust and intentional.
We won't be commenting further on this topic during today's call.
With that we're happy to take your questions at this time.
Thank you and as a reminder to ask a question you will need to press star one on your telephone.
Your question. Please press the pound key one moment please for our first question.
Your first question comes from the lineup Oliver Chen from Cowen Your line is open.
Hi, Thanks for all the details.
We look ahead to your guidance regarding pricing and promotion, particularly as we anniversary some of the stimulus from last year, what are your thoughts on balancing those.
And how that May interplay with gross margins and then second more broadly and your framework for value creation. How are you thinking about real estate and what should we know about different parameters. You have there is you do have valuable assets there as well. Thank you.
Sure. Good morning, Oliver So first in terms of the guidance with the pricing and promotion obviously value always has been a core tenet for calls and so as we look at pricing, we always want to take a thoughtful and strategic approach to make sure that we're serving our customer best we do have a great pricing elasticity models. So we do lever.
That to make our pricing decisions. So for things that are not elastic like decor fashion kids are going to be a much more sensitive on price versus things that are in a less elastic like small electrics toys and basic so that model works for us and that is how will change those pricing remember 65% of our sales are now.
<unk> brands. So they are really the ones, who are driving pricing and allows us to maintain competitive pricing through the market at that point in time, and then last just given our model of being promotional and kind of high low I guess, that's a lot of flexibility to take price through less promotions.
Terms of what we're on sale ads. So if we're at 40% last year, we could be at 35% this year and it affords us the opportunity to take price that way with the customer is still seeing a great value in that sale and then last as you know we've been initiating a sourcing initiative that has been a key contributor to cost savings and that's really helping us manage through some of these inflationary pressures as.
Well so based on the margin that we gave in our guidance. We said, there's about 100 basis points of pressure that really encompasses the freight which youll see really in the first three quarters of the year, we start lapping that in Q4 as well as any inflation and pricing pressures that we're anticipating for the year.
And then from a real estate perspective.
Obviously, we love our stores are incredibly healthy over 99% of them are cash flow positive and so we think that they are a key asset for us and we like them. This way I mean, they generate a lot of cash and theres other ways for us to monetize value out of those stores by continuing to drive sales there by using them for our Omnichannel.
Services, and really servicing our customer with a level of convenience that affords us.
Other ways for us to find I think capital in a more economic way than having to leverage our real estate at this time, but clearly when we needed it which we showed you in 2020 during the pandemic, we leveraged some of our fulfillment centers to do a sale leaseback and and drive that capital because it made the most sense from a financial perspective.
Okay. Thank you and a quick follow up the details on receipt delays are very helpful. So there's a lot of variables in that.
Geo political as well as on what's happening in Asia. So what's in your control and what's out of your control and what are you monitoring for the receipt delays in terms of the back half and different risk factors, we should be aware of thank you.
Yes, Thanks, Oliver Michelle here, so you're absolutely right I mean, there are a lot of headwinds out there and as it relates to supply chain and we're expecting that this is going to persist into this coming year.
Yes, as we said in our remarks that was a bigger headwind in Q4 than we had anticipated we thought additional inventory receipt delays above and beyond what we had expected that being said, though.
Sit here today feeling.
Much better about our inventory position going forward.
A number of incremental actions against what we're already doing last year from a navigating a supply chain standpoint. So for example, as the merchants bought spring. So does receipts that are landing today that was happening late last summer and I would say two things there that we did.
<unk>, which is different and incremental to the receipts that frankly, we were chasing all last year number one we were more aggressive in our buy so we've guided the year, 2% to 3% as you've seen.
And so we're planning the year up and as a result, we took our inventory levels and our receipts and so those decisions were made like I said late last summer. So those receipts are flowing as we speak and in addition, we're also for the time being adding a little bit more time to our timeline just to make sure that we are protected from it.
Oh standpoint, we've also put in even additional tools. So we have very tight visibility between the supply chain teams and the merchants to make sure that we can track at a very detailed level when we're expecting arrivals on receipts.
We're expecting that to continue but I think the totality of our actions positions us better more medium term and we've done a lot of work on the diversity of our sourcing countries and we're going to continue to do that.
<unk>.
Balancing cost and speed and what have you until we have a very deep view of that all the while as Joe mentioned, making sure that we're taking advantage of cost opportunities in this I'm really call it volatile environment, but.
As as we sit here right now in the very early days of the year. Our receipts are flowing our inventory is up to last year their fresh receipts on the customers responding.
Thank you very much and great job on <unk> for best regards.
Thank you operator.
Your next question comes from the line of Bob <unk> from Guggenheim Partners. Your line is open.
Hi, good morning.
Morning, Bob.
Good morning couple of questions from me on the Sephora piece I'm just wondering if you could maybe give us a few more numbers just around comps.
Comps have sephora stores versus non.
<unk> traffic with the stores with kind of support.
More color on that.
Just a little bit on your assumptions for sure for driving the comp in 'twenty two that would be helpful and I guess the second question that I have is on the.
The active piece can you just give us an update on your Nike relationship you have there been any major changes to note.
Along those lines would be helpful. Thank you.
You bet, Bob I'll take that one Michelle here, So first off as we commented in our remarks.
Very excited about Sephora, it's off to a fantastic start 200 doors to your point on comp or.
What we look at as we look at the lift that those sephora doors are getting relative to the non sephora doors and remind you. It's only 200 stores and those were launched late last year. So kind of very early days in what I'd say is much of the opportunity is ahead of us I'll get to that relative to the guide.
But those stores are doing a mid single digit lift by E comp relative to the stores that don't have before us.
So we're very pleased with that.
I think importantly underneath that we're seeing that come primarily through traffic and we're seeing a healthy base of new customers coming in so 25% of customers who are coming in shopping Sephora are brand new Nicole So that provides a lot of opportunity and we are fostering that so one of the really unique.
Positive things, we have sephora at Kohl's is that those customers sign up for beauty insider and they sign up for Kohl's rewards. So it's a benefit to the customer on the value there and secondly, it is a great benefit to the collective partnership because of all the data that we get on that customers. So.
Really exciting. So then the second part is what does that mean to the go forward well you can do the math on if we have 200 stores that will be in essence, not comping. This before our launch which by the way we expect to see a runway on this for a couple of years not unlike when you build a new store, but just for the coming year, you've got those 200 stores.
That will be.
Not comping their sephora launch for the majority of the year next year and then you have 400 stores coming online kind of mid to late next year. So the combination of those things again, if you take a mid single digit lift you look at the weighted average you can see it's going to be a significant contributor.
The 2% to 3% sales growth, which gives us confidence Bob that we know the world is uncertain. We know there are headwinds, but based on the tailwind of sephora the tailwind of getting back in inventory like I was just talking about and the talent of our key initiatives. We feel very good about the sales upside coming forward and then your second question.
On active which by the way active continues to play a key role in our sales growth. We've been extremely pleased with the ongoing very strong growth there and as it relates to Nike relationship is terrific. We have a great partnership and they are a key part of our next chapter as we talk about our store.
So not only are we putting sephora, but we're re flowing the entire store, putting active front and center at the front of the store, we're expanding our space, we're elevating product.
And as it relates to just the totality of the business with Nike, It's strong across the board men's women's and kids' footwear, the plus size opportunity big and tall. Those are great growth drivers for us.
Great and then if I could just ask a follow up.
On the women's business I guess give some some color around some of the hindrance that you had but just curious as you look to 'twenty. Two I think was it the Draper James RSVP collections is that going to be a big driver for you and I guess, just how do you think about women's as you enter 'twenty two.
The recovery that you expect there thanks.
Yeah, you bet Bob so.
We've been talking to all of you for.
Over the last 18 months that for womens we undertook a major transformation. This was not incremental moves this was with significant.
Exiting a number of brands putting in a lot of new teammates into the group.
Then the team made a lot of changes as a result, as we entered into 2021, we had a very conservative plan and so as the recovery started happening broadly.
And as we saw the new strategies of women's take hold.
<unk> was unable to chase and so just to give you.
In the fourth quarter women's average inventory was down about 45%. So while we saw great turn and sell through.
We just could not fulfill the demand on women's but again, but there were some green shoots in terms of the opportunity as we look forward.
Mentioned Draper, James and I think that's a great example, you can expect more from us on discovery in and out capsules I think Draper James also for us.
As an illustration of a category that we can really expand and are doing that in the front half of the year, which is around dresses and dresses are really trending and kohl's is going to have a much bigger play in dresses this year and the years to come.
Thank you. Thank you. Our next question comes from the line of Gaby Carbone from Deutsche Bank. Your line is open.
Hi, Good morning. Thanks for taking my question I was wondering if you could just dig into what transpired on the top line in both here in terms of traffic you mentioned January softened and any color you can share around CT a trend as we cycled last year the newest payments.
This is maybe bigger picture you're curious your view around consumer demand, especially as we're going into their budgetary environment. Thank you.
Sure Yeah, I can take that one so.
I think as we said in our remarks on the floor or Florida.
<unk> started the fourth quarter very strong and.
We're very encouraged by that and then what happened is as we sold through that product, we were not able to replenish with the receipts, we needed and the receipt flow on.
Expectedly really slipped and so we were unable to chase, what we needed to chase from that standpoint. So.
That was I'll call. It. The primary issue is we got into late November early December and then.
Then omicron hit and that impacted our business in January and of course through all of that time, we were dealing with the inventory headwind even as <unk> came on that being said it was really towards the end of January that we started getting in receipts as Joe mentioned some of that.
Was due to arrive as I said, because the receipt slip was due to arrive in the earlier part of the year. So winter goods holiday theme goods, we can leverage that put that in pack and hold but importantly, we're now as we sit here today getting.
The vast majority of our seats, which are spring oriented which is what we want.
I was hanging in my earlier remarks, we have bought more assertively, so inventory levels are up.
And we're encouraged so your second part of your question as you know we have to acknowledge right now that there are a lot of macro headwinds out there. There is a lot of uncertainty for the consumer I think we can be confident in our guide of 2% to 3% given.
We expect sephora to play a major role and that's proven we've seen that happen in two under doors to my comment earlier getting back into inventory and we're encouraged by looking at even women's which was most hurt from an inventory standpoint.
Is benefiting right now and off to a good start to the year is as consumers are reacting to the newness and having their fresh receipts in there I'd.
I would say about the quarter. It's early days for us and everything is reflected in our guide and our guide to two 3%, we do expect that to build over the year. So in concert with the Sephora rollout, we expect Q1 to be positive, but we do expect sequentially every quarter to build.
Great. Thanks, just a quick follow up on before I was just wondering if you can give any color around how many new customers you kind of garnered thus far through the partnership and maybe how those demographics change versus a typical customer.
Yeah, you bet, so as I mentioned earlier about 25% of the customer shopping before are brand new to calls so that is a great opportunity as we look forward.
And what's also really exciting is the customers are younger and they're more diverse so.
All part of our strategic platform going forward.
Great. Thanks, so much thank.
Thank you.
And your next question comes from the lineup Mark <unk> from Baird. Your line is open.
Good morning, Thanks for taking my question.
First off to follow up on <unk>, how much of the mid single digit lift is coming from growth in the beauty category, specifically versus the add on purchases.
Now that we're several months past the launch any learnings you can share regarding the rollout and what strategies you might adjusted your MPD next page just wondering if you think you can maybe build on that mid single digit in round two.
Yeah, you bet, Mark so I'll take that one too.
So in terms of the mid single digit sales lift today, we would say up primarily that's coming off of beauty, but we do expect as we're bringing these new customers and I mean, it takes a while a few trips. So we are seeing by the way that bill to for.
For them to get to know calls. So so we expect that over time, we'll be building back because we are seeing evidence of that so half of people who are buying something with sephora are also putting other things in their basket, but I'd say early days and stay tuned on that front I think also we're seeing nice lift in traffic.
So in that mid single digits, we're seeing that come off the back of sales and traffic, which is also really encouraging and to your second part of your question.
See a nice runway with Sephora ahead, I mean part of the call. It the magic of this partnership and why they were interested in closer to begin with is the strength of our Omnichannel platform. So our store base, our digital capabilities. They have an incredibly strong digital capabilities as well as store base. So when you bring those things too.
Together.
How can you innovate and do and do more interesting things and so we mentioned in our remarks that we are looking at.
New ideas and innovations to build on the partnership and we will be talking about that next week at our Investor day, but suffice it to say, it's the store buildout in the comp that we should get on those same stores as we look out a couple of years, but also layering in more ways to be relevant with the customer and drive more new customers and traffic.
Thank you and a quick follow up for Joe as well regarding the comp guidance.
You mentioned you expect the performance to build through the year.
Just thinking about 2021, you're lapping some greater pressure in Q1 versus what we saw in the middle of the year and it does sound like inventory is catching up a bit as we enter 2022. So just any more color on why you shouldnt see maybe a stronger start to the year in 2022.
Yeah, I think in terms of what we're seeing for the two to three comp like Michelle mentioned a lot of that is built off of our initiatives. Obviously sephora shops will start opening in spring into summer. So we know that that will continue to drive some momentum and although the inventory is flowing it will take time for us to get back to the levels that we feel comfortable with to continue to drive demand.
As well as the newness. So we did talk about Draper James it's that.
But that is new as well. So we know we have to build into our calendar. Some time for the customer for that to be resonating with them as well. So I think we look at it is we I know, although we're lapping on a two year stack. The easiest comp. We also know we're lapping some stimulus money.
There is still uncertainty in the world today, and we wanted to be thoughtful of that as we put the guidance out there. So as Michele mentioned, we do expect to still show growth in Q1, but we expect that growth to build as the year progresses, and we see our strategic initiatives starting to take hold throughout the year.
Yeah.
Very helpful. Thank you best of luck. Thanks.
Your next question comes from the line of Lake Anderson from Jefferies. Your line is open.
Hi, Good morning, I was just wondering if you could discuss.
Broadly how your consumer is responding to inflation have you seen any change in behavior.
Down specifically you could talk to private label.
Response to any pricing actions you've taken or.
Maybe demand more discretionary areas.
Our level of commentary would be appreciated.
Yeah, So I'll take that one Michelle here, so and Joe made a few comments on this earlier as well I mean, we.
Were saying clearly very present, two any impact that inflation may have to our customer whether that's a colder pressures are feeling outside.
Kind of go back to one of the core value elements or tenants of Kohl's is value and we have a lot of flexibility in our model in terms of how we price because we do use promotion, we do use incentives that kind of thing so and what the team has been able to kind of engineer.
Over the last couple of years is being able to be very agile and responsive where we need to.
That being said.
Say first of all one of our advantages here is our brand portfolio as you just alluded to that we have a really robust range from your aspirational brands like even if you take the active category each other's aspirational brands like Nike and under armour, Adidas et cetera, but then we also offer the opening price point.
Of a tech gear or even flex.
That has come in we recently launch so.
So not only do we have the flexibility on how we price, but for our customer standpoint, they can walk in and see this great range. I think it's also worth noting that more than 60% of our business with national brands and they set the pricing so from a competitive standpoint, we will be there.
With everybody else.
We're one of the things we've actually seen over the last couple of years is our average unit retails increase and thats been more around customers pricing up and responding to the elevated brand that we bought in the inventory management the less clearance.
Reducing promotions that kind of thing so evidenced to date, we feel well positioned but yeah theres a lot of volatility in the world and so we're just staying very close and we will make needed adjustments to make sure that we're staying relevant with the customer.
That's super helpful. Thank you very much and then my last question would be you.
Talked about.
Inventory at the can for your fan categories could you talk about your ability to secure support specific inventory.
Is that progressing and have you seen any challenges there.
Then maybe building off the last question any inflation commentary you can provide on the two core shops. Thanks, so much.
Sure I think from a sephora perspective, we've seen inventory flow really well we've gotten ahead of that in fact, some of the inventory increase that you saw at the end of January We mentioned January on average inventory was down about 30%, but obviously landing the year only down 13, we took a lot of receipts and at the end of the month and a lot of that was for sephora being ready for that.
Shops to start opening in spring as well, so we feel well positioned in terms of our inventory for sephora to continue to drive sales in terms of inflation I wouldn't say, we've seen a lot of that specific to support or the shops. The good news is a lot of the construction materials. We source early given the supply chain disruption. So we werent at.
At risk for some of these commodity inflation I think right now it's managing the labor side of the business as we open these shops and have them constructed but still within our guide of $850 million for the year.
Well positioned as we open them and feel very confident with the return of Youre going to see off of that investment this year and moving forward.
Got it thanks again.
Okay.
And your next question comes from the line of Chuck Grom from Gordon Haskett. Your line is open.
Hey, Thanks, Good morning, Joe.
Basis points of give back on the gross margin this year.
Good time and better than expected just wondering if you could sort of put some of the puts and takes out there for us how you're thinking about it and what's Italia and your expectations for the promotional environment are you expecting to get back to normal how are you thinking about that.
Sure I think from a 100 basis points will say freight is a portion of that the majority of it though is really going to be around commodity inflation will see freight and that'll hit us in the first three quarters and then we'll start lapping some of those costs that we incurred in Q4 of this year I would say the pricing inflation is much more back half loaded.
Chuck because as Michel mentioned earlier, we started writing our receipts for spring early and that afford us the opportunity to get those receipts written in and before the commodity price increases took action, so youre going to see a lot of that commodity price.
Wins in the back half of the year, starting in Q3, and Q4 and then in terms of flexibility for promotional activity I think it is a core to who we are we've talked a lot about that were high low we use a lot of couponing, we know when to lean in and not we've only gotten better at that through all of the data analytics that we've done through our personalization efforts.
So I think it's something that will be utilized to drive behavior, but I still think even though we are buying more inventory. We are still incredibly committed to the disciplined inventory of driving term. So you aren't going to see us getting over our skis and re correcting from an inventory perspective, obviously this year wasn't where we wanted it to be specifically women.
More so in our private brands being down and really driving that 400 basis points of headwind to sales, but as we move forward, we feel like will flow into the goods drive sales, but still be disciplined in turn and then we will use our promotional activity to help us with pricing and take pricing, where we can and then leverage those offers to drive behavior, because we know consumer likes a great deal.
We just know better what drives those people.
Into our stores, so you and I may not get the same coupons and I think that's where we're going to be better than we have done in the past.
Okay Fair enough and then when it was about a four point.
Fourth quarter I guess is it the expectation that women's is continuing to be a drag in the first couple of quarters I'm just trying to connect the dots on your inventory levels being where they are versus your expectations for women to start to improve maybe maybe a little bit of color on that and then I guess a follow up on inventory would be how much of your inventory is taco or now versus say.
The past couple of years or historically speaking.
So I just want to clarify women's was not the full 400 point drag how we use it as an example, because it was kind of one of those extremes being down that 45% in inventory, but there were other areas of the business is soft home has a lot of private label exposure. So that had some headwinds mens as well obviously was in apparel.
Perspective had some headwind we used women's is the anecdote, but it was not fully the four 400 point contrary to that we do want to talk about active being up 25% of our inventory was down on average only about 10%. So that's kind of where you can see where we had the inventory we were able to chase the sales, but not that we had to have more inventory from that perspective in terms of.
Pack and hold it hasnt been a muscle that we use I think the pandemic allowed us to learn how to use that muscle. So we've started using it back in 2020, and we continue to use it where we needed to in 2021 and you'll see us obviously pushing that forward in 2022. It is small is not a huge portion of the amount of inventory that we have I mean, it's very small.
In terms of what it is however, it allows us to hold the inventory not take the mark down and preserve the margin and quite honestly, Chuck and this year I get to preserve the margin and I don't have a commodity inflation in the back half when we reset some of these get so it works both on top line and on the margin side. This year, but it is not something that we typically have done but it is something that we.
Utilized in these in these years that are unique but again very small.
Okay, great. Thank you Joe.
Uh-huh.
And your next question comes from the line of Armours had from Evercore. Your line is open.
Good morning, Thanks for taking my question.
Very helpful information I want to just follow up a little bit on the gross margin question.
I think Joe you kind of hinted that you're expecting.
Interpreted but you gave the example of 35 offices 40 off are you expecting promotions to be down year.
Year over year. This year is that your underlying assumption.
Given all the data analytics and personalization.
So what's your competitive kind of assumptions around the competitive landscape on the margin line as well, but I have one quick follow up.
Sure I think the example, I was trying to give as we we use couponing, obviously, but we also use just pricing and promotions every day in our stores. So instead of having to take adjustments on what people see for ticket, we can say and so 40% off it can be 30% off and help us really offset some of those cost headwinds.
Again, we use a pricing elasticity models. So we're gonna do is in a really thoughtful manner and understand where the customer wants to see value clearly our opening price points might be someplace that we leave because they already a great value, but in other places we're able to take a little more ticket given what people are willing to buy for those products. So I use as an example of a.
Arent tool that we may have because we're not an everyday low price competitor from that perspective in terms of promotional environment. Obviously, we have talked about simplified pricing and promotions as one of our core strategies. When we rolled out our strategy back in October we continue to leverage that really using the couponing and a more targeted manner versus.
It is making it just general scale for everyone. Clearly, we'll still have those general public offers but really trying to drive more targeted behavior through personalized offers is how youre going to see us move forward. So customers may not see it as less promotional so just be as more meaning promotions to drive their behavior coming into the store I would also say we will see us have less stackable offers that's something that we have.
Been doing we know our new customers buying confusion when they have to do a lot of math on multiple offers so really just standing for one big offer to drive that behavior, because we werent seeing those other stackable offers really drive meaningful sales behavior, and we were taking some margin pressure from that so I think we'll continue to lean into that strategy as we move forward but.
Always evaluating the competitive landscape because we are known for value. So we want to make sure. We continue to compete on that core strategy for calls.
Great. Thanks, and then one quick follow up I know, it's really early but are you seeing any impact on your business from Ukraine and Russia.
American kind of KOL shopper.
Paying attention this even if it just the CNN effect and it kind of goes into the Tvs or is it too early to tell.
Yeah, Omar I mean agreed and I think I think we are prepared that is theres going to be an environment of a lot of uncertainty.
And so as we message.
Certainly contemplated that as we guided the year, but I think more importantly for Kohl's, we feel like we've just got a ton of tailwind with our initiatives, starting with Sephora and active new brands getting back in inventory. So like everyone will stay close we'll be responsive.
But we'll prepare for kind of another period of time with pressure and uncertainty on the consumer.
Thanks, Good luck for the year.
Yeah.
And your next question comes from the line of Dana Telsey Telsey Advisory Group. Your line is open.
Good morning, everyone. As you mentioned in the remarks about lower sourcing costs.
Are you seeing how much of it is temporary how much of it is long term and what are you are you in the middle of the lowing lower sourcing costs or how much lower could it go and then just on the inflation question. What are you taking in terms of price increases and does it vary by category and you're seeing it in the national brands.
As well as your own brands. Thank you.
I can take the pricing one Dana and then I'll have Michele speak to our sourcing strategy. So as it relates to pricing.
Overall, and we'll speak to just speak to some of the mitigation strategies, we have underway around our sourcing initiatives. We saw that benefit play out this year, we're expecting more benefit again next year to mitigate some of the other pressures we face, but as I'm also to earlier, it's really important for us to continue to offer.
Great value to the consumer I think one of our advantages in an environment like that is that we have got a phenomenal brand and category portfolio. So everything from.
More aspirational brands products to your opening price point. So if you take denim as an example, which is a trending category. We have a very big denim business. We have levi's on one end and we've got Sonoma jeans on the other end, which is also great quality. So just making sure we can meet the customer where they are as it relates to national brands.
There are certain national brands that are taking pricing, we like others will be in a competitive same competitive environment as they take price. We will of course be taken out along with them, but we'll stay close to it and again of course, we've got other options for the consumer for those who are feeling that pressure and then tier.
To your point are there variances across the business, absolutely and I think we're much better positioned today given the investments that we've made in tools and technology. So we have a very robust elasticity model that not only looks at our pricing and behavior, but relative to competition and so there are categories.
That are more elastic like your basics, where the consumer isn't going to give you a lot of permission to take price. But then you have other categories that are less elastic things that are more seasonal or fashion.
Where we can make sure that we're being thoughtful but I think thats. The key operative word of being thoughtful of being agile and making sure that we are making the right moves for the consumer in this process and then Joe you want to speak to sort of saying, yes for sourcing I think last year, we had talked about this when we rolled out our strategy and we said it would start.
2021, and it would continue into 2022, so we'll start seeing a lot of those efforts those were around centralized sourcing doing direct factory negotiation, reducing our reliance on third party agents and also really continuing to evolve that sourcing strategy seeking for more production in the western Hemisphere, which Mark Michelle mentioned.
Earlier helps us balance speed with costs.
I'd tell you that we are definitely I think in the middle innings of that ever but there's more for us to continue to get which will help us I think as we try to mitigate some of these bigger inflationary costs as we move forward into 2022 like I've mentioned, a lot of that will be back half loaded for us.
Thank you.
Okay, great well, thanks to everyone listening on the call today, we hope you can join us on Monday for our Investor Day.
Thank you and ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
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