Q4 2021 Macy's Inc Earnings Call

The net we determined that Macy's, Inc has a stronger future as a fully integrated business with Macy's and bloomingdales, together and assessing a broad range of brands price points and customers across digital and stores.

In undertaking. This review we also asked our advisors to pressure test our Polaris strategy their findings reaffirmed our confidence in the strategy and boosted clarity on several initiatives that could be accelerated over the next several years to unlock greater value for our investors.

These initiatives begin with digital we have a number of new capabilities in the works first the marketplace, we announced last quarter is expected to deliver incremental value above our $10 billion digital sales target.

In addition to our owned and vendor direct platforms. This third party marketplace will allow our teams and partners to expand and enhance our strong digital experience through.

Through the marketplace, we can dramatically expand our categories brands and online SKU assortment to respond more quickly to the changing and diverse needs of our customers.

In addition, we continue enhancing our digital platform and launching new offerings. These investments are paying off and we're pleased with the active user and conversion increases we're seeing across our apps bloomingdale's dot com and Macy's Dot com.

Beyond digital we've identified several other focus areas.

First our merchandize categories, we have identified key categories, where we will continue to build upon our already strong Foundation example of these categories include furniture men's tailored clothing women's shoes beauty dresses and jewelry and watches.

Today I am pleased to announce our partnership with Pandora to broaden our already strong assortment in fine jewelry in November we launched Pandora and five stores the fine jewelry business in those stores. So an incremental 23 percentage point increase in sales growth over 2019 from the new assortment Pandora attracts.

<unk> customers and we will now expand to 28 additional locations in 2022.

There's new categories like toys, and our partnership with toys R. US has been instrumental in attracting new customers to the Macy's brand.

Of the customers that shop toys R. US, 25% were new customers to the Macy's brand and 93% of these toy customers Cross shop to other categories. We doubled our toy business in 2021, and we're excited for more aggressive growth when we open toys R us stores within store and all of our locations during the second half of this year.

<unk>, a completely new and immersive experience for our customers.

Both bloomingdales and Blue Mercury are also working with best in class categories and brands during the quarter Bloomingdale's saw success. This holiday Carousel collection with <unk>. The partnership was a key to bloomingdale's gifting performance in the fourth quarter.

We are excited to announce that next month Bloomingdale's will unveil its latest carousel collection with Netflix Richardson.

Another focus areas marketing and loyalty our star rewards loyalty membership is growing everyday through enhanced personalization capabilities. We can increase engagement that drives positive brand perception additional visits and purchases. We are testing the advanced an AI driven targeting to help determine the best.

Communication channel frequency message an offer for customers, we view personalization as a growth engine for our company in the early innings of development.

Consistent with our digital focus we have significantly shifted our media mix towards digital marketing today, 66% of our total spend is on digital versus 35% five years ago over this time Macy's has experienced a 25% improvement in our return on advertising spend.

Next off mall stores, we see big upside and repositioning our physical store footprint by scaling up our small format market by Macy's and Bloomingdale's stores, we opened three market by Macy's stores in 2021.

<unk> seen encouraging customer response sales exceeded our expectations and we found that these stores are more productive to run and staff and stocked with inventory. This new format is also bringing in new customers, who are engaging with our curated under 40 brands and products in 2022, we will open market by Macy's and bloomingdale's in additional markets.

As part of our omni market strategy.

Finally, the shopping experience one common thread across our Polaris initiatives is the need to build new capabilities to ensure the shopping experience is as convenient and compelling as possible. This will drive growth in our active customer base and increase shopping frequency and spend per visit customers shop, both online and in stores. So.

The combined experience remains key to our success.

We look at our stores as destinations for both discovery and experience as well as fulfillment hubs. So we will continue to invest appropriately in our stores to create a more connected tech enabled omni ecosystem.

Now I'd like to speak to one of our most valuable assets. The Macy's brand starting next month, we're repositioning it with our promise to help our customers express and own their style.

Experts in person advice and personalized data driven recommendations that help people express their personal style will differentiate us in a cluttered marketplace. This brand transformation is a key step within our Polaris strategy to win with fashion and style.

We will also announce details of our new social purpose platform and commitments in a few weeks Macy's Inc. Has been a strong partner to the local communities in which we operate but today as stakeholders expectations of corporations and have US change we're prepared to better align how we do our work with the common good as we transform our business.

We see the opportunity to create a social purpose platform that leverages, our scale unique strengths and culture to create more meaningful change in the world.

Now I will pass it onto Adrienne for our outlook for 2022 and beyond.

Thanks, Jeff we believe that shareholder value will be enhanced through strong performance driven by the successful execution of our Polaris strategy combined with the efficient allocation of capital will make disciplined risk adjusted decisions when deploying the cash we generate.

Even the ebbs and flows of consumer sentiment and the need to weather unforeseen risks our first capital allocation priority is maintaining balance sheet strength by doing so we preserve the ability to fund investments that foster profitable sales growth and deliver healthy long term returns.

We will fund these types of investments and return excess cash to our shareholders and we will deliver direct returns to shareholders through a modest yet predictable dividend and meaningful share repurchases with.

With that in mind, let me walk you through our updated three year outlook.

In light of the headwinds and tailwind that Jeff spoke to earlier, we do believe that the macro environment will continue to offer some challenges.

Nevertheless, we remain committed to achieving low double digit adjusted EBITDA margins annually and in 2024 expected to be within a range of 11, 5% to 12.0%.

For sales, we are targeting a low single digit compound annual growth rate for net sales, we expect our long term sales growth to be driven in three ways first.

The scaling of our digital marketplace, including expanding the depth and breadth of our merchandise categories as well as the re platforming of our core digital platform.

Second improving mall based trends supported by our investments in Omnichannel capabilities and technologies and third the expansion of our off mall stores as.

As we referenced earlier the recovery of international tourism to pre pandemic levels is not anticipated for some time. So there is potential upside should that occur within the next several years.

For gross margin, we're targeting a rate in the high <unk> Ethernet digital penetration increases to the low to mid <unk> as a percent of net sales to do this we're looking to maintain solid merchandise margin.

By lean inventories as well as additional profitability from our pricing initiatives and the growth of digital marketplace.

At the same time, we'll be closely monitoring the promotional environment within the industry, which we recognized has been at historic lows this past year.

In regard to future delivery cost we've developed several initiatives to mitigate delivery expense, while improving our customers' delivery experience. These include optimizing fulfillment algorithms, reducing split shipments through the use of data science and enhancing inventory placement and assortment allocation.

In addition, we began rolling out initiatives aimed at increasing item level profitability for online Skus this past quarter.

Now, let's move on to SG&A.

We are targeting to improve SG&A leverage with increased digital sales and a more efficient staffing model in stores that $900 million in permanent cost savings we realized over the last two years will remain a significant benefit to our SG&A leverage.

At the same time 2020 one's SG&A benefited from a number of open positions that we expect to fill in 2022, a portion of the savings achieved through our Polaris initiatives will be reinvested to support our colleagues financial educational and well being initiatives.

Based on this and wage inflation expectations SG&A as a percent of sales is targeted to be elevated over the next three years from 2021 levels, peaking in 2022.

Within SG&A. We also expect to continue benefiting from other profit pools, such as Macys media network and additional opportunities that could arise when scaling our digital marketplace.

Next credit card revenues.

In the near term, we're targeting credit card revenues as a percent of net sales to be slightly below our historic average of 3%. This reflects our expectation that bad debt within the credit portfolio will migrate to pre pandemic levels over the next few years and thus pressure returns. However.

<unk> in the medium term, we expect proprietary credit card sales penetration to rise, which will offset the increased pressure from bad debt and help facilitate the rebound of credit card revenues to about 3% of net sales by 2024.

Now, let's turn to our long term capital allocation plans were.

We're targeting capital expenditures of approximately $3 billion over the next three years.

Our spend will be primarily allocated towards our technology architecture data science applications across our retail operation digital platform enhancements fulfillment capabilities in stores and further upstream and our personalization efforts in.

In 2022, we're targeting approximately $1 billion of capital expenditures.

At the same time, we also expect to continue to meaningfully monetize our real estate, we have a robust monetization program that has to produce more than $2 billion in asset sale proceeds over the last six years. Our plan is to continue the strategic development of our assets to maximize our real estate values.

While repositioning our physical footprint to provide our customers a seamless and convenient omni channel experience.

After accounting for capital expenditures and asset sale proceeds were targeting to generate between three two and $3 6 billion.

Free cash flow over the next three years with up to an additional $900 million of incremental debt capacity with strong financial flexibility, given our leverage and EBITDA targets.

This level of cash generation and cash capacity will continue to support our capital allocation priorities, which are grounded on our commitment to enhance shareholder value.

Those priorities include first maintaining a healthy capital structure that is focused on best positioning Macy's, Inc. For access to bank and capital market funding under all economic scenarios.

And second maintaining investment grade credit metrics with well <unk> debt maturities, which includes targeting an adjusted debt to adjusted EBIT Dara leverage ratio of 2.0 times or below.

Next we're committed to investing in initiatives that further strengthen our digitally led capabilities across the enterprise, including investments through our capital planning program as well as other value creating strategic investments.

And lastly, we will return capital to shareholders in the form of a healthy yet modest dividend that increases annually and meaningful share repurchases absent more attractive investment alternatives.

As Jeff mentioned, we announced the first dividend increase today and the authorization of a new open ended $2 billion share repurchase program.

As part of our three year outlook I wanted to provide more detail on our guidance for fiscal 2022 as well as the first quarter.

We believe 2022 will be a transitional year as we move beyond the recovery and the market begins to normalize at the same time, we expect high levels of inflation to erode consumer discretionary income our 2022 expectations reflect our strategic positioning and the associated risks and what may be a more.

Challenging market.

Despite these challenges we are committed to continuing the discipline, we demonstrated in 2021 to drive strong margin performance through our pricing initiatives for merchandise margin. Our continued focus on delivery expense mitigation and our SG&A cost discipline.

Now let me provide the details of our full year 2022.

For Macy's, Inc. We expect net sales to be flat to up 1% with continued strong AUR performance at more modest levels than we saw during most of 2021 for our owned plus licensed comp sales. We expect a three year compound annual growth rate of between one one and one 4%.

That's growth from 2019 results.

Digital sales are expected to be approximately 37% of net sales.

We expect a gross margin rate between 38, one and 38, 3% slightly down from last year, largely due to increased digital penetration and expected inflationary cost pressures.

Credit card revenue of approximately two 9% of sales as expected.

From a rate perspective, SG&A is expected to be in the range of $33 seven to 33, 9%.

Asset sale gains are expected to be between 60 and $90 million.

Adjusted EBITDA margin is expected to be between 11.0 and 11, 5%.

Net interest expense is expected to be approximately $190 million for the year.

Adjusted diluted earnings per share is estimated between $4 13 and.

And $4 52.

And does not include the impact of any share buyback that might occur throughout the year.

Now a few comments on sales trend within the year.

We're targeting strong year over year growth in the first quarter, but we expect our quarterly net sales penetration as a percent of annual net sales to more closely aligned to our pre pandemic quarterly cadence recall that we were still early in the recovery at this point last year and that our results in the first quarter of 2021.

Were significantly affected by the pandemic impacts.

Impacts from the acceleration of the recovery and stimulus payouts more significantly benefited our results in the second and third quarters of 2021.

This makes the year over year net sales growth in the first quarter of this year more favorable than that in the subsequent quarters.

We also expect between 55 and 60% of our annual adjusted EBITDA, excluding asset sale gains to be generated in the fall season.

Of this nearly 70% is expected in the fourth quarter. Additionally.

Additionally, outside of the first quarter the remainder of asset sale gains are modeled in the fourth quarter.

With those factors in mind, we expect net sales in the first quarter to be between five three and $5 4 billion.

For adjusted earnings per share, we expect the first quarter will be between 77 and <unk> 85.

Compared to 39 in 2021.

This includes an anticipated benefit of approximately $25 million from asset sale gains and again does not include any impact from share buybacks.

More details on our outlook are included in the presentation posted on our website.

In summary, we are pleased with the result that we generated in 2021 and look forward to building upon our success not only in 2022, but over the next several years, we have proven that we have a highly resilient business one with further capacity to grow profitably and enhance shareholder value.

With that I'll turn it back over to Jeff for some closing remarks.

Thanks, Adrian today, Macy's, Inc. As a transformed organization, we are well positioned to compete successfully and profitably in today's market. We operate one of retail largest e-commerce businesses integrated with a nationwide footprint of stores and fulfillment centers we.

We are confident in our path forward as one integrated company continuing to execute our Polaris strategy and the accelerated initiatives, we shared today, allowing us to unlock additional value acquire new customers and grow market share.

I wanted to express my gratitude to the entire Macy's, Inc. Team for their passion and dedication in serving our customers and delivering strong results.

We have a lot of work ahead, but I am excited to put these plans into action and deliver an even bolder and brighter future for our company our shareholders and our customers.

And with that let's begin the Q&A.

Thank you, Sir ladies and gentlemen, if you would like to ask question. Please signal by pressing star followed by one that is.

Star one to queue for a question and the interest of time. Please keep it to one question per person.

Our first question, which comes from Matthew Boss of Jpmorgan. Please go ahead. Your line is open.

Thanks, and congrats on another nice quarter.

So Jeff revenue growth exiting this year at a positive low single digit CAGR matches. Your long term Polaris plan. So near term could you speak to momentum that youre seeing in the business driving your first quarter outlook and then as we think beyond how are you thinking about the timeline and opportunity.

If we think about international travel smaller format stores and this digital marketplace model.

Hi, Matt.

Thanks for the question so as Adrian just said in.

His comments, we expect the first quarter.

A one year stack. So we're now going to be comparing to 2021 is going to be our best quarter relative to last year and.

And I think what.

Oliver what would you should look at is really the penetration of each quarterly business and look at a year like 2019 2018 to see how we're kind of cadence in the business. So that's how I would just look at into <unk> comments, we do expect that the other quarters are going to be less than overall growth to 21 in the first quarter.

To the second part of your question, let's talk about the three individual pieces you mentioned first on international travel. So this is an interesting one because you have heard us say that it means about 3% to 4% of the total business at Bloomingdale's and Macy's.

It's certainly been our experience pre pandemic.

We got about 50% of it back when you look at 2021, a big chunk of that was basically with an increased digital business to those international ZIP codes. We did see some return in the month of December Bloomingdales has had more of the affluent international customer coming back.

More there it was our best quarter. When you look at the four but then you basically go back into.

Back to lower levels with omicron. So we don't expect when you think about that 50% that's yet to come certainly going to be a tailwind. We know it will come but we're not anticipating seeing that in 2022, and we're looking at future years for that as your question about small.

<unk> format stores.

This is one that.

We've opened in <unk>, both <unk> for the Bloomingdale's brand, we did that in Washington D C and the mosaic mall and then we've got five of them that have opened in Dallas Fort worth Atlanta.

And the encouraging results and what I'd say there is that everything we've talked about in terms of the retail ecosystem.

Getting that Formula right, where you are looking at the full business being done by customers between digital and where they choose to shop in brick and mortar that's starting to pan out for us in those markets and what we've seen is.

What it really comes down to it we think we have the formula right between offering and value content very flexible spaces, if you've been in one.

But what's really important is location location location and getting not only the right off mall locations, but then the right placement of that of that storefront within that model with great Sightlines grid exterior signing et cetera. So we're very careful in what we are picking there we look at that kind of expansion between those.

Nameplates and off mall in really three buckets, we have the densification, which feeds into the omni ecosystem, we've got new markets and what youre going to see there and we're looking at that for both <unk> as well as Macy's and then we've got the replacement strategy, where you might see us and Youll see this in 2022, we've got a site plan, where we're going to.

A store and its next to a neighborhood store that has been in a very challenged mall, we want to make sure we develop that and have that ready to go to pass off customers versus when we have closed stores and the password youll see those customers.

So thats, what I'd say about smelter our strategies and the last question is on marketplace and that is.

We're gearing up our team right now so hiring us very excited about the talent, we're able to get we've got our tech team working with our Miracle, which is our tech partner right now sinking up that.

And we're working with our merchant teams right now about the new categories that we're going to start with so as we mentioned on our last call expect marketplace to add a lot of incremental value and that starts in August of this year.

Great Best of luck.

We will now move onto our next question from Lorraine Hutchinson of Bank of America. Please go ahead. Your line is open.

Thanks, Good morning.

I just wanted to focus on Capex for a minute. How much is included in that 3 billion for this fleet transformation that youre talking about and then how.

Should we think about the key thing on the share buyback program.

Thanks, very much for your question Lorraine and good morning to you. So with regards to the Capex. We do have right now a smaller portion of our capital around the new store rollout. This is one thing that we wanted to make sure that we're continuing to prove ourselves into as Jeff mentioned a bit earlier, we feel really good about the performance of these stores we feel.

We have the formula right, we're highly focused on location location location, but as we continue to think about the scaling of those stores will continue to update our capital plans, where we're spending a lot of our dollars in terms of the $3 billion is really around the omnichannel capabilities and those things are things like personalization and data science across our entire operation are fulfilled.

<unk> infrastructure upstream and downstream are digital marketplace. Those are the kinds of things that we're actually focused on in terms of our capital spend.

And then your second question is really around share buybacks.

We have $2 billion authorized and we view that it's very much open ended and as we think about the deployment of that excess cash we're really focused on what's in the best interest of our shareholders and so as we've talked about before our first priority is really maintaining a healthy balance sheet. The next priorities investing in high return initiatives.

Including strategic opportunities that will allow us to accelerate our <unk> strategies and absent more attractive investments will certainly return capital to shareholders in the form of dividend and a meaningful share buyback program, but the timing is very much open ended for us, but we'll be very opportunistic opportunistic about the $2 billion authorization.

Thank you.

Thank you Laurie.

We'll move onto our next question from Omar <unk> of Evercore. Please go ahead. Your line is open.

Caller. Please go ahead. Your line is open you might be on mute.

Hey, good morning, sorry about that thanks for the very.

Useful presentation guys.

Jeff quickly a quick follow up on the study you guys did on the E comm business looking at the possibility of separating it doesn't sound like it was a close call at all.

And then a quick follow up on sales it.

It seems like it's all macro issues are kind of.

<unk> the outlook for 2020 to any company specific or sector specific trends have you seen fashion and apparel sales peak or is it really all the macro inflation issues that are kind of guiding them.

Tempering the guidance thanks.

Hey, Omar So let me let me take your first question on kind of the E Commerce.

The study that we did with a really kind of the business review and shareholder value.

So just to kind of reiterate we had two big main objectives of this and one was how are we going to deliver shareholder value in the near.

Medium and long term and the second one is we said what we really want to respect that.

Customer omnichannel behavior of the customer at all touch points.

<unk>.

Was it a close call to your question I would just tell you that it was a very unconstrained and it was a really comprehensive review.

We have very strong advisers, we've been working with the board on this for many many months, we broadened Alex partners as you know.

In that October timeframe, and we just went through every single scenario.

And basically came around to that one integrated Macy's at both Inc, and the brand levels deliver greater value that a separation of digital and physical assets and I was just kind of hooked on four things that we are really key to our decision. The first one is as Adrian described with just our free cash flow, we're not capital constrained.

To be able to invest in the business and in the digital elements of our business.

That's one the second one is just the high separation costs that come with separating digital and stores as well as number three would be the ongoing cost from operations of having separated business and then just the last one would be the execution risk to the customer to our brands and what would happen with that.

<unk>.

Because of this the Extensiveness of this review it did give us an opportunity to say okay. What's in the Polaris strategy is working what should we shed what should we pick up and really just being clear eyed about what our opportunities are on that so.

Our as we mentioned and accelerating a number of initiatives within that first one obviously is one that was already in the works, which is digital and what we're doing with marketplace. So $10 billion in digital more to come in the marketplace.

New and expanded categories. So we can go into a lot of conversation about that but just let me just suffice it there, but the opportunity to go into new categories or expand the ones that were existing in.

Big opportunity with data driven personalization and now that we've got 70% of our of our business being tied to our loyalty programs. Just gives us a lot of flexibility to move away from a broad based promotion and really personalizing our message all the way through the customer journey and in the fourth one that Matt asked about earlier is really.

Off mall small format, so in opportunities with that.

<unk>.

I would love to acreage kind of weigh in on this because there are things that came up out of this that I was looking at the comment about so you were just talking about.

Thank you Jeff one key thing that was really important from this work that Jeff described it as just the fact that our strategies are durable and it's important to acknowledge that today. We're in a much different competitive position than we were even just two years ago. We're financially a much stronger business, we have a healthier balance sheet.

And we're more efficient in how we think about our capital structure and this is really evidenced by the $3 billion.

That we're planning to invest in capital spend over the next three years. In addition to the target of $3 billion of free cash flow that we're also expecting over that same time period. So the net of it is we got to do the research with our advisors was we're not capital constrained as Jeff alluded to earlier and the accelerated initiatives that.

Jeff highlighted our initiatives that we can pursue now and into the future.

Yes, the home or the your second question really kind of a macro trends what I would say what's interesting right now is just that the dormant categories that.

We're all the way through the pandemic.

They are very strong right now and to be expected.

Haven't fully.

The point of your SG&A guidance, we're looking at about $8.3 billion of SG&A here in 2022.

How should we think about varying your S G and a either up or down if you were to be yourself guidance or or come in short of yourself guidance. Maybe you can just help us think about the variability there and then on the quarters for 2022, obviously with two one.

Zipping the greatest year over year growth Adrian does the guidance imply that that total revenue could be down your over a year in the second and third quarter and then I'm I'm not sure. If you were just.

Would like to share just any any.

Overarching philosophy or strategy when you look at at inventory management. It looks like you've got really superbly levels here coming out of the fourth quarter as I look back to the fourth quarter of 2019 inventory was about 20% higher is there.

Do you feel comfortable running with inventory at this level compared to 2019 or at some point. This year would you look to at least clothes a piece of that gap. Thank you so much.

Thank you Kimberley and good morning to you. So let me just start a little bit talking about our outlook and as we think about our long term targets, where we would say is that we believe they're achievable and that they also reflect the momentum that we've already achieved endeavor building at Macy's now as it relates to the P&L and how 'bout a bit more around the SG&A, which.

He was a key part of your question as we look at 2021 and move into 2022, we feel that the bill to track record in a building a lot more confidence and conviction around the strategies that we're executing and also what's in the queue. So look we exceeded top and bottom line expectations every quarter in 2021, we expanded merchandise Mart.

Since every quarter and a lot of this was driven by new capabilities around inventory productivity and our pricing disciplines and be created SG&A Leverages sales grew this year and we learned a lot about that and as we think about 2022, we do expect to see an elevation and SG&A, but peaking in 2022, we expect SG&A leverage as we move.

Beyond 2022 into the out years. So Ah wanted that really results in a healthy level of adjusted EBITDA margin, which we are committed to having at low double digit levels and at the same time being able to generate strong free cash flow in order to support a lot of our investments in the business as was returning value back to our shareholders.

With regards to the quarters to your point, if you think about where we were in the first quarter of last year.

We're still very much dealing with the pandemic and so we do expect that our first quarter will be stronger relative to our up out of quarters of Q2 Q for now we took it very measured approach in terms of how we approached those additional quarters.

Jeff mentioned a bit earlier, we certainly recognize the headwinds with regards to inflation, which can impact discretionary spending for consumers potential tightening consumption employment gains start to refer just a number of factors on the headwinds side that really has to be balanced with the potential tailwinds that Jeff mentioned earlier around greater.

Demand in areas like apparel with back to work as well as going out for social events and potential upside an international tourism. So very much a measured view and so the key thing to your point about Q2 Q4 is we also have to consider that the second and third quarter sales are strong last year and that was.

Heavily driven by the recovery and driven by the stimulus packages. So this makes our year over year comparisons in those quarters much more modest as we think about the entire year and the quarterly cadence throughout the year, but I wouldn't be at a rate that we view our quarterly caters to be more consistent with our prepaid nemec levels that will be seen as we've migrated through through.

The pandemic and then the last thing in terms of inventory, we've seen a very healthy level of inventory productivity and 2021, and we expect to have those gains as we look forward in 2022 and beyond the data Sciences, a very key part of that really understanding where demand is by channel and by market being able to better align our.

Inventory to where that demand is using the data science to better forecast not only our sales demand, but also the necessary receipts all the way down to an item level the data sciences, giving us a lot more confidence in our ability to maintain a healthy level of inventory.

Board, including Us would expand expanding into new categories, both with our own categories as well as marketplace categories.

We'll take our next question from Paul measure of Citigroup. Please go ahead. Your line is open.

Hey, Thanks, guys I'm curious do you think about the sales CAGR over the next several years through 24, how are we talking about the breakdown between transactions versus ticket and how will pricing factor into that curious just how you're thinking about how to build on the AUR gains.

From from this year.

So as we think about our sales CAGR for the next several years were very much focused on low single digit growth in terms of the top line. When you look at 2022 on a on a stack looking back to 2019, what you see is that we're up about 112144.

Now when we think about the combination of things that are driving that number one is the importance of having active customers that are shopping more frequently and better expanding their spend not just in the core categories, you've known basis for for a long time, but also new categories that were extending to within our business as well so we do.

Expect as we move forward that Aur's will certainly be a dimension of that but much more modest levels and that will be saw in 2021, but importantly, getting the frequency of customer purchases getting them to extend into new categories, keeping the active customer file increasing those are kind of the key drivers is going to support our.

No single digit growth in the upcoming years.

And a number one.

Next question from all of our time of Colton. Please go ahead. Your line is open.

Hi, Justin Adrian Congrats on a great quarter.

With the digital business near and longer term.

What's the interplay gonna be with margins as you think about the bottom line as well as gross margin and you also mentioned replatforming that sounds like a major opportunity would love your thoughts on some of the key priorities there as well as how you're driving differentiation in the marketplace and as we look.

Beyond augmented reality and rethinking the mall virtually how you're approaching the meadow verse as well. Thank you.

You want to go with repositioning logo marketplace.

Sure.

All of our let me just say with with.