Q1 2022 Destination XL Group Inc Earnings Call

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Good day and thank you for standing by welcome to the Q1 2022 destination XL Group incorporated earnings call. At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.

To ask a question during the session you will need to press star one on your telephone if you require any assistance. Please press star Zero I would now like to turn the conference over to our Speaker today, Kelly <unk>, Vice President of FCC and financial reporting. Please go ahead.

Thank you Tania and good morning, everyone. Thank you for joining us on destination XL group's first quarter fiscal 2022 earnings call on our call today is our president and Chief Executive Officer, Harvey Kanter, and our Chief Financial Officer, Peter Stratton.

During today's call, we will discuss some non-GAAP metrics to provide investors with useful information about our financial performance.

Refer to our earnings release, which was filed this morning and is available on our press relations website at Investor <unk> Dx L. Dot com for an explanation and reconciliation of such measures. Today's discussion also contains certain forward looking statements concerning the company's sales and earnings guidance and the other expectations for fiscal 2022 such forward looking.

<unk> statements are subject to various risks and uncertainties that could cause actual results to differ materially from those assumptions mentioned today due to a variety of factors that affect the company, including but not limited to the crisis in Ukraine supply chain disruption labor availability and disruption from COVID-19 information regarding risks and uncertain.

As detailed in the company's filings with the Securities and Exchange Commission I would now like to turn the call over to our CEO Harvey Kanter Harvey.

Thank you Shelly and good morning, everyone.

I'm thrilled to speak with you today about our first quarter results and the progress, we're making against our goals and objectives. This year.

While our earnings call covered a lot of ground regarding 'twenty to 'twenty two strategic plan today's remarks are purposely briefer.

To provide a higher level update on progress to date as well as a preview of what is to come.

We truly value the engagement both on these calls and with the Investor community and respectfully want to ensure ample time for follow up questions and other further discussions.

If you recall during our last call in March.

Poke about <unk> transitioning from playing defense to playing offense and we have continued the disciplined attack with the business results, thus far exceeding our expectations and topline sales and bottom line earnings.

<unk> Q1 results speak to the growth mindset inaction, we grew at the higher end of our expectations.

And we believe that our message is resonating with consumers all without having to rely on the coupon crutch or discounting.

Our comp sales are strong.

Inventory position is improving our customer file is growing and our markdown rates are declining which in turn means that our margins are improving.

We're messaging once focused on discounting.

She used to be replaced by the <unk> difference with new customers drawn to a combination of fit.

Assortment and an experience that is unique to Dx L and finding that we fit his body. It is life and his style rather than just purely selling at we haven't evolved to engaging with elevating our extensive and often exclusive assortment with an experienced that empowers the big and tall customer to look.

And feel his best.

Big and tall is all we do and we are proud to both be it had to do it our team has an incredible passion for serving the big until community and <unk> is truly honored to be a part of his life.

These messages, including greater levels of size inclusivity and representation along with an amplified focus on fit these messages are resonating with customers and in turn resonating with our financial results.

Shifting gears there are multiple areas I would like to discuss today first our marketing investments and the impact on new customer acquisition and 2022 retention initiatives second updates on our markdown results and brand positioning third product review, including our big and tall Central line.

Our inventory status and category performance and finally update on how we are proactively addressing challenges in our supply chain and in the labor market.

After that I will turn it over to Peter who will take you through the first quarter financial results.

We continue our discussion today, you will hear themes themes that undoubtedly sound familiar from our previous earnings calls and commentary.

Theyre not meant as repetition for repetition sake, but as evidence of consistent aligned in market strategy for our employees, our business prospects and for you our investor base.

Before diving into these topics I want to give the biggest and tullis. Thank you to our employees.

As much as we hope 2022 would be a return to normal. It is clear that we are in the midst of our third abnormal year in a row.

Throughout these challenging times, which include a lean labor market DSL employees display consistent commitment and dedication to him our customer and are a critical part of our mission.

I couldnt be more proud of the passion that each and every employee shows while navigating through daily challenges that at many times can feel overwhelming but never losing sight of who we are and what we do for our customer.

To all our employees in the stores.

Distribution center and the guest engagement center and in the corporate office. Thank you. Thank you for all your hard work to support the initiatives and your continued dedication to him every day every hour now I'd like to turn over.

Now I'd like to talk to marketing investments and our customer count impacts on our last call I mentioned that we were initially planning our annual marketing spend at 6% of sales.

Based on the momentum so far this year and continued opportunities in both new to file customer acquisition and market share we are increasing that marketing investment further to six 2% of sales.

We constantly evaluate our marketing spend levels and optimize our marketing media mix with greater levels of investment in digital marketing channels.

Previously mentioned, we're on offense and operating with a growth mindset, and we'll invest to maximize opportunities to grow share of mind share of hearts and wallets to share of market by driving consumers to discover and engage Dx L.

As we have increased our digital investments. We are also laser focused on measuring the impact and the efficacy of the spending.

To do so we have conducted matched market testing to determine the investment impact not just on <unk> dot com, but our brick and mortar business as well.

Without getting into too much detail that test and control markets revealed measurable impact on the Omnichannel traffic and sales further reinforcing <unk> digital transformation and our investment strategy, while also corroborating our Omnichannel view.

T J execution.

<unk> sales repositioning and opportunistic, but disciplined and I believe the analytically grounded mindset to marketing investments have contributed to positive results across key customer count metrics in Q1.

For example, our overall active zero to 12 month customer counts are the highest they've been since the company has been tracking that metric.

In addition, we are simultaneously driving accelerated new customer acquisitions within both exl's owned retail channels, and participating marketplaces, including Amazon marketplace and target plus.

This combined traction of greater new to file growth across all <unk> Dx sales distribution channels and consumer touch points.

Led to this quarter delivering the single greatest new customer acquisition levels versus any previous Q1 for at least the last five years.

Well the XL new defined momentum is notable we are.

We're also strategically focusing on how we further engage with activate and retain customers. Once they are in our marketing funnel.

To further this and as mentioned in previous Q4 earnings call remarks, we are focused on two key initiatives in 2022.

First is revamping, our loyalty program, which will evolve from a basic cashback strategy and structure to a meaningfully more robust program that rewards engagement base behaviors with EXL, while also ensuring greater recognition and rewards for our most valuable customers.

The second is the launch of a customer data platform or CDP as it is known to enable greater levels of personalization and customer journey optimization.

By consolidating multiple sources of data into one single source of truth, we are focused on unlocking deeper predictive analytics and modeling.

As well as downstream targeting based on a myriad of customer behaviors and data points that go significantly deeper than our current technology architecture allows.

Both the loyalty program relaunch and the CDP are on track and continue to make progress and both will accrete tangible customer and business impact for the second half of the year.

The investments that <unk>, making it Margaret marketing loyalty and customer data are truly telling of our action oriented commitment to growing the business and capitalizing on both current momentum and the immense opportunity yet ahead.

As you've heard me mentioned before <unk> has been on our repositioning journey since my very first day with the company back in 2019.

What are the most significant changes we made to our business model. Since late 2020 has been reduced reliance on promotions and discounting and this has continued in 2022 and is intended to carry on for the foreseeable future.

Through Q1, I'm happy to report that we have nearly eliminated promotional marketing tactics as a driving force in trade sales a drastic departure from the company that consistently featured an offer almost every single day in any email when I came aboard.

To translate these words into tangible numbers, our first quarter margin improved by over 400 basis points versus Q1, 2021, which were driven primarily by fewer markdowns. Furthermore, the percentage of quarter first quarter revenue driven by a coupon or promotion was approximately 50% lower than the <unk>.

First quarter of 2019, essentially singing signaling that our coupons.

<unk> has been cut in half since our last normalized year.

As we have spoken to this a substantial shift away from promotions is opened up significant messaging and engagement opportunities, which is where the three key pillars of the Dx they'll come in.

First fit second assortment third experience you have heard me talk about each pillar before including on this very call I wanted to reference it again here as repetitive proof of our consistent and aligned strategy at EXL.

Stated simply we have unique expertise, creating begins all clothing that fits we offer the largest and often exclusive assortment of brands sizes and price points and we have created an experience rooted in respect for our customer base that often feels underserved by other retailers.

That is the Dx L difference.

Beyond marketing and brand positioning I want to provide you with an update on our big and tall, new big and tall essentials lives.

As a reminder, we exited our wholesale business with Amazon at the start of the year, but we continue to offer a robust line on Amazon's marketplace channel.

Within our current marketplace channels, which include both Amazon and target plus we offer big and tall with sensors by Dx L, which is essentially a lower price point product targeted towards price conscious consumers, but is not available within <unk> only channels.

We do not anticipate cannibalization of our main Dx off a line of business due to the differences in price point value and the distribution channel itself to.

To date, we've seen a strong response within Amazon marketplace, which has emerged as another area for increased digital marketing investment focused on driving more traffic and greater brand awareness within moderate and lower moderate price point offerings.

Similar to new to file and margins <unk> inventory position has also improved although we are still managing supply chain challenges and shortages in specific categories.

The return of events, including weddings and formal occasions as spring has driven significant improvements in the tailored clothing business, which went from 12% of Q1 revenue last year to 18% of revenue Q1 revenue this year.

This growth exceeded expectations with strong growth in particular in suits and dress shirts, including fashion colors and patterns and we are well positioned from an inventory standpoint to capitalize on the upcoming summer events and wedding season.

The sportswear business also showed strong results in both private label and collection brands, while supply chain challenges cause delays in several key designer collections. We are now returning to a fully assorted in majority position leading into father's day.

The strong Q1 sales performance, despite the delayed deliveries bodes well for our second quarter performance.

Within the supply chain. We are also seeing shift in freight expense and trends with multiple contributing factors.

Ocean freight rates have come down from their previous peaks, but still remain at three to four times pre pandemic levels.

In regards to ground and air rates have begun to lower but these decreases are partially offset by rising fuel costs, which we all see consistently at the pump.

Domestically. There is also a severe shortage of both trucks and drivers leading to further disruption for carriers that manifests itself as both delays and capacity issues.

<unk> certain ports, including Shanghai are experiencing significant delays and backlog due to COVID-19 response policies, which cascaded through the industry.

Although we feel that the freight and supply chain situations are gradually improving much volatility still certainly exists.

In recent months one of the most challenging areas to our business has been labor.

We have seen a market shift in labor availability and it added pressure on our ability to recruit and retain qualified workers. For example in our distribution center, we've experienced minor delays in shipping and receiving due to open positions within that area.

The challenge also persists and stores were open position rate is currently at 20% compared to our historical rate of just 10%.

Another unfortunate reality also impacting the store labor is the nationwide uptick in crime intimidation and general unrest, which has prompted us to have security guards presence in select stores in select markets.

The safety of our employees.

Most important to us and we remain committed to absorbing these costs wherever necessary.

Overall, there is an acute battle for talent occurring and we have been proactively respond in all our areas with increased wages spot bonuses and adding more associates to our annual bonus plans.

We are committed to being an employer of choice and taking actions to engage employees.

Talent to help the company continue to progress forward and continue to deliver momentum I will now turn it over to Peter for an update on the financials Peter.

Thank you Harvey and good morning, everyone today I'm going to give you just a little more color around our Q1 financial results and our expectations for the rest of fiscal 2022.

Let's start with sales.

Comparable sales for the first quarter were up 19, 5% over Q1 of last year.

This growth was driven by both our stores, which were up 28% and our direct channel, which was up 16, 7%.

The resurgence of customers returning to stores, which we started to experience last year continued throughout Q1 of 2022 <unk>.

Strong growth in store traffic fueled monthly store comps up 59, 5% in February .

Nine 1% in March and 14, 4% in April .

You may remember that it was around mid March last year. When we first started to see the surge in store sales. So we were especially pleased to see a very respectable growth in March and April on top of last year's strong performance.

We're also pleased by the strength of the direct business even in the face of this surging store traffic.

Direct growth was driven by double digit increases on the website.

Cross channel sales initiated by stores and fulfilled by a direct.

And also our marketplace business.

Direct made up over 30% of our Q1 sales and while store growth this quarter slightly outpaced direct growth in the long run we still expect the penetration of the direct business to increase over time.

I also think it would be helpful to give some direction on what we're seeing with sales regionally throughout the country.

The northeast and northwest both of which underperformed the rest of the country much of last year have finally rebounded and put up some very strong results in Q1.

We believe there is more runway here that will continue to benefit our sales results as we move through this year.

Also the southeast, especially Florida has performed exceptionally well with the strongest growth measured against 2019.

All regions performance in Q1 comp positive compared to both 2021 and 2019.

The next highlight from our Q1 financials because within gross margin.

Our gross margin rate inclusive of occupancy cost was 50% as compared to 45, 6% in the first quarter of last year.

This 440 basis point improvement was a combination of 200 basis points in merchandise margin and 240 basis points in occupancy costs.

Our merchandise margin was a major beneficiary of the brand positioning that Harvey talked about.

Lower markdowns as a result of less coupons and discount offers as well as continued low clearance inventory levels accounted for approximately 240 basis points of margin improvement while the increased cost of freight was worth 240 basis points of margin erosion.

The remaining 200 basis points of improvement was driven by merchandize mix.

We do.

To discontinuation of wholesale which by its nature was lower margin and partially due to a higher penetration of private label sales in our mainline business.

Lastly, the 240 basis point improvement in occupancy costs was due to a combination of the higher sales base and a 900000 dollar reduction in occupancy costs due primarily to closed stores.

Before moving on from margin, it's important to highlight that the gross margin rate improvement. We experienced in Q1 is not indicative of our expectations for the rest of the year our expectation for the full year is that margin rates will decline compared to last year.

By approximately 100 basis points, which is an improvement from what we shared back in March.

There are three reasons for our continued 100 point deficit.

First we are starting to anniversary the low promotion positioning so markdowns will be more flat to last year as we move into Q2.

Second we expect the freed increases to persist all year.

And third we are now in a much better inventory position, particularly with branded collections, which are lower margin than private label I mentioned, the higher penetration of private label sales in Q1, which I think will normalize in Q2 and three with higher sales penetration of collections when we add.

In raw material cost increases some of which we've already offset with price increases our expectation is that margin rates will decline from last year by approximately 100 basis points on a full year basis.

Moving on to selling general and administrative costs or SG&A as a percentage of sales increased to 36, 5% as compared to 33, 3% in the prior year's first quarter.

Of this 320 basis point increase 230 basis points related to the increase in advertising.

Our Q1 AD to sales ratio was five 3% up from just 3% in Q1 of last year and we believe this has generated a strong return on investment.

The remaining increase in SG&A is primarily related to the fact that last year's expense ratio was artificially low you'll.

You'll remember that we had significantly reduced operating costs during the pandemic, which contributed to our low SG&A cost in Q1 of 2021.

Stores for example, we're understaffed last Q1 at a level that was unsustainable and we adjusted for that as business continued to recover in 2021.

<unk> also implemented a $15 minimum wage inclusive of commissions across all stores.

In addition to store payroll our Q1 SG&A reflects corporate payroll increases for merit adjustments filling open roles and performance incentive accruals.

The expense structure in place for Q1 is representative of what we expect to maintain throughout the balance of this year with the exception that we are targeting a full year AD to sales ratio of six 2% for marketing costs are approximately 90 basis points higher than our Q1 spend.

Next let's turn to inventory inventory.

Inventory levels on our balance sheet of $96 9 million are up $8 5 million over last year's first quarter.

This number includes inventory that was in transit on its way to us if we only look at what was on hand and available to sell in our stores and distribution center, we were down about 4% to last year.

However, this was a significant improvement from the 17% deficit we were running just a few months ago.

This represents another potential opportunity for <unk> as we expect a steady flow of fresh merchandise for the balance of 2022 that should keep us at good in stock levels.

With a lot of new product arriving in the first few weeks of May we are now in a better position than we were a year ago.

Our inventory turnover rates, which are now greater than two times are in line with our targets and significantly faster than our historical turnover of approximately one five times.

In addition, our clearance levels at just six 9% of total inventory as compared to 10, 1% last year also very strong.

What standing the ongoing macro level supply chain challenges that everyone is facing we feel very good about our current inventory position and believe we are well positioned to continue to meet our customers' needs, whether he shops with us in stores or online.

Moving on to liquidity, we also feel very good about our cash position at the end of Q1, we had a cash balance of $7 5 million and we remain debt free with.

With the seasonality associated with building spring inventories and payment of prior year incentive accruals Q1 is typically a quarter with a net cash outflow.

This quarter, our free cash flow, which we define as cash flow from operating activities less capital expenditures was a use of $2 $7 million of cash.

That includes a $15 1 million dollar increase in inventories since year end, which was funded primarily by the EBITDA we generated.

We did not need to access our revolving credit facility this quarter, and we had availability of $85 million at the end of Q1 and.

In the event that we needed in the future our facility is in place until October 2026.

During the first quarter, we utilized $4 $8 million of cash to repurchase almost a million shares of our common stock on the open market.

We believe this is a prudent use of cash at our current stock price and we will continue to look for opportunities to repurchase under our previously announced $15 million Board authorization.

I'll close with an update on our financial outlook for fiscal 2022.

We are reaffirming our sales guidance, which is trending toward the high end of the $510 million to $530 million range and we are reaffirming that adjusted EBITDA is expected to be greater than 10%.

Although this has done a very solid performance for us year to date, we are being prudent and conservative not knowing what will become of the multiple risk factors and continued volatility facing all of us today.

I'm going to turn it back over to Harvey for.

For some closing thoughts Harvey.

Actually I'm going to give those closing thoughts because harvey appears to be having some phone difficulty.

So just to.

Closeout as a team we have continued to drive impactful results throughout the first quarter with momentum carrying through the start of Q2.

We have not and will not stray from our defined strategy around the Dx sell difference.

And we will continue to engage the customer on their own terms and new meaningful ways that highlight our unique and owner bolt fit assortment and experience.

In today's macro environment.

Macroeconomic environment, the volatility and the headwinds created are simply a reality of doing business and one that EXL has proactively planning for weather in regards to freight labor inflation.

<unk> resurgence or otherwise.

While we look for continued success and our strategic vision Likewise, no headwinds will persist.

Being said EXL has committed to a growth mindset and continuing to take the company to new Heights, this year and beyond.

And with that operator, we will take any questions.

Certainly ladies and gentlemen, if you do have a question at this time.

Star then one on your Touchtone telephone again, if you do have any questions. Please.

Then one on your Touchtone telephone.

One moment.

And our first question.

Will come from Jeremy Hamblin with Craig Hallum.

Your line is okay.

Thanks, and my congratulations on the really strong results I wanted.

Wanted to delve into.

Two things here as you noted you had your strongest new to file customer growth.

I think at least in the last five years.

I wanted to get a sense of two things first is one how is that tracking.

How does that finish up for Q1, how is it tracking for Q2 I think it was up about 43% at your March update.

And then secondly, I wanted to get a sense for you know theres been a lot of noise out there and definitely some.

Retailers talking about slowing of trends I wanted to get a sense for what you were seeing here in the first six weeks of Q2.

Jeremy.

I'll handle.

I'll handle the first part of the call.

We're actually not going to continue to share that.

Actual percent of growth rates.

We believe it.

Ken.

Senior to communicate material competitive information and so we've tried to characterize kind of the success, we've had with the growth rates, both on an absolute basis as well new to file and hopefully that characterization. In addition to the actual sales results gives you enough of a sense of where we're tracking in our our continued view that the new file growth rate.

As a proxy for a share of market.

Got it.

In the quarter to date trends.

Our quarter to de content trend continues with respect to the overall new file we actually hit a new milestone in the absolute size of the current year to 12 month file.

So we feel really good about where we are.

And how about on your sales trends in general.

Based on our checks it appears as though you've actually continued to see very strong results.

On a year over year and relative to 2019, if you prefer.

Any color you can share on that.

Our initial May result, with May almost at this point done is in line relatively speaking with the quarter and.

We'd leave it go with that but relatively in line with our Q1 performance.

Got it and then I wanted to you've got a couple of important.

Important things coming up here father's day.

<unk> is a key event I wanted to understand with the increased investment.

In marketing.

Are there is there anything different that you're looking to change and how your marketing around that particular.

Vent.

And then I also wanted to get a sense of the impact that you're seeing you have some new.

Exclusive brand deals it sounds like your exclusive brands.

Brands and in particular, I think it sounds like private label is doing well, but any additional color that you could share on that would be great. Thank you, yes on over an overall marketing we continue to literally lead into what we've spoken about which is lead with the brand positioning lead with the fifth lead with the gifting capabilities.

<unk> of the company to support her in buying for him as well as the unique way, we engage which is a unique product and unique fit obviously the experience and it's really nothing different we continue to test our level of promotion at a very select a level and we continue to believe and see that there is not an elasticity.

With respect to driving incremental traffic and incremental profitability on that test, but we continue to try to evaluate ways to engage consumers. We're much more excited about the upcoming loyalty launch and the way will create superior value through a whole multitude of new rounds of loyalty.

Partnerships in terms of why they engage with us and reward points, which will ultimately drive them back into the store or online to make additional purchases using reward points, which is actually now a currency. So we feel really good about the way we're engaging in terms of the new brands.

Not exactly sure what Youre alluding to the fact of the matter is we have launched the big and tall essentials on two marketplaces. That's really the newest brand launch we continue to look for new to market curation in our merchandising strategy of new brands, but nothing has been announced yet so youll see nothing materially new in the next quarter.

Yes.

Let me clarify and ask maybe a little more specifically so <unk> essentials, just an understanding that right. You've ended the prior wholesale relationship that at one point was contributing over $10 million to annual sales I wanted to understand in terms of expectations of what you think the XL.

Essentials could contribute to results. This year is it in that same range $10 million or maybe slightly better.

Just wanted to get a sense of potential magnitude of that business yet.

Where it is today and where you think it could be maybe in a couple of years.

Yes. It is.

Great question I want to make sure you are clear and we do.

Don't confuse anyone our business with Amazon and the revenue that we had historically talked about was wholesale revenue. So it was basically that the costs, we were selling into them at and they were taking them to market on that so it's a materially different conversation because the business. We're talking about today is one where we own the product and we.

We are retailing it and so it's your $10 million characterization, we were nearing what nearly 20 minutes million at wholesale with Amazon and those were the numbers that we were talking about historically in the peak and that number but that would be converted for Amazon and so it's a very different number.

The short story is for us our big and tall Essentials line is a growing business and I think your characterization of $10 million at retail on an annual basis and 12 months is in the realm of reality, but it's a growing business, which look and we will continue to look at ways to accelerate it and it could be at some point down the road far greater than that but I think today, that's a fair characterization.

Yeah.

Great and that in that.

The.

That'll be pulled into your direct sales correct on a go forward yes.

That would be on a 12 month annualized business and remember, we only launched that business really in a meaningful way in let's say February .

Starting to get on the website in December and January but it really wasn't launched until February and the full assortment line will continue to grow as we enter into fall.

Great. Thanks for taking my questions and best wishes.

Thanks, so much.

Yes.

Yeah.

And our next question comes from Raffi.

R Y S advisors. Your line is open Sir.

Hey, Harvey the execution continues to be just just awesome.

I'd love to hear and certainly your comments about kind of <unk>.

Proving the full price selling or certainly great to here could you maybe talk about what actions you've taken to date or what actions you're taking in the future that are really driving that and kind of where let's say personalization kicked in.

Yeah, it's it's.

Great question.

Well, unfortunately potentially be somewhat repetitive in that it is very consistent what we've really talked about since I arrived and we talked about our mission our vision. Our strategy. We believe that price is really about value and it's not the historical how low can you go and we believe and know that we have a proprietary.

Fit that is unique and it's not a.

For lack of a better with a greatly to up fit where very often you get an XL that just becomes larger and it becomes larger on every part of the clothing that he wears and so our unique fit as a way to really lean into why <unk> is different.

And then the merchant team has just done a yeoman's job it really green market exclusive products that you just can't get anywhere else.

As the market recognizes the success, we have in engaging him and the way, we're positioning which is not around price, but around the value of the product, creating aspiration for how he looks feels in his competence to Golar Robbins daily life.

<unk> continued to want to sell us and we're having increasing conversations with brands that are looking to create greater levels of inclusivity in their brand with.

Basically the male customer that is big and tall and then obviously the DSL difference the experience that we talk about so often one of value and respect for him. So he can feel confident and empowered and trusting in the relationship he has with us and the sales associates, whether it's Bob or Mike or Sue whoever in the store he interacts with <unk>.

He has a relationship with them and it's not a transaction, but it is a powerful experience and that ultimately creates a sense of community and belonging and if we do all of those things successfully we believe that what we're really creating is an experience that just can't have anywhere else and it allows him to go about his daily life like every every other what I would call average sized mailing.

America. They can go shop anywhere he wants.

That experience, whereas it's a much underserved community that we're actually interacting with our big and tall consumer.

Totally totally makes sense and on a different note.

Could you could you frame up your capex needs over the next few years and kind of what the major buckets are.

Sure. So I'll take that one so this year, we're expecting that our capex is going to be somewhere in the $10 million to $12 million range and that's primarily due to.

Infrastructure improvement projects that we have going on beef.

Beyond that as we get into the next few years, we are looking very carefully at what our store footprint is going to look like and we are definitely expecting to be opening more stores, which will increase our capex to some degree I don't think we're ready to put a number on that yet but over the next three.

Three to five years, we think that we could be opening upwards of 50 stores.

But I think as that strategy continues to come together, we'll speak more about that in future quarters got.

Got it thanks guys.

Thank you.

Yes.

And this is your operator, ladies and gentlemen, if you do have any additional questions. Please press Star then one again. Please press Star then one.

Yeah.

Operator, it sounds like there is no new questions and we would like to just thank everyone for their interest today and we look forward to gathering with everyone again at the 90 days period out and wish you all the safest in the happiest of memorial days in the summer season.

Ladies and gentlemen that concludes today's conference. Thank you for your participation and have a wonderful day.

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