Q2 2022 Superior Group of Companies Inc Earnings Call
Good afternoon, everyone welcome to superior group of companies second quarter 2022 conference call with US today are Michael Benstock, The company's Chief Executive Officer, and Mike Campbell, Chief Financial Officer. As a reminder, this call is being recorded this.
Conference call May contain forward looking statements regarding the company's plans initiatives and strategies.
Anticipating financial performance of the company, including but not limited to sales and revenue such statements are based upon management's current expectations projections estimates and assumptions such as well expect believe anticipate big outlook hope and variations of such words and similar expressions.
<unk> identify such forward looking statements.
Looking statements involve known and unknown risks and uncertainties that may cause future results to differ materially from those suggested by forward looking statements.
Such risks and uncertainties include but are not limited to the following.
The effect of COVID-19 crisis on the U S and global markets our business.
Operation customers suppliers and employees general economic conditions in the areas of the United States in which the company's customers are located changes in the markets, where you're uniforms are one where promotional products are sold.
But our call center services are used the IND.
Act of competition and the company's ability to successfully integrate operations following <unk>.
Confirmation of acquisitions, and the availability of manufacturing materials as well as the risks and uncertainties disclosed in the Companys periodic filings with the Securities and Exchange Commission, including but not limited to the company's annual report on Form 10-K for the year ended December 31, 2021 and.
Our quarterly reports on Form 10-Q.
Shareholders potential investors and other readers are urged to consider these factors.
Carefully in evaluating the forward looking statements made herein and are cautioned not to place undue reliance on such forward looking statements.
The company does not undertake.
To update the forward looking statements contained herein, except as required by law with that I'd like to turn the call over to Mr. Burns dog.
Thank you operator, good afternoon, everyone and welcome to our second quarter 2022 earnings call.
This afternoon, I will share Stc's performance highlights and touch on the current operational and macro environment. After that Mike will provide our financial update for the Q&A session. We will be joined by Chief strategy Officer, Bill Crusade, Andy Demott, our CFO , Jake Himmelstein President of our branded products segment as well.
As Katherine Buildout of Donlin, the new president of our healthcare apparel segment.
The peer group of companies continues to perform well despite the slowing economy inflation rising interest rates excessive supply chain and logistical costs and challenges are.
Across our core businesses, just as others are experiencing we are seeing a more challenging operating environment.
She has a long operating history, and we have shown resilience through various economic cycles due to our ability to provide innovative products valued by our customers, our broad product and geographical market reach and a strong focus on improving market share and profitability.
During the second quarter as part of our long term focus on future success. The company began the transition of key leadership positions as previously communicated with the addition of Katherine Buildout Donlin President of healthcare apparel, and Mike Campbell, Our Chief Financial Officer, the transitions have been seamless with the support of Peter Benstock.
Serving as healthcare apparel advisor and Andy Demott, former Chief Financial Officer, continuing to serve as Chief operating officer until both of their retirements. We also added management expertise in supply chain and distribution to support future retirements and our long term growth objectives.
This strategic review of our businesses and the current alignment of our business segments will enable us to better optimize the efficiency of our resources, we've positioned S. G C and a more focused manner, thereby creating more effective framework to serve our customers increase our revenues and maximize shareholder value. After a thorough review we.
Reorganized the business, along three business segments healthcare apparel branded products and contact centers.
Notably we have invested in our technology across all of our businesses are state of the art robotic system at our Eudora, Arkansas distribution facility is already showing a return on investment in the form of lower operating costs and quicker order fulfillment our unified backend for all of our customer facing websites is now in place for all of our uniforms customers, creating better.
Future efficiency and implementing technology enhancements.
A couple of examples that demonstrate the opportunities present technology led savings across our organization.
Turning to our results second quarter consolidated revenues grew 13% to $147 $9 million versus the second quarter of 2021, while our gross margin declined during the quarter due to higher cost of goods sold.
We also reported higher SG&A costs, primarily due to higher employee costs related to headcount and sales commissions, along the ryzen depreciation and amortization.
Due to the noncash impairment charges, we had a net loss in the quarter. These results certainly fell short of our expectations, but are not reflective of stc's true long term potential let's take a closer look at the quarterly results for each of our businesses.
Starting with our healthcare apparel segment, our sales were $26 $3 million or 30% versus the prior year quarter.
Beyond the carryover effect of accelerated purchases, resulting customer stockpiling inventories and PPE during COVID-19, and the deteriorating economy, our customers have taken a more cautious approach towards ordering seeing a reduced need for inventory replenishment and we have experienced a slowdown in order flow as a result, we therefore.
Optum for the prudent approach of marking to market the value of our inventory and our right sizing our segments as well as greatly increasing our sales and marketing initiatives to mitigate the impact of the current conditions.
We expect that this change in demand will be temporary but the timing of the turnaround is difficult to predict for now.
We are aggressively enhancing our omnichannel approach to sales and marketing through the addition of new and experienced leadership as well as technology for the healthcare apparel segment additional sales initiatives will better position. This segment to broaden its market access and as economic headwinds dissipate, we anticipate our revenue growth will turn towards historic levels.
Currently we are focused on creating a leaner more efficient business by identifying areas to save operating expenses in order to improve margins.
Our branded products Division grew 29% over prior year as we generated record second quarter revenue of $102 million and a gross profit of $29 $1 million or SG&A expense was up as we increased our investment in this business to support future growth, including expansion of our sales force the segment.
Had an operating loss of $4 $7 million, primarily the result of one time charges related to goodwill and trade name impairments P. P related inventory write downs as well as higher amortization expenses related to past acquisitions.
From an operating perspective.
Global supply chain for branded products continues to be a challenge while many in person events and conferences have returned higher interest rates and recession concerns have led many companies to pause or reduce their marketing spend until there's more clarity with respect to the future. We have seen this manifest itself in reduced bookings by existing customers and recent.
<unk>, which we expect to impact our revenues for the remainder of the year.
Acquisition Wise, we acquired Guardian products during the quarter Guardian represents a continuation of our external growth strategy and aligns well with our acquisition of Sutter is mill last year.
Guardian and southern Mills serve similar end markets. We have already started to see the benefits of leveraging in house decoration and production capabilities et cetera mill to better serve guardians expanding client base. It is important to know that we have recently completed most of the integration of H B I N. Banco the integration of sales and marketing in particular completed last year.
<unk> has already resulted in a robust pipeline of more RFP opportunities given the time it takes to close branded uniform opportunities deliver products. Within this segment, we would not expect to see revenues associated with these efforts until the middle of 2023.
Our third segment contact centers known as the office Gurus is recognized as a leader in providing near shore customer contact management to smaller and midsized companies many of whom have not previously outsource. These services our contact centers offer customized outsource services and the technology offering that provides seamless.
Presentation's of a client's organization at a more favorable cost versus in house solutions is it is an attractive business with very strong growth rates are significant total addressable market and very attractive margins. During the second quarter. We added 486 billable agents 74% of them.
From existing customers.
We had originally anticipated, adding 600 billable agents for all of 2022, but have already put in place over 850 during the first half of the year.
Reflection that demand for our near shore value proposition continues to be at all time highs, we on boarded multiple new clients as well during the quarter that we believe will result in significant revenue growth over the balance of this year and next.
Our contact center segment recorded revenues of $21 5 million in the second quarter up almost 40% year over year. Our gross margin of 59, 5% reflects the attractiveness of this business and we are laser focused on adding to our portfolio of customers. We're excited about adding another contact center facility to the successful bid.
This model in Q3.
Can Republicans.
We understand we have a lot of work ahead of us, but believed many of the initiatives. We've put in place will enable us to enhance our results as we move ahead.
And the economic challenges begin to abate with that I'll turn the call over to Mike to take us through the financial highlights.
You, Michael and good afternoon, everyone turning to the financial highlights of the second quarter as she see reported consolidated revenues of $147 $9 million versus $138 million during the second quarter of 2021, an increase of 13%.
Our gross margin was 32, 5% for the quarter compared to 36, 1% in the second quarter of 2021 the.
The gross margin reduction was primarily driven by a $4 $5 million and inventory write downs on excess inventory related to personal protective equipment and discontinued styles.
Gross margin also continued to be impacted by higher logistics cost.
SG&A expenses as a percent of sales were 31, 1% for the quarter compared to 25, 9% for the second quarter of 2021, the increase as a percent of sales was due to expense deleverage, resulting from the 30% decrease in healthcare apparel sales. In addition, we.
We had higher expenses associated with additional head count to support growth in our branded products and contact centers segment, depreciation and amortization executive hiring and related transition costs and investment losses related to our supplemental retirement plan.
The net loss was $26 $7 million or $1.70 per diluted share compared to net income of $6 $4 million or <unk> 40 per diluted share for the second quarter of 2021.
In the second quarter of 2022, the company recognized a pretax noncash impairment charges related to goodwill of $24.5 million or $23 $6 million net of tax or $1 50 per diluted share and.
And trade names of $5 $6 million or $4 $4 million net of tax or 28 cents per diluted share.
In the second quarter of 2021, the company recognized a pre tax noncash settlement charge related to the termination of its defined benefit pension plan of $6 $9 million or $4 $5 million net of tax or 28 cents per diluted share.
On an adjusted basis, which excludes the above charges in 2022, and 2021 second quarter net income was $1 $3 million or <unk> <unk> per diluted share compared to net income of $10 $9 million or <unk> 68 per diluted share for the second quarter.
<unk> of 2021.
As it relates to the trade name impairment in the second quarter. The company began an effort to centralize certain branding and go to market strategies under the Bam co brand and determined that it would no longer use certain trade names associated with promotional products. The company's rebranding efforts resulted in the app.
Aforementioned impairment of trade names related to its branded products.
We view centralized branding as a very positive development for our branded products segment as it removes any confusion surrounding the various brand names in the market and Centralizes all efforts under Banco which is one of the strongest and most recognizable names in the industry.
<unk> remains well capitalized and continues to operate effectively across all of its markets.
S. G. C has shown its resilience by managing through challenging times with a continued emphasis on profitable growth opportunities by focusing on improving operational and financial efficiencies.
In terms of the balance sheet and cash flow cash and cash equivalents as of June 32022 were $10 $3 million.
Consistent with prior quarters operating cash flow continues to be negatively impacted by elevated inventories.
Over the last two quarters, we have reduced our buying levels and based on product lead times, we expect inventories to decline later this year with a goal of returning to normalized levels of inventory and improve turns in 2023.
Lowering inventory, which is our largest asset will drive significant improvement in working capital over time.
While our leverage ratio of three three times trailing 12 months EBITDA is slightly elevated it remains well below our covenant limit and will also improve based on our working capital efforts.
Following a significant investment in warehouse automation last year, we are targeting a lower level of capital expenditures this year less than 2% of sales and we will continue to carefully scrutinize our investments for the balance of the year.
S. G C remains committed to returning capital to our shareholders and announced a dividend of <unk> 14 per share during the quarter, a 17% increase from last year.
In addition to our focus on driving working capital improvements. The management team also evaluated our organizational structure and identify opportunities to improve operating efficiencies as well as our service to our customers. We expect these opportunities to achieve at least $8 million of annualized cost savings.
While still maintaining our focus on consistent sales growth.
Lastly in terms of guidance based on the current economic environment, our expectation is to achieve sales of $575 million to $590 million for 2022.
With that I would like to ask the operator to open the line for questions.
Yes.
Thank you.
We'll now begin the question and answer session.
To ask a question you May Press Star then one on your Touchtone phone.
If youre using a speakerphone please pick up your handset before pressing the keys.
Do you withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Our first question comes from Kevin Spanky with Barrick and can research. Please go ahead.
Hey, good afternoon, everyone and Mike welcome and welcome to the call.
Hi.
Wanted to start off by asking about.
You mentioned, a robust pipeline for H P. I know obviously given.
Lead times, probably not transplanting revenue until mid 2023.
So so that indicates to me that you know your competitive position.
And sales pipeline is still strong.
Despite what sounds like a near term.
The slowdown in.
Ordering patterns and you know buying pattern. So I just kind of wanted to see if you could talk a little bit more about those two you know somewhat competing dying.
Dynamics and how you're continuing to think about your long term outlook.
Yeah, Hey, Kevin This is jae Kim will sign I'll I'll take that one.
Yeah, I mean look the combination of Banco in H P I, which we did in the sales and marketing are last.
Last year has really resulted in some really robust pipeline, we've talked about it in the last couple of calls and we're really excited about where we are right now and I think the economy, where it is and sort of some of that pullback you referred to actually helps us in this regard right.
When times are tough procurement goes out and tries to look for new vendors trying to save cost tries to bring in.
<unk> partners and the offerings that we can provide now that H P. I N Bancorp together.
Nobody in the marketplace can touch them.
And you're right. It will take some time to see the revenue on these come through given.
Given the size of the opportunity is and how long they take to pull through the revenue. But this is this is quite literally the most robust pipeline that we've ever seen right we have.
Now combined group of sales reps that are going after a branded merchandise and Brendan uniforms, largely the same buyers at our clients and so it just makes sense.
To to to go after them together and that's resulting in a pipeline that we've never seen before so yes, you're right that the short term pain of the economy. Certainly has had an impact but the result is that our pipeline is great and we're really excited about where that's going on.
Well to get us to an end in the coming in the coming quarters.
Okay. Thanks, that's helpful and.
Related to that you mentioned.
Investing in your sales force and the bread branded products segments.
You know kind of a short term impact on margins, but.
Also an indication I guess of your.
Positive long term outlook in that business. So you know maybe you talk about that you know your efforts to hire more on the sales side and.
You know if you expect that to continue in the coming quarters here.
Yeah. So so in the branded products segment, there Theres 100000 sales reps in the U S. In this industry. So it is full of sales reps many of which are commission only sales reps as our competitors struggle in the current operating environment, we're really appealing landing spot for for sales reps and for clients.
We go through a really painstaking process of evaluating candidates to make sure that the right fit for us.
For us and won't take ones that are the right fit for us.
For Banco and can immediately start generating revenue, but you know what we see in tough times that our competition will tend to cut back on things like technology, our operational personnel and we're investing in that right. We talked about that last couple of quarters. They want we've invested in things like technology.
And in our in our warehouses that makes us a really really appealing landing spots and gives us a really.
Really pick of the litter in terms of who we want to come onboard and sell for US which is really advantageous for us.
Oh, well, Michael Hi, Kevin.
During COVID-19 when most of our competition started going up and going into fetal.
The position, we were able to add I think it was 20, some odd sales people almost like a 40% increase in the number of salespeople, we had selling our products and you saw the robust growth that happened to Banco as a result of doing so.
And we're looking at it exactly the same way, we need to be very very aggressive.
Adding people.
No.
First half of the year.
We did add people.
Not as many as we did it in 2020 and 2021, but we're back to being in a very very aggressive mode.
And we think this is the time that you know.
We want to take more market share, we want to be able to bid on more opportunities. We're a bigger company, we can handle even larger opportunities than perhaps we've ever handled before.
And we can do it better than anybody so I.
I would tell you that Banco is highly regarded by our competitors sales forces.
Hi.
Many of them would give anything that you can be considered by Banco for.
Our employment and we're going to we're going to capitalize on that over the over the coming quarters.
Okay great.
Yeah and also within branded products you know obviously combined now.
In terms of HPA and Banco.
Are you seeing.
A similar slowdown in.
I guess what used to be.
Those two separate.
Segments, you know in terms of promotional products are branded promotional products and branded uniforms is.
The slowdown kind of universal across.
Across the product line in terms of ordering patterns.
I think it does depend on the sector and it depends on the type of company right.
Retail still buying at the pace. It was before certainly look at the airline customers and they can't get employees quickly enough and the turnover that theyre, having certainly puts more people in uniforms every day.
But it depends on sector right you know high growth type companies that may have been spending a lot on at home gifting, maybe they cut back this year, but other companies large tech companies that are our steadier that are really fighting for talent they want to use money to try to attract and retain employees and new.
And so we're doing still a lot of programs around that that really took off starting in 2020, where people were sending gifts to people's homes, not just customers not just employees, but customers as well and we're seeing more of those programs than we've ever seen that that continues to take off.
Oh. We're also we're also hearing that television advertising and other means of advertising is not quite as successful as it once was.
And so everybody is looking for a new way to gain customer and employee loyalty.
And we saw that during Covid and we.
We will see that again.
And I guess, it's a it's a bit of a complete at this point that we're going into some kind of recession, we're not already in one.
But we.
We manage through every recession to grow market share.
And we will do so at this time as well.
That's our belief.
Okay.
Stuart.
I guess switching to the healthcare new healthcare apparel segment.
Obviously as you mentioned there was the.
Covid related headwind from the elevated buying last year.
You also talked about a slowdown in order flow in.
Less inventory build by customers should we think about that.
In.
And kind of bolt on the CIB and the fashion seal.
Healthcare portions of that segment.
Well I'll give you a short answer I'll, let Katherine chime in.
Hi.
Seeing as Catherine has been with US just a little bit over 60 days now but.
Yes, I think that's a correct assessment that the stockpiles of inventory that the laundries head or still not worked out it takes a little bit longer for them to work out the stockpiles that nurses having their closets.
As a result of spending so much discretionary money during COVID-19 as they were working very hard very long hours, we didn't spend a lot of other places to spend it accept them themselves and uniforms.
The window over time, as well, but it's going to take some time.
<unk>.
But I still think and I've said it before on these calls that one of the greatest opportunities for us is within the healthcare business and I'll, let Catherine speak about.
Our omnichannel.
The channel strategies, and obviously you know she's an expert she comes from a background of having served all channels.
In retail and wholesale and so on in detail.
Why don't you jump in and say Hello to our shareholders or it sounds good thanks, Michael Hi, Kevin lots to Michelle.
And the same thing I wanted to call out is.
How excited I am to be here and what I believe is.
Just explosive opportunity when we think about our future and the healthcare professional in a growing environment.
But today, we are faced in the consumer space with some economic headwinds and not that healthcare professionals dollars aren't being called out as well.
And so all the demand stabilizes both from the consumer and with our retail partners. We are really focused on.
Bringing to market innovative consumer white product.
The healthcare professional in how we bring that out we're really going to focus on that.
Marketplace management, and really meeting the consumer where they're at and now to Michael's point is very much a omni channel shift for us really focus on.
How the brand and our product shows up across the digital ethos.
Okay. Yeah. Thank you for that commentary that was helpful. On it yeah I should add my.
Welcome to you as well Kathryn.
So.
As we think about you know the.
Gross margin you mentioned the.
Inventory write downs.
Is that largely largely related to PPE.
You mentioned I think some other.
Uh huh.
Products, but I just wanted to see if you could break that down a little bit more.
Sure Kevin Hi, This is Mike it's nice to meet you on the phone for the first time and so to answer your question yes.
Yes, I would say.
About two thirds.
Of what we recorded for the quarter was <unk>.
P E related as opposed to discontinued styles.
Yeah.
Okay.
Okay, Thanks for that and.
And when we you know I guess, when we also think about cost and gross margin.
In the quarter.
You had talked last quarter about.
Implementing price increases that you.
You saw it would pretty.
Pretty much offset.
The inflationary headwinds you're seeing at that time.
You think that was largely in the case in the quarter that you were able to offset.
Inflation or do you see the need to.
Radius raised pricing further.
Yes.
Maybe I'll start and then I don't know if J curve Catherine when I talk about the pricing, but I would say by and large cabinet for the quarter I think I think the price changes that we've been able to implement with not a lot of resistance I don't believe have been able to largely offset I mean, we're still seeing some increased.
Cost obviously as it relates to some of the freight and logistics, but I'd say by and large we've been able to mostly offset that pressure with some price changes.
Okay, Great and then.
I wanted to ask too about.
Yeah.
Selling and admin as an administrative expense line.
Yes costs up there sequentially and you again talked about continuing to invest in.
The management team.
But in infrastructure.
Build an organization for the longer term.
Should we.
Think about those expenses leveling out here of the hiring leveling out.
And I'm, just trying to get a sense are there.
As to how you think about that.
Expense line and run rate going forward.
This is Michael I'll take a stab at that anybody else can jump in but the largest of those have been done.
And as we've said.
But in some cases Catherine's case, you know Peter is still on the payroll until.
Till we determined a likely first quarter, Andy as well sometime between now and then.
When when they're through transitioning.
They'll move up as well as the others that.
As we mentioned in the earlier script.
Hi.
There still will be some additions.
But I wouldn't say, it's quite leveled off yet, but the offsets.
It will be substantial.
We spoke about.
$8 million of savings on an annualized basis.
Some of those have already been implemented.
Mike Correct me, if I'm wrong I think the impact of this year will be somewhere in the neighborhood of about 20% is what you calculated.
Yeah, Yeah, Yeah, that's about right and that could be offset to some degree by by some one time costs as we execute that but I think thats the case and it obviously will be in position definitely by the end of the year to have the annualized savings locked in for 2023.
Okay understood understood. So good.
Good about 20% of those $8 million of cost savings.
Yeah.
Benefiting 2022 and then.
Annualize that into next year.
Correct correct, yes.
Okay.
I guess, just lastly for me here well, maybe a couple more actually.
You mentioned that you expect.
Just you know your inventory your investments in inventory that maybe.
Level off or.
Not to be as much of a drag going forward does that indicate.
You've seen.
Some easing of supply chain pressures.
It's not related necessarily to supply Brent, yes, we definitely have seen the easing of quite great.
Supply chain pressures, but not the cost of the <unk>.
Fly chain, while there have been some reductions and some of the logistical cost Kevin we were paying at the height of.
The supply chain logistical problems.
Not not very long ago, actually we're paying $30000 to get a container out of China.
And that's.
That's considerably less today.
Nearly half.
But it's still.
Two five times, what it was pre pandemic.
But the supply chain, we've compensated we we we began compensating.
Over a year ago.
For the supply chain disruptions that we're so I mean, one of the reasons why our inventories a little bit bloated because.
We moved early on and we didn't expect this.
We didn't know when the supply chain would repair itself. It hasnt completely repaired itself, but our planning has.
Repair or at least mitigate some of the impact in some of the things that we expect it to take longer time came in sooner than we expected.
So we're sitting with bloated inventories we should.
We're about at the peak now.
And we should see a continuation of reduction now.
Our inventory is going well into next year.
And Mike I know, it's probably a better timetable than I have on that.
At hand, Yeah, Yeah, I would say Kevin Yeah, we should and I think we've said this before I think as we reduced buying levels earlier this year.
Our lead times will start to see some step down in inventory later this year more significantly next year I think to your question I think well always when I continue to be mindful of potential supply chain risk. We certainly don't want to go ditch to ditch so to speak.
So we'll be mindful, obviously about the inventory reductions, but we definitely feel like we have opportunity to improve turns and still protect the business.
Protect sales going forward.
Alright, that's helpful understood and then.
Just lastly on that $575 million to $590 million revenue outlook for 2022.
I don't know if you'd be willing to provide any.
Just color around you know segment outlook, and how segment outlooks and how that builds into that.
<unk> outlook for the year.
Yeah, I mean, I would say.
I would say Kevin.
The range I think the range implies that I think will continue to see some of the trends that we've experienced so far this year there is.
Obviously opportunities in a contact contact centers segment.
I think for us the healthcare as you know first and second quarters has been challenging.
So I think yeah that the healthcare segment I think plays more into driving that range from a from a low end to high end, depending upon how quickly we might see that return. So I'd say those are a couple of the drivers if you will in the range and how we develop that.
Alright, well thanks for all the insight.
Insight and thanks for taking my questions. That's all I had for now.
Thank you Kevin.
Our next question comes from Tim Moore with yet.
Eitan. Please go ahead.
Thank you, it's nice to see the three legs of the stool.
To get the more granularity on the healthcare and the omni channel penetration that Katherine was talking about.
I also found the new presentation quota social responsibility slide with <unk>.
Screening suppliers.
Just going to jump into my questions a lot of them.
I have been answered already but I was just wondering.
For your prior four year growth targets.
Do you intend to maybe sure.
The growth rates for the new segments sometime later in mid 2023 when the.
Inventories normalize I noticed $1 billion goal now that I mentioned just in the coming years.
The $1 billion goal.
What has not changed.
We will be recasting, our guidance with respect to the segments in a in a later quarter, we were not prepared to do it right now.
It's why we gave guidance for the year, instead, which is something Tim.
We don't usually do but we might continue.
Continue doing well in the future, we're going to be as transparent as possible, but the combination of.
H B.
And and.
Banco Boy is going to lead to some wonderful opportunities in the future and I can tell you we've already closed some of those opportunities.
And we were finalists on quite a few as well so.
I think we'd be best off are recasting when we have more clarity around it but we feel very confident at least to me and the total number that we've provided.
Great. That's helpful. And then that's kind of what it is.
Expected when I when I saw the coming year's mentioned.
Slide It now mentioned 400 basis points.
Margin improvement.
Is that based off of 2021 or is it kind of based off of maybe what 2022 will be.
Yeah, that's what I would say.
Tim you're talking about on the on the basis point improvement in operating results.
Yes, 400 basis points mentioned on the phone it would be based largely off a 2022.
Okay, no that makes sense.
What I thought it was.
And.
I just wanted to do a follow up question.
On the gross margin.
Things going on there for the contraction in the they all make sense.
And I was wondering if you had any kind of estimate of.
How long it might take to get.
The higher logistics cost to be more neutral what impact is that more of a.
Early 2020 story when its more of something like $8 million of cost savings start to kick in.
Yes, I mean, I think we will obviously start to lap some of the the increases that we've been feeling.
I think that.
We're planning I think fairly conservatively, obviously, we it's.
It's difficult to predict what's going to happen with logistics costs I can tell you that we've seen variability and some of those costs just in the last six months.
Obviously, all up versus pre pandemic, but still somewhat volatile so.
I think Tim we're still expecting to see some pressure going forward.
And trying to manage that as best we can but at this point again still anticipate it will continue to see some pressure through the supply chain.
Yes.
Yes.
Yeah I'll jump in.
We recently spent time in Vietnam.
Visited with the with the Port there and with one of the largest carriers there.
Who we contract with to move most of our merchandise out of Vietnam and other places.
And then they felt there was going to be a little bit of a softening of the market towards year end that would have that would begin to affect us on the inventory. We received in second quarter next year and inventory that we would sell in third and fourth quarter next year.
And later so I.
I don't think we're going to see any immediacy.
Two an improvement a drastic improvement in gross margin.
Except that we don't expect to have the extent of write offs.
That we had related to COVID-19.
In this quarter.
And that certainly will go a long way towards helping margin.
That's helpful. Michael Yeah. It was kind of wondering you know you mentioned that you were.
Maybe earlier this year it was probably maybe your first time back to that time.
But it started did you pick up any on any other trends or any other takeaways that was interesting, but anything else going on over there how they're adapting the last two years.
I was just happy I didn't pick up COVID-19.
But.
I do see a softening in the market at least factories because retailers have been canceling my member left and right.
That there is a lot of open capacity, which there hasn't been for a long time.
And.
The more open capacity the more ability we have to negotiate better on.
On on garment production on the actual sewing cutting and sewing of our apartments.
But we're hearing the same thing from the Chinese mills as well because of all of those cancellations, obviously <unk> all the way to the textile mills, we also have.
The textile industry in Vietnam has.
Matured somewhat since before Covid.
There've been a lot of investments in textiles, there, we're actually sending a team there in September .
To look at all the various textile opportunities are there because we can.
If we can manufacture products in Vietnam from fabrics made in Vietnam, we can cut significant.
<unk> frames out of our lead times, and obviously that will result.
And.
More cash in our pocket.
From our standpoint, we will be getting goods in sooner and be making deposits later and so on.
So it all bodes well I think we're in very very good stead.
From the standpoint of the you know our supplier relationships and we have a lot of new suppliers.
Who are begging us to give them work at this point.
Which creates a nice competitive environment for us.
That's great color to here.
Perfect that you were over there recently to get that.
The Reed.
A clarification so for the $8 million in cost savings does that include I don't know if I calculated this correctly about $2 4 million from the robotics warehouse or is that.
So that was a manual.
That's correct. It does include that.
Okay. That's helpful and I know this was alluded to earlier by Mike.
I'm just trying to wrap my head maybe around the world.
Capital.
Benefit timing is it can be fourth quarter loaded or does it really into the first quarter of next year in 2023, when you see some of the.
The help from the inventory unwinding on the healthcare apparel side.
Yeah, I would say, Tim I mean, we're going to push hard.
Yes to realize as much as we can later this year, but I think I would anticipate that well see a bigger impact in 2023.
Okay.
Okay.
Understood.
Just what are you kind of looking at out there for kind of.
Replenishment signs and how do you track it for now at least on the retail fashion healthcare apparel side.
And what do you what are you doing on that front really read that and make sure. It's not you know it's.
Who knows I mean, it could get passed.
Yes, I don't know, but I'm just kind of curious.
It's a good question Catherine <unk>.
Respond on the on the retail side for sure its Kevin why don't you jump in there.
Yeah sure so.
We spent quite a bit of time really focused on.
Not only am I understanding, but analyzing for future demand R. P O S data.
And how we use that to inform our go forward strategies, so being a very heavy replenishment business. That's critical for us to really make sure that we are able to use that data from us.
We're clear on what the consumer is responding to them and making sure that we are right sizing our own inventory levels as demand stabilizes in the marketplace.
Complementing Catherine she has taken that to a whole new level from an analytics standpoint, but also from a relationship standpoint, with our retailers and gaining their trust to be able to share a lot more data than they ever have with us.
We can give more clarity around that and respond and servicing them better.
Perfect that's very helpful to hear them.
I really appreciate that having studied a lot of marketing.
Last question is I'm kind of curious you know hows the asquith.
The integration going for.
I know Guardians only couple of months how is the center of Mills now in the early on Guardian integration.
Yeah, I'll take that Jay.
Great I mean, it's a it's been a really good we've been really happy with the progress.
Guardian represents.
Really great complement to our team with what were already doing so well and the combination of Guardian and so theres no. We've already done a lot of integration work there both going after similar end markets and the auto business, but.
Not cannibalizing each other cells at all and in fact perfectly complementary and in fact growing each of their businesses.
And you know he's called.
We're on together, where more and more excited about the potential in the future, but right now we're really laser focused on.
Continuing.
The efforts of integration and continuing our organic growth and we have so many initiatives that were focused on for the next couple of years that.
It's the perfect fit comes along we'll look at it but right now like there's so much to be excited about what the recent acquisitions, we've done and where we're laser focused on integrating them.
Okay.
Hearing that and that's it for my questions.
Alright, well I want to thank everybody for joining us look forward to all that.
Uh huh.
Better news as time goes on in future calls.
But meantime enjoy the rest of your summer and we'll see you in the fall.
Thank you.
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