Q2 2023 Joann Inc Earnings Call
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Yeah.
Good day and thank you for standing by what we saw Joanna second quarter fiscal 2023 earnings conference call.
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I would now like to hand, the conference over to your speaker for today.
Hey, Jay Jay <unk> head of Investor Relations you may begin.
Thank you operator, and good afternoon, I'd like to remind everyone that comments made today may include forward looking statements, which are subject to significant risks and uncertainties that could cause company's actual results to differ materially from management's current expectations.
These statements speak as of today and the company undertakes no obligation to update or revise any forward looking statements to reflect subsequent events, new information or future circumstances. Please review the cautionary statements and risk factors contained in the company's earnings press release, and recent filings with the SEC during the call today management may refer to certain.
non-GAAP financial measures a reconciliation between GAAP and non-GAAP financial measures can be found in the Companys earnings press release, which was filed today with the SEC and posted on the Investor Investor Relations section of <unk> website at investors <unk> Dot com.
On the call today from Julien, our Wade Miquelon, President and Chief Executive Officer, and Tom Dryer controller, and interim Chief Financial Officer. During the question and answer answer portion of the call will also be joined by Christy Tulio Joanne as executive Vice President and Chief customer Officer, I will now turn the call over to Wade for his prepared comments.
Good afternoon, welcome Joanne second quarter fiscal 2023 earnings call.
Let me begin my comments by acknowledging the recent passing of our Chief Financial Officer, Matt says.
And that was a very talented leader who served in a variety of senior financial roles. During his 26 year career at Julien.
Well Thats passion was devastating very fortunate to have Tom dryer, our controller in 30, plus year Joanne veterans stepped in on an interim basis as CFO , while we undertook the search for permanent CFO . Thank you Tom after that.
Following our announcement earlier today I am very pleased to welcome Scott second CLO to our incoming CFO effective role effective September 26, Scott comes to Joanne with a wealth of experience increasing responsibilities and finance across many diverse organization.
Including Ford Motor Company, Pfizer, Haynesville Crocs, and most recently at under armour. Please join me in welcoming Scott Joanne team. We're very excited to have him on board meeting exceptional talent.
I also take the opportunity to welcome Mario Samson to the Jillian leadership team Bioware will oversee the supply chain operations and has held senior roles in companies and logistics planning distribution transportation and.
A variety of national retailers, including Amazon linked industries, Macy's target and most recently at Ollie's bargain outlet. We're very excited to have Mario onboard to help lead Joanne through increasingly complex supply chain environment, and we're confident that Mario will help restore a level of normalcy to our supply chain costs as well as the supply chain transformation for Joanne into the future.
Regarding those trends as Youre aware there are many cross currents impacting retailers. During this earnings season, geopolitical uncertainty inflationary pressures and supply chain challenges remain some of the defining issues impacting our customers in the current environment recent data points on the economy offer further confirmation on my long held view that we are in the midst of research.
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Those are the other discretionary and specialty retailers. However, we tend to get impacted earlier from the economic downturn, but we also tend to recover much faster.
Certainly been the case in previous cycles.
I'm also pleased to report that as we enter into a more mature phase in the post pandemic period, we continue to see strong engagement from both crafted and selling enthusiasts.
Our overall comp trend is strengthening and as of now we believe at least that that should be the case for the balance of the fiscal year.
Currently our cost outlook is also beginning to show signs of improvement this favorable revenue and cost dynamic will enable us to generate a high level of free cash flow and pay down debt during the back half.
I am encouraged by the steady improvement in our operating performance in recent months, we still remain vigilant given the overall economic environment.
The biggest opportunity for Julian the months ahead as it relates to our cost structure and over time, we feel that the current economic headwinds will actually help to remedy to remedy the supply chain imbalances and generate significant cost savings for Joanne going forward.
Our organization has absorbed in excess of $106 million of increased supply chain costs and product cost inflation on an annualized basis.
We also absorbed roughly $40 million of unmitigated section 301 tariffs imposed on goods imported from China.
We've said that we feel that ocean freight cost pressures as well as certain product costs. It peaked and they should begin to improve as we head into fiscal 2024.
As said earlier in my comments, our operating performance has improved since we reported our first quarter results recall, we report our quarterly results in June our inter quarter sales trend for Q2 is already showing some signs of improvement are cases continue to improve as we ended the quarter with four consecutive months of sequential improvement.
During Q2, our revenue declined by six 8% with total comparable sales decreasing by six 2%.
Our digital business with a significant bright spot increasing by two 2% during the quarter and accounted for 12% of our Q2 revenue track.
Transfer transactions and average ticket both improved on a sequential basis in Q2 based on a three year comparisons relative to the pre pandemic level. Our sales our sales were slightly positive improved by roughly 400 basis points on a sequential basis from last quarter.
Also encouragingly, while adjusted gross profit declined by 9% compared to last year and increased by 7% compared to pre pandemic levels in fiscal 2020.
Among our merchandising divisions, our homes seasonal business was particularly strong in Q2, we finished the season with healthy sell through of our spring and summer goods, along with encouraging results of early fall and Halloween.
Additionally, a number of our important selling categories with back half of the year ended the quarter with good momentum.
We also continue to see the increase in our average unit retail outpaced the increase in our cost of goods. This is a function of strategic pricing and promotional actions. We discussed on our first quarter earnings call importantly, the rollout of retail price increases has not come at the expense of incremental units or transactions.
The quality of our inventory is extremely healthy as clean as it's been in our recent history, we manage our inventory build in Q2 strategically with an eye on and getting in front of any further supply chain disruptions during the quarter, we pulled forward receipts of fall and Halloween seasonal inventory in order to optimize the flow of product across the distribution network to better align with demand.
And we're already seeing the benefit of that decision and sales. Meanwhile, we're also continuing to invest in basics and other critical categories for the back half of the year. These actions to better position Joanne for our crucial holiday selling season recall that on our last earnings call. We mentioned that we would continue to build inventory units in the second quarter, but also taking.
Actions to reduce inventory receipts in the back half of the year.
We're executing at a high level on its plant and have reduced our back half merchandise receipts by $120 million.
Given these and other actions, we expect to be significantly free cash flow generative through the end of the year.
Also take the opportunity to remind investors that our business is highly seasonal and the vast majority of our annualized earnings and cash flow takes shape. After labor day. This seasonal dynamic is an important consideration to keep in mind with respect to our inventory position over the next two quarters by year end, our inventory cost of inventory units should both decreased materially compared to the fourth quarter of fiscal 2020.
Sue.
Next I'd like to discuss the opportunities that lie ahead, and addressing our ongoing ocean freight challenges that I previously referenced.
Ocean freight costs peaked during the fourth quarter of fiscal 2022. Since then we've seen sequential improvement in each quarter and we are seeing continued signs of stabilization in container freight rates. We expect further sequential improvement with ocean freight costs in the back half of fiscal 2023.
As Tom laid out in more detail, we are implementing a wide range of cost reduction efforts and working capital initiatives and have a comprehensive action plan in place to capitalize on lower Ocean freight and these headwinds.
<unk> tier ones later in the year in the meantime, we're continuing to manage our cash position and balance sheet very carefully although we've seen improvement improvement in our sales cadence our assumptions remainder of the macro environment will remain challenging at least through the end of the current fiscal year.
Theres been no substantive change in our capital allocation strategy or in relation to our store refresh program since our last update in June .
Our multipurpose distribution center in West Jefferson, Ohio is set to go live in our coming months. This facility will help to improve our operating efficiency and significantly enhance our omnichannel growth capabilities.
In the weeks and months ahead, I will have more to share about our various blue Ocean gross growth initiatives as they go live our wholesale partnership with JM group is going well and our sales are ramping nicely separately. We made a recent investment in cubic's Cubic's will add combines cutting edge augmented reality and artificial intelligence technologies premium our content to allow users to create a very visual is stunning.
Work of art. This product is now available online and inter stores with additional information on Joanne Dot com.
Well to conclude I am pleased we ended the quarter momentum and on a more solid foundation that we began as an organization we're prime for holiday selling season with exciting product assortments heading into the back half of the year and.
I think all the hard work of the team across the country and what Theyre doing to navigate through this tough environment from those in our store support center in Hudson to our distribution center teams and our 20000 team members in our stores, we remain focused on our customer and all we do and will be an even stronger company from this very hard work with that I'm going to turn the call over to Tom drive for more.
A detailed overview of our financial performance Tom.
Thank you and good afternoon, as Wayne mentioned Joanne as operating performance improved during the latest quarter and we have strengthened our financial position compared to three months ago. When we reported our Q1 results.
The economic backdrop remains pressured our sales trends have continued to improve.
Also have taken concept concrete steps to lower inventory receipts during the back half of the year. These actions will put us in a stronger position to pay down debt by year end.
Net sales for our second quarter totaled $463 3 million a decline of six 8% compared to last year with total comparable store sales decreasing by six 2%.
Relative to pre pandemic levels in the second quarter of fiscal 2020, our sales are slightly positive with increased profitability over the same period across all divisions.
Cadence improved during Q2, and we finished the quarter ahead of our expectations.
Transfer transaction count increase on a sequential basis and we also experienced a 3% increase in average ticket over last year driven by our recent pricing actions.
Our ecommerce business was particularly strong in Q2 growing by two 2% over last year with acceleration in growth towards the end of the quarter.
Our gross profit in Q2 was $214 $9 million on a GAAP basis, reflecting a 20% decrease from last year, we incurred $27 $1 million of excess ocean freight cost during Q2, which was below our internal forecast.
Notably, we didnt incur any excess ocean freight costs over the corresponding period last year.
After adjusting for these non comparable expenses, our gross profit of $242 million declined by 9% compared to the same quarter last year and increased by 7% compared to pre pandemic levels in fiscal 2020.
Our gross margin rate on a GAAP basis was 46, 4% in Q2.
A decrease of 730 basis points from last year, and reflecting a 580 basis point impact from increased supply chain costs of which the biggest contributor was excess import freight.
After adjusting for excess import freight costs, our gross margin of 52, 2% decreased by 150 basis points from last year.
We experienced increases in domestic freight expense due to rising carrier rates and fuel costs as.
As well as higher shrink costs related to the startup of our new multipurpose distribution center located in West Jefferson, Ohio.
These negative factors were partially offset by improved pricing efficiency optimize promotional offers and lower levels of overall clearance markdowns due to improved inventory quality.
Selling general and administrative expenses increased by four 7% compared to the second quarter of last year.
Driven by increased distribution costs from earlier, arriving seasonal merchandise.
Also incurred incremental costs associated with our new multipurpose distribution center in West Jefferson, Ohio.
Our direct store expenses were slightly lower than the same period last year and as mentioned previously we are implementing targeted cost reductions to a meaningless meaningfully improve our expense outlook for the back half.
Our net loss in Q2 was $56 9 million compared to net income of $5 2 million last year on a GAAP basis.
Loss and adjusted EBITDA of $8 9 million compared to income of $23 5 million in the same quarter last year.
I want to emphasize the adjusted EBIT performance in Q2 should be considered somewhat of an anomaly and that should not offer any direct read through on our financial performance our profitability for the remainder of the year.
Based on seasonality Q2 normally represents our low watermark in relation to our annual sales and profitability.
For historical context, we also reported slightly negative EBITDA on an adjusted basis in the second quarter of our pre pandemic year.
On June 24th we paid our quarterly dividend of <unk> 11 per share and we've also declared our upcoming quarterly dividend to be paid on September 23 to shareholders of record on September nine.
Moving onto our balance sheet, our cash and cash equivalents were $21 $5 million at the end of the second quarter. Our long term net debt was slightly over $1 billion, reflecting a $249 million increase over last year.
The biggest driver for this increase was the impact of excess ocean freight expenses, which does not affect over the same period last year.
We continue to believe that our long term leverage target of two times adjusted EBITDA is achievable.
Relative to the prior quarter, our payables to inventory ratio was at a more normalized level of 36% in Q2.
We are still planning for $60 million to $70 million of Capex spending this fiscal year, our store refresh program remains on track and we've completed 16 projects. So far with another 18 planned for the remainder of the current fiscal year.
As an organization, we are taking a multi pronged approach that will enable joanne to be significantly cash flow generative over the balance of the year.
Major priorities was to lower our inventory receipts by $120 million, which we have executed upon.
This will enable a reduction in net debt planned up a similar or even greater magnitude in the back half.
To reiterate <unk> comments the inventory build during Q2 was planned as we pulled forward receipts of selected seasonal inventory in order to optimize the flow of product and throughput across our distribution network and to ensure our stores were in stock in time for the peak selling season.
These actions were consistent with our fiscal 2023 inventory planning process that we developed many months ago.
As part of our receipt reduction we've taken a very surgical approach to ensure we can still deliver on our internal sales expectations.
These inventory actions should be much better reflected in our year ending balance sheet. Please.
Please keep in mind that the nature of our inventory build during the first half of fiscal 2023 is fundamentally different from what they are currently hearing from many other retailers in relation to excess inventory challenges that many cases were not planned for.
In addition to the seasonal inventory that was pulled forward in Q2, we still had a residual impact from excess import freight costs that originated late last year.
These costs were embedded in the carrying amount of inventory reported for Q2 as well as in our prior quarter.
In general we are not challenged by excess inventory issues that would lead to increased or a rational promotional activity during the back half.
While we will still see higher inventory levels over last year in our third quarter. This is due to late holiday receipts last year that we will land on time this year.
We have a very good handle on our seasonal inventory needs and we've been deliberate not to overinvest in certain fashion and seasonal merchandise for our fall and holiday selling season.
We also expect very little clearance inventory at year end.
Our inventory remains very clean and clients represents just 5% of our total inventory.
For Joanne this is a historically low level of clearance inventory.
Our plan for clients inventory is also 5% of total inventory at year end.
As it relates to our cost reduction plans. We are also taking steps to optimize our store labor hours. Later this year in part driven by investments in technology, such as our new Pos system.
And the shifting of some ecommerce orders to our new multipurpose distribution center.
Assistant with a decision to better align our inventory needs with demand, we have a flexibility to adjust store hours across our store fleet and in our distribution network.
This reduction in store Labor. In addition to the optimization of our AD spend will be major components of our cost reduction efforts during the back half of the year.
The final piece of our action plan to drive higher levels of free cash flow in the back half involves ocean freight.
We have a number of supply chain tailwind that are already taking shape, including the ongoing relief, we're seeing in spot rates from ocean freight carriers.
As Wayne mentioned, we expect to see further sequential improvement in relation to excess ocean freight costs over the balance of the year.
Excess ocean freight costs organic specced, it to decline slightly on a sequential basis in Q3.
Based on year over year comparisons, we expect a modest increase in excess ocean freight costs in the third quarter versus last year.
More importantly, we anticipate that year over year comparisons will improve very meaningfully in Q4 and that comparisons are set to improve further in fiscal 2024.
On a cash basis, the improving outlook for ocean freight expenses will be even greater compared to the P&L impact during the back half.
On a cash basis, we expect to spend $50 million to $60 million less in total ocean freight cost in the back half of fiscal 2023 compared to last year.
Based on the cumulative level of cash generated by our improving operating performance.
Targeted cost savings.
Less pressured supply chain outlook, and our inventory reduction plan.
We intend to substantially delever, our balance sheet by year end relative to Q2 levels with a target range in the low to mid $800 million range for net debt.
There are no significant changes in our capital allocation priorities.
While we have adopted a very disciplined focus on generating positive free cash flow going forward, we have a sufficient level of liquidity with our balance sheet to continue to make appropriate investments, including in our store refresh program and with our Blue Ocean growth initiatives.
While we do not provide formal sales or earnings guidance for fiscal 2023. Overall, we are encouraged by the sequential improvement in our recent sales performance we.
We do not anticipate we will generate positive comparable sales in Q3. However, we do anticipate further sequential sales improvements as we move throughout the balance of the year.
Apart from working capital improvements the biggest opportunity for Joanna in the months ahead as regards to our cost structure.
Both are in relation to supply chain as well as product input costs, given the retrenchment of oil in certain commodity prices and the current strength of the dollar relative to many geographies, where we source product.
With that weight, Chris and I will be happy to take your questions.
Thank you.
As a reminder to ask a question you will need to press star one one on your telephone.
SAR one one to ask the question.
Please standby, while we compile the Q&A roster.
Our first question comes from the line of Laura Champine with loop capital. Your line is open.
Thanks for taking my question I understand that the inventory build was planned.
But I also understand you.
Intend to burn through a lot in the back half do you expect promotional activity to be higher year on year this fiscal year versus last.
Hi, Laurie it's Chris.
No I think at this point, we are planning a pretty comparable activity, we're not seeing in the market competitors do anything irrational, which is great.
Some of this inventory that we talked about the seasonal it's a smaller percentage of our total than maybe in at least one of our competitors than maybe some others in retail so at this point.
We're pretty confident with the cadence that we have laid out for the back half.
Got it thank you.
Thank you please standby for our next question.
Our next question comes from the line of Zach <unk> with Wells Fargo. Your line is open.
Hey, guys. This is David Lance on for Zach Thanks for taking our questions. I guess first one from me just curious if you could touch on how you expect the industry growth to shape up for the year and what that could look like for next year as well.
Yes, I mean, obviously thinks it then.
Selling out it's been a rollercoaster last year's pandemic, but I think as we see things settle down we feel pretty good and we feel the engagement is pretty good on the selling side of the business.
Business is strong lots of great signs of further strength, we're seeing seasonally very strong arts and crafts.
Maybe it's a little more mixed but in general is strong there's a few pockets that are tighter than others, but I think we feel that this industry is more or less here to stay.
As we kind of around the horn on whats been again kind of a couple of pandemic cycles. I think we're probably feel like were moving into the new normalcy.
Yes, David I can I can add on just a little bit more color I guess, one of the things that this industry does experience over time as trends ebb and flow.
Yes, Joanne we feel very very confident that because of our breadth of.
Product categories that we offer that.
But as things move out Thats trend moves out of wanting it to another we can be there for the customers. So right now we're seeing really positive engagement in some of our more.
Upscale selling categories.
More advanced project types.
And which for US is obviously great to see I'd also say I've always said, our one of our probably our biggest biggest single competitors.
Things that consume leisure time.
And as we move kind of into the deliberate here and this gets back to school, we typically see that will engage a lot more activities because they have a lot more time than we are.
Early signs on all the things that we look at are pretty good we don't see.
Anything that doesn't give us confidence that the way it historically been it's not help you in the future.
Got it that's Super helpful. And then just one follow up.
As the industry Normalizes post Covid, how should we think about a normalized algorithm for the business from a comp and margin perspective.
I still believe that that algorithm, we put in place is still kind of is going to become normal is still <unk>.
Very achievable that kind of 2% to 4%.
Growth with the opportunity to steadily improve margins over time the margin.
<unk> is actually a bit I would say.
Again, because of the ocean freight and other things a bit distorted our GAAP margin on gross margin was down 730, our adjusted <unk> was 150, although almost half of that was a shrink adjustment, which is anomaly with UFC, but our pls margin, which is a kind of a critical indicator in terms of how we're really ringing the register versus the cost of the product was up 100.
30 basis points year on year.
So again I think that.
Sales algorithm when they had between the growth in our initiatives is a very reasonable range I think that this is an industry and we have a business that we think that should be able to sustain.
And ideally build those gross margin points overtime.
Thanks, so much that's helpful.
Thank you.
Please standby for our next question.
Our next question comes from the line of Paul Cooney with Barclays. Your line is open.
Hey, Thanks for taking my question.
I was wondering if you can talk about.
Whether youre seeing great cost begin to alleviate.
And then coupled with that can you talk about your expectations for cash flow for the year and kind of reconcile that with your expectations to significantly reduce debt by year end.
Yeah, I'll take the first part and sideways, maybe Tom for the second part but.
I have felt that we've been for a while now inflationary cycle and then any kind of recessionary cycle I do feel now that.
I kind of put the flag in the ground and I think that.
We should see that kind of we've seen peak inflation and now the question is how fast can we benefit both on the supply chain side.
As well as through some of the balance of costs given commodities at least in the commodity is relevant to us.
And again I'm talking inflation relevant relative to Joanne maybe not in aggregate.
So so I do think we're at the point now where we see that benefit that the issue might be some of the mismatch between the P&L.
And cash flow.
We're still incurring costs.
For our payments made as far back as Q4 of last year, and some of that ocean freight and even some of the Cogs, but.
But as we move forward from a cash perspective, I think we're basically going to be the benefactor of reducing costs in aggregate across the board and they will ultimately flow through.
On the debt reduction.
I'll, let Tom add on here, but.
Kind of circa $180 million to $200 million debt reduction, we're talking about to get to that target you can basically build it up.
From the receipts, Tom talked a about a $120 million.
Net year on year benefit 50 Ocean freight and we've got another 20 ish between Capex SG&A and all other.
So it really which is what you see there is just a lot of timing.
A lot of mismatched from the P&L to cash flow, which is exacerbated probably again due to receipt flow.
Ocean freight anomalies and some of the other costs.
Yes, just to add on like we started over the last several months we've been working on.
Generating additional free cash flow in the back half of the year and as Wayne mentioned, we don't we've talked about the receipt reduction plan, we put in place in the $120 million.
The import freight costs, we are incurring quite a bit last year in the back half of this year based on current rates, we should be in the $50 million to $60 million savings range and a cash basis.
And then another capex SG&A savings of $10 million to $20 million you are in that $180 million to $200 million of additional free cash flow based on the back half of the year. So I think we feel very confident in those numbers.
I think if you look back historically this business in the back half of the year from October on Gen.
Generates a net debt reduction of 200 plus million dollars write down.
And last year, it was more or less flattish in that flattish was again because of just.
The massive amount of supply chain costs and cash basis that were paid in the back half of the year as well as the later and elevated receipts.
Again, I think we're in good stead this year that would be more of the historical pattern.
Thank you that's helpful and.
Okay, one additional.
I had a question.
And I apologize if I missed it but is there any update on the 301 tariffs. Thanks.
There's been a lot of moving parts on that I wouldn't want to speculate where it's going.
As you know there's kind of been a court case.
There's been some talk between trade associations and the White house.
But.
At this point, we're just assuming that that status quo is probably going to be in place.
Moving forward with that but.
I don't know, if we'll see any relief there or not but I think as far as we're looking at it we're not banking on any.
Thank you.
Thank you please standby for our next question.
Our next question comes from the line of Peter Keith with Piper Sandler Your line is open.
Alright.
Thanks for.
Taking the question.
I was wondering actually if you could address the status of your store refresh program and that you've got I think you said, maybe 18 more stores for the back half of this year. How are you thinking about that program looking out to next year.
Yes next year, we're probably looking Chris in 2025 store range refresh we still are bullish as ever on it the returns that we've seen.
The lifts are still as robust as ever.
The issue I think is more than anything is right now it's really expensive in some cases to get contractors a lot of expenses continued to get fixtures or delays.
So we're really.
Pared back we pared back to say lets take the ones that are really that the absolute best and not overpay and we can put the pedal to the metal and we have to down the road yes.
Yes.
That's correct and we're we're pretty excited about the recent store openings.
And openings that we've had one of our recent stores in Knoxville, Tennessee has been one of the best stores on the chain since we Grand opened which is which is fantastic.
Next waves that we have coming up are also some pretty high volume locations in terms of our our expectation. So the 18 that we have coming up in front. The back half of this year, hopefully will provide a nice little headwind into fiscal 'twenty four.
Okay great.
I know with with gross margin on a non-GAAP basis versus some various puts and takes and you were down year on year in Q2, how should that gross margin on a non-GAAP basis trend.
In the back half of the year when we just think about the domestic freight and then you called out the shrink from the new DC.
Yeah.
Right and I'll, just I'll lay that again for people because I know ill answer that kind of quick or GAAP basis. We were down 730, our adjusted basis were down 150 negative and again shrinks, because let's call it almost half of that and our Pos margin basis was up 130.
In the back half part of it we have again this mismatch of GAAP and cash because the back half than we've seen for some of that.
Ocean freight in the front half.
On a cash basis, we're going to be much better adjusted.
And on a GAAP basis.
Sure.
GAAP gross margin in the back half.
This is expected to be up.
Yes so.
I think we'll quantify exactly right.
Alright.
That's on a GAAP basis, how should we think about a non-GAAP basis in the back half.
non-GAAP basis, I think is going to be probably relatively close to neutral again. The impact you have is just the timing of the ocean freight that we're already booking versus the rates that we're paying for it but if you go back to that Pls margin.
POS margin is going to be.
Equally strong year on year.
Versus last year.
Okay. That's helpful and one last question is a little bit of a follow up to what Laura asked at the beginning.
The competitive and promotional environment.
The arts and crafts industry has been fairly promotional in the past are you seeing.
And then I guess, it's been rational last two years, but are you seeing any pickup in competitive promotions now with.
Some of the challenges in the economy.
Yes.
Certainly we watch everything that's going on with competition pretty broadly.
What we what we see is that when when Theres merchandize that maybe had been an expiration date on it related to seasonal.
Individual retailers might be a little bit more aggressive there, but the vast majority of basic categories, we're not seeing really aggressive behavior.
In our world and some of our competition basics are.
Very high percentage of our total inventory.
Okay that sounds great. Thanks, so much.
Thank you please.
Please standby for our next question.
Our next question comes from the line of Cristina Fernandez with Telsey Group. Your line is open.
Thank you for taking my question I wanted to ask about the SG&A savings you commented on the toward the back half of the year would you be able to quantify how much dose would be particularly the piece around labor cost, which seems to be the bigger part of it.
Yes.
Know that we're going to give an exact number on it today I think we are going to bend the curve nicely versus where were in the first half.
Tom If you want to say a few points on that but I think we'll probably stay away from giving exact target.
Yes, we're not going to be significantly different than last year in the back half from an SG&A standpoint.
So I don't think it will be up as we work from the first half of the year I think we feel that related to sales expectations, we're going to be able to manage whether its store labor some of the other cost lines. Accordingly, one of the things we will see is as we bring up our.
Our OFC facility.
That's going to add some SG&A, but what it actually does is it reduces splits significantly.
And then it also is going to.
Increase our landfill rates significantly so it's sort of there is a lot of moving parts in that I guess and I just.
Kind of apples to apples, so a little bit differently seen accurate, but I think I think we will compare favorably or at least very nicely versus a year ago.
And then on the.
On the improvement you saw through the quarter any squeeze so far in August .
You provide more color on category trends are you seeing that customer or that it's more cash flow.
Are you still in the early days of the pandemic start to Reengage.
We're engaging more with Joanne <unk> to the last couple of quarters.
I guess I'd say it this way if you look at if you look at that on Labor day on our mix of categories becomes.
There's a lot of categories as lean heavy.
Such as seasonal such as some of the the warm categories selling categories that actually get larger through that period. Because this enthusiast comes back and has time to do it.
By and large those categories are all doing really well so it's sort of the mathematics of mix, which gives us confidence as we look to the back half of the year here that those strong categories and an increasing mix effect will continue to give us benefit through our sales comp trend.
Yes.
Christina.
Yes, I am sorry could add on a little bit more in the second quarter.
Yes, that's typically our lowest volume quarter, right, which we've talked about before.
And what we saw in the quarter was the enthusiasts.
Really.
It came it came out and showed up for some of those categories.
It was great to see because some of those folks were kind of shocked.
Earlier in the first quarter, when we started to see the impacts of economic downturn. So we saw those customers come back and then it's Wade said.
And the second quarter going into third quarter, we're seeing a broader customer range start to fill in.
Thank you.
Thank you.
As a reminder, ladies and gentlemen that star one to ask a question. Please standby for our next question.
Our next question comes from the line of go here Anthony with Beach point capital. Your line is open.
Hi, Thanks for taking my question.
First would you guys be able to provide more color on.
What types of inventory were in the $120 million that you guys canceled.
Well, we didn't cancel anything really we just manage our receipts and our orders so.
I guess, what I would just say is we don't break it out any more detail, but I think the team has been very diligent very vigilant sorry, I'm looking forward to make sure that we will be called the open to buy process, it's really lining up with realistic demand move.
Moving it forward to lineup with realistic timings, assuming that the port shutdown and the other rail delays and things are there. So we feel we've done a very good job of making sure that we have the inventory we need no more before the categories and having it here on time or earlier.
This year than since I can remember since I've been here last year, even though we were in pretty good stock on a relative basis, a lot of our seasonal slow as much as three weeks late one of our four categories was probably two two and a half months late for where we'd like to be this year I'd say we are.
Not as good as we weren't able to get.
The only other thing I would add on to what we said is that the.
The team also didn't start this month ago or two months ago. This is work that has been happening really since the beginning of the fiscal year. When we very early on recognized what we expect it to be pretty severe headwinds in the economy.
So the cuts as Wade indicated.
Cut of orders in place, but the our.
Our category management teams thoughtfully going through line by line on what's needed to deliver the sales versus what is that.
Okay. Thanks, and then in terms of Q2's comp sales performance.
So it was like six 2% overall are you guys able to provide any detail on how that varied across categories like how was.
And versus the Arts and Crafts I think in the first quarter you guys mentioned about like higher ticket technology was a headwind was that.
Similarly, a headwind in the second quarter any more color you can provide on that.
Breakdown in sales would be helpful.
Yes, I mean at the technology was certainly a headwind in second quarter.
And Thats.
In part because the base of that expense so that no longer.
People are throwing in the tile. It really is just that we had such a huge spike during COVID-19.
Sequentially, we did see ever.
Every period of getting stronger than the period before I think we said in the last call that we came out of the quarter in the high single digit negative and we're starting to see sort of.
The sequential improvement and we did see that sequential improvement.
Chris I don't know if youll opined in general on the major segments sure yes.
As we progressed through the quarter I mentioned that are enthusiasts, we're coming back so certainly.
Some of those selling categories that maybe were softer last year really started to light up for us and then the customer respond.
Project types that they are engaging in our advanced.
And so we know it's that it's that enthusiasm we.
We saw great movement.
In our seasonal product, which was also encouraging.
We were able we were able to deliver positive sell throughs of spring and summer in such a time, where we could get our fall and Halloween product onto the floor earlier than we ever have before and starting to see progression on that right away and it's Wade indicated while we have some headwinds.
Yeah.
Okay.
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