Q4 2022 The Container Store Group Inc Earnings Call
[music].
Greetings and welcome to the container store fourth quarter 2022 earnings call.
At this time all participants are in a listen only mode.
A brief question and answer session will follow the formal presentation.
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As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host Caitlin Churchill of Investor Relations. Thank you you may begin.
Good afternoon, everyone and thanks for joining us today for the container store fourth quarter and fiscal year 2022 earnings results Conference call.
Today, our cities Ultra Chief Executive Officer, and Jeff Miller, Chief Financial Officer.
After excitation, Jeff have made their formal remarks, we will open the call to questions.
Before we begin I would like to remind everyone that certain matters discussed in today's conference call are forward looking statements relating to future events management's plans and objectives for the business and the future financial performance of the company that are subject to risks and uncertainties.
Actual results could differ materially from those anticipated in these forward looking statements. The risk factors that may affect results are referred to in the container stores press release issued today and in our annual report on Form 10-K filed with the SEC on June 2nd 2022.
As updated by our quarterly reports on Form 10-Q, and other public filings with the U S Securities and Exchange Commission.
The forward looking statements made today are as of the date of this call and the container store does not undertake any obligation to update the forward looking statements.
Finally, the speakers may refer to certain adjusted or non-GAAP financial measures on this call a reconciliation schedule of the non-GAAP financial measures to the most directly comparable GAAP measure is also available in the container stores press release issued today.
A copy of today's press release, and Investor deck may be obtained by visiting the Investor Relations page of the website at Www Dot container store Dot Com I will now turn the call over participation.
Thank you Caitlin and thank you all for joining our call today.
I'll begin today's discussion by reviewing highlights from our fourth quarter performance and the great progress we made in fiscal 2022 against our strategic initiatives before discussing our current views and plans for 2023.
Jeff will then review the details of our fourth quarter financial results followed by our outlook.
We will then open up the call to questions.
Excluding the impact of noncash impairment of goodwill.
We delivered results for the quarter in line with our expectations.
This included the anticipated decline in general merchandise and Elfa custom space sales.
As a result of slower traffic and customers purchasing fewer spaces.
As a reminder, we were up against a tough comparison, given our decision to not anniversary a very successful to 'twenty to 'twenty two event from last year.
Along with the strategic discontinuation of a closet was wholesale business.
Given these factors and the ongoing challenging macroeconomic environment fourth quarter consolidated net sales declined 15%.
And adjusted earnings per diluted share was <unk> 18 cents compared to 46 cents in the prior year.
During the fourth quarter and throughout fiscal 2022, despite the backdrop, we maintained a strong focus on executing our strategic initiatives are deepening our relationship with customers.
Spanning our reach and strengthening our capabilities.
The following accomplishments would not have been possible without the unwavering support from our teams and their efforts allowed us to place numerous seeds for future growth.
In fiscal 2022 we launched multiple new large scale programs to improve our product offering and customer experience.
Five noteworthy accomplishments I want to discuss today include launching the container store custom.
Faces branding and Preston product offering.
Introducing new product categories to give customers a compelling reason to shop.
Significantly improving our e-commerce experience.
We launching our loyalty program and opening new small format stores in key markets.
During the year, we introduced new branding custom spaces to move out offering beyond closet to key areas of the home, including closet living and garage spaces.
In addition, we brought to market our newest premium would baseline Preston.
We added a minimum of two Preston displays to all stores and our customer space studio and created a new destination on our website for customers to find inspiration and to connect with our newly established in home design specialist.
During fiscal 2022, we had an average of 95 in home design specialists.
We sold $75 million in total sales.
With more than a quarter of them selling over 1 million each in custom spaces.
We began refining our general merchandise assortment.
Not only drive profitability, but also to make room for new products that complement our core storage and organization solutions.
We successfully launched several new categories to further and talk to customers and we're pleased with their performance thus far.
These categories include home fragrances.
Stainbrook cleaners, and a new private label everything organize the collection, which features patent pending designs.
Also we are very proud to have recently been named to Forbes customer experience all stars list, which.
Which we believe is a testament to our strong retail net promoter score of 80 in Q4.
To create a flagship experience across our brand touch points, we significantly improved our e-commerce platforms.
During the year, we enhanced our Bucharest experience, which recently drove a record level <unk> net promoter score of 72.
And we rolled out express check out to all stores, which now accounts for 20% of all store transactions.
We're also pleased with the response to our mobile App as.
As we've seen over 450001st time downloads.
And a four eight star rating in the Apple App store.
Additionally, we improved the functionality and design to my website, including over 40% faster page speed.
Timely customer communications.
And a redesign of our navigation.
And it's now easier than ever to search shop, and check out online or to connect with an in home custom space designer.
Regarding our loyalty program, we launched organized inside of this past year to not only attract new customers, but also to reward a deeper level of engagement with existing customers.
The new loyalty program has been well received and accounted for nearly 80% of total sales in fiscal 2022.
And a 57% higher average ticket than non loyalty members.
During the fiscal year, we enrolled nearly 900000, new members to our program and with our new Vice President of loyalty in place. We're looking forward to continuing to refine our program to further increase customer engagement.
Finally, we are pleased to have opened three new small format stores. This past year in Colorado Springs, Colorado, Salem, New Hampshire in thousand Oaks, California.
We are encouraged by the customer response to our new small format stores as illustrated by our strong NPS scores, which recently for the month of April averaged 87 across all three which gives us continued confidence in our long term store expansion goals.
As we look to fiscal 2023 we expect it to be a tough year, considering the intensified macroeconomic headwinds.
Which are driving reduced traffic and lower average tickets.
Despite this backdrop.
We remain committed to investing in our long term growth prospects, while still proactively managing our cost structure.
We believe the actions we are taking position us well to deliver on our goal of low double digit operating margins when the macroeconomic environment improves.
As we continue to focus on gaining market share in spaces over $2000, which is an important enabler of our past $2 billion in revenue.
We aim to bring awareness to our new custom space Brandy and provide a whole home solution to our customers.
We plan to increase the number of in home design is 250 this year with.
With design training focused on selling premium spaces.
In addition, we plan to build on the success Preston is having.
And we have product enhancements planned for the year, including premium enroll and Tokyo lighting mirrored glass alanine and framed doors slim Shaker profiles and new on trend colors like night Sky Blue and make sure Green.
This year, our customers based campaigns are expected to not focus on an individual line.
But a fourth customer discount on any of our three lines Alpha Avera Preston.
And our plan to be evenly spaced throughout the year.
We're also working to create a custom spaces portal for customers to review their design sign their purchase agreement manage their payment and track the status of the custom space lifecycle from inspiration to installation.
We are also exploring the ability for customers to experience the design space through virtual reality technology. So they can visualize and interact with their space, making their purchasing decision easier.
The art technology also enables us to showcase custom space finishes and accessories that we may not carry in every store and we intend to start piloting this in late fall.
As we look at general merchandise under the leadership of our new Chief merchant, we are focused on continuing to refine our assortment in a manner that best aligns with our customers' shopping journey and has the most potential for growth, including college travel dining and entertaining and home decor.
We strategically started our college campaign earlier this year to align with parents and students timelines and we're thrilled to offer new college essentials like a single serve coffee coffeemaker sleek desk lamps vintage fans and essential oil diffusers.
For the second year, we are partnering with Domo Fi the online destination for dorm decor.
The partnership is expected to expand this year with five of our stores in key college markets featuring the almost like pop up shops with selections of on trend mix and match betting anymore.
We're also excited about the ability to drop shipped over five products from our web site beginning in Q1.
The benefit of drop ship allows us to expand our assortment without having to carry additional inventory.
And we intend to expand this capability with additional vendors quickly thereafter.
With regards to new products, we anticipate introducing nearly 1000, new skus this year from innovative brand.
Such as cadence and canopy, both of which are entering brick and mortar stores for the very first time.
The cadence travel system will be exclusive to us and features customizable magnetic and leak proof capsules to stall of personal care products.
As part of our college assortment the canopy a humidifier features numerous technology, which is free from bacteria and particle is creating an optimized environment to beauty and wellness.
These products will bring notable newness to the container store and we are proud to partner with and help grow. These innovative brands that have demonstrated success selling directly to customers.
While we intend to continue focusing on our core offering of storage and organization. We are excited for this newness, we are infusing into our assortment and we intend to embark on a new campaign to demonstrate to customers, how our curated innovative and solution oriented product can help transform their lives.
We tend to strengthen our e-commerce presence with a focus on expanding content and storytelling, introducing new ways to shop, and enhancing our customer space and mobile app experience.
Our content aims to highlight what makes products unique and encompasses more videos across our product detail pages.
New ways to shop online include a college shop with a frictionless one click experience. So students parents can add curated and bundled dorm essentials to their cart with ease.
In addition, we're working on a new arrivals online experience, where customers can see and shop, the amazing new products, we're offering and we anticipate launching this soon.
Taking customer feedback into account we plan to consolidate orders. So they are receiving fewer boxes and provide new ways to make appointments with our in home designers throughout the site.
Regarding new stores, we expect to open six new stores during fiscal 2023 versus our original expectation of nine stores due to delayed timelines given the current environment.
The three stores that were originally slated for the end of the fourth quarter of fiscal 2023, and now expect it to open in early fiscal 2024.
We still believe there is substantial white space and a path to open at least 76 new stores over time.
The sales decline being more pronounced in the first half while still negative in the second half.
We are cognizant of the importance of cost management are continuing to evaluate all areas of bad business to ensure an efficient cost structure to position us well to deliver our long term goal of low double digit operating margins.
We are prioritizing investments in the areas of the business that had continued to drive strong productivity.
I'll also investing in our strategic initiatives, which we believe will position us well to gain market share when the macro environment improves.
With that said.
We made the very difficult decision to take immediate cost management action, including elimination of open roles and a reduction of force of approximately 15% and our support center in less than 3% and our store and distribution center operations.
These actions are intended to keep our SG&A expenses, just below 50% of consolidated sales in fiscal 2023.
Despite.
These difficult decisions, we have a solid foundation and the right teams in place to make progress towards our long term goal of $2 billion in sales and low double digit operating margin.
With that I'll hand, it over to Jeff to discuss our results and outlook in more detail.
Yes.
Thank you Cynthia and good afternoon, everyone.
So take reviewed after excluding the impact of goodwill impairment, we delivered fourth quarter results in line with our expectations. Despite the challenging macro environment and unique sales headwinds we faced.
Did not anniversary our to 'twenty to 'twenty two event from last year and the discontinuation of the closet works wholesale business.
Consolidated net sales decreased 15% year over year to $259 7 million.
Including a 430 basis points negative impact from unique sales headwinds I just mentioned.
By segment net sales for the container store retail business were $245 5 million or 14, 3% decrease compared to $296 5 million last year.
The decrease is inclusive of a comp store sales decrease of 13, 1%.
Driven by the 14, 2% decline in our general merchandise categories, which negatively impacted comp store sales by 870 basis points.
Custom spaces comp store sales declined 11, 4% compared to fiscal 'twenty, 'twenty, one and negatively impacted comp store sales by 440 basis points.
The discontinuation of the cost it works wholesale business in fiscal 2022, partially offset by sales from new stores made up the remaining 120 basis points to the total 14, 3%.
Gcs net sales decline year over year.
Okay.
For the fourth quarter of fiscal 2022, our online channel decreased six 2% year over year.
Our website generated sales, which includes curbside pickups decreased eight 3% compared to last year.
Website generated sales represented a total of 24% of Tcs net sales in Q4.
Third to 22, 4% in Q4 of last year.
Unearned revenue decreased to $15 7 million in Q4, this year versus $22 6 million last year.
And by the pullback in customer spending that we are experiencing.
Also third party net sales of $14 2 million decreased 25, 3% compared to the fourth quarter of fiscal 2020 one.
Excluding the impact of foreign currency translation Elfa third party net sales decreased 17% year over year, primarily due to due to a client and sales in the Nordic markets in Russia.
From a profitability standpoint, our consolidated gross margin for Q4 increased 190 basis points to 58, 9% compared to 57% last year.
By segment Tcs gross margin increased 50 basis points compared to last year, primarily due to decreased freight costs and favorable product and services mix.
Partially offset by more promotional discounting.
Elfa gross margin increased 200 basis points compared to last year, primarily due to price increases partially offset by higher direct material costs.
Consolidated SG&A dollars decreased to $124 3 million compared to $127 1 million from Q4 last year.
As a percentage of sales SG&A increased 630 basis points year over year to 47, 9% the.
The increase is primarily due to the deleverage of compensation and benefits occupancy and other costs on lower sales.
During the fourth quarter, we conducted impairment tests of goodwill and indefinite lived intangible assets and determined there was a total noncash impairment of goodwill in the amount of $197 7 million.
Our net interest expense in the fourth quarter of fiscal 2022 increased to $4 8 million compared to $3 2 million last year.
The year over year increase was due to a higher interest rate on our return and interest on borrowings on the revolving credit facility.
Yeah.
The effective tax rate for the quarter was negative one 7% compared to 31, 5% in the fourth quarter last year.
The decrease in the effective tax rate is primarily related to impairment charges taken during the fourth quarter, which negatively impacted the effective tax rate by 292 basis points.
Net loss for the quarter on a GAAP basis.
This is the 101 hundred $97 7 million goodwill impairment charge was $189 2 million or $3 85 per diluted share as compared to GAAP net income of $23 2 million or <unk> 46 cents per diluted share in the fourth quarter of last year.
Adjusted net income was $8 8 million or 18 cents per diluted share as compared to last year's adjusted net income of $23 2 million or <unk> 46 per diluted share.
Our adjusted EBITDA decreased to $29 2 million in the fourth quarter of this year compared to $46 4 million in Q4 last year.
With respect to the full year consolidated net sales declined four 3% to 1.15 billion and GAAP net loss was $158 9 million or $3.21 per diluted share.
Adjusted net income was $37 2 million or <unk> 75.
Per diluted share.
Turning to our balance sheet, we ended the quarter with $7 million in cash $167 9 million of total debt and total liquidity, including availability on our revolving credit facilities of $107 million.
Our current leverage ratio is one four times.
We ended the quarter with consolidated inventory down 11, 5% compared to the fourth quarter last year.
Decline is the result of our prudent actions to reduce inventory purchases given the pullback in customer spending we are experiencing and.
And expect to continue to see given the challenging macro environment as well as lower freight costs.
Capital expenditures were $64 2 million in fiscal 2022 versus $33 4 million in fiscal 2021 with the increase related primarily to investments in our stores and technology.
Free cash flow. This year was a use of $4 9 million versus $23 6 million generated last year.
Now for our outlook.
For the first quarter of fiscal 2023.
We expect consolidated net sales to be approximately $200 million to $210 million driven primarily by a comparable store sales decline and a 23% to 19% range. The expected consolidated revenue declines were also inclusive of a 250 basis point impact for the strategic discontinuation of our <unk>.
Closet works wholesale business and to a lesser extent continued Elfa third party sales headwinds.
New store sales are expected to partially offset the impact of these headwinds.
We expect net loss per diluted share in the first quarter to be in the range of 19.
The 13th.
After adjusting for an estimated $2 million of severance expense associated with the previously mentioned reductions in force. We expect adjusted net loss per diluted share to be in the range of 16 to.
<unk>.
The implied year over year operating margin decline for the first quarter is expected to be more than entirely driven by SG&A expense due to fixed cost deleverage on lower sales.
From a gross margin perspective favorable product mix and freight are expected to be moderate tailwind to gross margin in the first quarter.
Interest expense for the first quarter is expected to be approximately $5 million driven by higher interest rates and our effective tax rate is expected to be approximately 30%.
Yeah.
With respect to fiscal 2023, we expect consolidated net sales in the range of $885 million to $900 million driven primarily by comparable store sales declines in the mid to high teens, we expect more significant declines in comparable store sales in the first half of the fiscal year than the second half.
Yeah.
This outlook also assumes a 100 basis point benefit related to the impact of new stores inclusive of a partial offset due to the strategic discontinuation of our closet works wholesale business and continued Elfa third party sales headwinds.
From a gross margin perspective favorable product mix and freight are expected to be moderate tailwind to gross margin in fiscal 2023, partially offset by a more promotional environment. Our outlook. Therefore citizens a gross profit range of $525 million to $540 million.
In an effort to minimize SG&A expense deleverage in this difficult macro environment.
We made the decision to take immediate and proactive measures to reduce costs, while still investing in our strategic initiatives. Our proactive cost reducing actions include the previously mentioned the elimination of our support center open roles and an almost 15% reduction in force at our support center.
Furthermore, there is a planned reduction in force at our store and distribution center operations by less than 3% and reduced scheduled hours in line with current customer trends.
In addition to payroll related actions were proactively reducing marketing and other costs with the goal of keeping our SG&A expense as a percent of sales slightly below 50% for the full fiscal year.
Total dollar impact these actions on a quarterly basis are expected to reduce overall SG&A expense by approximately $10 million per quarter compared to last year with the fourth quarter total dollar savings being slightly higher.
For the full fiscal year total SG&A reductions are expected to be almost $45 million when compared to last year.
Our outlook assumes operating margins of approximately 4% or $32 million to $40 million in operating profit.
We expect net income per diluted share in fiscal 2023 to be in the range of seven to.
To 17 cents.
After adjusting for the estimated $2 million of severance expense previously mentioned as well as an approximate $5 6 million of discrete income tax expense expected to be recorded in the third quarter of fiscal 2023.
Related to the expiration of certain stock options granted in connection with our initial public offering in 2013.
We expect adjusted net income per diluted share to be in the range of 21.
To 31 cents.
Capital expenditures are expected to be approximately $45 million to $50 million and with this outlook. We aim to be free cash flow positive in fiscal 2023.
Almost half of our planned capital expenditures are related to new stores planned to be opened in fiscal 2023 or the first quarter of 2024.
We had previously communicated plans to open nine stores in fiscal 2023.
As a result of delayed timelines due to the current environment. We now plan to open six stores, primarily in the second half of fiscal 2023, and three new stores in the first quarter of fiscal 2024.
The remaining capital is related to your investment in E Commerce technology infrastructure and software projects and to a lesser extent maintenance.
Interest expense for fiscal 2023 is expected to be approximately $20 million driven by higher interest rates. Our effective tax rate is expected to be in the range of 60% to 75%, which is inclusive of the previously mentioned discrete income tax expense expected to be recorded in the third quarter of fiscal 2023.
Hi.
We remain committed to delivering on our long term goal of $2 billion in sales and low double digit operating margins, though the duration of the current macro headwinds has impacted our originally contemplated timeline for achieving these goals.
This concludes our prepared remarks, I'll now turn it over to the operator to begin the Q&A session.
Thank you.
We will now be conducting a question and answer session.
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One moment, please while we poll for questions.
Thank you.
Our first question comes from Steven Forbes with Guggenheim. Please proceed with your question.
Thanks, Jeff This is Andrew <unk> on for Stephen Forbes.
Given the 2023 comp outlook, how will be advent calendar look in 2023 compared to 2022 and do you expect to test price elasticity. During 2023 or are you more committed to holding where you felt price levels.
Yeah. Thank you. Thank you for the question.
I'll answer that in a couple of ways first.
What I will say is that our Q1 and full year guide still kind of continues to contend with the discontinuation of our closet work wholesale business, but.
But also considers a more pronounced decline in customer traffic and average basket and transactions.
And as you know we believe that this small pronounced decline is really due to the current macro environment of higher interest rates and economic uncertainty that has resulted in customers reducing their discretionary spend.
So as we think about our Q1 and full year guide, we will continue to be prudent with our promotional cadence.
We are very thoughtful about ensuring that our customers have an opportunity to save more when they spend more with us and also allowing them to benefit from a whole home approach by saving across all of our lines during our custom space campaigns. This is only one specific line.
In fact, just recently, we ran a six day promotion for our customers, where they had the opportunity to buy one and get one at 50% for general merchandise and that event was actually quite successful in driving instrument incremental gross profit.
So we'll continue to understand the reaction of our customers. During these very tough economic times.
And offering again incentives for them to purchase while still being mindful of profitable growth.
Great Yeah that all makes sense and secondly can you break down the mid to high teens comp guidance between the core categories of customers faces in general merchandise or for the full year.
Yeah.
This is Jeff.
Looking at the full fiscal year, the mid to high Teen guide for the year.
Assumptions underlying is that general merchandise it will be more challenged during the year, then our custom spaces, but I would say that both lines both categories will be challenged throughout the entire year.
Understood. Thank you.
Thank you.
Question is from Brian Meyers with Lake Street Capital markets. Please proceed with your question.
Hey, guys. Thanks for taking my question first one for me the the three store openings that we've already had now I'm curious if you could give us some commentary on what you guys have seen as far as traffic levels demand ticket prices are relative to the other store base and you know if you see some of these smaller format store.
I'm really kind of taken off like you like you thought that they would.
Yeah. Thanks for the question Ryan. This is Satish I'd say look we generally really pleased with the three stores that we opened in fiscal 'twenty two a.
We continue to attract new customers almost 60% new across the three of them and they are delivering superior net promoter scores as we mentioned to date to 87 four for April .
And we're actually seeing also very healthy customer space penetration across the three in total almost at 37% of sales.
So generally I'd say, we're pleased with the performance obviously its still against a very tough macro environment.
And hence why we are still bullish and committed to opening six new stores for fiscal 'twenty three.
We still believe and growth expansion.
And we definitely see a path.
To opening at least 76, because we still believe there is tremendous amount of white space out there.
I would just add to that the six stores that we're planning in fiscal 'twenty three three of which are build to suit and three of them are for capital investments. So when we look at the excitement around the store expansion, what we're seeing from a new customer engagement, which is part of our overall strategy as we build out the marketplace and the level of custom spaces.
Adoption by those customers in these new markets.
Is encouraging to us typically it takes a little bit longer runway for us to build into a custom space business, but so far results are promising despite the macro environment.
Got it and then just kind of thinking about that sort of commentary on the six new store openings is down from the nine new store openings. I know you guys said that there's no delays out there.
But just wondering if you could kind of unpack that a little bit I mean do you feel like there is you know the of the three stores that you are not going to open this year anymore.
Felt like maybe in that specific geography, it didn't make sense to open them or are you, having a challenging time get getting inventory or staffing or what is it you know just a little bit more detail around those delays I think it would be helpful.
Yeah, Ryan its just a just a matter of timing when you're putting them together.
There's many deals in different pieces different reasons for each one but theyre pushing we expect those to be pushed into Q1 of 2024 and given the fact that these are slated to open at the very end of Q4 of fiscal 'twenty three.
It's not a huge push but it's outside the fiscal year.
Yeah.
Yeah.
Thank you.
As a reminder, if you would like to ask the question in a star one on your telephone keypad.
Our next question comes from Kate Mcshane with Goldman Sachs. Please proceed with your question.
Hi, good afternoon. Thanks for taking our question two questions from US you know one I was wondering if you could maybe walk us through the cadence of comps during the quarter when maybe start.
The weaker launch during the quarter and then the second question is around inventory how are you feeling about the quality of inventory you have on the books today, that's coming in versus maybe what your expectation is now for comp and how you plan to manage that.
Okay. Thanks for the question.
When we look at the cadence of the quarter.
The first couple of months were relatively consistent with.
We saw a drop off we were experiencing a lower traffic volumes, we talked about that on our Q3 call. We saw a notable decline in that during the month of March and we continue to see that in the month of April .
Which is what's driving our outlook our view.
View.
So definitely got more challenging in the month of March.
Thinking about inventory.
We are actively monitoring our inventory levels adjusting our buys.
Poor demand and in relation to demand and so right now we feel really good about our in stock inventory levels.
Being appropriate for what what we're targeting.
Yeah, and I would just add this is to teach and.
Just add you know we still believe that we've got great growth opportunities that complement our core storage and organization solutions as well when it comes to inventory really pleased with the results, we're saving whereas seeing from home fragrance plant based cleaners and I knew everything organize it collection.
And as I mentioned, we see even more growth categories coming in travel home decor dining and entertainment.
Back to school also presents.
US with a great opportunity for us to not only capitalize on adenoma five partnership but also bring in new essentials as I mentioned earlier like vintage fans and and Coffeemakers in Diffusers and we're very excited about our soon to be launched drop ship capabilities that allow us to expand our assortment with key.
Current vendors and enter new categories without having to carry the inventory.
Thank you.
Yeah.
Thank you.
Our next question is from Chris <unk> with J P. Morgan. Please proceed with your question.
Thanks. Good morning, guys. So just wanted to follow up on on how the consumer's behavior has changed.
I think last call you talked about the consumer still engaging on the custom closet side. It was just simply not simply but you know doing.
Two instead of four one instead of three.
So how does that change and is it is it like the traffic trend has deteriorated further are you seeing some trade down in terms of the types of closets are projects that the consumers taking on.
And then anything in terms of the you know number of.
Custom closet, so they might be doing.
Yeah, Hi, Chris a few comments and some that we've already stated before I mean generally the customer that we're seeing right now is.
Contending with even more with the higher interest rates and economic uncertainty and so they are pulling back on their discretionary spending and I wouldn't say, we see them trading down we see custom spaces still.
<unk> are performing well for us in particular at Preston and <unk> line, which is a more premium spaces and but there you know in this current environment and.
And we are in a discretionary categories. They are just thinking about when and how to make those purchases in this current environment.
Traffic.
Is I would say, it's still double digit down and we have seen a reduction in average ticket. When we gave customers a compelling reason to come back whether it's newness so back to college or a promotional campaign. They definitely do engage with us and so we continue to try to understand the psychological nature of our customers and how best to engage.
<unk>.
What they're having to contend with today with the offering that we have.
Understood and then.
Just on that.
On the April side or two follow ups. So one on the pro side you know, there's some well documented.
No tax refund headwinds that really well.
Our acute to March and got less in April and you know a lot of retailers have seen some.
In terms of the April trend.
Do you think actually funds had any impact in your business.
And have you seen any sort of less worsening in April .
Yeah, Chris what I would say is that we've not historically seen impacts for tax refunds, just given our customer demographic. Historically, so I wouldn't necessarily say that we noted something specifically related to that in the month of April I would say the.
<unk> continue.
Continue in line with what we're expecting for the entire quarter.
And.
We'll just see how it plays out.
Got it and then my just my one last one which is.
You know a lot of the a lot of product that comes over on Ocean freight are seeing on the furniture side. Some deflation set and as you know that that was such a drove such a surge.
The cost of importing those items.
Or are you handling our ocean freight we've seen it obviously youre seeing gross margin benefits, but are you also taking reinvesting some in price.
Yes, Chris we are seeing a reduced freight rates on the ocean side, and we're starting to see that average into our inventory, which I would say is.
It won't be as pronounced in the first quarter, but it will be more pronounced as we get further ended the year into the fiscal year.
Especially when you think about the first quarter gross margins being.
Around.
The fact that while in comparison to Q4.
The betterment, we had in Q4 was really driven around the anniversary of a $2 22 of that.
That also drove a lot of Gen merch.
And the prior previous year, and a lot more online selling with higher freight costs. So the 101 hundred 90 basis point improvement that we saw in Q4, I Wouldnt expect to see that level in Q1, but as we move through the fiscal year, we're certainly seeing moderate tailwind related to freight and the product mixes that we've assumed through the.
Fiscal year.
And then just on the pricing how are you thinking about pricing.
Like Elfa I'm assuming comes over.
On a boat.
Yeah from a pricing and promotional perspective.
We're looking at Spt's mentioned, we're looking at different ways to engage our customer making sure they more and get the more they engage the more they save and finding ways.
To engage them such that.
We can drive overall profitability, so we're not necessarily taking price to take price, but we're looking at it more from an overall profitability perspective, and I would say that goes for both the general merchandise side and the customer space side. This fiscal year fiscal 'twenty three we mentioned on the call that we're going to have.
All three of our lines on promotion together featuring custom spaces throughout the home, which is a different promotional strategy that will have in each quarter of the year than what we've historically done which has been each particular line on promotion with the others not so theres a little bit shift in strategy from that perspective.
Yeah.
Understood Thanks very much.
Thank you.
No further questions at this time I would like to turn the floor back over to CEO Satish Malhotra for closing comments.
Yep I just wanted to say once again, thank you for joining us today and wish you a very good night.
Thank you. This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation.
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