Q1 2024 Destination XL Group Inc Earnings Call
Good day, and thank you for standing by and welcome to the Q1 2020 for destination XL Group incorporated earnings call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone.
You will then here in the automated message surprising that your hand is raised to withdraw your question. Please press star. One again, please be advised that today's conference is being recorded I would now like to hand, the conference over to your Speaker Shelly Moger Vice President of Investor Relations. Please go ahead.
Thank you operator, and good morning, everyone. Thank you for joining us on destination XL group's first quarter fiscal 2024 earnings call on our call today are our president and Chief Executive Officer, Harvey Kanter, and our Chief Financial Officer, Peter Stratton.
Speaker Change: During today's call, we will discuss some non-GAAP metrics to provide investors with useful information about our financial performance. Please refer to our earnings release, which was filed this morning and is available on our Investor Relations website at Investor day, the XL Dot com for an explanation and reconciliation of such measures.
Today's discussion also contains certain forward looking statements concerning the company's sales and earnings guidance long range strategic plan and other expectations for fiscal 2024, such forward looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from those assumptions mentioned today due to a variety of factors.
Does that affect the company.
Information regarding risks and uncertainties as detailed in the company's filings with the Securities and Exchange Commission.
I would now like to turn the call over to our CEO Harvey Kanter Harvey.
Harvey S. Kanter: 40% of the male population is considered.
And so.
40%.
Now imagine there was a place where those 40% buy clothes that Wade.
Harvey S. Kanter: Wait for it.
Yes.
Crazy.
Right.
Harvey S. Kanter: So we may close with the bigger throw them out.
Dx.
Where would you want.
Thank you Shirley and good morning, everyone.
I led off with a 32nd spot and it's a very purposely because one of our key focuses right now is on catalyst for greater growth in our strategic long range plan initiatives to accomplish this.
Harvey S. Kanter: In this regard the first quarter of fiscal 2024 has proven to be too different conversations.
We are happy to report that our long range plan growth initiatives are continuing to progress forward.
Harvey S. Kanter: Conversely, we are disappointed by the first quarter is tough comp sales performance.
While we are energized by our brand campaign that just launched and the greater opportunity to grow market share.
Get into the branded marketing campaign details shortly.
Harvey S. Kanter: But no that what you've heard is but one tangible element of our LLP and specifically an initiative to create greater awareness and access for <unk> cel with big adult consumers to drive greater growth.
And so now I'll say, thanks, again to Shelly and thank you all for joining us on the call today.
For todays call. There are two major topics that I want to talk about first I wanted to cover our first quarter results.
Many of you likely have already seen in our press release, which was issued earlier. This morning, our first quarter sales performance was disappointing.
We posted a comp sales decrease for the first quarter of negative 11, 3% driven.
Harvey S. Kanter: Driven primarily by lower traffic levels to our stores and lower conversion of traffic on our web site, while average order value was pressured in both channels.
At this point in the year, we're hoping to start to see a greater inflection in sales, but the consumer is pressured and he is just not prioritizing spend on big and tall apparel yet.
With that said I'll get into more of the details behind our first quarter performance in a few moments.
Harvey S. Kanter: Second let.
Im excited to update you on our long range plan.
As I mentioned on our Q4 earnings call back in March we are executing on SRP that is comprised of four specific initiatives designed to overcome for specific challenges, we believe limit our potential for a greater rate of growth in our current business model.
Harvey S. Kanter: Let me remind you of what those are.
First is overcoming a lack of brand awareness, we have launched a new brand advertising campaign for the first time since 2017.
The brand campaign launched on May 13th and a three matched market test in Boston, Detroit and St. Louis.
And it includes broadcast TV connected TV streaming video audio paid digital channels in the out of home as well as the one to marketing.
Second is our store footprint.
There are gaps in our store portfolio, we call. It white space in April we opened the first of eight stores for fiscal 2024, and Coon Rapids, Minnesota are.
Our second store has just opened last weekend in thousand Oaks, California, and we have two more stores expected to open later in Q2.
We will open for more white space stores in the second half of the year. This begins to further address the challenges big and tall men have shared with us and what they while they do not shop with us with 44% of the time, because there is no store near them and 35% of the time because there is no stork immediately near them.
The third initiative is improving our digital experience, we are transitioning to a new and improved e-commerce platform through a phased approach. The first element of this new platform is launching now a second element will take place in late summer and a final update just after the holidays.
New platform enables us to enhance critically important operating capabilities, while serving as the foundation for key growth drivers, specifically improvements in customer experience and UX user experience.
Harvey S. Kanter: And finally, the fourth initiative is alliances and collaborations.
Collaborations with other retailers allows us to overcome the challenge of reaching consumers, who may never be exposed to EXL brand through our organic channels on April 29th we announced our latest collaboration with Nordstrom, which will allow us to bring the DSO experience be under four walls are directly to the nordstrom's consumer we are very excited to be launching the XL.
Dig into offering a nordstrom's digital marketplaces platform.
All four of these initiatives are progressing, but the number of new white space stores and the timeline for the development is behind our plans.
In fiscal 2023, we opened three new stores instead of the five planned in the fiscal 'twenty four we're now expecting to open eight stores instead of the planned 10.
Since late in 2023, we have been pursuing steps, which have been shared previously including the hiring of beta our commercial real estate transaction and advisory platform and we are also evolving the organization an effort to improve the process and outcome.
Continuing with the first quarter review and despite the challenges in sales results are regimented operating process structure and discipline have helped us to deliver gross margins inventory and operating expenses better than expected at the end of the first quarter, our inventory's in great shape fresh spring receipts flowing into our stores and are available on.
Harvey S. Kanter: Our web site, which is setting up a great experience for our customers as we approach father's day.
We continue to carefully manage both our operating expenses and capital expenditures, while still funding our growth initiatives because of this careful cost management and we continue to maintain a fortress balance sheet and even though our results. This quarter do not reflect the potential of our brand or the opportunities get in front of US we are excited about the future.
So let me get right into a few more details about our first quarter performance comp sales for stores were down 11, four while direct was at 11 point over the first quarter comp sales by month improved ever so slightly with February down 12, seven March down 11, one in April down 10 four.
The first three weeks of May comp sales are essentially mirroring the first quarter.
As I stated a moment ago, our first quarter results did not meet our expectations. We are operating in a highly challenged environment in this past quarter did not reflect the potential for our brand.
Our results continue to be impacted by broader macroeconomic challenges at an ever tightening share of his wallet.
As inflation continues to rise our customers are pushing more and more of their spending into essentials, and consequently that puts pressure on discretionary spending such as apparel.
Harvey S. Kanter: Similar to what we saw in the fourth quarter of last year, our customers bought fewer items displayed more price sensitivity in their buying behavior.
Harvey S. Kanter: On our last earnings call in March we talked about how our sales expectation for the full year was to be somewhere between $500 million and $530 million.
Now estimate sales to be at the lower end of that range. Despite the decline in sales expectations. We are still guiding to an adjusted EBITDA margin of 7%. Thanks to strong merchandise margins and careful expense management.
We still have work to do but we are cautiously optimistic that we can execute our fundamentals by focusing on what we can control.
And stores the narrative from fiscal 2023 has continued into the start of 2020 for traffic to stores accounts for approximately 90% of the comp sales decline, while dialed per transaction and conversion to make up the remaining 10%.
Harvey S. Kanter: On a positive note our three new stores that opened last fall in Queens, New York, Cincinnati, Ohio, and Pennsylvania, California are all driving strong dollars per transaction and new to file rates that are approximately three times the change average <unk>.
Harvey S. Kanter: <unk> stores have been slow to ramp, but not unexpected given the difficult consumer environment. We are observing with the rest of the store portfolio.
Our 11 casual male stores that were converted to <unk> last year have also been a bright spot.
Secondly, these 11 stores are roughly flat in sales comp year to date as compared to the full portfolio, which I mentioned earlier is down 11% for.
We expect to convert five more casual male stores that DSL formats by the end of the fiscal 2024, which leaves the only 12 anchor stores remaining under the casual male banner.
And merchandising the overall sales penetration between designer collections and private label brands was relatively consistent with last year. However, we have seen the customer trading down within both categories.
In a recently published report by Adobe analytics, the authors conclude that consumers trading down to less expensive goods across a broad spectrum of categories, including apparel.
The research concluded that 55% of apparel units purchased in the first four months of 2024 have come from the lowest quartile of prices, whereas for the same period last year. These goods only represented 35% of yields likewise higher price goods some decline in share from approximately 22.
And unit two this year, consisting of only 8% to 9%.
As many of you know <unk> trades and moderate to upper moderate price points. In this report from Adobe offers further perspective for our traffic challenges.
Harvey S. Kanter: We see this as confirmation that inflationary pressures are continuing to drive significant changes in consumer purchasing behavior across multiple product categories, including apparel.
That being said we did the re did resist the temptation to promote our way to a favorable sales results and consequently, our merchandize margins have held up better than expected.
Management continues to be an achievement of our operating discipline compared to last year, our quarter, ending inventory was down $9 1 million or approximately 9%, while our inventory turnover has improved by almost 30% from 2019.
Clearance levels to nine 7% at the end of the first quarter are in line with our long term expectations of 10%.
And from a brand perspective, and your volumes Ferreting Hugo boss in Kentucky have all performed well our customers love the new options and styling of our four brands and Untucked is now available in 30 stores and we plan to increase to 50 in the fall.
Let me now switch gears and provide you an update on our marketing and our brand campaign launch. We are very excited to have launched our first brand campaign since 2017 on may 13th as.
As I mentioned, we are employing a match market test in three markets to measure the lift we can expect when we rollout nationally in 2025.
The campaign is running in Boston, Detroit, and St. Louis and <unk> matched market.
Similar markets and similar store density.
The initial flight will run through the important father's day season. The campaign is running across multiple channels, including broadcast and cable TV.
<unk> TV streaming video audio and paid digital including social and out of home.
Early indications are positive as defined by greater online traffic in those markets.
We conducted consumer research that validated our strategy insight as well as the messaging to be sure. It resonated with customers. We continue to believe this initiative can be a meaningful catalyst for our business as we introduce more big and tall shoppers.
DSL and our unrivaled fifth.
As I mentioned last quarter. Another key initiative in our LLP is improving our customer digital experience.
And the current platform, while developing critically imperative operating capabilities.
Building the foundation of key growth drivers and improving the customer experience are all underway and progressing on schedule.
Harvey S. Kanter: This work will reduce friction and simplify the digital shopping experience.
We believe this will improve the conversion of traffic on site with the enhanced capabilities of new of the new platform additions.
Additionally, these upgrades will provide a more agile speed oriented opportunity to increase the pace of change with access to audit more automation and finally, it will provide an enhanced level of customer search functionality and will better leverage emerging AI capabilities.
First phase of the rollout is happening now in the platform's evolution will continue to progressively summer and then the balance of the change will be executed by year end.
The evolution of our Tech stack has continued as we endeavor to deliver more relevant messaging to specific cohorts of customers, while delivering greater levels of personalization at scale.
We have expanded our relationship with <unk>, which we initially engaged in Q2 of 2023 to handle our remarketing emails. We are in the process of migrating all of our email program to them. Following the outstanding results delivered in our proof of concept work over the last year.
We believe this change will be a greater revenue, while providing better analytics and capabilities to better engage our customers.
Let me now transition to a topic that we think is going to be a big win for DSL.
Last quarter I mentioned that we are in the final stages of an agreement with another retailer that will allow us to sell our product through new distribution channel that is aligned with <unk>, leading retail consumer experience.
As we reported in our press release at the end of April I'm, very happy that this leading retailers and Nordstrom.
We're looking forward to bringing the DSL big and tall offering to nordstrom's digital marketplace to.
We are currently in discovery mode for more collaborative offers with several other brands and we are optimistic that some of these brands could play a role in our assortment and time and similar to the collaboration with <unk>.
And with that I'm now going to turn it over to Peter for a review of the financials Peter.
Thank you Harvey and good morning, everyone I'll start with some additional color around our first quarter financial performance.
Net sales for the first quarter were $115 5 million as compared to $125 4 million in the first quarter of last year total sale sales decrease of seven 9% and a comparable sales decrease of 11, 3%.
The difference between total sales and comparable sales was primarily from two factors, which will continue throughout this year.
First we had an increase in non comparable sales of $1 8 million, which primarily related to new store openings and.
And second there is a one week calendar shift in our comp calculations, resulting from the 50 <unk> week in fiscal 2023, which was worth $3 million for the first quarter.
Stores, which continued to penetrate about 70% of our total business were down 11, 4% in the direct channel, which comprises the other 30% of our total business was down 11%.
We believe the disappointing sales results are directly tied to the ongoing macroeconomic challenges that our customers are facing with the cumulative impact of inflation pushing up grocery bills housing costs and gas prices, leaving our guy with less discretionary income to spend on himself.
As Harvey noted we are now estimating full year sales of 500 million, which represents a negative four 5% comp.
We expect the second quarter will remain challenging with comps in the mid to high single digit negatives, but with improvement in the second half of the year to approximately flat as our growth initiatives start to have more impact.
Next I will speak a bit about gross margin, which is a bright spot in our first quarter results. Our gross margin rate inclusive of occupancy costs was 48, 2% as compared to 48, 6% in the first quarter of last year.
The 40 basis point decrease was due to a 175 basis point increase in occupancy costs due primarily to the lower sales base largely offset by a 135 basis point improvement in merchandise margins and we are pleased with how well our merchandize margins performed in a difficult sales environment.
Harvey S. Kanter: Sure.
A shift in merchandize mix favorable shipping costs, a reduction in royalty expense from adjustments, we made to our loyalty program <unk>.
Harvey S. Kanter: And a reduction in marketplace commissions, all contributed to the strength of our merchandize margin results.
We continue to focus our limited promotional dollars on areas of slower moving products to minimize our exposure to future markdown liability as we attempt to address ongoing traffic challenges for.
For the full year, we continue to expect margin erosion in line with Q1 or a range of 30 to 50 basis points.
However in the event, we don't see improvement in our traffic levels, we may need to be more aggressive with our promotions.
On the balance sheet, we feel very good about our inventory position. Both in terms of total inventory balance at the end of the quarter in relation to our turnover rates as well as our clearance levels.
Inventory management continues to be a critical element of providing the best big and tall shopping experience possible and it's one where our operating discipline has set us up well for success.
Moving on to selling general and administrative expenses or SG&A as a percentage of sales increased to 41, 1% as compared to 38, 5% in the first quarter of 2023.
The deleverage in rate was entirely based on our lower sales levels as on a dollar basis SG&A expenses decreased by $800000 as compared to the first quarter of last year.
The dollar decrease was primarily due to lower store payroll and performance incentive accruals, partially offset by an increase in advertising costs and investments in our long range growth initiatives.
Our AD to sales ratio for Q1 increased to six 3% from five 5% in Q1 of last year.
This does not yet reflect investments in the brand campaign, which we will start to recognize in the second quarter for.
For the full year, we still expect to spend about 7% to seven 5% of our sales and marketing costs up from five 9% last year.
EBITDA for the quarter came in at seven 1% as compared to 10, 1% in the first quarter of last year.
This 300 basis point decrease was in line with our expectations. Despite the lower than expected sales result for.
For the full year, we expect an EBITA margin of 7%.
I'll finish up with a few notes on liquidity.
We continue to feel very good about the overall strength of our balance sheet. We finished the quarter with cash and short term investments of $53 2 million as compared to 46 million a year ago.
Outstanding debt in either period, and availability of $79 2 million under our revolving credit facility.
With the seasonal build of inventory and payment of prior year incentive accruals Q1 is typically a quarter with a net cash outflow.
This quarter, our free cash flow, which we define as cash flow from operating activities less capital expenditures was a use of $7 million of cash as compared to a use of $5 9 million in last year's first quarter.
We are keeping most of our excess cash were $36 9 million in short term U S government Treasury bills, which are already interested over 5%.
Harvey S. Kanter: Our fortress balance sheet gives us the ability to continue to pursue our long term growth initiatives. Despite the short term economic challenges we are facing.
We remain focused on executing our growth strategies and executing the day to day business with a high level of operating discipline.
I'm now going to turn it back over to Harvey for some closing thoughts pardon me.
Harvey: Thanks, Peter I'll close with this statement I remain energized by the grit and passion of the entire DSL team to serve the underserved big and tall consumer.
Despite the challenges.
The team has achieved over the past four years is remarkable and none of this would be possible without the hard work and dedication of all our people in the stores and the distribution center and the corporate office and the guest engagement Center.
Because of this talented team and the culture that we've created that I want to get up every morning, and keep moving on this journey.
Thank you for all your hard work and commitment and our pursuit of serving big and tall men in making <unk> the place where they can choose their own style and where what they want.
And with that operator, we will now take questions certainly as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please standby will be compile the Q&A roster.
And our first question will come from Jeremy Hamblin of Craig Hallum Capital Group. Your line is open Jeremy.
Thanks for taking the questions.
Speaker Change: I wanted to start with.
<unk>.
Investments in the business, so youre progressing forward with.
Speaker Change: Is.
With the marketing investments.
And in terms of thinking about matching.
The.
The slower sales trends with that investment and thinking about what you are looking for in terms of response.
Speaker Change: On the marketing or probably better put like the timing of response when you would.
Expect to see some inflection here from the new media campaign.
Speaker Change: How should we think about that.
Speaker Change: The jump in expectations were.
We're guiding to a mid single to high single digit decline in Q2.
And then seeing that get back to a flattish level.
In the back half of the year, how quickly youre expecting a response.
Jeremy It's Harvey Kanter. Thanks for the question. It's a great question. One we've debated a lot in terms of how to presented but it's pretty simple. The fact of the matter is we have done a lot of consumer work in 2022, and most importantly in 2023 and that insight is that consumers provided two.
Actives and without addressing those two perspectives, we much might have a much more limited opportunity to take share market those perspectives are factually.
7% to 8% of consumers in an unaided context <unk> is.
I would expect if you were at a dinner party and you somehow get to a coverage conversation and you say among others you've covered EXL, mostly 90 plus percent of men unless you offer them something won't know, who we are and in aided awareness, it's less than 30% the.
The other factual basis of our insight is that over almost 50%. It was actually 44% in the last brand study.
So they do not shop with us because theres no stores near them.
35%, so no store conveniently near them and the reason I stressed both these elements and then I'll ask answer to your question is that they are catalysts for change and we would not and should not have great expectations for double digit growth, which we ultimately are striving for in a period of time.
Speaker Change: Which I will discuss in a moment unless there is something that is going to change the opportunity that we believe is present for us. We've obviously been at this I've been with the company now in my six year. We've had some very big success, we've managed to grow the EBITDA rate EBITDA dollars.
Multiple points in time, even with our current update we will still be meaningfully over 2019, but a catalyst for greater growth is dependent on strategic actions and investments, which we're making now in direct answer to your question on marketing, it's not a light switch we have communicated previous.
Speaker Change: And I'll re communicated here that we see it as a two to three year investment. It's a long a long term gain over time, but just because we advertise doesn't mean people are going to run in the store and our beliefs, whether it's based on adobe's insight, whether it's our own knowledge, whether its our current traffic.
Whether it's some of the comparable around us or even our own year over year two year stack.
We absolutely know there are challenges in our business greater than we anticipated, but the advertising will take time to spool up what we're doing to specifically measure it online today.
It's really about sessions and traffic to the website after that.
Core team do they come to the website do they convert did we hold the average order value and those are downstream of the traffic the advertising as it is.
Speaker Change: The entire intent is to drive awareness and trial and trial as it came through the website. That's what the advertising did then do they find something to buy and do they buy something at a traditional conversion level and a traditional <unk>, we're not looking for material change in conversion or material change.
And we are looking for material change in traffic the same can be said in our stores.
Speaker Change: And our stores may see some greater revenue growth, but in reality, it's all about traffic and once that traffic comes to a store. It's all about having the right products and the right size at the right price and creating a compelling experience, which if you look at our most recent quarter, we haven't published it but our most recent quarter was.
80% NPS in the store, which last year was about 79. So it continues to grow the level of experience been communicated to us by our consumers once they come in the store, but most importantly in both cases, if we don't drive traffic with the advertising we won't win that that investment.
We're making is driven by fact, not opinion and the ultimate Mark of that success will be traffic.
Speaker Change: Probably report material traffic details, but we will report thematic lead traffic over time remember at two weeks into the AD campaign Theres not a whole lot to report I can tell you. The first blush is exciting but in reality it has to move meaningfully greater than the first blush.
Speaker Change: Understood.
Helpful color.
I also wanted to follow up on the point that you made I think.
Thank you said, 55% of units sold are coming from our lowest.
Core tile of price point and think about.
Speaker Change: Putting that in context of how you expect that.
Speaker Change: To potentially impact your channel mix.
In terms of what you see from your online business from your store business does this.
Potentially.
I think you've said that the times your online customer can be a bit more price sensitive but wanted to just see how you expect that to potentially impact your mix of business, yes, Jeremy the question about the insight that we shared which was adobe I want to stress that was Adobe reported information.
Recent weeks and that insight was 55% of consumers are now shopping in the lowest quartile and that compared with 32% a year ago. So ultimately it means theres been a shift down in price points being shopped at it's not a huge surprise at some level the largest part of the big and tall.
Market is the mass market the largest part of the $20 billion addressable market is in the mass.
Adobe: Consumers pressure that we believe the economic challenges, whether it's gas or mortgage rates or food or what have you are putting on the consumer is at the level. He is choosing do shop, which we think is down but at the level. He is we believe that Adobe was representative of where the market's going and I.
Specifically the Dx al is traditionally in a moderate or even upper moderate price point brand. So think about things like <unk> or Ralph Lauren or vineyard vines. Those are price points that are not mass market price points and so by definition, we are losing a customer that is under pressure.
Excuse me and as options in the mass market that being said, we are not trying to be all things to all people because that would be the kiss of death, and when I say that we're not going to now add 15 or 20 brands that are lower price points, because if you try to be all things to everybody or nothing to no. One that cliche is real but we are even.
<unk> our mix with what we would say our barriers to entry today, which is potentially price points, but augmenting the current assortment with select brands that have lower entry prices to try to address that if it became a more meaningful conversation, which we don't believe over time it will be more.
<unk> for <unk> than we would have to more significantly evaluate the nature of the mix and how we assort. The brand there is lots of conversations and there has been unfortunately for probably 12 18 24 months is are we in a recession or are we in an economic down down down win conversation when will it come back.
Speaker Change: We can't demonstrably change our entire assortment to address barriers to entry price point, but we absolutely can and are addressing more brands that are more opening oriented price point without trying to be all things to all people and when I say that again.
You may or may not recall. This historically back couple two three years ago, We had 200 brands in our mix.
We have something north now of just 100 brands, but if we would take the 100 brands and add 30 brands of low price point products, where would it go what we have to get rid of et cetera, et cetera, and DSL is absolutely set up to successfully navigate what we would define as our customer that nears $100000 average.
Income and it's a moment in time, which we can't spinoff.
Dime, if you will materially change the entire assortment overnight hopefully that was a lot more color than you asked for but demonstrative of what we're doing or not doing.
No. That's helpful last one for me and I'll hop out of the queue.
I just want to come to the Nordstrom collaboration and.
Speaker Change: Get a sense for in terms of.
Timing of the launch on the marketplace.
And getting a sense for when you kind of first time frame that you expect that that could have.
Potential.
Benefit.
On sales I'm going to assume that there is probably a pretty little included in your 2024 sales guidance.
Speaker Change: But just wanted to understand the timing of when that that potentially could could really show up.
As a results.
Incredibly excited to literally tell you that it's live now it is live on their site.
It has been a challenge for both us and nordstrom's, we both have a lot going on but we became live about 36 hours ago.
I think we went live like four o'clock on Tuesday afternoon, and what's really amazing is I think 12 <unk> am on Wednesday morning, which was obviously yesterday, we sold three pants and.
We were very excited at how quickly we sold something.
Speaker Change: The plan right now is something in the vicinity, let's say.
Maybe.
A couple of thousand units approximately styles that will double over time by fall and our hope and belief is that it will spool up I would not call. It material this year, but that's not material as you said in our guidance. We are hopeful that we will be surprised nordstroms has an incredible retailer.
Their relationship with consumers is a hallmark of retail and one we are incredibly excited to align with if you think about our net promoter score and our offer online digital marketplace. If you search now you will see a number of styles that are available.
Kind of a process and.
For lack of a better with its berthing process. So we are seeing more and more styles come online every hour and it wont probably be complete probably until sometime next week on the first pass, but it will be a meaningful assortment across sportswear and tailored clothing and one on both incredibly proud of the merchant team.
The marketing team for the efforts to get it across and that was turned over to our tech team, who is now working incredibly diligently with nordstrom's to get it all up and running and that's where the opportunity is to understand how quickly the consumer will respond.
Speaker Change: Great. Thanks for taking my questions and good luck. This year. Thank you so much for your time.
And as a reminder to ask a question. Please press star one one our next question will be coming from Michael Baker of D. A Davidson.
Michael Your line is open Hey, Mike Hey, how are you a couple of bigger picture than shorter term, but.
Maybe you've kind of answered this so maybe there won't be any more color to add but.
Boston I've seen the advertising campaign I think it looks great commercials are good.
You really have any insight as to how customers are thinking about those are responding or anything like that in the test markets, Yes, I would tell you.
Wanted to make sure we don't get ahead of ourselves, but what we are seeing in the markets St. Louis Detroit and Boston against the three match market is.
I would say material upside in initial first blush obsessions and when I define material upside we didn't have an expectation and literally it was going to be a light switch like all of a sudden we're going to do in advertising and everyone's going to come to the website, but we are seeing.
What we would call a catalyst change in the number of sessions in those markets and there's a lot of variables right. So we have father's day coming which obviously was the timing we executed we will at last after the advertising goes away it will come back for holiday.
Speaker Change: We've been challenged by the level of investment in a perfect World I was so excited we wanted to front role all of the holiday into father's day and go further deeper but the team appropriately challenged me and said, let's not get ahead of our skis. So we're seeing some movement and we expect it will continue to grow.
But it's a long road building awareness.
A long road and Thats why we articulated a two to three year run rate and we specifically said that national rollout full blown national rollout at the millions of dollars that will take will be 2025 with an expectation between now and then we prove to you and ourselves and our investors that we are getting a return.
They will continue to grow and ultimately generate revenue because we'll bring people in and convert and drive.
And the <unk> that is similar to what we have.
Yep.
If I could ask a question for Peter just on the guidance.
Speaker Change: Can you sort of walk us through how.
Sales can be at the low end, but you maintained the EBITDA margin, particularly with the gross margin I think.
Basically reiterate your plan maybe dropped the low end a little bit so I presume I guess the differences.
Costs must be must be taking out a lot of costs or something but if you could just sort of square that circle. How you can still generate the same 7% EBITA margin.
With sales at the low end.
And the gross margin outlook virtually unchanged.
Yes, happy to do that Mike.
I would agree with.
Speaker Change: Harvey has said throughout.
Sales is the most difficult piece for us to control, but I think over the last several years, we've really.
<unk> developed our capabilities that exercising different levers depending on how sales responds so to your point we are.
Trying to scale back everywhere that we can whether that's in SG&A.
Speaker Change: We've had as Youll see in the results this quarter.
Merchandise margins were really good we had some some good news.
Speaker Change: Our shipping costs.
The product was a little bit better whats sold.
So I guess.
Without getting into.
The specific detail the general answer to your question is yes, we are.
Bottling back on every controllable area that we possibly can.
Speaker Change: Within SG&A occupancy ended margin.
Yes, Mike the thing I would add to that.
And you'll appreciate this and hopefully our investor base as well.
We're trying to navigate something very difficult, which is how do you grow a business and have factual based insights that are required a catalyst.
And so we're doing what we need to do and we're very protective of the long term investments because without those investments why would we have any expectation to change the sales trajectory. So.
As Peter said, SG&A merchandize margin shipping costs.
No stone unturned at this point.
And reality, hopefully, we will continue to balance that appropriately.
Great makes sense appreciate the time.
And Im showing no further questions I'd now like to hand, the call over to management.
Well operator, thank you for your time and thank you for the and from the Investor base for being on the call with us as well as our analysts. We appreciate your looking to hear our insights and perspective, we hope that we will continue to make progress in our initiatives. We are very excited about that and hopefully you've heard that enthusiasm I also want to underline the operating regiment.
We have that Peter referred to is one of the cornerstones that I think give us some belief that we know how to run the business successfully and we just need to go after those things that have identified by consumers as the reasons why they don't shop with us and with that I wish you all a happy father's day, hopefully a good summer and we will talk to.
In August.
Speaker Change: This concludes today's conference call. Thank you for participating you may now disconnect.
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