Q3 2025 Duluth Holdings Inc Earnings Call
Speaker Change: Good morning and welcome to Duluth Trading's third quarter financial results conference call.
Speaker Change: All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad.
Speaker Change: After today's presentation, there will be an opportunity to ask questions.
Speaker Change: To ask a question, you may press star then 1 on your telephone keypad. To withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to Nitza McKee, Senior Associate, IR at ICR. Please go ahead.
Speaker Change: Thank you and welcome to today's call to discuss Duluth Trading third quarter financial results. Our earnings release which was issued this morning is available on our investor relations website at ir.duluthtrading.com under press releases.
Speaker Change: I'm here today with Sam Sato, President and Chief Executive Officer, and Heena Agrawal, Senior Vice President and Chief Financial Officer.
Speaker Change: On today's call, management will provide prepared remarks, and then we will open the call to your questions.
Speaker Change: Before we begin, I would like to remind you that the comments on today's call will include forward-looking statements, which can be identified by the use of words such as estimate, anticipate, expect, and similar phrases.
Speaker Change: Forward-looking statements by their nature involve estimates, projections, goals, forecasts, and assumptions, and are subject to risk and uncertainties that could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements.
Speaker Change: Such risk and uncertainties include, but are not limited, to those that are described in our most recent annual report on Form 10-K and other SEC filings as applicable.
Speaker Change: These forward-looking statements speak only as of the date of this conference call and should not be relied upon as predictions of future events.
Speaker Change: Thank you, Nitza, and thank you all for joining today's call.
Our third quarter performance did not meet our expectations.
Speaker Change: We felt the impact of a highly promotional environment and unseasonably warm weather resulting in a net sales decline for the quarter of 8.1% with our direct and retail channels delivering similar year-over-year top-line results.
Speaker Change: Despite the macro and weather-related impacts, we are pleased to see growth in our average order value and a double-digit increase in digital traffic. That said, these were not enough to offset the year-over-year contraction in transactions.
Speaker Change: We ended the quarter with inventory levels higher than planned, driven by a combination of early planned receipts of core products to ensure we are in stock for the holiday selling season, and cold weather goods in which sales were impacted by warmer weather.
Speaker Change: As a result, we began taking the necessary actions to increase our unit selling velocity beginning in late October, and I'm pleased to report that our top-line trends have meaningfully improved leading into the all-important Black Friday week and continuing through Cyber Monday.
Speaker Change: As we enter the final peak selling weeks of the holiday season, we are committed to prudently managing our inventory and ending the fiscal year in a clean, high-quality position.
Speaker Change: In what remains a highly competitive market, we have an unwavering commitment to delivering value to our customers while also positioning our business for continued success in the future.
Speaker Change: Looking past fiscal 2024, leveraging our advanced sourcing and product innovation functions, and in partnership with our new chief merchant Eli Getzen, we are significantly enhancing our go-forward assortment and inventory management.
Speaker Change: As we look ahead to 2025 and beyond, we are building upon the success of our strategic initiatives, making meaningful progress on structural improvements,
Speaker Change: and Embarking on Enterprise Planning, an end-to-end cross-functional initiative to significantly enhance our operational effectiveness and strategic planning processes.
Speaker Change: There's much work ahead of us, and we are laser-focused on improving our financial performance while driving operational excellence over both the near and long term.
Speaker Change: I'd like to provide you with an update on the key initiatives tied to our Big Dan blueprint, the foundation of our omni-channel consumer strategy, which are on track with expected benefits materializing.
Speaker Change: First, an update on our sourcing and product innovation efforts, which remain a critical strategic unlock for the business.
Speaker Change: As a direct result of this initiative, we registered another quarter of gross margin expansion with over 200 basis points of improvement over 2-3 last year.
Speaker Change: We continue to have line of sight to multiple years of significant product cost benefits. In addition to reducing product costs, this initiative enables us to bring to market high-quality, innovative products more frequently with increased speed to market.
Speaker Change: Regarding our Fulfillment Center Network Optimization Plan to maximize service, capacity, and cost, we continue to leverage Adairsville's fully operational and highly automated Fulfillment Center capabilities.
Speaker Change: It's enabled structural improvements, like exiting the Dubuque facility successfully, on time, and with a smooth transition of the volume into the remaining network.
Speaker Change: As we enter the peak holiday selling season, we are on track for Daresville to process the majority of online orders and replenishment volume.
Speaker Change: In fact, over the Thanksgiving weekend through Tuesday, Adairsville processed 64% more units compared to last year, with a significant reduction in our click-to-delivery time.
Speaker Change: Importantly, in Q3, we registered another quarter of cost per unit fulfillment benefits with the variable CPU in Adairsville, 73% lower than the legacy facilities.
Speaker Change: With the elimination of fixed costs from the exit of the Dubuque Fulfillment Center, we continue to anticipate annualized run rate savings of approximately $5 million, with expected benefits starting in the fourth quarter of this year. And we're evaluating further network optimization opportunities.
Speaker Change: Shifting to our channel strategy to serve our predominantly and growing omni-channel consumer, the mobile device is our number one and most important digital customer touchpoint and represents a gateway to the brand.
Speaker Change: We continue to build on our success with our Mobile First strategy, fueling mobile penetration growth as a percentage of total across both visits and sales on our website.
Speaker Change: In the quarter, 71% of visits and 57% of sales came through a mobile device.
Speaker Change: We saw 15% growth in visits on mobile and our conversion remains significantly higher than the industry average.
Speaker Change: Retail stores play a critical component of our omni-channel strategy. Two-thirds of new consumers prefer shopping in-store. In addition, our omni-channel consumers spend more on average per order and shop at more than twice the frequency of our single-channel consumers.
Speaker Change: Stores also offer services like returns, buy online, pick up in-store, and fulfilling online orders, creating a seamless consumer experience.
Speaker Change: Combining a digital strategy with a relevant and productive store portfolio is critical to winning in an omni-channel ecosystem.
Speaker Change: And, as part of our structural improvements, we are making great progress to revitalize our store portfolio.
Speaker Change: We're on track to open two new stores and priority markets in the second half of 2025.
Speaker Change: We've identified a handful of stores which no longer meet our higher hurdle rate requirements and are potential targets for closure or relocation.
Speaker Change: With respect to our go-to-market brand and marketing strategy, we've switched our media marketing partner and we're thrilled with the new enhancements to our next generation of consumer-centric capabilities they are bringing.
Speaker Change: We remain focused on upper funnel brand building and driving more traffic and conversion with target consumers.
Speaker Change: The underpinnings of our brands and sub-brands remain strong, and our level of newness in the quarter increased by 60 basis points over last year. Despite the challenging third quarter results, we registered several merchandising and product innovation wins.
Speaker Change: While our women's business declined this quarter, we continue to see strength across the first layer category up 22% and in AKHG with growth of 6%.
Our heirloom garden collection continues to perform well.
Speaker Change: Growth in First Layer was driven by our Buck Naked and Armichello collections, as well as newness offered in our pajama and loungewear business.
Speaker Change: We expanded our plus-size assortment, including our successful Adjust-A-Bus, a bonded zip-front bra with a sleek silhouette and criss-cross back offering extra support and security.
Speaker Change: Coupled with continued popularity of our T-Lux bra, our bra business grew by 20% this quarter.
Speaker Change: Within the women's AKHG business, customers continue to respond well to our signature knit tops and bottoms, which drove overall AKHG quarter growth of 6%.
Speaker Change: Growth was driven by strength in several key collections, including Renew Bamboo, Roadless, and Trail Tech.
Speaker Change: These collections support our ongoing focus on outdoor recreation through performance attributes.
Speaker Change: Our heirloom garden collection continues to be a favorite for her as evidenced by growth over last year of nearly 70%, bolstered by a variety of new prints.
Speaker Change: Heirloom Garden was the number one women's apparel collection for every week in Q3.
Speaker Change: Our strategy of refreshing core colors with the introduction of multiple exciting prints continued to prove successful.
Speaker Change: Our meds business was more heavily impacted by unseasonably warm weather. However, we did see continued strength in our dry-on-the-fly technology as recent expansions into tees and unders continue to resonate.
Speaker Change: Further, we intentionally extended the summer season with a focus on dry-on-the-fly shorts, showcasing one of our key cooling technologies that resonated with the warmer temperatures throughout the quarter.
Speaker Change: We launched our new Suped Up Sweats collection early in Q3. The loose version of your basic sweats, suped up with unbeatable comfort and durability, allowing for easier movement while working, and even better, for lounging.
Speaker Change: This beefier fabrication, made for both him and her, is resonating well with our customers, and fleece will continue to be a major focus for us moving forward.
Speaker Change: Our new t-shirt flannel, which is the perfect blend of your favorite flannel's warmth and your most comfortable t-shirt softness, performed well this quarter.
Speaker Change: We saw further positive response in men's woven tops, driven by additional newness with our men's indigo twill and brushed oxford shirts, both of which are lighter weight, casual offerings in a standard fit.
Speaker Change: As we move into Q4, we're focused on driving volume with our largest seasonal categories, including flannels, shirtjacks, and line bottoms.
Speaker Change: We're excited about introducing new innovation in the outerwear category with our Men's Insulator Jackets, which contain revolutionary solar ball insulation that transforms the sun's infrared energy into instantaneous warmth. No battery pack needed.
Speaker Change: And as the gift-giving season approaches, we will focus on cart builders with unders, socks, and hard goods, and lean into cozy loungewear and pajama sets, which are performing well, especially for her.
Speaker Change: As mentioned earlier, we onboarded our new advertising agency this quarter and increased our upper funnel media span with an enhanced focus on our target customer.
Speaker Change: The result was a double-digit increase in website traffic driven by first-time visitors.
Speaker Change: We were pleased to see the significant increase and have shifted our focus on optimizing our lower funnel conversion tactics and retargeting efforts to capitalize on this traffic.
Speaker Change: We're excited about several key branding moments including a featured gift guide segment that aired last week on Good Morning America, a strong presence in this year's college football playoff games, and continuing our partnership with Yellowstone.
Speaker Change: As many of you have likely seen, Duluth Trading returned for a third year in partnership with Yellowstone to celebrate its highly anticipated fifth season, which premiered on November 11.
Speaker Change: Fan-favorite Stories from the Bunkhouse offers a behind-the-scenes look at Jefferson White's journey as Jimmy.
Speaker Change: Jefferson White embraces our belief in taking on life with your own two hands in some of our most innovative dilute products while sharing candid behind-the-scenes stories from life on set.
Speaker Change: He embodies the authenticity and resilience that define both the brand and Yellowstone's iconic characters.
Speaker Change: Reflecting the hard-working spirit of the American frontier, Duluth products are designed for the can-doer lifestyle, capturing the grit, endurance, and timeless style that resonates with fans everywhere.
Speaker Change: The partnership spans all Duluth channels, website, paid social, and more, amplifying the shared values of quality and authenticity.
Speaker Change: In summary, we're realizing benefits from our long-term strategic initiatives, including product development and sourcing, logistics and supply chain, our mobile-first efforts, and go-to-market initiatives.
Speaker Change: We're delivering a high level of product newness and innovation, which is resonating with both existing and new customers.
Speaker Change: We are taking swift action on structural initiatives like completing Phase 2 of our Fulfillment Center Network Optimization Plan and have made great progress on our Retail Store Portfolio Strategy.
Speaker Change: And we're embarking on a significantly enhanced end-to-end cross-functional enterprise planning process to drive operational excellence.
Speaker Change: Importantly, we're in a strong financial position with quarter-end liquidity of $165 million.
Speaker Change: Finally, we're making great strides in our long-term strategic initiatives that will help us unlock the full profit potential of the enterprise, setting us up for future success.
Speaker Change: I look forward to sharing more on our fourth quarter call, and we'll now turn it over to Heena to provide more details on our third quarter results. Heena?
Thanks, Sam, and good morning.
Heena Agrawal: In the third quarter, we expanded our gross margin by 210 basis points. However, top-line sales declined 8.1%.
Heena Agrawal: Unusually warm weather impacted fall-winter seasonal sales and as a result our inventory levels increased at the end of the quarter.
Speaker Change: As Sam mentioned, we are taking swift actions to end the year clean on inventories, and as trends have improved, our second-half-to-date top line is now tracking at minus 3 percent.
Speaker Change: We are pleased with the progress of our strategic initiatives as we saw a second consecutive quarter of gross margin expansion from our sourcing initiative and reduction in fulfillment and transportation costs from the logistics network.
Speaker Change: Our structural improvements are on track. In Q3, we successfully completed Phase 2 of our Fulfillment Network Optimization and exited one of our legacy fulfillment centers announced last quarter.
Speaker Change: As stated on the last two calls, our primary focus is to unlock the full profit potential of the enterprise and to strategically deploy capital to unlock growth opportunities.
Realizing Savings from Phase 2 of the Fulfillment Network
Speaker Change: Revitalizing the store portfolio to increase productivity and profitability and allocating capital to omni-channel growth are key steps towards making structural changes to drive sustainable profitable growth.
Speaker Change: In addition to our strategic initiatives and structural improvements, as Sam mentioned, we have launched Enterprise Planning, an end-to-end cross-functional initiative to significantly enhance our operational and planning processes.
Speaker Change: Providing an update to Phase 2 of our Fulfillment Center Network, we completed the closure of our Dubuque, Iowa facility at the end of October.
Speaker Change: This incurred restructuring expenses of $7.7 million, which was spread between two quarters.
Speaker Change: Leveraging our most efficient and cost-effective Aderizal Fulfillment Center, we are now evaluating the next phase to continue to maximize network capacity and cost.
Speaker Change: We are pleased to share the progress on our Retail Store Portfolio Strategy. We have identified priority markets and are on track to open two new sites in the back half of 2025.
Speaker Change: As mentioned previously, almost 25% of our current store portfolio is coming up for renewal by 2026.
Speaker Change: We have also renewed our store marketing efforts in priority markets, launching local advertising, experiential events, and targeted digital marketing to drive traffic, brand awareness, and store awareness.
Speaker Change: 1. Streamlined end-to-end cross-functional processes to drive operational excellence. 2. Assortments driven by target customer insights with a focus on the largest category opportunities.
Speaker Change: Third, inventory management will be optimized through improved in-stock and productivity metrics that are directly tied to our financial goals. And lastly, activating a holistic go-to-market strategy to launch key product stories.
Speaker Change: Our reported EPS loss is $0.85 and adjusted EPS loss is $0.41.
Speaker Change: Adjustments to EPS include 6.2 million in restructuring charges related to the exit of one of our legacy fulfillment centers as announced previously and a 10.1 million valuation allowance on our deferred tax asset.
Adjusted EBITDA loss for the quarter was $6.8 million.
Speaker Change: Starting with the top line, our Q3 2024 net sales declined to 127.1 million as fewer transactions were partially offset by higher order value fueled by higher units per transaction.
Speaker Change: Sales in the first half of the quarter were flat to last year. In the second half, unusually warmer weather impacted sales of our fall-winter goods.
Speaker Change: Direct channel sales declined 8.3% in the quarter. Mobile penetration of site visits and sales continued to increase over last year.
Speaker Change: Retail store sales declined 7.8%, driven by traffic decline, partially offset by increased conversion rates.
Speaker Change: Our women's business declined 4%, impacted by fall-winter seasonal goods. However, we continued to see strength in women's first layer, up 22%, AKHG, up 6%, and her all-time favorite Garden Heirloom Collection, up nearly 70%.
Speaker Change: Men's business declined 10%, primarily driven by colder weather categories including flannels, outerwear, and sweaters. However, our dry-on-the-fly technology and our new souped-up sweats collection resonated well.
Speaker Change: Moving to gross margin. For the third quarter, our gross margin expanded 210 basis points to 52.3 percent, driven by improved product cost from our direct to factory sourcing initiative.
Speaker Change: Having sourced through the older, higher cost inventory, our gross margin year-to-date is 90 basis points higher than last year, partially offsetting the improvement in product costs was a lower AUR.
Speaker Change: Moving to third quarter SG&A expenses. SG&A expenses increased 1.2% to $82.9 million. As a percentage of sales at 65.2%, it deleveraged by 600 basis points to last year, driven by a decline in sales.
Speaker Change: The continued efficiencies across Logistics and Fulfillment Center Networks were offset by higher fixed costs and depreciation from foundational investments.
Speaker Change: For the quarter, advertising expenses increased to 15.3% of sales, deleveraging by 240 basis points driven by lower sales.
Speaker Change: Variable or selling expenses, which include outbound shipping costs, as well as labor across our customer contact center, fulfillment centers, and store fleet, continue to improve, leveraging by 100 basis points.
Speaker Change: The favorable leverage was driven by optimizing our outbound shipment network, new parcel agreements, and efficiencies across the Fulfillment Center network, particularly at Adairsville.
Fixed expenses or general and administrative expenses increased 6.7%.
Deleveraging by 460 basis points.
Speaker Change: primarily from annualizing depreciation and fixed costs from strategic initiatives like the Aderzal investment initiated in Q3 of 2023, partially offset by cost savings initiatives.
Speaker Change: As mentioned earlier, we recognized $6.2 million in restructuring expenses from the exit of one of our Legacy Fulfillment Centers and a $10.1 million valuation allowance on our Deferred Tax Asset.
Speaker Change: Our Q3 adjusted net loss was $13.8 million or $0.41 per diluted share compared to net loss of $10.5 million or $0.32 per diluted share last year.
Importantly, adjusted EBITDA year-to-date is positive $5.7 million.
Speaker Change: Our inventory balance was up 33% or approximately $57 million. 97% of the inventory is in current products and clearance inventory improved to 3% versus 4% last year.
Speaker Change: There were three main drivers of the increase year-on-year. The first was in-transit inventory, which accounted for a third of the increase as we moved from agents to buying directly from factories.
Speaker Change: Another third of the increase was driven by higher inventory receipts on core year-round products.
Speaker Change: to mitigate low in stock post-Black Friday week, a key learning from last year. The final third relates to fall-winter inventory, where sales were impacted due to unusually warmer weather, resulting in higher seasonal inventory levels at the end of the quarter.
Speaker Change: To reiterate, we are taking necessary and prudent actions to end the year clean on inventories.
Speaker Change: Now, turning to our outlook for fiscal year 2024, we are reconfirming our full year top line sales guidance of $640 million, which includes 60 basis points from the Costco order and approximately 150 basis points of growth from the 53rd week.
Speaker Change: We expect to continue to benefit from lower year-over-year product costs.
Speaker Change: However, driven by higher promotional activity and our commitment to end the year clean on seasonal inventory levels, we are now projecting full-year gross margin reduction of approximately 125 basis points versus prior year.
Speaker Change: Our product sourcing and innovation efforts are expected to continue to reduce product cost and expand margins for the next several years as we increase the percentage of products sourced direct from factory.
Speaker Change: This, combined with the Enterprise Planning Initiative, will significantly enhance our assortment and inventory management to not just fully capture the cost benefits of the sourcing initiative, but also enable gross margin expansion.
Speaker Change: We expect SG&A, excluding the sales tax contingency, to de-leverage by approximately 80 basis points versus prior year, as we partially offset the increase in expenses from strategic investments
Speaker Change: with additional savings from efficiencies in fixed expenses like services and contracts and benefits from our Fulfillment Center Network Optimization Initiative beginning in Q4.
Speaker Change: Advertising expenses are planned to be at approximately 10% of sales as we realize savings from our move to the new ad agency and refocus spend to drive shopper conversion.
Speaker Change: Variable or selling expenses will continue to leverage by approximately 50 basis points driven by transportation savings from diversification of outbound carriers and continuing advisable efficiencies.
Speaker Change: Fixed expenses, or general and administrative expenses, are expected to deleverage by approximately 170 basis points versus last year, as higher depreciation and fixed costs
Speaker Change: Associated with strategic initiatives are partially offset with cost savings efforts.
With that, to summarize our full year outlook.
Net sales of approximately $640 million.
Foliar Gross Margin Reduction of Approximately 125 Basis Points
versus prior year.
Speaker Change: SG&A expenses excluding the sales tax contingency to deleverage by approximately 80 basis points versus prior year.
Speaker Change: Our capital expenditures are on track to be reduced by more than half to approximately $23 million. Our liquidity remains strong. We expect to end the year with no debt and liquidity of over $200 million.
Speaker Change: In closing, we are committed to taking actions to end the year clean on inventories, maximizing return from our strategic investments.
Speaker Change: Delivering on structural initiatives to improve our business model and implementing significantly enhanced enterprise planning processes to unlock growth and profitability.
With that, we will open the call for questions.
Speaker Change: We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad.
Speaker Change: If you are using a speakerphone, please pick up your handset before pressing the keys.
Speaker Change: If at any time your question has been addressed and you would like to withdraw your question, please press star then 2.
Once again, it is star then one.
to ask a question.
The first question comes from Dylan Carden with William Blair.
Please go ahead.
Thank you.
Speaker Change: Thanks. Sorry if I missed this. You mentioned 25% of the fleet comes due by 26.
Do you have a sense of...
You know, we have, through our
Speaker Change: Our process that Keen has been working on, you know, recalibrated our hurdle rates for profitability. And we're really assessing those store-by-store as we get into the timeframe to renew or renegotiate. So, you know, we continue to have our eyes on those 25 and, you know, as we get closer to renewal dates.
Speaker Change: you know we're vetting those much deeper in anticipation of either renewing, closing, or relocating.
Got it.
And if I'm looking at the model...
from an SG&A perspective.
Speaker Change: Yeah, I think, well, a couple things I'll say. One is,
You know, I'm really I'm really pleased with the
Speaker Change: you know, those key initiatives tied to our Big Dam blueprint. And as you know, you know, some of it is timing in terms of when we start to realize those benefits clearly around our product development and sourcing initiative. We're starting to see that the logistic strategy with a daresville
Speaker Change: You know, I'll take a moment just to celebrate, you know, we're now lapping on about a year since Adairsville came online. It has processed.
Speaker Change: and its CPU, variable CPU costs are actually exceeding what we initially targeted. It's 73% lower than the Legacy Fulfillment Center. So a lot of those things we're starting to see.
come into play now, you know, it's enabled us to...
Speaker Change: rationalize you know our our fulfillment center network and we were able to
Speaker Change: been charged with, and over the next handful of years, I think you'll see our SG&A come closer in the line where we expect it to be, and importantly, allow the benefits of these other initiatives, like the Product Development and Sourcing Initiative, to really flow through to the bottom line.
Speaker Change: Yeah, and I would add, you know, in addition to the structural changes, which is around
Speaker Change: fulfillment center optimization, as well as improving overall store portfolio profitability. We are, our CapEx this year was half of what, less than half of what it was last year. And that's kind of the going run rate we are looking at, which will also improve the depreciation costs that flow into SG&A.
will help with the overall SG&A cost.
Speaker Change: Got it. It also, it also feels like it's a store productivity issue. I think you kind of just...
Speaker Change: bless that there in your comments. I mean where productivity is if you start closing stores...
Speaker Change: presumably you get some of the productivity, overall fleet productivity to improve and I would think that that should help a not insignificant amount given where kind of sales per square foot are at present.
Speaker Change: Yeah, like we said, we've established higher hurdle rates when we renew, which gives us leverage in our negotiating for lease renewals with options to either relocate or close as the case might be.
And, you know, as we do that...
Speaker Change: It improves the overall health of the portfolio, with the new sites meeting much higher hurdle rates, the older sites that are being renewed also being held to those same standards.
improves our overall productivity.
Speaker Change: and our focus on omni-channel marketing for those priority markets to improve traffic to those stores.
Speaker Change: Yeah, and Dylan, I'll add to that because I want to be clear that...
that you all understand strategically.
Speaker Change: Retail stores, as we've always said, are an important part of our omni-channel ecosystem, and I think that's really important to understand.
are stores.
Speaker Change: And we think that we'll make good progress on that front combined with
Speaker Change: you know some of the things I mentioned in my prepared remarks around our go-to-market strategy and localizing some of that. I think that you know we'll continue to see improvements.
Speaker Change: in our retail store portfolio both as we kind of renew and or rationalize some locations in addition to then adding some new locations with higher hurdle rates.
Speaker Change: clearance it by year-end? Yeah, yeah, no, so part of our part of our strategy is exactly that and and again I want to make sure that
Speaker Change: that, you know, we're clear about what led to the current inventory scenario.
Heena said it's really three buckets, it's...
Speaker Change: There's a timing issue relative to the in-transit bucket that we recognize ownership.
Speaker Change: That's about a third. There's a third that is tied directly to a planned early receipt of core goods, because as you know, we're writing these things further out, and last year, we went into Q4 a little lean and came out essentially
Speaker Change: out of stock, and that led to depressed inventory levels throughout Q4. And then the third is really based on, you know, our receipt of fall and winter goods.
We didn't, we didn't sell it.
Speaker Change: in third quarter, largely because of some weather issues. And so as we look at going through Q4, there's two components that we're focused on. One is ensuring that the seasonal carryover of those receipts.
Speaker Change: Don't herd us into next year, meaning they don't transition into clearance inventory levels, by the way.
Speaker Change: Our clearance inventory levels currently are at about 3% of total, which is 100 bps.
Speaker Change: less than a year ago and sequentially improved from 11% last quarter. But we want to ensure that as we go into next year, this carryover of fall-winter doesn't impact
Speaker Change: our clearance level, which then, you know, continues to put further pressure on our margins.
Speaker Change: And so the seasonal things that are unique to this season, we will mark down and we'll sell through that this quarter. There is core kind of seasonal products like
Black
Speaker Change: Down puffer jackets that whatever we don't sell through, you know we're going to pack those away because we buy them every season and it's a small amount of inventory, but
Speaker Change: inventory, nonetheless, that we really don't need to mark down as we move into next year. So long, long answer to your question, but I think important articulation is yes, there is goods within fall-winter that we will not have to mark down and we'll be able to pack away for a short period of time.
Excellent. Thank you.
Thank you very much.