Q1 2025 Caleres Inc Earnings Call
Greetings and welcome to Claris first quarter 2025 earnings conference call.
At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation if.
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Speaker Change: Reminder, this conference is being recorded I would now like to turn the conference over to your host Liz Dunn Senior Vice President corporate development and strategic communications. Thank you you may begin.
Liz Dunn: Thanks, Bob.
Liz Dunn: Morning, and thank you for joining our first quarter 2025 earnings call and webcast a press release with detailed financial tables as well as our quarterly slide presentation are available at <unk> Dot com.
Speaker Change: Please be aware today's discussion contains forward looking statements, which are subject to several risks and uncertainties.
Speaker Change: Actual results may differ materially due to various risk factors, including those disclosed in the company's Form 10-K, and other filings with the U S Securities and Exchange Commission.
Speaker Change: Please refer to todays press release, and our SEC filings for more information on risk factors and other factors, which could impact forward looking statements copies of these reports are available online.
Speaker Change: In discussing our operational results will be providing and referring to certain non-GAAP financial measures additional details on these measures as well as other others featured eight earnings release and presentation are available at Clarus Dot Com. The company undertakes no obligation to update any information discussed in this call at any.
Speaker Change: Joining me today are Jay Smith, President and CEO, and Jack Calandra, Senior Vice President and CFO, our call will begin with prepared remarks, followed by a Q&A session to address any questions you have with that I will turn the call over to J J.
Jay Smith: Thank you and good morning, everyone.
Jay Smith: Earlier today, we reported first quarter sales and earnings.
Jay Smith: While our brands continue to resonate with consumers in both segments of our business gained market share in the period, our first quarter results fell short of expectations.
Jay Smith: February sales were particularly weak and.
Jay Smith: Although trends improved in March and in April.
Jay Smith: We're all performance was below plan.
Jay Smith: Furthermore, operating earnings were pressured by lower gross margins increased reserves and costs to cancel and move inventory.
Speaker Change: Despite the weak quarter, we did experience improving momentum at retail and growth in our strategically important international business.
Speaker Change: Oh.
Speaker Change: The operating environment has become more challenging and we must redouble, our efforts to drive growth and profitability.
Speaker Change: In the near term we are focused on controlling what we can control, including optimizing our sourcing strategy.
Speaker Change: Additionally, we expect to decrease SG&A by $15 million on an annualized basis through structural expense cuts.
Speaker Change: We are viewing this as an opportunity to strengthen calera and position our company for the future.
Speaker Change: Turning now to the results.
Speaker Change: In total for the first quarter, we achieved adjusted earnings per share of 22 cents.
Speaker Change: Our first quarter sales declined six 8% year over year.
Speaker Change: Sales were below plan, but lower gross margin drove most of the bottom line Miss.
Speaker Change: Our Q1 results include several larger than planned impacts related to tariff escalation and sourcing disruption hi.
Speaker Change: Higher than planned inventories and we're sending customer credit issues.
Speaker Change: Yeah.
Speaker Change: I wanted to take a moment to detail some of the items affecting profitability in the quarter.
Speaker Change: First on sourcing.
Speaker Change: Following the executive order on tariffs in early April we acted quickly to pause our production in China.
Speaker Change: Depending on where items were in the production cycle, we either cancelled caused or relocated manufacturing.
Speaker Change: As you can imagine each of these decisions had associated costs that impacted the quarter.
Speaker Change: Jack will talk more about our mitigation strategies, but in total we believe sourcing disruption had a minimal impact on sales, but reduced gross margin profit by nearly 1.9 billion during the quarter.
Speaker Change: Turning to our inventory position.
Speaker Change: As sales trends softened late last year and into the first quarter, our outlook shifted and we could not adjust our inventory flow quickly enough to match the lower demand coming from some parts of the brand portfolio.
Speaker Change: While the excess inventory is largely current and came in before April.
Speaker Change: Supporting the latest tariffs.
Speaker Change: These higher inventory levels required additional markdown reserves.
Speaker Change: Markdown reserves impacted the quarter by about $2 3 million as compared with last year.
Speaker Change: And finally, we saw expanding customer credit concerns this quarter and added bad debt write downs, which had profit by almost $3 1 billion as compared with last year.
Speaker Change: Okay.
Speaker Change: We are taking multiple actions to offset additional sourcing costs and improve our financial performance, including sourcing migration price increases and expense reduction.
Speaker Change: Yeah.
Speaker Change: Now, let's review each of the business segments.
Speaker Change: The brand portfolio sales declined six 9% in the quarter with similar softness seen across all channels.
Speaker Change: However, according to its or kind of our brand portfolio gained market share in women's fashion footwear during the period.
Speaker Change: Consumer demand remains solid in key categories, including fashion flats sandals and sneakers.
Speaker Change: While dress styles were more challenged.
Speaker Change: Lower product margins costs relating to canceling or moving goods and higher inventory reserves pressured the brand portfolio gross margin.
Speaker Change: And resulted in a 280 basis point decline versus last year.
Speaker Change: Our four lead brands, which include Sam Edelman Allen Edmonds naturalize, her and bionic represented about 60% of sales and 80% of operating earnings in the quarter.
Speaker Change: While sales were down for lead brands in total they outperformed the other brands in the portfolio.
Speaker Change: Our Sam Edelman brand delivered a solid quarter marked by sales growth domestically and double digit growth internationally.
Speaker Change: We saw improvement in our business in China, driven by strong response to our sneaker assortment.
Speaker Change: And expansion in the brand's global footprint through new marketplace partnerships and growth in the middle East.
Speaker Change: Sam Edelman was well positioned with key trends this season, including Raphael Jellies, flatbed sandals and slides all while continuing to grow at sneaker business.
Speaker Change: Both wholesale and direct to consumer channels posted growth in the quarter.
Speaker Change: At quarter end, we had 106 stores 56, and 50 fixed franchise with 102 of them located internationally.
Speaker Change: [laughter] Allen Edmonds experienced a softer quarter from a demand standpoint.
Speaker Change: The consumer here continues to respond to newness across all channels and newness in our owned retail stores outperformed total store performance by 10 points.
Speaker Change: Growth in rubber soled burst casuals, and sneakers was offset by softness in leather soled dress shoes.
Speaker Change: Retail trends, however were meaningfully impacted in April by financial market volatility.
Speaker Change: But we've seen some rebound as market stabilized.
Speaker Change: In first quarter Allen Edmonds open three additional port Washington studio stores, bringing the total to 15.
Speaker Change: These stores continue to outperform the fleet by 300 to 400 basis points.
Speaker Change: We also opened a new outlet store in Charlotte North Carolina.
Speaker Change: We plan to open a small number of Allen Edmonds outlets in the future to more effectively clear end of season goods.
Speaker Change: At the end of the quarter, we had a total of 57 stores.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Our nationalized or brand had a down quarter, but maintained its market share.
Speaker Change: Sneakers and casuals grew in penetration to the total.
Speaker Change: And sandal styles were up led by strong performance from new put bad styles.
Speaker Change: While naturalize their dot com saw lower sales in the quarter conversion was up double digits.
Speaker Change: We are also seeing growth with our largest wholesale partners.
Speaker Change: As a reminder, naturalized or invested in its first shop in shop at Macys Herald Square last October.
Speaker Change: This elevated modern shopping experience drove over a 50% sales increase in the first quarter and it's on track to be the number one naturalized her location globally.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Our biotic brand declined year over year, due mostly to timing issues, but was slightly better than our expectations.
Speaker Change: The branch shifted some deliveries into fourth quarter to fuel an event at Nordstrom and shifted a catalog drop from Q1 to Q2.
Speaker Change: Okay.
Speaker Change: Our walking category sales grew over 100% to last year, driven by a walking campaign in February and the launch of three new walking styles.
Speaker Change: We also saw encouraging early results in sandals supported by new styling and enhanced put that technology.
Speaker Change: In March Bionic announced Gabby Reece as the brand's first wellness ambassador.
Speaker Change: Her consumer facing campaign will begin this fall with a special edition collaboration dropping in early spring 2026.
Speaker Change: Yeah.
Speaker Change: Finally, I do want to touch on our planned acquisition of Stuart Weitzman.
Speaker Change: As I said, when we announced the transaction. This brand is a strategic fit for claris for several reasons.
Speaker Change: We love its premium positioning and we have proven an ability to operate profitably in the accessible luxury lane with our Veronica beard and Vince license businesses.
Speaker Change: We see the higher end consumer is more resilient long term and.
Speaker Change: And we've used stewards strong direct to consumer presence and international footprint as important strategic advantages.
Speaker Change: We continue to believe we are the right owner for this asset and we are excited about its future at colorless.
Speaker Change: We are also engaging an external firm to ensure we integrate the business well and capture all the synergies.
Speaker Change: This work will also include ways that Polaris can work more efficiently at the portfolio company.
Speaker Change: We look forward to giving you an update after we close the transaction, which is expected later this summer.
Speaker Change: Moving on to famous footwear total sales were down six 3% during the first quarter.
Speaker Change: While comp sales declined four 6%.
Speaker Change: As previously noted February was significantly down.
Speaker Change: However, we saw sequential improvement in March and in April.
Speaker Change: E Commerce sales were up two 5% in the quarter and gross margin declined 80 basis points with more promotional days, mostly concentrated in February.
Speaker Change: And higher freight costs.
Speaker Change: Mens kids and accessories outperformed the total while women's underperformed.
Speaker Change: By category, we saw relative strength in athletics.
Speaker Change: Yeah.
Speaker Change: Within this strategically important kids category famous gained five points of market share and shoe chains.
Speaker Change: While total famous gained 0.2 points.
Speaker Change: Kids penetration was 21% in the quarter with sales exceeding the total chain for 16 of the last 17 quarters.
Speaker Change: And finally Polaris owned brands outperformed at famous in the quarter with notable increases from both our blowfish and Ah Ryka brand.
Speaker Change: Yes.
Speaker Change: We continue to enhance the consumer experience at famous.
Speaker Change: At the end of first quarter, we had 44 player locations in total.
Speaker Change: We saw an eight point sales lift versus the rest of the chain for stores converted in the last year and a three point lift for all players stores.
Speaker Change: Flare it is helping to attract more elevated product and brands and our famous consumer is responding.
Speaker Change: We've already added to flare stores this quarter and expect to add seven more by July bringing our total to 53 stores heading into back to school.
Speaker Change: Yeah.
Speaker Change: And speaking of elevated brands and products. Many of you have already noticed that we launched Jordan in 147 stores in mid May.
Speaker Change: We supported the launch with bold exterior signage branded fixtures full family displays that are play our locations.
Speaker Change: And Geo targeted messaging.
Speaker Change: We look forward to rolling the brand out to all stores for back to school across men's women's kids and accessories.
Speaker Change: The brand is currently exclusive to famous in the shoe chain channel.
Speaker Change: Early selling is very encouraging and.
Speaker Change: And we look forward to even stronger results with our national marketing campaign during back to school.
Speaker Change: Okay.
Speaker Change: In addition to Jordan, we are well positioned for back to school with expanded four newest assortments from Nike Adidas Birkenstock, new balance Brooks, timberland and Sorel as well its fry, which arrived later in fall.
Speaker Change: Okay.
Speaker Change: In summary, the strength of athletic kids, our flare of results and the brand and product lineup make us feel cautiously optimistic.
Speaker Change: We believe famous there's inherent competitive advantages, namely its leadership position with the millennial family.
Speaker Change: Definitely kids cut.
Speaker Change: Coupled with its clear avenues for growth and support from the Polaris structure.
Speaker Change: And the business to gain additional market share and shoe chains.
Speaker Change: Generate robust levels of cash and increased profitability over the long term.
Speaker Change: As we look ahead, we are confident in our ability to get back on track.
Speaker Change: Execute our strategic plan.
Speaker Change: First fit fuel our growth initiatives and drive sustained value for our shareholders.
Speaker Change: And with that I will now hand, it over to Jack for a more detailed view of our financial performance Jack.
Jack Calandra: Thanks, Jay and good morning, everyone. During today's call I'll provide additional details on our first quarter results and some color on Q2 quarter to date performance.
Jack Calandra: Please note my comments will be on an adjusted basis.
Jack Calandra: For the first quarter sales were $614 2 million down six 8%.
Speaker Change: This was below our expectations for sales down 5% to 6%.
Speaker Change: [laughter] brand portfolio sales were down six 9%.
Speaker Change: Tariff related challenges and other discrete items adversely impacted the comparison to last year by about $7 million.
Speaker Change: Famous sales were down six 3% with comparable sales down four 6%.
Speaker Change: Comparable sales declined low double digits in February and improved to a low single digit decline for the combined March April period.
Speaker Change: Consolidated gross margin was 45, 4% down 150 basis points to last year and was driven by lower margins in both segments.
Speaker Change: Brand portfolio gross margin was 43, 8% down 280 basis points to last year as a result of lower initial margins.
Speaker Change: Costs associated with canceling and moving production out of China.
Speaker Change: And higher reserves for inventory markdowns.
Speaker Change: Famous gross margin was 45, 3% down 80 basis points to last year due to more days on promotion and higher shipping costs, partially offset by lower clearance sales and a higher clearance margin.
Speaker Change: We continue to utilize our bogo promotion during key selling periods.
Speaker Change: Yeah.
Speaker Change: SG&A expense was about flat year over year at $266 5 million.
Speaker Change: As a percentage of sales SG&A was 43, 4% up 300 basis points versus last year.
Speaker Change: On a dollar basis continued investment in our international business and higher depreciation for store and it investments was offset by lower marketing spending and incentive compensation expense.
Speaker Change: Operating earnings were $12 2 million and operating margin was 2%.
Speaker Change: Operating margin was five 9% at brand portfolio and one 5% at famous.
Speaker Change: Net interest expense was $3 8 million about flat to last year.
Speaker Change: Higher average borrowings were offset by a lower weighted average borrowing rate.
Speaker Change: Earnings per diluted share were 22 cents versus 88 cents last year.
Speaker Change: Trailing 12 month, EBITDA was $187 9 million and 7% of sales.
Speaker Change: Turning to the balance sheet and cash flow.
Speaker Change: We ended the first quarter with $258 5 million in borrowings up $67 5 million to last year and no long term debt.
Speaker Change: Debt to trailing 12 month EBITDA was one four times.
Speaker Change: Inventory at quarter end was $573 6 million up 43 million and eight 1% to last year.
Speaker Change: Inventory was up slightly and famous and included a build for the May 17th launch of the Jordan brand.
Speaker Change: Inventory was up 20% and brand portfolio with the increase coming from fall 'twenty 'twenty, four carryforward product and current spring styles.
Speaker Change: We've accrued markdown reserves as appropriate for slow moving spring inventory that we expect will be needed to closeout product at the end of the season.
Speaker Change: Cash flow from operations was a negative $5 7 million as a result of lower net income and higher inventory levels.
Speaker Change: Now a few comments on the impact of tariffs and how we are managing the volatile environment.
Speaker Change: First as it relates to China.
Speaker Change: As previously discussed the two original tranches of tariffs of 10% each imposed in February and March were managed through a combination of factory concessions lower gross margin and to a lesser degree select price increases.
Speaker Change: When the broader reciprocal tariffs and dramatically increased tariffs on China were announced on April 2nd we paused all China production and took steps to move work in progress to other countries, where it made financial sense to do so.
Speaker Change: When the tariff came down to 30%, we selectively released some goods where appropriate.
Speaker Change: We also took steps to further accelerate our move out of China, and now expect about 10% of our dollars sourced to come from China in the back half.
Speaker Change: As it relates to the rest of the world. The additional 10% tariff is being managed much like the initial China tariffs that is through a combination of factory concessions lower gross margin and select price increases.
Speaker Change: As you all know the situation remains fluid with a 90 day pause on the incremental reciprocal China tariffs lapsing in August and the 90 day pause on reciprocal tariffs for the rest of the world expiring in July.
Speaker Change: We will remain nimble and we are well positioned to operate in a variety of different sourcing environments.
Speaker Change: However, given the continued uncertainty we are suspending guidance at this time.
Speaker Change: That said, we are providing the following information about chew Q quarter to date performance.
Speaker Change: For famous comparable sales are slightly better than <unk> down four 6%.
Speaker Change: For brand portfolio, we've seen a modest increase versus last year in direct to consumer sales, which represent about one third of this segments sales.
Speaker Change: That said the larger domestic wholesale order book is fluid as we rebalanced the country sourcing mix and customers reconfirm orders at the new higher prices.
Speaker Change: And finally as Jay referenced we are also executing a structural cost initiative that will result in $15 million of SG&A savings on an annualized basis, and seven and a half million dollars in the back half of 2025.
Speaker Change: Yeah.
Speaker Change: With that I'd like to turn the call over to the operator for questions operator.
Speaker Change: Thank you at this time, we'll be conducting a question and answer session.
Speaker Change: If you'd like to ask a question. Please press star one on your telephone keypad.
Speaker Change: A confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the Q1 moment. Please while we poll for questions.
Speaker Change: Okay.
Speaker Change: Our first question comes from Dana Telsey with Telsey Advisory Group. Please proceed with your question.
Dana Telsey: Hi, good morning, everyone a lot to unpack as you think about the tariff headwinds and what was going on with the inventory now up around 8%.
Dana Telsey: And you mentioned about higher prices, how are you thinking about the prices of your foot.
Dana Telsey: Foley L brands moving into the summer and into fall what type of price differentiation is there and then on the gross margin side of the business, particularly with brand portfolio. How do you think of that going forward and would there ever be a time, where maybe the weaker brand portfolio brands do you ever think of that.
Dana Telsey: Restructuring or exiting of any of those brands, giving bringing in the Stuart Weitzman and you had the Veronica beard and somebody other stronger brands and just lastly on the famous footwear business with back to school do you have the goods for back to school was there any differentiation and brand performance of famous.
Dana Telsey: From what had been in the recent past.
Speaker Change: Should I assume and suspending the guidance for now the Flor stores. They remain at 44 for the year. Thank you.
Speaker Change: Okay. So first off and in our brand portfolio as we quoted where we're making selective price increases were being taking a very thoughtful approach brand by brand and working with that and those begin with fall one where seats. So we haven't seen the effect of it.
Speaker Change: Do planets to manage that in real time, with our key partners as well as ourselves and well really.
Speaker Change: You know.
Speaker Change: Find out more as we get them through the system, but we're trying to make them as low as we can obviously, we were working with our key factory partners to secure support on that and really help with that.
Speaker Change: [noise] experience and then.
Speaker Change: And that's really where we are on the subject right now, it's still very fluid and in motion as we speak.
Speaker Change: In terms of.
Speaker Change: The brand portfolio of brands, we do see they've lead brands getting stronger as a percent of total but we do have work to do across the board. So we don't have anything to announce on that but we.
Speaker Change: We are obviously.
Speaker Change: Good portfolio managers, and we will continue to review it as we go through but again, we are in this moment right now where it's very fluid.
Speaker Change: And then finally.
Speaker Change: Your question about famous back to school.
Speaker Change: So far we're in a pretty good position as we look at what's coming in for back to school, we havent been informed of any major cancellations that are material to famous right now as many players we're well in advance of that and we have been building inventory for it.
Speaker Change: And I think across the board, we did see a similar thing in famous where our key brands and our stronger brands continue to outperform the total so that gives us encouragement as we bring in new brands like Jordan.
Speaker Change: And.
Speaker Change: And I think then finally, we will have we are in the middle of bringing those.
Speaker Change: The flare stores, we're going to be at 53 walking into the back to school period those were already in motion and we continue and I think Jack mentioned this will continue to review capital as we go forward and really making sure we're getting all the value for everything we invest in.
Speaker Change: Thank you and then just a quick follow up on the strategic expense cutting I think 15 million 15 million on an annualized basis.
Speaker Change: What is what is being adjusted and you see the back half of the $7 5 million for the 25 does it flow through evenly in the third and fourth quarter or is there something that would flow through the second quarter too.
Speaker Change: Thank you.
Speaker Change: Yeah, Hi Tech Hi, Dana it's Jack Thanks for your question. So what we can share at this time first of all I would say these were these reductions are permanent and structural in nature. So they will continue to carry forward. As you noted it's $15 million on an annual annualized basis, we expect that those savings will.
Speaker Change: Begin in the third quarter and should be spread evenly between the third and fourth quarter and that will be seven $5 billion in the back half of 2025.
Speaker Change: We're also bringing in a partner to help us sensor.
Speaker Change: And as part of their remit in scope.
Speaker Change: We'll also be looking for greater efficiencies across the company. In addition to what we've identified internally and so we think there is likely going to be more opportunity, but right now what we can commit to is the $15 million on an annualized basis and that will be in an SG&A specifically.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Laura Champine with loop capital markets. Please proceed with your question.
Laura Champine: Thanks for taking my question I, certainly heard that I think quarter to date famous is tracking down a little bit better than the Q1 result, but I think a fair number of US are are excited about the Jordan launch was there a significant shift in trend then and given the.
Speaker Change: Be in place for all the back to school, how excited should we be about that.
Speaker Change: Yeah I'll ask Laura this is Jack I'll start so so the launch was on May 17th So its very new obviously not in all of our stores and I would say fairly limited marketing at this point, obviously as we get more into back to school.
Speaker Change: He will go into an all store all door format and have increased marketing. So I mean, we are obviously very excited about the potential for Jordan, especially given sort of the exclusivity we have in the family channel for the remainder of the year, but not much.
Speaker Change: Not much was obviously.
Speaker Change: And so far in sort of may month to date.
Speaker Change: Got it understood and.
Speaker Change: Yeah, I think that'll be on the tariff front, obviously, we've got news yesterday.
Speaker Change: Does that change your plans. So if the tariffs that are incremental this year do go away does that percentage back up in China.
Speaker Change: Yes. Currently we are on our current plan and we've made no change didn't make that obviously this is a great example of how fluid everything is and we won't be watching it in real time, but until everything is finalized we will not really significantly adjust we feel very.
Speaker Change: A good about the movement that we made in our best factory partners as you know we've been working on it a long time in this.
Speaker Change: We feel good where everything is placed currently and that's our position for the moment.
Speaker Change: Got it and any more color you could give on the comment that wholesale is fluid at brand portfolio does that.
Speaker Change: Does that mean fluid negative or any additional color you could give would be helpful.
Speaker Change: On the second quarter lore.
Speaker Change: Forex It just to you to date.
Speaker Change: Yeah.
Speaker Change: I did mention that we saw improving retail trends and and we have seen that come into may.
Speaker Change: Is helpful, but again with all of the shifts and moves that are currently underway.
Speaker Change: We just really are characterizing what we know right now which is our direct to consumer business and.
Speaker Change: But certainly it will be.
Speaker Change: Managing this in real time and.
Speaker Change: But I was.
Speaker Change: The improving retail trends as we all know give you a lot to work with than EMEA I'm seeing that good for the piece of it. We also did see in the brand portfolio improved sandal selling which is really the first time, we've seen it this quarter.
Speaker Change: Quarters or this spring so far so really that's better men that's coming through there while the other categories are still working.
Speaker Change: Understood. Thank you.
Speaker Change: Mhm.
Speaker Change: Our next question is from Mitch <unk> with Seaport Research. Please proceed with your call with your questions.
Speaker Change: Yes, thanks for taking my questions.
Speaker Change: Let me start with the Jordan introduction.
Speaker Change: You know 10, plus days and 147 stores. So it's a pretty small sample size, but Joe you characterized kind of our early trends are encouraging I don't know if you can.
Speaker Change: Say anything more than that kind of what what lift those stores got over that period based on Jordan.
Speaker Change: I don't think we can we have that much data to really pull that lift together, but what I will tell you with is that we did see.
Speaker Change: We're excited about Jordan and we did see some of the selling come through into small sample set.
Speaker Change: Mens and boys are tracking extremely well as our accessories.
Speaker Change: And we have seen by door, some very strong sell throughs on it which I think are very encouraging, but we're really looking at it.
Speaker Change: In that moment I think there was one of the reasons that we were excited for it. The other thing is is that the you know the retails are for a lot of the sneakers are around $100, which is a really nice ticket for us to come three one and is very representative of our movement of what we feel are famous the consumers moving.
Speaker Change: Toward that direction and we're very excited that we have a great brand partner that is moving with us on that.
Speaker Change: As we said the product is rolling in we will be in all doors for the back to school period.
Speaker Change: But particularly interested in seeing the men's and boys pop up which really is exciting and then also the backpack business has been very good out of the gate too. So that's exciting also in that accessory category.
Speaker Change: And what do you say all doors for back to school I kind of think about the schools starting sort of mid July is that when we would see you guys are sort of yes.
Speaker Change: Think about.
Speaker Change: Yes, that's really where our big back to school weeks are there are some markets that opened early and those will be supported in that similar way as we roll it out but really that mid July elsewhere.
Speaker Change: The big weeks are and.
Speaker Change: That's when you'll see the most of it but again super exciting and.
Speaker Change: Really looking forward to it coming through in all doors.
Speaker Change: So on the tariffs I.
Speaker Change: I guess as of yesterday their block for now so I was just curious when you guys were clearing.
Speaker Change: Awesome.
Speaker Change: Today Tomorrow.
Speaker Change: Are you paying no tariffs then I mean, what are kind of what are the how do we think about that.
Speaker Change: I think maybe in a couple of hours, we might be able to answer that in a slightly better way, but seriously, it's very new and I think we're still in the courts right now and we're trying to get as many answers to it right now is.
Speaker Change: As you can imagine we are but it is certainly an example of how fluid. This moment is.
Speaker Change: And that's what we know right.
Speaker Change: Just a minute.
Speaker Change: And then you outlined a few cost impacts on the quarter.
Speaker Change: You know I think it was $1 9 billion in sourcing $2 3 million on inventory reserves I think it was I think it was like 3 million on bad debt. How do we think about the I know, you're not giving guidance, but how should we think about those pieces moving forward.
Speaker Change: Yeah.
Speaker Change: Yes.
Speaker Change: Yeah. Mitch this is Jack so I would say on the you know the tariff related piece I mean, that's really going to be the TBD amount based on it was really a pretty limited tariff impact which was some some can't some order cancellations.
Speaker Change: You know.
Speaker Change: Customers canceling orders from US, but then also asked canceling some production of work in progress that requires debit notes to two or to our factories. So there's that piece I think on the on the inventory reserves I mean, we believe we've taken the reserves that we need for.
Speaker Change: This spring 25 product.
Speaker Change: So I would expect that we should be in pretty good shape on that we will continue to work those inventories down I do think those inventories will continue to be probably elevated.
Speaker Change: Into.
Speaker Change: Ah <unk> and getting them to a more stable level, if you will by.
Speaker Change: By the third by the third quarter.
Speaker Change: The customer credit issues or you know I would say, we watch them very closely we get credit reports on all of our customers we have a.
Speaker Change: Sort of a policy and a procedure that we follow in terms of booking credit reserves based on those credit ratings, obviously, when we see customers start to you know.
Speaker Change: <unk> credit ratings deteriorate or becoming slower on payments, we will adjust the credit limits for those for those customers.
Speaker Change: But I think it's really going to depend on.
Speaker Change: How are the tariffs flow through the economy, what the macro impacts are and it certainly could have some.
Speaker Change: Continued but very specific impacts on certain of our customers.
Speaker Change: And then maybe lastly on brand portfolio.
Speaker Change: I think my math was right I think the SG&A dollars were up $5 million year over year, even though the sales were down was that these international investments and how should we think about kind of that piece of BP going forward.
Speaker Change: Yeah.
Speaker Change: Yes.
Speaker Change: It was mostly in the international Air was the biggest chunk of that.
Speaker Change: And then we we continue.
Speaker Change: As I said to see good growth coming out of it so it will.
Speaker Change: We will have continued investment this year, but we really are trying to set that up for a really great 2026, very encouraged about the sell throughs that were seeing so the operating pieces there but of course, it's more investment coming out of the gate and we can recapture all in sales and profit at the moment.
Speaker Change: Yeah.
Speaker Change: Alright, Thanks, good luck.
Speaker Change: Thank you.
Speaker Change: Okay.
Speaker Change: Our next question comes from Ashley <unk> with Keybanc capital markets. Please proceed with your question.
Speaker Change: Hey, Thanks for taking our call. This is Chris Boswell one for Ashley So this might be hitting on some things you already talked about but you cited the pressures on operating earnings during the quarter with inventory movement in reserves and so I think you mentioned 280 bps headwind.
Speaker Change: The brand portfolio from this and I was wondering if you could quantify how much of this was just one time in nature, particularly related to positioning for tariffs and uncertainty there.
Speaker Change: Versus how much might persist in the future quarters.
Speaker Change: Yeah, I think the way I would answer that Chris is to say that you know if I look at the decline of 280 basis point decline.
Speaker Change: Order of materiality I would say the first one is the higher reserves for inventory markdowns on spring 'twenty five product again, we believe that we should be pretty well reserved for that at this point, so I wouldn't expect.
Speaker Change: You know that to be a continued sort of headwind as we move forward into the second quarter.
Speaker Change: The second item in terms of materiality was tariff related cancellations.
Speaker Change: And this was largely for.
Speaker Change: Both some some sales some order cancellations from customers, but as well as I mentioned those debit notes for canceled production, but that was sort of the second.
Speaker Change: Item in terms of materiality and then the third one was lower initial margins and that's the piece that could could continue a little bit as we go forward, but again that was the smallest of the three pieces.
Speaker Change: Okay great.
Speaker Change: And then I know you're not giving your full year guide anymore, but any context, you can provide on what you're assuming around the headwinds related to tariffs related to what you've already planned and maybe how we should be thinking about the timing of those pressures.
Speaker Change: No again, it's such a volatile environment, it's really hard to do that but what I would say is again that the strategies. We've put in place are really three pronged right, which is one to get our factory partners to absorb some of that and we've been successful in doing that.
Speaker Change: In China and in our factory partners and the rest of the world.
Speaker Change: Second piece is we will be certainly absorbing some of that in terms of lower gross margins I would say.
Speaker Change: Those first two things are probably an equal shares if you will and then a smaller piece is where we're looking to make these select price increases.
Speaker Change: Awesome. Thank you.
Speaker Change: Thank you.
Speaker Change: We have reached the end of the question and answer session I'd now like to turn the call back over to J J Schmidt for closing comments.
Speaker Change: Okay. Thank you before we close today I would like to think that Polaris team for their focus.
Speaker Change: And their hard work during this quarter.
Speaker Change: Despite this setback we are confident in our long term plans and growth opportunities and I look forward working closely with all of our team members to put them into action.
Speaker Change: Thank you for joining us this morning, and thank you for your continued interest in <unk> have a good day.
Speaker Change: This concludes today's conference you may disconnect your lines at this time and we thank you for your participation.