Q4 2019 Earnings Call
Ladies and gentlemen, I walked into Tuesday morning, Q4, and fiscal 2019 year end earnings conference call.
At this time all participants are in listen only mode. Later, we will conduct a question and answer session and instructions will be given at that time.
If anyone should should require operator assistance during the call. Please press Star then zero your telephone keypad.
As a reminder, today's conference is being recorded.
Now, let's turn the call over to mistakes you Shirley CFO Ma'am you may begin. Thank you operator, good morning, everyone I'd like to welcome you all to the Tuesday morning Corporation fourth quarter and fiscal 29 team earnings Conference call. Joining me on the call today is Chief Executive Officer, Steven Becker.
If you've not yet received a copy of today's earnings release, you may obtain.
Okay by visiting the Investor Relations section of the Tuesday morning.
Before we begin today's discussion I would like to make you all aware that some of the information presented today may contain forward looking statements that involve risks and uncertainties that could cause actual results to differ materially from those implied in the forward looking statements.
Information regarding the company's risk factors was included in our press release and is also included in our filings with the SEC.
Any forward looking statements made during this call speak only as of the date of this call.
Today's presentation will also include certain non-GAAP financial measures, including EBITDA and adjusted EBITDA, a reconciliation of the non cat financial measures used in this presentation to the most directly comparable GAAP financial measures can be found in the Investor Relations section of the Tuesday morning website at Tuesday morning.
Steve will provide an overview of the results and strategy I will follow with a review of our financial results before we open the call to questions I'll now turn the call over to Steve.
Good morning, and thank you everyone for joining us for our fourth quarter and 2019 fiscal yearend call.
Fiscal 2019 was an important year for Tuesday morning, we delivered significant improvement in our operating performance as evidenced by a doubling of adjusted EBITDA driven by 110 basis points of gross margin expansion, our sales increased slightly despite significantly reducing our traditional AD events and operating 12 fewer stores. We also generated free cash flow reduced our net debt and extended our bank line on favorable terms for an additional five years.
There were important operational accomplishments in fiscal 2018.
After successfully repositioning our store portfolio, including opening relocating and expanding approximately 285 stores over the last five years as well as the closure of many of our least attractive locations. We have now pivoted, our real estate strategy and made substantial headway in our rent renegotiation program. We are pleased with our results, thus far and with 170 leases coming up for renewal in fiscal 2020, we expect more progress to come.
Our supply chain ran smoothly inefficiently handling, 7% more units with lower cost per piece and lower overall costs, we introduced distribution center bypass and domestic consolidation to further improve distribution freight and transportation efficiencies and also completed the groundwork to begin the next phase of our supply chain repositioning.
We completed a three year reduction of our traditional AD events, which improved our gross margins meaningfully improved our working capital efficiency and allowed us to shift AD dollars to more efficient digital channels.
We grew our brand impressions by a 100% continued to grow email capture and earn out over 3 million email addresses in our database.
We improved our markdown management, which helped drive our gross margin improvement and we enhanced our merchant organization with the addition of a number of merchandise managers and buyers all of whom have significant experience in off price.
Looking more closely at how we finished this year and the underlying drivers of our performance, we delivered positive comp growth of 0.7% for the quarter driven by transaction growth of 3.1%.
The decline in basket was directly related to a handful of businesses that we have taken concrete steps to address as discussed last quarter. We continued to strengthen our merchant organization by recruiting best in class off price talent over the past few months, we've hired two new divisional merchandise managers and three new buyers all of whom have spent significant time at other off price leaders. As a result, we are better positioned to replicate the success, we have seen in key merchandise categories more broadly across the assortment.
We are very focused on finding great deals for our customers and have recognized the merchant team reorganize the merchant team and added significant additional support resources.
The marketplace for goods continues to be strong and we've added meaningful new brands and negotiate some great deals which were excited to pass along in the current retail environment, our ability to source high quality goods be very sharp on price and deliver great value is paramount I cannot overemphasize the amount of work we've done here and excitement that our team feels around the momentum in our merchant organization.
On the marketing front, we continued with our efforts to drive more effective communication with new and existing customers. We are growing our customer email list and becoming more efficient with our digital marketing efforts. We're seeing success in our diversified media approach and in the past year, we have expanded digital programs and run video and TV tests, which yielded a promising lift in brand awareness. We are also very encouraged by CPI is across email subscribers and engagement impressions site traffic and social followers all of which showed strong increases for the year and we're particularly pleased that these efforts have helped attract younger customer as our average customer ages four years younger than it was only 18 months ago.
We have now completed the heavy lifting to shift our marketing mix away from the traditional event driven messaging. This shift did create a sales headwind for us what was the gross margin tailwind and importantly sets us up for what we believe will be a more efficient and effective marketing program in fiscal 2020 and beyond this year, we expect our traditional AD events to be roughly similar in number in size, but more effective due to the quality of deals. We're finding in the work we've done with our merchant team to focus on finding new vendors and great products.
As we look ahead, we remain squarely focused on supporting our merchant organization to effectively execute the off price model. We're also focused on positioning Tuesday morning for sustainable growth as we announced this morning, we will begin the next phase of our supply chain repositioning, which we believe will help drive efficiencies and cost savings over time.
After an exhaustive process reviewing the alternatives, including analyzing various locations and building configurations. We made the decision to retrofit our primary Dallas distribution facility. As a reminder of the current Dallas distribution complex consist of three distinct buildings that are not physically contiguous and not all on the same campus. This path forward provides us the highest return on investment will also carrying the lowest associated risk of all the alternatives we studied.
The process will involve consolidating our Dallas distribution activities into one facility that we currently own and operate which is three miles from our Dallas headquarters.
As we have previously discussed the primary issue with the current Dallas distribution operations as configured today is the inefficiency of working in multiple buildings that are not on the same campus and to a lesser extent the layout and age of the equipment.
By consolidating into one facility and upgrading the equipment the new Dallas distribution Center will have significant cost and efficiency benefits. The project will largely involve the installation of new equipment much of a current and currently underutilized space as well as upgrades to existing systems. While these installations are occurring the current Dallas facilities will continue to operate once the new capacity is online will gradually wind down the legacy facilities.
We are well into the planning phase and expect to be working in earnest on this project. Shortly after the fall peak. We currently believe this process will largely be complete and our primary Dallas facility will be fully operational by summer of 2021.
Over the next two years, we expect to spend capex of approximately 28% to $30 million on the retrofit of the Dallas facility. We're actively in the process of evaluating the disposition of certain noncore real estate distribution assets based on market data. We believe the potential value of these assets could be in the high teen million range, which combined with expected cash flow generation, We will fund our DC retrofit investment.
Any temporary timing mismatches, if they occur will be funded as necessary by borrowings on our credit facility.
We expect the benefit of the Dallas retrofit and other supply chain efficiencies to contribute approximately 150 basis points of gross margin expansion with potential for future benefit as additional efficiencies are gained.
Given the company's experience with the Phoenix DC that was opened in May of 2016, I think it's important to highlight how and why the situation is very different.
The Phoenix project was far more complex and involves significant changes in process as well as multiple software system implementations. We also had to hire and train a new team as well as contend with the introduction of an entirely new transportation process. While at the same time executing a new merchandise strategy that involves significant unit volume growth. In contrast, the Dallas DC retrofit is designed to significantly reduce the risk and complexity, we experienced when opening the entirely new Phoenix facility, namely, we're using existing facility to install new equipment and largely unused space. We're using an existing warehouse management system that will be upgraded to minimize any disruption will operate our current Dallas facilities and only wind those down when the new capacity is fully operational we are leveraging our Dallas distribution talent with this retrofit and will benefit from the proven expertise in effectiveness they've already demonstrated when operating the current dow's facilities and finally the proximity this facility allows for greater management oversight.
We look for we look forward to entering the execution phase of this important project to further improve our distribution infrastructure and benefited from the associated associated efficiencies and cost savings.
Finally, let me touch on our outlook for our real estate activity going forward as you know over the last few years, we've made tremendous progress resetting our real estate footprint as we look forward. We will continue to approach openings and relocations Opportunistically and we will be heavily focused on renegotiating leases, which will continue to decrease the headwind from rent we've experienced over the past four years, we've already had great results with renegotiating some leases and with a favorable environment. We believe we will continue to be able to capitalize on improved terms as a 170 leases come up for renewal this year.
While fewer relocations reduces the comp sales tailwind, we're pleased with our current store portfolio with the Rightsizing of our traditional out of its behind us and a strong overall market for deals. We believe we are well positioned to drive positive comp growth growth going forward.
And as Stacy will discuss shortly there are also gross margin drivers of the meaningful adjusted EBITDA improvement. We expect this fiscal year I will now hand, it over to Stacy to go over the details of our financial performance and provide more comments on our outlook for fiscal 2020. Thank you Steve before I discuss our fourth quarter results in more detail I'd like to briefly review the highlights of our full year performance.
As Steve mentioned, we drove significant improvement in our operating performance pattern here, which demonstrate the strong progress we continue to make against our key initiatives. While we did have some headwinds to our top line related to a purposeful reduction in traditional added in and fewer stores. We were pleased to deliver slightly positive comp.
We also drove 110 basis points in gross margin expansion doubled our adjusted EBIT da to $20 million and delivered positive free cash flow. It was great overall progress for the year.
Now, let me review our fourth quarter results.
Net sales were $230.5 million flat with Q4 last year and comp sales increased 0.7%.
Comp transactions increased 3.1% in average ticket decreased 2.3%.
Stores relocated over the last 12 months continue to deliver strong performance contributing approximately 90 basis points to comp sales in the quarter.
Driven by the better real estate and larger average store footprint.
As our real estate activity has moderated contribution and relocated stores to comp sales will be relatively insignificant.
Gross profit was relatively flat to last year at $76.7 million, while gross margin decreased to 33.3% compared to last years gross margin of 33.4%.
The gross margin decline was primarily driven by increased transportation costs, partially offset by continued improvement in initial merchandise markup.
<unk> expenses were $88.1 million for the fourth quarter compared to last year's expenses of $86.5 million.
As a percentage of net sales SGN, a de levered up 70 basis points to 38.2% compared to 37.5% last year.
The increase in SG $9 was driven primarily by increased incentive compensation and retention costs.
Advertising increased for the quarter, which was timing related and rent expense was also very slightly year on year, reflecting the slate the favorable lease negotiations we've achieved.
Partially offsetting these increases workers' compensation insurance expenses were lower coming from favorable claims experience.
Excluding incentive comp and retention expense SGT expenses would have leveraged approximately 20 basis points.
Our operating loss for the quarter was $11.4 million compared with with $9.4 million in the fourth quarter of last year, and we reported a net loss of $12 million or 27 cents per share compared to the fourth quarter last year. When we reported a net loss of $10.3 million or 23 cents per share.
Yeah. It was negative 4.8 million compared to negative $2.8 million last year, and adjusted EBITDA was negative $4 million compared to negative $2 million in the fourth quarter of last year.
For our full year performance highlights please refer to this mornings press release.
Turning now to the balance sheet.
Cash and cash equivalents were $11.4 million at the end of the year compared to $9.5 million at the end of last year.
Total liquidity was $76.4 million, including approximately 65 million available on our revolver.
As of year end, we had $34.7 million in borrowings outstanding under our line of credit compared to $38.5 million last year.
We improved our overall net debt position by 5.7 million for the year.
We ended the year with our inventory in a good position at approximately $238 million, which is an increase of 1.5% from a year ago.
Our overall inventory turns declined slightly to 2.7 turns compared to 2.8 turns a year ago and for the fourth quarter, we invested $4.8 million of Capex on a net basis and for the year, we invested 14.6 million.
And now for our outlook for fiscal 2020.
We currently expect comp store sales for fiscal 2020 to increase in the low single digits.
As we look at the cadence for the year for Q1 in Q2 for us will be the most challenging comparison as we are anniversarying, our strongest comp from last year, which included a higher contribution from relocated stores.
For the spring again, Q3, and Q4 for US we will be going up against a negative 5.3% and positive 0.7% respectively. So the comparison is much easier.
We didn't expect to achieve improvement in gross margin driven by improved initial merchandise markup and lower supply chain expenses.
At the Feeney expenses are expected to be relatively flat on a rate basis and for the year, we expect meaningful EBITDA improvement.
For the year, we expect to open approximately three new stores complete five relocations and closed 15% to 25 stores.
As Steve reviewed over the next two years, we plan to spend approximately $28 million to $30 million in capex for the retrofit of our Dallas DC.
As we currently look at the cadence of spend for the project. We believe the total related capex will be roughly balanced between the two years. So we'll keep you updated as we make progress.
For fiscal 2020, we expect total capex to be approximately 25% to $27 million with a year over year increase related to the retrofit of our year of our Dallas DC as well as an increase in investments in information technology, partially offset by lower spend on stores.
We plan to fund these investments through a combination of cash from operations potential sell certain non core real estate distribution assets as Steve mentioned and if necessary borrowings on our credit facility.
I'll now turn the call back over to Steve before we open it up for questions.
So in summary, we're pleased to have delivered a substantial improvement in profitability at Tuesday morning in fiscal 2019 importantly, with the strides we are making across marketing merchandising supply chain in real estate, we enter fiscal 2020 on strong footing the great offerings merchandising talent, we're hiring the resources, we are providing to our team and the improved processes. We are putting in place better position us to take advantage of an outstanding fuel environment.
Combined with more effective marketing our improved positioning is resonating with customers and is evident in the good transaction growth. We delivered in Q4 with a clear path forward for our distribution footprint, we look forward to generating the associated efficiencies and cost savings. We look forward to updating you on our progress as we move through the year before we get to today I want to recognize the entire team. We accomplished a lot. This year. The team worked extraordinarily hard and I want to thank you all for your dedication with that.
Turn it over to unit.
Ladies and gentlemen.
If you have a question at this time. Please press Star then number one key on your telephone keypad.
If your question has been answered you wish to remove so from the queue. Please press the penalty.
Once again Thats star one for questions Star one.
And our first question will come from the line of Jeff Van Sinderen from B. Riley.
You may begin.
Hi, good morning, everyone.
Can you speak a little bit more about or a little bit about trends you've experienced in traffic and conversion so far in Q1.
Are there changes in marketing this year versus Q1 last year that could impact your cost for Q1, I know the anniversary talked about bolt tougher in the first half of easier in the second but just anything any other color there would be helpful.
So I mean look we obviously were pleased with the transaction growth that we saw in Q4.
We think the transaction growth is really a product of a lot of initiatives that we've had in place for a while obviously, we repositioned a lot of our real estate and I think.
We put ourselves in better locations and that helps we've done lots of work on the marketing side and if you look at all of the key is around our marketing, they're all up whether its site traffic or social followers are brand impressions.
Email subscribers and engagement, it's all positive and I think thats contributing we've also done a lot of work on our merchants ortman and we have some families that are very strong for us that.
Tend to attract repeat traffic and so theres no reason for me to believe that as we look into next year.
Those trends will continue, but we're not giving quarter by quarter guidance and as we pointed out earlier.
Q1 is it is the toughest compare.
Okay, I would add to that Jeff is we get not giving any guidance two quarters as we look across the full year. The other thing that we won't be contending with that same degree is the headwind that we had related to.
The traditional AD event, and how we had really pulled back on that which has been a tremendous headwind for us in the past number of years and so we won't in as we look at you asked about you know marketing will be much more on par as it relates to those traditional event in 20 compared to where we were and 19 in some cases.
We might even investing a little bit more.
So that that will be a positive to the you know as we look to 2000, yeah. Jeff I don't think you can underscore that enough I mean, we really set down a past three years ago to reduce our reliance on those events and as we've talked about before we felt like there were far too many of them.
We felt like it was obviously, putting undue pressure on our margins because of the promotional nature of the of the products and the associated IMU, we felt like the messaging to our customers. It was hey, you only have fantastic deals on these out events and we think thats far from the truth. The reality is everyday there is terrific value in the store and so we set down a path to reduce those and we went from 17% to 15 to 12 and now we really right size those and obviously they had a real impact on each of those three years on our comps and this is the first year when we think that the bill at the at the.
At the base case, it should be flat and we think there is reason to have some optimism. We spent a lot of time looking at those events and thinking about the product. That's in those I think the team has done a superb job in finding really sharp values and we internally are very excited about them. We have the first one of the year is coming up to Sunday and we're excited about the product that's in it and we think that they could be a tailwind we're not sure of that but we've done a lot of work and we're optimistic.
Okay good to hear.
And then just turning to the.
The DC and opportunistic buys can you speak more about your evolving concentration of opportunistic close out buys versus other types of buyers and how you see that impacting your business and then also just getting to the.
The DC evolution plans, maybe talk about how the timing unfold as well as the impact on your balance sheet.
Given the real estate just maybe if you can only down I think you said mid teens, probably for real estate sales.
And then sort of the transient expenses as part of that and then I know you said 150 basis points just wondering.
When you think the 150 basis points kicks in or would that be for holiday 2020 watt. Thanks.
So lets tackle that in two parts I'll hit the first part and then I'll hand, it over to Stacy to talk little about the economics of DC. So you know as we talked about we engaged a consultant who was a former senior executive at a couple of the top bleeding off pricers and that individuals been working us for a while with us for a while now in one of the.
One of the learnings from that is that I don't think we have been using pack and hold as aggressively as we could have and so we've been in the market.
Very aggressively over the last few months, we found a lot of product typically end of season product, which is very standard in off price, but not a practice that we had been doing in a big way and we have we're packing and holding a lot of that product I think our pack and hold right now is to kind of double what it was a year ago and I expect that to continue to grow so.
That to US is tremendously advantageous we're finding typically end of season product that we can price extremely sharply and I think some of those values will be.
Much much more compelling than they were a year ago. So we are doing much more pack and hold.
And obviously part of the DC retrofit is to make sure that we don't have any capacity issues associated with that and see if you want to touch on the DC retrofit issues.
So I think one of your question was that the value of what we based on market data, we're expecting somewhere in the high teens.
From a working I think one of your question maybe around working capital balance sheet. There's.
Is that what you're asking in that regard Jack.
Yes, I'm, just trying to get a sense or kind of how that shakes up.
I mean, we're not expecting you know other than the pack and hold that that Steve talked about that we might be doing more of that that's going to be really the only thing, but there's also you are thinking about the fact that you're if you're going for three buildings to one buildings. There is an efficiency gain as youre moving the product through in at more fast in a quicker fashion.
Yes, so I think so I think there could be you know very modest working capital implications for pack and hold we're not particularly concerned about this point, we do think ultimately as Stacy just pointed out moving to one facility will have positive working capital of patients because we're just shaved some time off the.
The total length that it takes product to get the Dtcs, Jeff I think you were also curious about the the overall economics in terms of what we think the return is going to be.
Yes so.
Our view is that the this project and kind of associated work that we're doing around it as we move into it and thereafter ultimately should be something in the neighborhood of 150 basis points of goodness do I think there's opportunity beyond that overtime, yes, but we're not committing to that at this point in time I think when we have the product by the time you know the DC is fully functional theres at least a 100 basis points and then over the course of that next year, we think there's opportunity to get to 150 and then beyond that.
We think there's opportunity, but given our past experience, we'd rather show you then commit to that at this point.
Okay I understand and then just one quick one if I can throw it in just wondering on the merchant or.
I know you mentioned some some changes there.
Well kind of what's the status of the merchant or I guess at this point what slots do you still need to fill.
So were currently in a search for a chief merchant that continues we've seen lots of very good candidates, but obviously were being.
Thoughtful and methodical in that process in the meantime, we've hired two divisional merchandise managers that we're very excited about and we continue to interview some excellent candidates as I mentioned.
We've hired three additional buyers and we continue to interview candidates there and you know our view is that we have a really really strong merchant team and we're very excited about the team that we have we've added some resources to that team to allow them to be in the market more frequently and I think thats been successful our teams have been really traveling a lot domestically and have been able to locate some really some really exciting deals I mean, we have a large deal and just hit the stores. This week that was a brand new vendor.
And something we hadn't had before that we're we're all excited about so I feel very good about the evolution of the merchant team. We've reorganized some of the responsibilities and will continue to do so and I'm also very excited about the caliber of the talent.
And the pedigrees of the individuals that weve been able to attract I mean, there are definitely impacting the organization positively.
Okay good to hear.
Thanks for taking my questions go ahead.
Yes, I wanted to follow up with one one thing on the on the retrofit and the balance sheet just to make sure that we're clear. So it's as Steve mentioned, you know as we look at how we're going to find that capex and the $28 million to $30 million exploring that opportunity to sell those assets, which again, we said we'd be in that.
That could be in high teens that in addition to our cash from operations, which we guided to for for the year, if youve taken that into consideration and for this year and next year and we feel very good about how we're going to need funding. This this project.
Needed on a time basis, we'll use our revolver.
Okay. Thanks, if you're selling the buildings in the high teens and you basically are going to come out of pocket for $28 million to $30 million and we said, we expect meaningful improvement to EBITDA. This coming year. If you even held EBITDA constant at where it was this past year for the next two years, that's $40 million on top of that you have the proceeds and if your Capex was roughly constant for the next two years and given where our real estate program is I don't.
Foresee it would be terribly different than that you're comfortably covered.
Obviously to the extent, we have a timing discrepancy we have plenty of room on the revolver, but if all goes well that shouldn't be something that we need to use it.
Okay I'll take the rest offline. Thanks.
Thank you.
Thank you and our next question comes from the line of Alex Fuhrman from A.W.M. investments you may begin hey, good morning.
Hey, good morning out.
A few questions, Jeff asked a bunch of them, but just so I can confirm I understood. This correctly less of a of a revenue tailwind from new and relocation stores, but also less of a drag from change in traditional AD events is that fair.
Yes, that's fair both of those factors will come into play yes, I mean, we've had this funky construct that we inherited which is talking about comp and then base comp and going forward. You know those two basically should become the same because our relocation activity.
Really moderates I mean, if you think about even in this quarter, where we comped, 2.7% positive we had the negative effect of the second year Relos, We had I think something in the Fortys that were in their glow period, and so our bass stores actually comp positive I realize it's all it's complex and we look forward to getting away from that and then obviously as you think about.
You think about the AD events as I mentioned before it's just been a three year drag and I think we're enthusiastic that this is the year when that should turn.
Got it.
In terms of SGN A. I, just want to make sure I heard this correctly did you say, excluding the higher incentive and retention comp.
There would have been at.
A 20 basis point improvement.
As a percent of reps yet in Q4. It would have been if we would have leveraged 20 basis points for the year. The impact was even greater we would have leveraged about 65 basis point. So there is a significant incremental expense. This year, okay and other term is we talked about we adjusted our adjusted EBITDA increased by about $10 million and without those incremental costs. It would have been closer to $18 million. So it was a big number this year. So remember Alex last year, there was very little incentive comp ratio is retention comp and very little incentive and this year, you had retention comp and incentives and I think it's worth pointing out that the retention comp. This year was is about $2.4 million and as we go into fiscal 20, I'm not going to be nearly as significant it's roughly a third of that or or 20.
Okay Thats helpful and then.
Thank you.
In terms of real estate negotiations, how should we think about.
How rents should change with those 170 leases.
Well, here's how I would kind of frame and if we look at the past number of years and we've been on this journey for five or so years and the past few years, our rent expenses increased in there.
On average $10 million, so it's been a big headwind.
In fiscal 19 that decrease significantly as a result of both the negotiation.
Except that we are having as well as lower and real estate activity and that increase was around three three to <unk> going from this 10 million down to three two and then as we go into fiscal 20 again continued success with negotiations as well as a more moderate pace, we expect the incremental and increased it even less than what we experience.
Hi, Sue.
Sorry, I assume I assume part of the the rent increase though over the years is more square footage from the relocations now.
That's definitely part of it.
On average when we relocated store open a new store, we have increased pretty significantly about three to five.
Thousand square feet.
Yeah. So we've been going from very bad locations too much improved so it's kind of the combination of those things I mean, the other the good news in our you know in the in the real estate portfolio is that we have lots of leases that are coming up. The bad news is also that we have lots of leases coming up and so while the vast majority of the leases that we renegotiate are positive and we have an opportunity. There. We also have some outstanding locations, where unfortunately, we had very short term lease rates and so some of the growth and rent comes from.
Lease that is coming due where we didnt have the lease rates that.
Frankly, I think we you know today as we do these deals we have multiyear extensions for the most part and so we didn't have some of those in the past and we do suffer that when we have a terrific location that we have to renegotiate.
Okay. My last question is around transportation costs clearly, we're we're all seeing the same headlines around.
Pricing coming down how do you think about it in terms of your guidance for the coming year.
So we factor that in.
Patient.
Notably one of the more difficult thing.
To forecast or predict I think even more so for.
Theres because of how.
The complexity of not always knowing where you're sourcing your.
Tonight's from.
That being said, we're doing a lot of things you know the DC bypass.
And the next season and we'll continue those efforts I think that the unit flow that we'll go through those will increase this year.
Especially with.
And then lastly.
We have hired a new.
A new head of transportation is a veteran in the industry and is doing a great job looking at all of our partnerships all of the carriers as well as all of our contracts.
To see where there is opportunity and we're pleased with the progress.
We're in the middle of a significant renegotiation program, there as well and he's he's reviewing everything that we're doing.
Got it. Thank you guys appreciate it.
Thank you.
Thank you.
And our next question comes the line of PJ sell it from Potomac Capital Management, you may begin.
Good morning.
Good morning, Congrats it looks looks like some some signs of traction on a lot of fronts.
Jeff and Alex covered most of my questions, but I guess one thing is in the merchandising area would you focused on.
What's what specifically is working or not working these days.
You know PJ, we don't you know for competitive reasons, we don't like to get into great detail there.
I would say that you know we've had a handful of growth businesses that continue to have traction.
But I would I wouldn't make a point that when you think about when you think about our basket. This last quarter. We obviously had nice transaction gross and our basket was down slightly and there. There are you know five or so businesses, where frankly I don't think our execution was what it should have been and in all of those businesses. We've made some strategy changes around how we're how we're going to market. The product that we're going to have the way, we're going to price that product and also in each of those cases, we've made changes in the buyer and the manager of that buyer. So we recognize very specifically where the issues are from a basket standpoint, and we've taken steps to address them.
Got it okay. Thank you.
Thank you.
And our next question comes from I know, Chris Krueger from Lake Street Capital you may begin.
Hi, good morning.
Good morning.
Most of my questions have been answered, but I guess just one quick question is are you stated that your average customer ages four years younger.
I believe than it was 18 months ago is this driven by any certain product categories or how should we look at that.
Yeah, I mean, I think it's largely driven by marketing to be honest I mean, we have a I think that obviously, we've shifted to digital and away from print and I think that helps to attract.
Our younger customer and we're just seeing a lot of success and you know all of the metrics that we follow as I mentioned before you know specifically around social so you know.
All of those things when you're when you're marketing to people digitally you're definitely attracting a younger customer and I think that engagement that we're seeing in the marketing programs.
Around bloggers on Instagram, Facebook et cetera is contributing to driving younger customer in the store I think the other thing is probably as we talked about and Weve touch close to 300 of our stores and so repositioning those stores and putting them in you know in many cases much higher traffic and centers. You know I think that is has it helped with that as well you know it's taken a little bit of time.
I think that is a contributor to that as well.
All right. Thank you.
Thank you and our next question comes from the line of Ethan Steinberg from SG capital.
You may begin.
Hi, guys good morning.
Morning.
A couple of things most most everything got asked but the average ticket down but the transactions.
Was the average ticket down do you feel like more consumer driven or merchandise.
Driven we believe its merchandise driven I mean, we we think that we can really pinpoint.
The businesses that had challenges versus a year ago, and what's changed there and as I mentioned before we think it was our execution and we've taken steps to address this.
Got it and that sort of leads to having the new folks in there. How quickly are you seeing or do you expect to see them put their fingerprint.
On that where we can see the.
The average ticket change.
Well look I think that some of the changes are starting to flow through obviously it takes time, but we're definitely seeing you know were seeing merchandise that has been bought by some of the newer buyers as well as some of the existing buyers, where we made some changes within the U.S organization and refocused our strategy. So I think this fall it's reasonable to expect that you will see some improvement or at least evidence of it I'm not going to predict improvement I would like to see improvement, but we're definitely seeing.
Product flow in that we've purchased under this regime and our view is that these are the appropriate steps to fix these businesses.
Okay, and then the 150 basis points benefit on the supply chain initiatives can you give us how how long roughly should that take to get.
So you know as we look at it and of course, there are things that we're doing right now to continue with the efficiencies that after that first year as being fully operational which will for us will be fiscal 22 from where we are today, we expect 100 basis points improvement at that point and then you know roughly another 50 that next year with opportunity and beyond that.
Okay, Great and then I think just the last thing is so is your is your realigning the current DC structure.
I think you laid out the capital commitment is there much extra cost as you got some duplicate processes going on it sounded like.
We don't expect a notable increase in operating expenses were obviously working very hard to make sure that that doesn't happen, we'll obviously be professional fees and most of that will be capitalized and we're not really running redundant facilities. The retrofit will be occurring as we're continuing to operate as if we have another facility. So we are not going to be incurring costs related to that I mean, if you visualize it Ethan there is a lot there is a significant piece of space in the in the facility that we are going to be that we're going to end up in the currently isn't it's kind of under utilized and so we're going to do a lot of work there and then once that is up and running we can kind of wind down the work in the other building and so we don't from a labor standpoint, we don't expect redundancy.
And that's really where your costs would come from.
Yeah got it okay, great. Good luck with everything thank you. Thank you.
Thank you and Im showing no further questions at this time I'd like to turn the call back to over to Steve Becker for closing remarks.
Thank you all for tuning in we look forward to updating you on our first quarter conference call have a great day.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect everyone have a great day.