Q2 2019 Earnings Call
Greetings and welcome to the build a bear workshop second quarter 2019 results conference call.
At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If you would like to ask a question today. Please press star one on your telephone keypad.
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It is now my pleasure to introduce your host Jessica Schmidt Vice T.R.. Thank you you may begin.
Good morning, Thank you for joining us with me today are sharing price, John CEO and going to doorbell CFO for today's call Sharon will begin with a discussion of our 2019 second quarter performance and review the progress made on our strategy. After Voin will review the financials and share guidance. We will then open the call to your questions. We ask that you limit your questions to one question and one follow up this way we could get everyone's questions. During this one hour call feel free to re queue. If you have further questions members of the media, who maybe on our call today should contact US. After this conference call with your question. Please note the call is being recorded and broadcast live via the Internet. The earnings release is available on the Investor Relations portion of our corporate website.
A replay of both our call and webcast will be available later today on the IR site before I turn the call over to management I will remind everyone that forward looking statements are inherently subject to risks and uncertainties actual results could differ materially from those currently anticipated due to a number of factors, including those set forth in the risk factors section in the Companys annual report on form 10, K., we undertake no obligation to revise any forward looking statements and now I would like to turn the call over to Sharon.
Thank you Jessica and good morning, everyone in the quarter, even with the anticipated decline in retail revenue given the comparisons to last year's remarkable traffic driving pay your age event.
We improved operating results with gross margin expansion and expense management versus the second quarter last year, even with the backdrop of global and economic uncertainty.
With the focus of our dedicated team the quarter also saw growth in new revenue stream as we continue to execute our business diversification initiative, which we believe demonstrates the progression of our stated strategy.
We also continued to build necessary infrastructure and to solidify relationships with best in class partners, which we expect to further leverage the aware and weirdness in power of our brand across categories.
In short our long term goal remains to evolve the company beyond the traditional mall based retail concept and how much. It was established over 20 years ago.
To that end, we recently completed the execution, that's a noteworthy agreements in the entertainment state, which I will outline shortly that are expected to build on our brand strength and contribute to the advancement of our overall evolved business model.
With U.S. aided brand awareness over 90% and comparative brand metrics that are for parental Trust and kids love that rival other family brand be enough [laughter], we understand the potential value that is inherent in our company.
It is that same values that allows us to have a list of over 8 million opted in email addresses for direct marketing and communication 4 million active loyalty club members that represent an estimated 20 million household members and nearly 45 million guests each year that come into a build a bear workshop.
A level that is comparable to the attendance at global recognize theme parks on top of that on a combined basis. There are over a 110 million unique visitors to our website you tube channel and other social media platforms annually.
Not to mention the millions of brand interactions generated by digital post [laughter], often featuring heartwarming stories that go viral that are shared directly by our guests through user generated content.
With that in mind, we are focused on four key priorities. This year that are intended to better leverage our brand assets and contribute to long term success. These include.
More efficiently taking advantage of growth and the digital economy, increasing acquisition engagement and lifetime value of loyal program members.
Diversifying retail locations to broaden consumer accessibility to our brand and reduce our reliance on traditional mall.
And finally monetizing the awareness and trusts that consumers have for our brand through incremental profitable revenue stream.
Licensing wholesale and entertainment.
As it relates to growing in the digital economy, we once again delivered double digit ecommerce revenue growth, marking the seventh consecutive quarter of growth at those rates.
A pace that its been consistent since the launch of our new web platform supported by Salesforce in fall of 2017.
Even with these results we believe there's significant opportunity for further growth in e-commerce , when we benchmark our E com as a percent of total revenue against other companies well, we started as an experiential retailer. We believe this consistent online advancement proves that our brand power extends beyond hands on retail experience.
As a result in addition to the core family segment, we've become multi generational and diversified our consumer base, we've seen teens and adults who prefer to shop online moved to our enhanced side to purchase affinity and gift products.
With nearly 50% of our e-commerce occurring historically in our fiscal fourth quarter, we've been laying the ground work and building capabilities to take advantage of the ongoing macro trend of online shopping leveraging our progress to date and adding enhanced side. It's <unk> features digital marketing programs and improve search efforts to drive growth in this critical period.
With over 85% of our site traffic on average originating from personal devices, we recently upgraded our mobile capabilities.
We have seen reduced cart abandonment and higher conversion rates since the mobile enhancement were released.
We've been refining both our paid natural search with C. O enhanced product description campaign optimization and branded search terms, leading to higher traffic and improved conversion with a road map of planned feature development.
Closely tied to our digital priorities is the focus on integrating and expanding our bonus club loyalty program membership.
As noted we have over 8 million opted and email addresses with over 7 million of those associated with the bonus club account. The now includes a more robust Kentucky contract Contactable database in the UK that had been rebuilt in compliance with our recently enhanced GDPR regulations.
We have advanced our capabilities to segment this database and personalized messages, which has helped to improve engagement level with marketing communication.
As evidenced by higher average open and click through rates, which benefits both in store and online channels.
We also continue to emphasize birthdays with bonus club members.
Recently, adding an option that allows for the input of birthday data to receive additional benefits.
We added this feature in conjunction with this year's pay your age of that and we now have birthday data on approximately 2 million individuals associated with birthday club account.
This includes the data we have from the birthday treat there that was introduced last year, which allows a child to pay their age for collectible bear any time they visit a store during the month of their birthday.
This there's been our number one unit seller since it launched in birthday can continue to be the top reason for visits to our stores all year long.
By having this data we can customize marketing messages and encourage store visits tied to an occasion and which families are more likely to seek out our unique interactive experience and thereby add incremental lifetime visits.
Therefore, when turning to our next priority a broadening consumer accessibility at retail our data ranging from guest satisfaction scores to generally increasingly robust dollars per transaction and conversion rates indicates that our current challenges are not about who we are but more about where were located.
And it's important to understand that we are well on our way to pivoting the retail business to then use it more line, where todays families go for fun entertainment and to make memories.
We've understood the challenging dynamics of traditional mall based retail for a number of years and we continue to deemphasize traditional mall locations.
That is why we now with purpose and planning.
Have optionality on nearly 70% of leases in the next three years.
With additional leverage given due to build a bears.
Tendency to generate mall traffic because many of our visits our plant.
With our focus on growing brick and mortar retail locations to that allow us to diversify access to more consumers in places where they prefer to shop. We are on track to have approximately 23 lease spaces within Wal Mart stores by the end of the year.
We believe that this relationship gives us the opportunity to expand accessibility and convenience of our brand to a wider consumer base and reach incremental shoppers beyond that was in traditional mall stores.
Beyond the store locations Walmart is currently the top distributor build a bear out their license products from plush toys to slippers.
We're also pleased that this year Walmart will be the exclusive partner for annual National Teddy Bear day celebration on a national basis that means that nearly all U.S. Walmart stores will offer the same collectible Teddy bear that featured in our stores with approximately 2000 of those locations hosting local retail tainment events over the weekend of September seven through the night.
Separately in line with positioning build a bear works top stores, where families go for fun and entertainment tourist locations such as a successful shop with NFV Schwartz in New York City or the location near the London I continue to be a focus.
We have completed the expansion into 17, Great Wolf Lodge resort, which operate on a wholesale basis like the model, we have with carnival cruise lines.
By this holiday, we expect to have nearly 150 non traditional mall retail locations, including tours, then use through a combination of owned seasonal and third party wholesale agreement.
As it relates to monetization of our brand assets. We believe we made progress to leverage the awareness and trust that consumers have for our brand through incremental profitable revenue streams.
In the quarter, we had an increase in commercial revenue and we executed multiple agreements tied to entertainment and content development, which is intended to be the foundation for a new branded production entity called build a bear entertainment.
With that in mind, we are pleased to announce that we recently signed an agreement for a multi dimensional relationship with Sony Pictures worldwide acquisitions that includes the creation of movie content based on some a build a bear that's selling proprietary intellectual properties. The first property and the pipeline is expected to be based on our popular music oriented girl empowerment line the honey girls.
The Sony contact comes on the heels of our recently announced music partnership with Warner Music group to develop the build a bear a record label under Art's music as well as the publishing deal with Warner Chapel music, both of which are synergistic with the continued expansion of listenership on build a bear radio.
Other notable progress in this area includes the Finalization of an agreement with R.W.S. Entertainment Group a full service production company that creates award winning cut them entertainment live events and branded experiences worldwide.
And we are currently in development for two holiday movies with the Hallmark channel. The first of which is scheduled to air during the upcoming Christmas season.
We believe that many of these best in class Entertainment partners recognize the value of the high awareness trust and emotional connection that consumers have with our brand, but also the unique asset that comes with our retail locations that allow for direct interaction and additional storytelling when consumers who have engaged with the entertainment content visit our stores.
We expect to start to realize some direct benefit from these new entertainment initiatives its revenue generating channels in 2020.
However, we believe that the ultimate opportunity within this business model lies in the full circle of leveraging the branded entertainment content to also elevate and monetize our retail channel and experience, which should then drive additional brand engagement across diversified channel.
In regard to the recent second quarter results included total revenue of $79.2 million, a decline of $4 million with sales growth across geographies in the two first two months of the quarter offset by a decline in the final month, reflecting the prior year's benefit of a significant traffic and transaction growth driven by our inaugural pay your AJ events and the subsequent voucher redemption.
The retail sales growth in May and June was not enough to offset one of the biggest revenue weeks in the history of our company that occurred with the groundbreaking pay your age promotion that was launched last July even with the strong lion king offering and a strategically clean repeat of the pay your age of that.
Because of our continued belief that the on Prem.
Demonstrated the passion that consumers have for our brand and help launch the aforementioned popular birthday treat there we felt that the awareness and popularity of the promotion warranted. The development of a plan that would allow us to repeat the offer in a format that with appropriate constraints would allow us to deliver a positive experience for participating consumers.
Well the number of adjustments we held our second pay your age event in June June of this year with strong consumer response.
Enhanced loyalty member data collection and overwhelmingly positive media coverage with nearly 2 billion impressions in the week, leading into and immediately following this year's promotion.
Last year's prolonged activity included high level supposed promotion voucher redemptions. So we knew the comparisons would be challenging on the top line basis. Therefore, we focused on conversion preserving profitability in the quarter, which was reflected in the improvement from the prior year's result.
Separately as noted we continue to advance in the digital economy, once again, posting double digit growth in e-commerce as well as an increase in commercial revenue that includes wholesale and outbound licensing fees.
Our quarterly results also included retail gross margin expansion of 160 basis points and a reduction of $2.2 million in S. DNA expenses.
All of which contributed to a 1.8 million dollar improvement in second quarter pre tax loss of $700000. Despite the unfavorable currency exchange rates.
From a balance sheet perspective, we ended the quarter with $15 million in cash and no debt in contrast to a number of other more leverage mall based retailers.
And for the first half of the year build a bear workshop is profitable generating $1.7 million in pre tax income an improvement of $3.6 million from the first six months of fiscal 2018. It is important to note that these results were achieved despite lower total revenues that included the currency headwind just mentioned.
As we look toward the balance of the current fiscal year, we expect to benefit from an enhance celebration of national Teddy Bear day in September .
Favorable backdrop of family centric films, including the highly anticipated release of Disney's frozen too with merchandise launching in October and later in the year. The next installment of the Star Wars series of note the license product tied to the original frozen film has generated the most sales of any license in our history.
Our popular Merry mission holiday collection will feature updated characters and kick off the Christmas season, which will offer an expanded gifting assortment both in stores and online helping to leverage the current ecommerce momentum.
Separately as another proof point of consumer interest to build a bear and other categories. We're also pleased that our new build a bear workshop stuffing station kit developed by our outbound license partner just play has been chosen to be a walmarts high profile top rated toy lists for holiday 2019.
In conclusion, we remain energized about the long term future. This brand in our business as we advance the monetization plans and new partnership opportunities that are now in hand to deliver stakeholder value.
I will now turn the call over to Voin to review additional financial details.
Thanks, Sharon and good morning, everyone.
As Sharon mentioned, the second quarter, followed a particularly strong topline performance from last year.
Driven by the success of our in agro pay rates they havent.
This year's second quarter results were also negatively impacted by unfavorable currency driven by the volatility in the pound versus dollar during the period.
Even with the headwinds faced we improved profitability versus second quarter last year.
Driven by significant expansion in gross margin and disciplined expense management.
With that in mind, we believe the fiscal second quarter of 2017, but it presents a more accurate comparison as it removes the anomaly created by 2018 page they havent.
Using this comparison.
This year's second quarter, so increased sales and improved profitability on a constant currency basis.
Importantly.
Build a bear achieved solid pre tax profitability during the first half of 2019, and we believe these results have us on track to achieve a profitable year.
Some highlights of the second quarter include.
Commercial revenue growth of over 200% to $3.2 million as we continued our progression to grow new revenue streams.
[noise], notably we saw sales growth the first two months of the quarter across geography inclusive of this you're successful pay rates the event.
This also included our seventh consecutive quarter of double digit e-commerce growth.
Now I will review the second quarter financials in more detail.
Total revenues were $79.2 million, a decrease of 4.8% compared to the second quarter of fiscal 2018.
Retail gross margin expanded to 44.1% increasing by 160 basis points.
Mainly driven by merchandise margin expansion. We also saw leverage in occupancy expenses as we continue to control costs in a number of ways, including managing our real estate portfolio to lower average store occupancy expense and the reducing our supply chain costs.
As Jim they decreased $2.2 million $35.7 million as we continue to maintain disciplined expense management and remained focused on our controllable spend.
Even with the revenue decline and unfavorable currency exchange rates pre tax results improved by $1.8 million from a pre tax loss of 742000 compared to $2.5 billion.
The prior year.
Income tax expense of $482000 compared to an income tax benefit of $745000 in the prior year second quarter.
This year's income tax expense was driven by taxable income generated in North America at the statutory rate.
This expense was not able to be offset by losses in various foreign jurisdictions due to full tax valuation allowances.
Importantly, we do not expect to pay any material cash taxes on a full year basis.
As it relates to the balance sheet.
Again, we believe our second quarter results should be compared to second quarter fiscal 17, given the anomaly created by the pay rates day events that occurred late in last year second quarter.
In fact, the transaction from pay rates day events last year led to higher cash balances and significantly lower levels of inventory at quarter end.
At quarter end, this year cash and cash equivalents for $15 million, which is $3.7 million increase compared to the ending cash position of the recast fiscal 2017 second quarter.
Consolidated inventories were $62.1 million at quarter end, representing a $2.7 million increase compared to the end of the recast fiscal 2017 second quarter.
Both of these were impacted by the timing of inventory to support the product launch associated with the frozen two movie.
Combined with our decision to bring in inventory earlier in response to the anticipated increase in China theaters.
We expect to finish the year at a similar level of inventory compared to fiscal 2018.
And expect to have cash and cash equivalents in the range of $20 million to $25 million.
At quarter end, there were no borrowings under our revolving credit facility.
However, based on our financial <unk> financial results for the 2019 second quarter, we will not be in compliance with the minimum EBITDA covenants under our revolving credit facility.
As noted.
We ended the quarter with no borrowings and we do not expect peak borrowing requirements to exceed $5 million for the remainder of the year to cover typical seasonal working capital needs.
It is important to note.
We have reached an agreement in principle with our bank for a favor of the covenant and and amendment of the revolving credit agreement terms.
Capital expenditures totaled $2.5 million for the second quarter fiscal 2019 and for the full year. We currently expect capital expenditures in the range of $12 million to $14 million.
The lower spend compared to our previous guidance is primarily due to the timing of Walmart openings. We expect to end the year with 23 total Walmart locations with a number of additional locations planned for fiscal 2020.
Before sharing our updated full year guidance I would like to provide additional information concerning some current macro trends and their potential impact on our financial results.
First we are assuming no changes in that rate and December 15th effective date of the recently modified Ford strong trip there.
Sure tariffs go into effect, we expect minimal impact this fiscal year.
In part due to continued pull forward of inventory receipts and we are working to mitigate the impact into the next fiscal year.
Actions include Phillip retail price increases and shifting our sourcing structure.
Separately, we expect the exchange rate of the British pound Sterling relative to the dollar to the US dollar to stay similar to the level at the end of the fiscal second quarter.
Which will have a negative impact on revenue, but minimal impact on profits for the remainder of the year.
We are balancing these actions with an expectation that business could be impacted.
With ongoing changes in shopping patterns and shift to consumer confidence that could impact the discretionary spend.
[noise] also as would be expected with a change in fiscal year that began in 2018 third quarter is anticipated to be our smallest and least profitable quarter.
In addition, we have some tough comparisons in our retail stores in August caused by the tail end of the prior year pay rates day voucher redemptions.
However, we have seen an improved trend that gives us more confidence that we will meet our profitability goals for the year.
Our full year guidance includes a small improvement in third quarter results versus last year's $10 million pretax loss.
Finally for the full year, we are adjusting our guidance for revenue and the reiterating the previously shared pretax income guidance on a GAAP basis. We currently expect.
Total revenues to increase in the low single digit range versus our previous expectation for an increase in the mid to high single digit range.
This reflects our first half performance and the potential impact of macro issues offset by growth in e-commerce and the benefits of our diversification strategies to reach more consumers and add new revenue streams.
On a full year basis, we continue to expect pretax income to be slightly positive reflecting increased revenue in the second half of the year.
Expansion in gross profit margin margin.
While we expect a reduction in as Gionee for the full year in the second half of the year, we expect as DNA to be higher than the prior year driven by the expansion of Walmart location.
And the more normalized incentive compensation expense versus fiscal 2018.
And as noted we expect to finish the year with a healthy balance sheet, including $20 million to $25 million in cash and positive operating cash flow less capital expenditures. This concludes our prepared remarks, and we will now turn the call back over to the operator for questions operator.
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In the interest of time, we ask that you limit yourself to one question and one follow up you may rejoin the queue. If you have additional questions. Our first question is coming from Eric Feder FCC Research. Please go ahead.
Good morning.
Good morning, good morning.
Hi, can you talk a little bit about.
UK operations on what you're seeing there and how some of the changes you're missing or fixing that close.
Sure.
We continue to see some challenging environment in UK that continues even though.
Over the last couple of months, we have seen some improvement in trends as a result of some of the actions that we have taken earlier this year as a reminder, last year due to the impact of.
GDP our rules, we did have some challenges in opting in our consumers and talking to them. Some of those challenges have been resolved earlier in the year and we have been seeing some really nice lift from those especially on our web business.
Are the traffic in our stores, especially in recent weeks has been more favorable but still there is a lot of uncertainty knowing what the geopolitical.
Conditions in that country and some of that everyday changes that we are seeing an uncertainty around Brexit. So we are cautiously optimistic as you know some of those things are outside of our control, but we continue to be very aggressive in managing our real estate portfolio managing expenses and things that are directly within our control.
Great and just a quick follow up on.
Good morning, Ken.
So that was a significant push into the stores its six new furry friends.
Thanks, Rob Steak House when you look at it wasn't considered what you did there a success in helping driving traffic and when you looking at frozen and Star Wars are we going to see that kind of.
[noise] push into the stores and online to drive business there.
Yeah in fact Lion King was very robust for us it what we consider to be very strong story and we did have a multi dimensional marketing campaign around it and it was our number one story for the quarter. So we felt like that there were a lot of things that we did that and levers that we pull that were very successful to create excitement and drive traffic into the retail locations using lion King and indeed, we do intend to use and repeat some of those efforts. We also have a lot of experience with frozen as I noted. It was it is our historically best selling license product of all time and a build a bear so that experience will bode well for us as we create an interesting and traffic driving opportunities for children to come in and get their new frozen products Star Wars as well that we will focus most likely a in a greater way on frozen we do see a lot of opportunity there and have a broad range of products to fulfill that what we expected.
Be a good demand.
Great. Good luck for the holiday season. Thanks, Thanks, Sir.
Once again that is star one to register a question. Our next question is coming from Steph Wissink of Jefferies. Please go ahead.
Thanks, Good morning, everyone. Our first question and Sharon Mccollam, maybe for you, but as you think about the evolution of the brand.
And some of the commercial sales that you're doing I think it mixes up royalty based payments with wholesale sales and I'm wondering if you've stepped back and looked at the total brand sales trued up to retail value. If that's giving you any sense of the the total size and scope and the potential of the business. If we were to look at it from the consumers lines versus kind of the way that you report.
Yeah, no. Thank you Stephanie and appreciate the question, we definitely do look at grossed up approach to try to value the brand at retail so that everythings equal you're right that a lot of these things that we're doing and we mentioned it all the time that many of these license opportunities are you know there there are margin accretive to us because the the.
You know basically where we're getting royalty dollars, which are very rich with a you know little overhead associated with them and we have done some rough numbers on that four to 450 things point, if you'd like to add some color to that that would that's also inclusive of the grossing up of.
Our franchise business is that I think from the enterprise so probably someplace.
Stores as well as you know we have these experiences that we refer to as third party wholesale with Carnival cruise lines and grateful for watches that you know also will be grossed up on the retail level as we sell to them on a wholesale basis. So when you add up some of those things you are in that range $400 million to $450 million, depending on the exchange rates in some of the things that we have and seasonality of those businesses.
I think you're right John Yes, I think you're really right out of the question. It because sometimes those are undervalued inside the comparison set of when you're looking at the majority of our sales being at retail value and you kind of hard sometimes to you to sort of lose the plot on the dollars are valued at a different level in some way.
That's right.
That's very helpful to kind of know what the total scope is as well.
And then second question is just to unpack the sales side for a couple of angles.
I appreciate you taking the first.
You've been in a net closure cycle for the seed sales in total dollars be down is not necessarily a huge surprise, but I'm wondering if you can just give us the scope of what factors are closer to the net retail footage decline has had an impact on sales versus the underlying performance of the business.
And then how that factored into the way that you're guiding and the take down from mid to high single to kind of a low single digit range, which seems like a more extreme revision. So if it's more than just the footage changes if it's something in addition, if you could just provide some additional contracts that would be helpful. Thank you.
Sure. So I can start with some of that stuff. So yes, we did lower our full year revenue guidance. There are few things that going there like for US you know as we talked about we did have some misses in first half of the year, especially in the second quarter. As we did have some of this challenging comparisons with pay rates day event now.
We did have as you talk about we did close six stores this year in second quarter.
And the timing of Wal Mart stores has shifted a little bit impacting our seasonality and timing between quarters. As we said on one of our previous calls we expect over the next 18 months or so over the next two years to close up to 30 stores. We are in constant negotiations with our landlord community.
And you know as we have a lot of optionality with our leases we are going to be taking advantage of those and if you are not getting.
The terms and achieving profitability that's expected for us we may be walking from some of those locations and that could impact that topline.
In addition, as we think about the second half of the year. There are more positive things coming up as we believe.
Frozen should be our biggest license of the year and that should be floor set I think is literally.
Okay silver for us.
We also are going to be getting a benefit from opening of additional 17 stores Walmart locations. We did in our initial guidance included few more stores, but some of those shifted the timing into beginning of next year.
We expect still to have double digit increase in our E com business as we continue as well to drive our non retail revenue streams in form of our commercial revenue. So we feel good about some of those things another piece that's worth noting.
Stephanie it's de exchange rate risk in UK, we the pound devaluation.
And especially at the current rates, it's going to be at least 1% probably little bit more of sales decline on a full year basis due to the weakening of the pound.
That's really helpful. Thank you point, yes, definitely I also think it's important to understand the retail changes that we're making when you are talking on a more macro level are really fundamental when you start to think about it. It's we're shifting not only way from an managing down the traditional mall based business as a percentage of our total retail offering and in that percentage of total retail offering it's inclusive of when we think about it in its broadest terms with the third party retail situation at the end to end seasonal shop in shop in shops with a variety of different models, but at the end of the day, what you're going to end up what we believe we're going to end up with is something that's very different from what was kind of a cookie cutter 20, 503000 square foot store that rolls out in what would have been considered tradition or is now considered traditional mall retailers to something that has.
A decrease in square footage per store.
Yet the number of stores would increase for us to have a broader accessibility to consumers to be able to experience build a bear that will we believe will buoy. These other revenue streams. So you end up with our goal of having more yet smaller more profitable locations. So your average store volume goes down but your average but your total your total store count goes up does that make sense.
It does yes, so I think looking at footage basis versus a unit basis.
Seems to be a ship that we we need to make in the modeling.
If you agree with that.
We have looked at that anyone can add some more color again, we are there is that challenge. The what you brought up in the first question.
How do you normalize on the third party retail versus our own.
Our owned and operated retail, but there are ways to do that I think that will help people understand this fundamental shift that we're making and also with some of the things that have been done over the last couple of years and diversification of our real estate formats are concourse shops are about 200 square feet, our Walmart locations about a thousand or indefinitely, our traditional stores. Our 2000 to 25 from there. So the mix of real estate formats definitely impacts that square foot calculation and it.
It is challenging for you guys to model, but we can try to work to provide some additional color. So that people can have better understanding when some of those things and help you model the revenue a little bit better.
Moving to Metro one more in just related to the current situation I know you quantified that will provide the the qualification, but you're shifting from of your production outside of China, but can you just remind us what percentage of your you are bound goods come.
From China today, and what your Bill would be.
So today, we probably have.
Over 90% of our goods are coming from China.
We are going to be working.
Not to diversify and shift our sourcing.
Base and you know maybe over the next 12 to 18 months to have like maybe one third or roughly so of production coming from outside of China and they will continue to look and review that number as we go forward and understand what kind of challenges and changes are going to take place.
With the new tariff structure, it's important to note, though for the vast majority of that shift we are working with long term partners and existing existing production facilities and companies.
Thank you.
Thank you at this time I would like to turn the floor back over to management for any additional or closing comments.
Thank you for joining us today, and we look forward to updating you on our business.
And the third quarter call.
Ladies and gentlemen, thank you for your participation. This concludes todays event you may disconnect. Your lines are lock up the webcast at this time, thank you and have a wonderful day.
[noise].