Citi Trends, Inc. (CTRN) Q3 2020 Earnings Report, Transcript and Summary

Greetings, and welcome to the Citi Trends 3Q 2020 Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded today, Tuesday, December 1, 2020. Now, I would like to turn the conference over to Nitza McKee, Senior Associate. Please go ahead.

Thank you and good morning, everyone. Thank you for joining us on Citi Trends third quarter 2020 earnings call. On our call today is our Chief Executive Officer, David Makuen; and Vice President of Finance, Jason Moschner. Our earnings release was sent out this morning at 6:45 A.M. Eastern Time. If you have not received a copy of the release, it's available on the company's website under the Investor Relations section at www.cititrends.com. You should be aware that prepared remarks today made during this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Management may make additional forward-looking statements in response to your questions. These statements do not guarantee future performance; therefore, you should not place undue reliance on these statements. We refer you to the company's most recent report on Form 10-K and other subsequent filings with the Securities and Exchange Commission for a more detailed discussion of the factors that can cause actual results to differ materially from those described in the forward-looking statements. I will now turn the call over to our Chief Executive Officer, David Makuen. David?

Thank you, Nitza, and good morning, everyone, and thanks for joining us today on our third quarter 2020 earnings call. I hope that you are all safe and well. Despite the uncertain environment for Citi Trends the third quarter was one with many high points. We registered stellar operating results, we fully repaid our outstanding borrowings under our revolving credit facility, we reinstated our $30 million share repurchase program, and we repurchased 545,000 shares under that program through November 20, and we appointed a seasoned Retail Executive, Pam Edwards as our Chief Financial Officer, effective in January. Now onto the topics to be discussed during today’s call. I will first provide a review of our spectacular third quarter operating performance and accomplishments. I will then discuss our merchandising and marketing initiatives for the holiday season including our Fab Festive Finds Holiday Campaign. I will review notable expanded capabilities and critical business functions that provide us confidence in our model to deliver strong results in the months ahead. Next, I will turn it over to Jason Moschner, our VP of Finance, who'll review our third quarter results and financial position in more detail. Lastly, before opening the call to your questions, I will close out with a few high-level comments showcasing our confidence in our unique and scalable model. To begin, across the board from our distribution centers to Savannah to New York and in 585 stores, I could not be more thankful for everyone's tireless efforts in contributing to the ongoing transformation of Citi Trends. I will reiterate what I stated on our second quarter call. We have a unique and powerful winning culture at Citi Trends, and I continue to be impressed with our entire organization as we are not only successfully navigating this unprecedented period in our history, but through thoughtful innovation, with use of data analytics and ingenuity, we are truly transforming our operating model positioning Citi Trends for many years of profitable growth. Importantly, from an operations and store perspective, we continue to prioritize the safety and well-being of our associates, our customers, and the communities we serve. As we enter the critical holiday shopping season which typically garners meaningfully higher levels of traffic during peak days and weeks, we are doubling down on building associate awareness of our social distancing and safety protocols as well as our cleaning regimens. The dynamics of the third quarter were unique as we, like many others, experienced a slow start to the back-to-school season, which resulted in soft sales performance in the month of August. That was followed by a meaningful acceleration in our September business as families better understood how their children would return to school. We ended the quarter with October registering positive mid-single digit comparable store sales growth resulting in a strong third quarter comparable store sales increase of positive 6.3%, and a total sales gain just shy of 9%. We again achieved substantial growth in our gross margin, which was up 440 basis points compared to last year's third quarter building on the momentum from the second quarter, which was up 390 basis points compared to last year, all of this driven by healthy full price selling and well managed inventories. In fact, we achieved a positive 6.3 comp on 33% less comparable store inventory, resulting in an impressive 55% increase in churns for the third quarter. These inventory and churns accomplishments dovetailed extremely well with our long-term plan; so we are very encouraged by the momentum we are experiencing. We entered the holiday season with clean and current inventories, stock full of next season buys that we had purchased during the first half of this year coupled with opportunities based on learnings from last year to capture more market share in important wear-now apparel categories. Additionally, at the end of Q3, our stockpile of next season buys; items meant for selling in the first and second quarter of 2021 were up 37% versus the end of Q3 last year as our buying team adeptly scoured the market for the right products at extreme values. During the quarter, we continued to support our store growth agenda by opening eight new Citi Trends stores, expanding our reach into Southeast Texas while also returning to meet the needs of our loyal customers in the diverse and important Minneapolis community. Recognizing the importance of offering a well-rounded and curated assortment of Home Trends, we rolled out our expanded home assortment to an additional 100 stores bringing the total to 200 locations with expanded home sections. Moving down the P&L, we've combined rigorous expense control with prudent investments in the business and delivered healthy expense leverage in the quarter. Coupled with our record third quarter gross margin, operating margin expanded 560 basis points to 4.7% of sales. These strong results demonstrate the strength of our brand, our on-trend apparel assortment, and outsized growth in Home, all of which continue to resonate with our loyal and expanding customer base. Our third quarter high points were not limited to operational excellence as we also announced the appointment of our new CFO, Pam Edwards, effective January 4. Pam brings extensive experience in finance, strategy, and operations across a variety of retail brands and sectors. Most recently, Pam spent 15 years at L Brands as Chief Financial Officer for various divisions of the company, including Mast Global, Victoria's Secret, and Express. Pam is a true leader with a proven track record of success. I'm confident she is the right leader for the business and we look forward to benefiting from her experience and expertise in just a few weeks. I want to take a moment to thank Jason Moschner, who's been my go-to trusted finance partner and will continue as the Vice President of Finance and Principal Accounting Officer of Citi Trends. Let me spend a little time on our third quarter merchandising performance as well as our positioning for the holiday season, including exciting new marketing strategies. Our third quarter performance was broad based with positive comps in all five categories led by Home, men's, and women's. In line with how many of our customers are living and shopping these days, we captured significant market share in bedding, home décor, casual coordinating tops and bottoms for him, active wear and sleepwear for her, and statement tees that allowed our customers to express their passion. Lastly, our continued relationship building with leading brands gave us the ability to provide an expanded assortment of current trends to the underserved communities that deserved access to these brands at affordable prices. We entered the holiday season with an elevated focus on gifting, anchored by our Fab Festive Finds marketing campaign. The assortment runs began at an extreme value giftables such as trended toys, jewelry sets, flushed robes [ph], girls cosmetics sets and a wide range of Bluetooth tech stuff; just to mention a few. These Fab gifts are proudly displayed on gift tables located at the front of our stores, creating a festive holiday spirit in our inviting store experience. Since joining in March of 2020, I've studied most facets of our business and I can tell you that we have been able to spark some really meaningful transformative actions and results across many functions of the business. While I referred to the evolution in our business as a reset during our Q2 call, I am more convinced that what we experienced is a transformation; we're experiencing a true transformation on the beginnings of a sustainable growth strategy. Central to our growth strategy is the innate understanding of our customers, coupled with the right tools of the trade to provide them with the right product at the right time, at the right price, and in the right store. While we are at early innings [ph], I am delighted at what I'm seeing in the form of demonstrable progress due in no small part of the quality of our people, and the passion they are applying to our strategic initiatives. At the forefront of our progress is our ability to leverage data driven insights across our business functions to inform what we ultimately do for the only thing that matters, our customers. For example, we are, for the first time rolling out data tools and a communication technology platform to our stores organization and transform from an operational-only focus to a sales-driven culture, one that is actively managing the dynamics of the fluid and fresh store assortment. For the buying team we are implementing cloud-based solutions that enable advanced seasonal planning and robust inventory rationalization that greatly improve our craft at putting the right stuff in front of the right customers. In our supply chain, we ramped up new capabilities including drop shipments from vendor to the floor for time-sensitive trends into targeted store clusters which gets the hot trends into customers' hands much faster than in the past. I'm so excited about what's to come; I look forward to updating you on our progress on future calls. With that, I will now turn the call over to Jason Moschner, who will discuss our third quarter financial results. Jason?

Thank you, David. Total sales in the third quarter increased 8.8% to $199.1 million, including a comp store sales increase of 6.3%. The increase in comp sales was driven by a substantial increase in the average ticket size, partially offset by a low double-digit decrease in customer transactions. We are especially excited about our 6.3% comp sales increase relative to the U.S. census data that reported a sales decrease of 14% for clothing and accessory stores in the third quarter. We achieved a record gross margin in Q3 of 41.8%, an increase of 440 basis points over Q3 last year. And this follows our Q2 margin rate of 41.2%, which was an increase of 390 basis points over Q2 of last year. The increase in our quarterly gross margin continues to be primarily the result of strong full price selling and fewer markdowns. SG&A expenses increased by $3.7 million or 5.6% compared to the third quarter of last year. The increase in SG&A expense dollars was primarily due to higher bonus and equity compensation accruals combined with expected increases from operating more stores. As a percent of sales, SG&A decreased 100 basis points due to the leveraging effect from higher sales. Now, turning to the bottom line. Our net income for the quarter was $7 million compared to a net loss of $1.1 million in Q3 last year. Earnings per diluted share was $0.67 compared to a loss of $0.09 per share in the third quarter of last year. Now, turning to our year-to-date results. For the first nine months of 2020, total sales decreased 6.9% to $531.4 million and comparable store sales decreased 9% with the year-to-date decline driven by the effect of COVID-19 on our business. In the first quarter through March 7 when we began to see the impact of COVID-19 on our sales, we had a comparable store sales increase of 3.1%. Then, in the second quarter, upon reopening our stores we recorded a 32.2% increase in comp sales for our open only stores. Then finally, in the third quarter, our comp sales increased 6.3%. Gross margin for the nine months period expanded 100 basis points to 38.4% in the first nine months of the year. The increase was due to strong full price selling and fewer markdowns in the second and third quarters, partially offset by the reduction of more than 1000 basis points in the first quarter due to the markdowns that we took when may temporarily closed our fleet of stores. SG&A expenses for the nine month period decreased by $11 million or 5.8% compared to the prior year period. The decrease was primarily in payroll expense as a result of associate furloughs and reduced operating hours, combined with decreases in other expenses during the first half of the year that were primarily related to the temporary closures of our stores and distribution centers. In addition, we incurred $1.7 million of incremental costs related to COVID-19 for personal protective equipment and cleaning supplies. As a percent of sales, SG&A expenses for the year-to-date period increased to 34% compared to 33.6% in the same period of last year. For the nine months, our net income was $6 million compared to $7.1 million in the first nine months of 2019. And earnings per diluted share was $0.57 compared to $0.60. To summarize our year-to-date performance; our strong operational execution has paid off. Despite the headwinds we faced from the pandemic including significant store closures ranging from 35 to 100-plus days during the first half of the year, our year-to-date gross margin is 100 basis points higher than last year. And our year-to-date operating profit is more than $900,000 higher than last year. That is a powerful statement about the strength and appeal of the Citi Trends brand. We ended the quarter with $97 million in cash, compared to cash and investments of $72 million at this time last year. Through the first nine months of 2020 we have generated operating cash flow of $63 million compared to $21 million generated in the first nine months of 2019. In light of our stellar operating results, our strong financial position, and our overall confidence in the business; in September, we reinstated our $30 million share repurchase program. And to-date under this reinstated authorization, we repurchased 545,000 shares for $15 million. As to inventory, we ended the third quarter in a very clean inventory position with our inventory down 15.5% compared to the same time last year. As David noted, we ended Q3 with 33% less inventory in our comparable stores and 37% more inventory stored in our distribution centers as next season buys. This next season buy inventory represented 23% of our total inventory compared to 14% at the end of Q3 last year. As we continue to navigate through the COVID-19 pandemic, we remain confident in our current liquidity position and disciplined in our approach to running the business. We are planning the remainder of the year conservatively, given marketplace conditions as a result of the pandemic. As such, we are estimating our fiscal 2020 fourth quarter comp store sales to be approximately flat which is consistent with November's trend. Due to the continued uncertainty surrounding the COVID-19 impact on customer behavior and our business, we are not providing further guidance at this time. Now, I will turn the call back to David for closing comments. David?

Thank you, Jason. Before I wrap up with a few closing comments, I wanted to talk about a few things. First off, I'm excited to update you on a new partnership with our CitiCARES platform in the Boys and Girls Clubs of America. I am pleased to announce the first event with clients of Citi Trends, a fundraising event to support Boys and Girls Clubs in select communities. School closures have created significant hardships from many households, particularly those in our communities and some of which have even affected our associates. On November 20 through December 20, select stores will accept donations that will directly benefit the clubs in these communities. CitiCARES Counsel worked directly with the staff at these centers to discuss their needs, programs and the shortfalls created as a result of the current pandemic. CitiCARES powered by Citi Trends is a proud partner of the Boys and Girls Club this holiday. Let me wrap up with a big shout out to our entire organization. I'm so very proud of our team's ability to adapt and continue to safely serve our customers and what remains a fluid operating environment. My confidence in our capabilities to profitably grow the Citi Trends brands, while creating positive change in the communities we serve has only strengthened as this year has progressed. Our third quarter performance further indicates that we operate a unique and scalable model, one that is embraced by our loyal customers. During the second and third quarters, the outpouring of customer support was humbling and something we are so thankful for. We continue to love our fashion, trends, basics and everything in between within our apparel, accessory and home categories. It's because of this customer loyalty that Citi Trends puts our store experience front and center, ensuring we create a warm inviting environment coupled with an easy-to-shop layout that features head-to-toe outfits in coordinating pickups across the entire spectrum of his, her and the kids lifestyles. It's important to recognize that our stores sit in shopping centers that are vital to the Black, Hispanic and melting-pot towns and neighborhoods across America. We consider our unique in-store experience that showcases broad product choice for the entire family within an extreme valued framework to be "essential for our moderate to lower income underserved customers." We are optimistic that our model will continue to build on our success to-date with continuous improvements in key operational metrics, including inventory turns, gross margin and expense leverage overtime. With that, we are ready to take your questions.

Thank you very much. [Operator Instructions] And we'll proceed with our first question on the line from John Lawrence from Baraboo Growth [ph]. Go ahead with your question.

Thank you. Good morning, guys. Congratulations on the numbers. David, could you just give a little bit of a -- maybe just a little bit of a step backwards; your comments about the buying team and one of the things that when you talk about transformation is, how -- how you go to market? Can you speak to a little bit -- I mean, even though 2020 with the pandemic and everything else, but give a little background of how the vendor community is now looking at Citi Trends and is it more of a valuable outlet for their products? And just what's changed in that process over the last six or eight months?

Thanks, John. Good question. Sure, I'll add a little color on that. Really beginning with the onset of the pandemic in March and April, and upon my arrival, the team really rallied around how could we expand our vendor base and attract the right vendors to our stores so to speak, and serve our customers with the goods that they're asking for and desiring. And kudos to our buying team, they went out and really attacked the marketplace on all fronts across things that we sourced ourselves, to private label offerings, to nationally-known brands, and so forth. And as a result, they really developed and opened up new relationships that here before really hadn't existed at Citi Trends. And I'll give a shot out to Lisa Powell, our Chief Merchandising Officer; she and her team really put a yeoman's effort into this plan of how do we expand our vendor base, how do we bring in more interesting and exciting style and fashion vendors to fuel the exciting fresh assortment that you'll find at the Citi Trends. And I know those new relationships are relationships that we're nurturing and fostering for a really long-term approach to working with these vendors. So, we're looking forward to what holds in the future. We're seeing some of those fruits in our results year-to-date, and she and the team will continue to leverage and develop those relationships in the future.

Great, thanks. Good luck.

Thank you.

Thank you very much. We'll get to our next question on the line from the line of Alec Legg from B.Riley Securities. Go right, ahead.

Hi, good morning. Hi David and Jason. First off, nice job on the quarter. My question relates just to the store fleet growth. So, this quarter you opened eight new stores and closed two; what are your thoughts on the long-term strategy in growing the store base? How many new stores do you think you can open per quarter or per year? And it looks like you have a lot of white space left.

Hi Alec, thanks for posing that question something near and dear to our hearts. First of all, Citi Trends is firmly a growth brand, there is no question about it; you hit upon it in the right way. There's a lot of space in the U.S. to support further Citi Trends fleet growth; and so while we aren't at liberty to share an exact number or plan today, what I can tell you is in the upcoming ICR Conference in mid-January, we intend to share more specifics. At a high level, we believe there is a lot of opportunity to serve the African-American communities and Hispanic communities that adopt the U.S. and we are serving a relatively small percentage of them today through our 585 store network. So, we believe there is a lot of upside in key geographies around the U.S., and I'll share more when you join us at ICR because I can tell you we have some good color to add on that front and kind of elaborate a little bit more on our long-range plan. But no, that store growth is a big part of our agenda, and we look forward to sharing more.

Perfect. And then, just a follow-up. Back in the first quarter you mentioned entering into conversation with landlords, just regarding rent reduction and negotiations; any update on that? Have you received any meaningful abatement or long-term -- I guess, restructuring of rent agreements?

Good question. Yes, I think to summarize on that front relative to our negotiations with landlord, I would -- landlords, I would tell you that they were gracious and very open to stating what made them -- put them in Citi Trends, and what resulted was healthy abatements and deferrals. And then a third bucket which was kind of a renegotiation, either of our current deal or the deal might have come up to an expiration date in the last couple of months; they gave us an opportunity to sit down with them and renegotiate a new deal, altogether. Those things combined turned out pretty much like we planned, and again shout out to our landlords; they were very good to work with, they understood the gravity of the situation, and like I said we achieved a nice mix of abatements, deferrals, and renegotiations.

Perfect, thank you.

Thank you. Have a good day.

You too.

And we'll go to our next question on the line from the line of Chuck Grom with Gordon Haskett. Go right ahead with your question.

Hey guys, congrats on a great quarter. I just had a question, and maybe you talked about it and I hopped on a couple of minutes late. Just with regards to the change in trend during the quarter, it sounded like October and September were pretty strong, and then you're calling out November flat. So just wondering if you could discuss the factors that contribute to that? And then also, if you're willing to share any comments on this past weekend Black Friday; how it fared for you guys?

Hi, Chuck. Thanks for joining. Yes. No, I look to add a little bit of color on that. On the month of November, there is a bunch of chapters that make up that book. One of them was unseasonably warm weather trends that really impacted the first 10 days of the month, there was some moderation in those weather trends which caused a nice little bounce. The second chapter would be, we're seeing what -- what we believe to be is a more delayed reaction to shopping for Christmas, which generally bodes well for us because we are a huge last minute destination; so it's in the mix of -- kind of -- creating that flattish November. And then lastly, the Black Friday weekend was typified by, as you know -- and we know a decline in traffic based on macro factors around, both from CDC reasons, as retail reasons of shop online, avoid the crowds, avoid interacting with people; things like that. We -- I think we fared pretty well in light of all those appropriate safety warnings, but it was another chapter of a little bit of a slowdown. All of that netted together equaled about flat.

Okay, that's great. And then, just bigger picture; just wondering if you could comment on how you're thinking about the buying environment, the availability of product as we move into 2021?

Sure. As you might know, it's vital to our business. Well I'd tell you this, looking back at our accomplishments in Q3 when our buyers really scoured the globe, so to speak to find the right stuff for selling in Q1 and Q2 of 2021, they did a stellar job at that. We don't see that progress abating, we think there is plenty of availability and momentum on the part of our team. So hunt [ph] down those attractive buys that we can start socking away for later in the year, next year. So pretty bullish and optimistic about that, Chuck. And we won't let our foot off the pedal on that front.

That's great to hear. And then, just -- if you could just comment, just remind us of the mix of what you're Home business is today? And I guess given the strength in that category and the strength in the housing complex today, if you're thinking about leaning into that category, even more over the next couple of years? Thanks.

Sure, yes. No, good question. We've certainly mentioned in -- on our interest in growing our Home business; that really kicked off in mid-2019 and we've been seeing some great momentum from it including the recent expansion into 100 more stores of a broader and deeper Home assortment. I'd tell you at the forefront, the Home business is relatively small still in our mix, and therefore there is a lot of upside for it to become a greater penetration of our mix in a total sense. And we see that 2021, 2022 and 2023 being some pretty big years to further develop the Home business. Jason, you want to add something there?

Yes. Hey Chuck, good morning. I could add, this is something that we break out in our Q2 and our revenue footnote that will break out the distribution and what the makeup is of our categories. But I can tell you just quickly, just looking at the last few quarters; it's growing from 4% of the business back in 2015 to most recently in Q3, it was 8% of the business. And it really just consistently posts high double-digit comps, 22% up in Q3; so like David said, not significant portion of the business yet but consistently growing and consistently comping.

Very helpful. Good luck. Thank you.

Thanks, Chuck.

Thank you very much. [Operator Instructions] And we'll get our next question on the line from Alex Silverman from AWM Investments. Go right, ahead.

Hey, good morning.

Good morning.

Can you hear me?

Yes.

Great. So, most of my questions have been asked and answered. Though couple of last questions. What happened to the size of the basket given your improved assortment?

Good question. The short answer is, it's increased pretty considerably since May. Now, it's important that there is some dynamics that we need to understand here. We do believe there is some loading up per trip that's happening based on the macro impact of the pandemic, and folks' desire to maybe make less trips; and when they do make a trip, they spend a bit more to make that trip even a little worthwhile. So as Jason commented, we are seeing a softness in traffic to our centers but when they do visit by, we're seeing some very healthy gains in our basket amount, which of course, is driven by higher units per transaction, which is great to see, and in a slightly improved average unit retail. So those trends we love seeing, Alex, but it's important you recognize that some of that is driven by that macro impact of less trips and desires to spend more per trip. Does that makes sense?

It does, absolutely. Second question, this is the second quarter of greater than 41% gross margin; is this a good new level to be using on a go-forward basis or are there some unusual dynamics we should consider over the last couple of quarters?

Good question. And I'll answer it in the way we think about it internally which is; last six months have been like nothing we've ever experienced. And in many ways the transformation of those metrics, so to speak, within our business model and context was accelerated. And so while on one hand we're thrilled to see those numbers, we're not yet ready to say we can sustain them forever, but I think what I would give you to take away is, it's a maniacal [ph] kind of focus of our teams to see numbers like you've seen in Q2 and Q3. I think once things normalize more and we reach perhaps more of a normal way of shopping and so forth in 2021, I think we'll see some dynamics and some of those calls or reason to change to determine our -- what -- that's resulting in gross margin rate. But at the end of the day we're making it our number one focus, and we're optimistic that we can continue to deliver some really healthy high levels of gross margin.

Very helpful. Last question from me. You guys bought a lot of inventory to put away for next season; is this a unusual dynamic that there were a lot of opportunities to buy inventory or is this a strategy that we should think about on a go-forward basis or both?

Good question. I'd probably say the latter point you make is the most important point. From a strategic lens, we need to always focus on finding the right next season buys and getting them at our hands and making sure we have them to deliver future great seasons. So I would say that's the big takeaway, Alex, and that's how we speak about internally as part of our ongoing strategy. And more seriously than in the past is to determine and have the relationships with the right folks to deliver a constant stream of next season buys. Will it be always plus, plus, plus versus ROI [ph], hard to tell and predict, but I can tell you it's a key pillar of our strategy.

Great, thank you guys. Congratulations, great quarter.

Thanks, Alex. Have a great day.

Thank you very much. We'll go to our next question on the line from Dana Telsey from Telsey Advisory Group. Go right, ahead.

Good morning, everyone. And David, congratulations on the nice progress in the results. As you think about the gross margin which was so impressive in continuing the sequential improvement; when you think about full price selling and fewer markdowns, where did you see the biggest delta? How were the merchandise margins? And is there any particular categories where this strength is coming from? And then on the SG&A side, how you're thinking about that going forward? How much -- are there COVID expenses wrapped in there? And how do you see those playing out? Thank you.

Thanks, Dana. Thanks for joining. Thanks for the kind words. On the gross margin front, similar to our general top line performance across our key categories of business we saw improvements in gross margin, basically in every one of our important categories; meaning apparel, accessories, home footwear and so forth. So that's a really good thing, so it was definitely broad-based; there wasn't any one particular Hero, so to speak. But what I would comment on is, where we saw even more outsized improvement in margin, it was in the apparel area. And in particular, we had some really nice traction in the men's business, which is a business that we think we can garner even more market share down the road, and it's a business that we saw just explode during the last six months. But overall, our margin improvements really across the board are reflective of better and fresher merchandise, less reliance on markdowns, and in the faster turns that you heard me talk about, all contributed to that. On the SG&A front, it's -- what's nice about this model is, I'll call below the gross margin line; we're trying to keep it pretty simple and I preface my comment with that because we focus on a couple of key metrics. And really, the number one metric is our store labor line. Since as you know, we operate nothing but stores; so that's a very, very important one. And then we look at our DCs [ph] expenses; the cost it takes us to bring it in, process it and get it out to the stores. And those two areas remain a primary focus within those two operational functions. Our Head of Stores in our stores teams is maniacally focused on rationalizing store labor, having the right people, right amount of people and the right people, in the right stores at the right time, which serves the customers demand. And then for DCs [ph] perspective, we're focused more and more using data and technology to understand how do we continue to improve our productivity and speed from which it takes from the vendor to the floor to the customer's hands. And that's how we think about SG&A really at a broad level. COVID expenses; you know, knock-on-wood, they are -- they won't be a huge contributor or trying out in this state [ph] where we're able to get them reliably at good rates, prices have come way down on a cost per unit basis for our PPE [ph]. So, it's probably regular -- it's probably a part of our regular life now for the foreseeable future but won't cause any huge swings in our SG&A; it's really more about managing the labor and managing the productivity in our DCs. That makes sense?

Yes. And just as you think about this holiday season NDCs, getting goods to stores; is the flow at all different than what it's been in past holiday seasons as you think about it?

Yes, somewhat it is. We're getting better, although we're not there yet but we're getting better at doing some shipments into stores that are a little bit more just-in-time. So our big shift this year as we -- we didn't load up stores as much as we did in prior years, in early October, because it didn't make sense to fill the stores to the gills that early with holiday goods. So this year we've definitely pivoted to be a bit smarter and a bit more agile in terms of how we deliver goods in a bit more of a just-in-time manner, which means, for example, we're taking some typically late in the season gifts that folks just don't buy, it's all December 15 stocking/stuffers and as such, and we're shipping that in now; in the old days, we would have shifted it on October. So we definitely have made some logical wise improvements to how we flow our merchandise and it's paying off, it allows our distribution centers to plan better, to smooth some of the spikes out. And then lastly, we're getting better by the day that our distribution centers with -- as I mentioned earlier, some data and technology, just to get stuff to the stores faster, which means we can ship it a little later because it will get there a little faster, and all is good in the stores when the customer sees it fresh and new at that time. So, making headway on that front.

Great. Best of luck for the holiday season. Thank you.

Thanks, Dana. You too. Bye-bye.

Thank you very much. And Mr. Makuen, we have no further questions on the line. I'll turn it back to you for any closing remarks.

Very good, Tommy. Thanks to everybody who joined the call. Stay safe and healthy. Happy holidays. See you next quarter. Bye-bye.

Thank you very much. And that does conclude the conference call for today. We thank you for your participations. Please disconnect your lines. Have a good day, everyone.