Lands' End, Inc. (LE) Q2 2015 Earnings Report, Transcript and Summary

Welcome to Lands' End Second Quarter 2015 Earnings Call. At this time, participants are in a listen-only mode. Later, there will be a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this call is being recorded. I would now like to introduce Bernard McCracken, Chief Accounting Officer.

Good morning and thank you for attending the Land’s End earnings call for our second quarter 2015 results. On the call today you will hear from Federica Marchionni, our President and Chief Executive Officer; and Mike Rosera, our Chief Operating Officer and Chief Finance Officer. To begin our prepared remarks, Federica will discuss our second quarter revenue and margin performance, and then Mike will provide additional details on our second quarter performance. Federica will close with progress to date on key initiatives. After the company’s prepared remarks, we will conduct a question-and-answer session with our covering analysts. Please note that this morning we released our second quarter earnings results which are now available on landsend.com. I would like to remind you that today’s discussion will contain forward-looking statements related to future events and expectations. These statements are based on current expectations and the current economic environment or are based on potential opportunities. Actual results may differ materially from those expressed or implied in the forward-looking statements. Factors that could cause the company’s actual results to differ materially from those discussed are posted in the Investors Information section of landsend.com and in our most recent SEC filings. Our discussion will also include certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures also can be found in the Investor Information section of landsend.com. Any reference in our discussion today to EBITDA means adjusted EBITDA as defined in the earnings release. Lastly, we assume no obligation to update the information presented on this call except as required by law. I will now turn the call over to Federica.

Thank you, Bernie. Good morning everyone. While we made compelling progress on many key strategic fronts and laid the groundwork for future growth, the second quarter was not a quarter without its share of disappointment. There were a few key factors that contributed to our results, some were internal factors as the lower than expected consumer acceptance of our Spring/Summer collection which we are already addressing, some were external factors which require more flexibility such as highly promotional competitive environment. And consistent with prior quarters, our revenue was also negatively impacted by macroeconomic headwinds and currency rates. Therefore, we believe the results that we are sharing today do not represent the full potential of our company. Total revenues were $312 million, which was a decrease of $35 million compared to last year as a result of sales decline in both the direct and the retail segments. Foreign currency rates impacted revenues by approximately $8 million. We saw declining performance in all our channels; online, catalog and retail shops, mainly related to disappointed customer acceptance of our Spring/Summer collection and marketing initiatives. The assortment which was committed to well over a year ago was largely upfront and did not resonate with our consumer. In women’s, our largest category, the design of many of our product turnout to be upfront. For example, we were over assorted in neat dress. And our popular dress, we oversold screens and patterns in the first quarter and were left with too many solid options in the second quarter. The newness of our men product was too fashion forward resulting in sales decline in casual shirt both knit and woven and bottom, primarily shorts. And in footwear, we did not have the correct product mix as our assortment did not meet our consumers’ expectation. In a moment I will discuss in more detail steps we are taking to strengthen our merchandising offering beginning with Spring/Summer ’16. Gross margin decreases by 220 basis points, of which almost half was due to foreign currency rates. In the second quarter, we tested marketing messaging aimed at driving higher full price product sell through and less discounted pricing. While this campaign led to higher margin and greater order value, sales declined due to the product challenges and highly promotional environments. In the second half of the quarter, we increased our level of promotion to be competitive in the marketplace and to reduce inventory level, so we could start future quarter with a clean inventory position. This led to increase revenue and reduce our inventory although gross margin rates decline. Adjusted EBITDA, despite of saving, decreased 35% as a result of lower revenue and gross margin. Our operating cash flow for the first half of the year was $3 million this year compared to $105 million last year. A change in cash flow is primarily related to increased inventory receipt resulting from a much lower beginning inventory this year in addition to lower earnings during the period. Despite the challenges, we had several key learning in the quarter related to our marketing investment, the online shopping experience and our retail shops. We made significant strides in the second quarter on several key strategic initiative on which I will elaborate shortly that we believe will have a substantial impact on future results. In the second quarter, we began to test some changes to our U.S. marketing strategy as it relates to our catalog stipulation. We believed we could be more productive in our insurance of catalog which will continue to be our main tool but with a higher performance rates. A survey of our customers to better understand how they preferred us to communicate with them reaffirmed our strategy to reduce our catalog mailings. Our analysis shows that the reduction in revenue and gross profit due to these changes were offset by catalog extensive saving. Approximately half of this savings were reinvested during the quarter into digital marketing. Going forward, our marketing strategy will be designed to increase our brand awareness, drive traffic, attract new consumers and increase conversion. We will continue to enhance the shopping experience and catalog acceptance monitoring the result to identify the opportunities to reallocate our marketing investment into strategy which may provide higher returns and catch inefficiencies. Since our direct segment represent our largest revenue channel, we are focused on providing our loyal consumer and our new consumer a more compelling and simplified online experience to ultimately increase our conversion rate and average order value. In the second quarter, we took an important first step by introducing an online feature which we feel makes the shopping experience more effortless and enjoyable. This alternative design offers a streamline product index with an update product presentation. The launch was completed on May 27 and was successfully accepted by our loyal consumer and through it we drove new customer acquisition. We decided to fully revamp our web site and we expect to reverse the negative trend faced in our previous quarter. In addition, we believe the marketing test performed in the second quarter set the foundation for more full priced sterling and higher margin sale when the product enhancement are realized. Lastly, we remain focused on increasing the fit for activity and profitability in our retail shops. At the beginning of the Spring/Summer season, we initiated a program to better manage inventory in stock of best selling products in our top sales volume Shop at Sears. During the second quarter, these shops outperformed the comp sales result of the lower volume doors. In addition, by the end of the quarter, same-store sales at our top 75 volume Shops at Sears were trending positive. We will continue our emphasis on best seller replenishment in the fall winter season and look to extend the program to impact additional shops. Notwithstanding a disappointing result, we have firm breath of the area of weakness that led to the declining performance and we believe we are taking specific actions in the effort to address this concern for the future. As many of our actions to improve the business are in the early stage of implementation, the second quarter did not yet reflect the results of this initiative. While the third quarter as already seen the beginning of some of our efforts, we will continue to enforce an amplified and in subsequent quarters. Perhaps you have already take note of our new advertising messages and media tools which will help to better showcase our DNA, our brand positioning and grow our brand awareness in relevance. Perhaps, you have already seen the changes we already made in the web site and our catalog. I encourage you to saw and tell your friends and families to give you and us their feedback. In a nutshell, we are laser focused on delivering strong business performance and seek to unlock the company’s full potential by staying and adapting to changing market condition while maintaining the strength of our core business. Before I discuss some of the second quarter enhancement and further strategies, I would like to turn to our CFO, Mike Rosera, for a more detailed review on our second quarter financial performance.

Thank you, Federica. I will review the revenue and gross margin results for each of our segments and review additional operating items as well as certain balance sheet and cash flow components on a consolidated level. As Federica discussed, the second quarter had its challenges. Total revenue was $312 million which was a decrease of $35 million or 10% to last year. This was comprised of a decrease in the direct segment of $28 million or 10% to $265 million and a decrease in the retail segment of $7 million or 13% to $48 million. The direct segment revenue decrease was evenly split between our U.S. and international operations. The U.S. direct business realized negative comparable sales in all product categories due primarily to the customer acceptance of our Spring/Summer collection and our reduced promotional approach compared to last year. Overall, the U.S. marketplace was promotional earlier, the discounts were deeper than expected and consumers often seem to have promotional fatigue. As a result of loss revenue earlier in the quarter, we began increasing our promotions to be more compelling and relevant in the current environment. Revenue performance in the second half of the quarter was improved from the first half, but we did see a relative reduction in our gross margin rate. International revenue in the direct segment was impacted by foreign exchange headwinds which negatively impacted reported revenue by approximately $8 million primarily in Europe, representing nearly 60% of international revenue decrease. On a constant currency basis, international revenue in the direct segment decreased approximately 12%. Revenue in the retail segment decreased $7 million or 13% attributable to the same-store sales decrease of 7.5% and operating 18 fewer Shops at Sears at the end of the quarter compared to the same period last year. The same-store sales decrease was primarily attributable to many of the same factors which impacted our direct segment in addition to declining traffic at our Shops at Sears. We operated 229 Shops at Sears compared to 247 at the end of the second quarter last year. Gross profit of $145 million decreased $24 million or 14% compared to the second quarter of last year. The decrease was mostly due to lower volume and lower direct segment gross margin. The direct segment gross profit decreased 14% while the retail segment decreased 13%. The direct segment gross profit was negatively impacted by $7 million of foreign exchange rate differential to last year. Gross margin for the quarter decreased 220 basis points to 46.3% compared to last year with gross margin in the direct segment decreasing 260 basis points to 46.7% and the retail segment decreasing 30 basis points to 44.6%. The major factors influencing the 260 basis point decrease in the direct segment were 110 basis points due to the impact of changes in currency exchange rates and 100 basis points related to our merchandised margin of which 40 basis points was air freight cost related to the West Coast port congestion that is now resolved. Merchandised margin is the selling margin rate generated on our product landed cost. One of our key focus areas has been and will continue to be the expansion of gross margin. These efforts were muted during the quarter predominantly in the last half largely due to the increased discount activity previously discussed which was initiated in response to the heavily discounted retail environment. Total selling and administrative or S&A expenses for the quarter decreased by $13 million or 10% to $125 million. Total S&A expenses as a percentage of sales deleveraged by 20 basis points to 40%. The S&A expenses deleverage was primarily due to the decreased sales volume offset by lower cost. Of the $13 million savings, changes in currency exchange rates favorably impacted S&A expenses by $4 million during the quarter. The currency neutral cost savings include a decrease of $5 million resulting from lower incentive compensation expenses and a decrease in marketing expenses of $3 million. Other operating income was mostly comprised of the release of approximately $2.4 million of the product recall reserve that was recognized in the fourth quarter of fiscal 2014. The customer return rates for the recall products have been lower than estimated despite the efforts by the company to contact impacted consumers. There is still approximately $1 million of reserve remaining to address future returns associated with the recall. Operating income decreased $7 million or 29% primarily due to lower volume offset by S&A expense savings. Net income decreased $4.4 million or 37% to $7.5 million and earnings per share were $0.23 compared to $0.37 last year. The negative impact of foreign currency and earnings per share were $0.06. The recall reserve adjustment benefited net income by $1.4 million and earnings per share by $0.05. In addition to the GAAP measures outlined above, adjusted EBITDA is an important profitability measure used to manage business. Adjusted EBITDA for the quarter decreased $10.5 million or 35% to $19.6 million representing 6.3% of revenue. The decrease in adjusted EBITDA was attributable to the decrease in revenues and gross margin rate, partially offset by S&A savings. The negative impact of foreign currency to adjusted EBITDA was $3.2 million. Also note that adjusted EBITDA excludes the impact of the recall adjustment. Now, let’s turn to the balance sheet, total cash and cash equivalents for the quarter increased 57% to $208 million compared with $133 million at August 01, 2014. Inventory for the quarter changed by less than 1% to $368 million compared to $366 million despite an increase in product in transit from overseas manufacturers of approximately $15 million. Long term debt decreased to $503 million as compared to $509 million at August 01, 2014 due to quarterly principal payments. Operating cash flow generated year-to-date was $3 million compared with $105 million generated during the same period last year. The decrease in operating cash during the first half of the year was the result of an increase in inventory receipts this year compared to last year, the lower operating earnings due to 10% reduction in revenues year-over-year and the one time impact on the prior year cash flow of the separation with our former parent. Receipts are higher this year as beginning inventory for fiscal 2015 was $69 million less than beginning inventory for fiscal 2014. We continuously align future inventory commitments with expected revenue and adjust those commitments when necessary and possible. And now, I will turn it back to Federica to discuss our long term growth strategies.

Thank you, Mike. The second quarter results were disappointing and the performance is not acceptable. However, we are taking many actions at this time not only to address the current business but also to have a stronger product offering, marketing proposition, go-to-market strategy and operating platform for future periods. Since I joined the company early this year, my objective has been clear, growth, profitability and adaptability. Those will result from a combination of enhancing our core business as well as attracting new consumer and operating in new retail environment. Our priority growth is to maximize our potential with our core customer by increasing the fundamental metrics such as average order value, unit per transaction, traffic and conversion. In pursuit of this goal, we will build capabilities that can be leveraged in new opportunities. We seek to grow and expand into new consumer segment, market and channel and actively look for both in the market as an opportunity to bridge the gap, gain market share and win new consumers. Profitability is an ever-present guiding principle and align with our growth initiative. As I stated at the shareholder meeting in June, I’m very bottom line driven. While our clear objective is to grow, doing so at the expense of profitability is neither desirable nor sustainable from a long term standpoint which brings us to adaptability. To achieve profitable growth, it is inevitable that change needs to be made in order to succeed in today’s practically and highly competitive retail environment. I have been leading a concentrated effort to build on our solid foundation to motivate the teams to achieve greater efficiency and show the way to reach milestone previously deemed unattainable. Always taking great care of our people, empowering employees and making sure the new hires are smoothly integrated into this incredible culture. I’m very proud of the changes initiated in the second quarter. As we look at all changes, we have put them into three major categories to clearly outline the expected outcomes. We will begin with discussion related to the most important topic for any retail company, product followed by the most important asset for our company, the direct segment and the most critical component of our strategy, our brand. Our products are the core of our success. The customer reception for the Spring/Summer collection specifically several key items in our women’s assortments played a key role in our second quarter performance. Therefore, we have initiated a new approach to inject what we were missing in our merchandising offer. To present a more compelling product offer to our consumer, I have worked closely with our design team and hire new designers so that we could impart an higher sensibility on to our ready to wear merchandise for Spring/Summer ’16 makes strength stronger by enforcing our core business for our classy consumer and introducing a more relevant offer to attract a new audience and expand the Lands’ End family. With improved design talent, we will stay in the port of transient style and interpreting market sheets of consumer needs ensuring that our collection is the sweet spot of our consumers’ preference. This will be a constant evolution and one of the key tools to win in our competitive market. In addition, we have filled the critical leadership position of Chief Merchandising Officer as well as the leader of our supply chain to ensure the entire process of the product assortment, product development and manufacturing will deliver the right inventory, the greatest quality in fit and traffic and the best capability to sustain our growth. Not only we were excited with the product impact of this new Lands’ End Associates, we are even more pleased with how successfully they have integrated into the existing structure of Lands’ End in an harmonious classic manner as we believe that our culture is a strong competitive advantage we need to leverage. Our mission is to create the most timely yet timeless product with the best quality and value. Core customers have always been our highest priority and we have made every effort to ensure a continue and growing support through a state to the core collection and are in keeping with the brand DNA. In tandem with the core business, we are seeking to expand our Lands’ End family by ensuring we have relevant product offering for every generation in our target consumer household. We intend to gain their attention through this product expansion with fresh, clean or ecstatic in a new fit. It is important to underline that this fit with [indiscernible] not only is successful among young people, but is the one used internationally by major competitors. These will be a key element to gain a broader market share internationally for future growth. The expansion is set to launch in Spring/Summer ’16. In addition, we have also partnered with experienced professional to design, develop and manufacture a new footwear line that will be launched at the same time. All of these serve as examples of the initiative that we immediately set in motion that are expected to have a material impact on the product offering early next year. The second area of strategic focus relates to improving the overall shopping experience in our direct segment, our largest and most important segment. In the second quarter, we became laying the framework for many changes on our direct platform based with increasingly competitive online landscape from virtually all traditional brick and mortar retailers, we needed to urgently update our web site inside and out. In a relatively short time, we were able to adapt and debut a new modernized online shopping feature, which drew the attention of our new target consumers. We have enhanced this approach to showcase the fall/winter 2015 to the same consumer and expanded the entire website building and elevated high static to the rest of our customer base. Since best-in-class service is key to converting our increased traffic, on August 12, we also upgraded our check-out process by building an express feature to expedite and simplify the shopping experience. Moreover, we’ve redesigned the site index and launched the first e-catalogue in August. Going forward, we are looking to increase the payment option providing gifting with purchase and develop a mobile application. We are looking to build a site architecture, redesign the product page and integrate social media logins onto the website to further drive traffic conversion and ultimately sustained growth. We will also rollout all these initiatives to our subsidiaries and upgrade the international web platform. Hence on a global scale, our online business will continue to serve as a key channel for distribution. We intend to complete all this action by early 2016. In addition to the website upgrade, we made drive on the ERP implementation, redesign the scope of the program, mapped out the implementation and we have selected an industry-leading system integrator to support the implementation. This initiative is directly aimed at providing us with a strong platform on which to grow our existing business and the potential for additional channel of distribution. It also helps to dramatically improve our efficiency in merchandizing, operation, accounting and technology part of our business. And it expect to provide the necessary foundation to fully realize our strategic objective of growth, profitability and adoptability. Lastly, our strategic focus also relates to the Lands' End brand. While there are many industry benchmarks to monitor brand status, we feel that brand awareness is a very critical measurement and we were [indiscernible] with how we score on this metrics. We have begun a marketing and messaging campaign that is intended to improve our brand identity and awareness as well as expect to generate additional revenue. As mentioned, hopefully you have seen our new brand campaign, our new fall catalogue design and enhanced website and digital marketing which were developed over the course of the second quarter. We thought to create a powerful, high-impact advertising campaign that truly sticks to both our core consumers and the new extended audience across major media platform in both print and digital formats. The campaign allow us to strengthen our brand identity as an iconic American brand, develop a stronger [indiscernible] and truly speak to our multigenerational consumer ranging from grandparents to grandchildren. We expect to drive significant increases in total print and digital impression in the third and fourth quarter as well as enhanced customer perception, expand the Lands' End family to include a new audience, drive consumers to the improved website and pave the way for them to view Lands' End through a completely fresh lens. In conjunction with the new media campaign, we also grew our total PR impression, which increased our brand awareness. On social media, we have started a more focused campaign to grow our fall over traditional [ph] initiative including messaging, brand ambassador and product seeding. To emphasize a point made earlier, this new marketing and brand awareness efforts are not expected to increase our overall marketing investment. We will continue to manage our overall marketing spend, looking for opportunities to cut inefficiency and reallocate funds where and if needed. In summary, while the second quarter performance was challenging, we planted the seeds for the future growth and began execution on many important initiatives that set the foundation for later quarter. Thank you for joining our call. We will now open the call for questions.

Thank you. [Operator Instructions] Our first question is from Alex Fuhrman with Craig-Hallum Capital Group. You may begin.

Great. Thank you for taking my question. Exciting to be doing these conference calls now and hear a little bit more about your strategy. I was wondering if you could talk a little bit about your capital structure, you now have more than $200 million of cash on the balance sheet and presumably you will have quite a bit more than that at the end of the year. How do you start to think about that cash balance? Is there a certain point at which you’d start to think about buying back stock down here or thinking about the investments that you just talked about that we are going to see over the next 12 months? Is some of that cash perhaps earmarked for those investments? Thanks.

Thanks, Alex. This is Mike. We haven’t really changed anything on that front. We’ve been pretty consistent. At this point, the intent is to continue to build our liquidity and our balance sheet with the intent of investing in strategic initiatives and like you said, Federica has outlined quite – in some detail some of the initiatives that we are focusing on and that will the focus of our cash at this point.

Okay. Thanks, Mike. And then just thinking about gross margin, which obviously it sounds like there were some one time issues that impacted the second quarter and there are some opportunities for some of your initiatives to take hold in the back half of the year. Given that the dollar is still strong year-over-year, would it be reasonable to assume that gross margin will be down similar amount in Q3 as it was in Q2 if you just eliminate that 40 basis point impact from the port issues and then just thinking about your opportunity for gross margin in 2016 and 2017, where do you think gross margins can go, is it possible to get back up to that 49%, 50% level, that you are at five or six years ago, or is that going to be harder to do know just given changes in shipping, rates and other things like that?

Good morning, Alex. I just to re-underline a principle that I’m keep saying to all of you. The profitability is definitely our first goal and will let Mike explain what we are doing for – in that front.

Alex, you are aware, we, at this point in time, giving out any guidance or forward outlook. But a lot will be pinned when you talked about Q3 and the environment that we are operating in. And we’ve mentioned that we had – in the second quarter, we had established increases in our margins rates, but the promotional environment that we were operating in, we did some discount pricing in response to that, and so a lot of will depend in Q3 and Q4 on how the environment plays out.

Okay. That’s very helpful. Thank you. And then, lastly, if I could just touch on the uniforms business, I mean, it seems like from the shareholder meeting a couple of months ago and the information you gave and there seems like that’s been a very nicely growing business over the last five years for you. Can you just talk a little bit about how the uniforms business performed in Q2 and then particularly given that about half of that business is corporate orders that can be a little bit lumpy, were there any quarters last year that were particularly strong or weak given the timing of orders that might cloud the numbers going forward this year?

In fact, this is the point as the fluctuation that – of the orders that made this quarter having some reductions and decreases versus Q2 last year, but this business is strong, is healthy and we will look to opportunities, but we are already taking action to increase and expand in this area. I don’t know if you saw that we also launched just recently few days ago a workwear that we never had and really encourage you to see it because it can be another area of opportunity and what I’m doing with this area is to give much more visibility and we are including in the messaging of the core, even more the information of what we are doing on this area for the uniform. We also explained other initiatives that will play this year. You will see – while I want to speak on everything that I already accomplished and achieved like the workwear for example, the next one you will see that is a major initiative. So I’m expecting this business to continue to rise.

Thank you. Our next question comes from Steve Marotta with C.L. King & Associates. You may begin.

Good morning, everybody. Federica, given the fact that you arrived in February and clearly you will not have a full effect on the product until spring/summer of 2016, do you have any effect on the fall product line even the margin for fall/winter 2015 and then you could estimate how many styles out of all of the styles you would have affecting the near-term, in the second half of this year?

Good morning, Steve. Well, as you know, the product development and the lead time is very long in our industry. So we also taking action to actually to reduce this lead time by increasing our flexibility for the future. But for the moment, the first things I did was definitely to start immediately on the spring/summer collection, at the same time, since most of the purchase for fall/winter was already done. I’ve met with the merchandize team and the inventory team and the design team to see what could have been done in that area to define first of all which were the products that [indiscernible] and which were the successful product in our historical phase in the past and we created – so we leverage first of all on the success that we had historically and we created a marketing strategy which was the thing that at least so we can change on the Q3 and Q4 compared to Q2 because it couldn’t be possible for the timing, but as you see we just started and we have plan to be much more relevant, but specifically going after product that we think we can sell, we can be even more successful by the approach, so all the inventory being reviewed as much as we could in that sense.

Okay. You touched on the marketing. Can you talk very specifically about how digital marketing initiatives that may have drove incremental traffic to the website, not only in the second quarter, but perhaps in the third quarter to-date as well as again the marketing initiative that you would expect would be traffic drivers and convertors to the – of the website?

I start from the big one, which I really hope that you see and everybody saw, which is the brand marketing campaign that we are doing in a relevant way in the print and digital media. The type of messaging that we are giving so far we got a very good response from both the core customer and we start to see a track of new customer acquisition. Thanks to this initiative. Most importantly it’s the shopping experience because once you increase the traffic and you get the consumer into your website, they need to see that you are consistent with what they see and what they would like to see from you. So from the website that we started to enhance since May 27, as I was saying, we did an incredible job with the team to be fast enough and to start this enhancement, which today has in order important step forward and will be completed, as I said, by early 2016. These drive and is driving higher traffic and higher conversion. Then there are small things in this low hanging fruits that we can get and for example and I want to mention the G&I promotion that we did, which is part of the strategy on how we can do promotion. We saw some promotional fatigue on just be discounted because in the same states with the competitors, we need to be more creative. So we initiated that as by only that event, we acquire more than 5,000 new customers. So it is important that we see not just activities and initiatives to acquire on a longer term but also on a short term. So the mix of those two action are so far positive, of course it’s definitely too early to judge and to see the results that we want to and we expect to see from us.

Great. And lastly, as it pertain specifically to inventory, are you where you want to be at the end of the second quarter or do you wish you were a little lighter or a little heavier, very specifically to plan for the back half of the year or where do you feel your inventory stands at the end of the second quarter? Thank you.

Thanks, Steve. Yes, we mentioned that we had taken actions at the end of the quarter where we increased our promotions so that we did come in out of the quarter in a much cleaner position. So we are – we feel we are in a good position and we also as we look at our mix of markdown inventory this year versus last year we are cleaner in that respect too. So, yes, I think we are in a good position.

And most importantly, Steve, one of our focus is how we build inventory from now on. So this is one of the key when I say that we need to streamline our merchandising assortment, this is the key. The way we create inventory will be part of our success and thanks also to the fact that we hire the Chief Merchandising Officer, Joe Boitano, coming from Saks, his best expertise is definitely to have a very productive inventory level because our goal is to increase the returns and the sell through.

Thank you. Ladies and gentlemen, this concludes the Q&A session. Thank you for your participation. You may now disconnect and everyone have a wonderful Labor Day weekend.