Lands' End, Inc. (LE) Q4 2015 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen and welcome to the Lands’ End Fourth Quarter and Fiscal 2015 Conference Call. At this time, all participants are in a listen-only mode. Later, we will have a question-and-answer session and instructions will be given at that time [Operator Instructions] I would now like to turn the call over to your host for today’s conference Mr. Bernie McCracken, Chief Accounting Officer. Sir, you may begin.

Good morning and thank you for attending the Land’s End earnings call for our fourth quarter and fiscal 2015 results. On the call today, you will hear from Federica Marchionni, our President and Chief Executive Officer and Jim Gooch, our Chief Operating Officer and Chief Financial Officer. To begin our prepared remarks, Federica will discuss our progress on key initiatives and then Jim will provide details on our fourth quarter and full-year performance. 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 fourth quarter and fiscal 2015 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 discussions 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 our Chief Executive Officer Federica Marchionni.

Thank you, Bernie. Good morning everyone and thank you for joining us today. 2015 was a year of transition for Lands’ End. As we work to create a solid foundation from which to execute our long-term vision for the brand. This began with assembling an highly talented and experienced management team in the areas of merchandising, design, supply chain and most recently operation and finance. With the addition of Jim Gooch, who join us as EVP, COO and CFO about a month ago. I want to take a moment to welcome Jim to the Lands’ End family. He has hit the ground running and I look forward to leveraging his knowledge as we move our business forward. I’m pleased with how quickly Jim and the other new member of the senior management team has integrated with our extraordinarily talented and passionate team as we continue to work towards our unified mission to deliver a timeless, high quality, honest value and work less quality service to our customers. With the senior management team are now in place, we are working together to invigorate and innovate Lands’ End. We are focused on continuing our strong engagement with our core customer while taking steps to grow the number of customer appeal and to expand global awareness for the Lands’ End brand. While I believe that we made meaningful progress in 2015, it is not reflected in our financial performance for this year. Adverse weather and foreign exchange headwinds combined with statistical highly promotional retail environment continue to negatively impact our business. Adjusted EPS was $1.26 as compared to the $2.39 in fiscal 2014. Jim will provide the detail review of our financials. While we were disappointed with the financial results, we believe that the step that we took throughout the 2015 were important building blocks for our future. Positioning us to deliver sequential improvement beginning in the second quarter. I have said from the start everything begins with the product and this was and is my number one priority. Over the last year, we spent time evaluating the front-line analyzing customer data and developing an assortment that embodies timeless, yet updated styling, improving sales and higher quality and maintain the strong value proposition that is true to Lands’ End. In order to accomplish this, we needed to make enhancement throughout our operation to ensure that we had the corner and the processing place that will enable to execute on our strategies. We tested some items that reflect new styles over the holiday season and we were pleased with the response. A good example of this is our sweater category, where we had product ranging from our opening price point under $50 for our classic sweaters to higher end product including our new customer offering at over $300. We were please to see strong sell-through across the price spectrum, which was a far and better than our company average. This illustrate to us that our customer have an appetite for a broader product assortment that is relevant to their lifestyle. Importantly, this highlights our ability to deliver quality value to the customer and a wide range of price points. As part of this, we work during 2015 to develop a strategic marketing plan to communicate a Lands’ End message and build brand awareness. This includes engaging campaign center on great imagery and storytelling that reflects the Lands’ End value of timeless, high quality and honest value. We launched two pop-up stores one on 5th Avenue in New York city and another in Boston. We were pleasantly surprised by the significant media exposure from this pop-up, especially in New York city and delighted with the positive customer reception on our product offerings and service in both locations. In addition, we received excellent feedback from our multi-media holiday campaign. Unfortunately, this initiative were muted by the difficult retail environment and the record warm temperature. We have supported this marketing investment with slightly lower marketing spend. During the year, we also took steps to improve our catalog productivity by focusing mailing on active, productive customers and limited mailing to non-active customers. As I have spoken through the past. We have been making announcements to the overall look and quality of our catalogs in an efforts to drive higher productivity through increased conversions and sales per book. Increasing circulation only, when we can drive incremental profitability. Overall, we look at the catalogs in our store base and consistent with any brick-and-mortar retailer. We constantly analyze the productivity of the store base making necessary adjustments to maximize out return of investment. We have also been practicing value friendly strategies and balancing this against level of promotion we offer, making adjustments in an effort to increase the productivity of our marketing investment. While our long-term goal is to drive greater full price sell-through. As you are aware, we are operating in a highly competitive environment and consumer has become increasingly value conscious. Therefore we need to remain flexible and adaptable in our promotional strategy. Before I turn the call over to Jim, I would like to outline our priorities for 2016. We will continue to focus on increasing product relevance and reinvigorated assortment. Our loyal customer has always been our first priority, and we believe that our announced spring collection would greatly appeal to this customers. Both Floral Vibrant Hues and Nautical Stripes are featured throughout the collection. The spring assortment is built around strong colors and preference story that have historically resonated with our customers. Our timeless appeal and effortless style convey a greater sense of ease and comfort to our customers than ever before. We are also excited to introduce a new swing fabric collection with the season best color, design and innovation to complement our already strong offering in beach leading. Overall, we strike a balance between offering new products that excite the consumers and silhouettes and fabrication that we knew they love from the pack to create a compelling and creative collection. It is important to note that we are on a journey to constantly deliver strong collection and we still have much to accomplish. Our dedicated design team has been put in place to develop this fall winter collection and I'm confident that they will bring even more significant enhancement than we offer in our spring summer collections to delight our customers. In order to strengthen our resilience to future weather fluctuations, we seek to broaden our offering of non-seasonal products to balance our seasonal offerings of outerwear and swimwear. We believe that there is a big opportunity with non-seasonal categories such as tack suites and sweater and we have an opportunity to become a go-to destination to active customers year around. That said, outerwear and swimwear remain an important categories to our brands and we will continue to offer a well designed, high quality selection of products at great value. Ultimately we are looking to offer a well balanced assortment of timeless design for our core customers in a way that’s updated for the time and relevant to their current lifestyle while maintaining a strong value proposition. In addition to the product offering in our core collection in just a few weeks we will be unveiling a brand new collection as part of our spring offering, which is not only a modern interpretation of the vastly rich heritage of Land's End, but also marks an important foray into our acquisition of new consumers. With freshly updated style and fit the collection features knit tops dresses, and light weight outerwear with an elevated aesthetic that we believe will be compelling to both loyal and new customers. On top of improving the relevance of our core collection, this is a great example on how Land's End can simultaneously delight its loyal customers with a complementary offering while attracting a new customer and still remain through to its core DNA and storied history. We believe that the heightened tailoring, modern sensibility and polished presentation will have an halo effect and draw more customers into the brand. Once here they will be able to experience all that Land's End has to offer and this spring collection reflects just a portion of the progress that we are making with our product assortment. On the marketing front while marketing spend in 2016 will be relatively flat to last year, we will be more efficient in our overall spend enabling us to invest in initiatives that we believe will yield benefits over the long-term. The majority of our marketing spend will be allocated to our catalogue and digital marketing where we can generate near 10 ROI. We are also investing in branding initiatives designed to communicate the enhancement we are making to our product offering and to elevate the Land's End image while not stepping away from our core DNA. We will also continue to communicate the Land's End value proposition with strategically planned promotion throughout the year. We will also further enhance our distribution channel in 2016. Our catalog is a key area of focus for us. As you know, we have work to reduce circulation to maximize catalog productivity and during the first quarter this production will continue. As we move into the second and third quarter, when our new more compelling product is featured, we will begin to slowly and strategically rebuild our catalog distribution. This will enable us not only to target our core active catalog consumers, but also win back less customers and create connection with new consumers. On the e-commerce front, in an effort to drive higher conversion rate UPTs and grow our Lands’ End customers based, we have focused on multiple improvements. This includes new and adapted storytelling content and enhanced product page for a better overall selling experience, including stronger cross category functionality. Some of this, you would experience in conjunction with the launch of the new collection. These announcements are in addition to the upgrades that we made to the site earlier in the year to improve our merchandise assortment, streamlined checkout and simplifying the online shopping experience. Overall, we have gotten great feedback thus far on upgrade that we have made to our digital experience and are encouraged by the progress that we are making on this front. We will also continue to build our international business, while foreign exchange rate had a negative impact on the business in 2015, we are generally seen favorable response to our product offering from the international consumers and are happy with the progress that we have made outside the United States. We are also pleased with the work we have done with our corporate accounts as well as the steps we have taken on developing new partnerships. We expect the corporate uniform business to see an halo effect from the improvements we are making as part of our strategic initiatives. Finally, we have spoken in the past about investing in our infrastructure and that will be a top priority in 2016. We are making significant improvements in technology to upgrade our system across business functions that will enable us to operate respectively and efficiently in the future. Jim will provide the details on the timing and cost of this investment. In summary, we have worked hard to build the strong foundation from which to execute our strategic plan, but we still have a lot to do. We look forward to continuing to driving improvement in this initiative in 2016 and are excited to keep you updated on our progress as we move throughout the year. Now, I will turn the call over to Jim.

Thank you Federica and good morning everyone. First, before I get started, I would like to say a few words about how excited I am to have joined the company. This is truly a great company, it’s an iconic brand with a strong and passionate team. And certainly I'm looking forward working with all of them to partner with all of them as we look to capitalize and the many opportunities that we have in front of us. With that, I would like to get started by walking through our financial results for the quarter. Revenue for the fourth quarter was $473.5 million that’s down 6.1% compared to $504.6 million last year and down 5.3% on a constant currency basis. This sales decline was comprised of a 5.2% decrease in the direct segment with sales of $409.1 million and 11.5% decrease in the retail segment with sales of $64.4 million. The decrease in the direct segment was due to decline in both the U.S. region and the negative impact of foreign currency on the international business. The U.S. business continued to realize negative comparable sales in many product categories and as Federica noted, the decrease is attributable to a combination of both internal and external factors. During the quarter, we saw the continuation of a highly promotional retail environment with record warm weather both of which negatively impacted our business. Especially in some of our seasonal categories. In addition, the decline in U.S. revenue reflected a planned reduction and our catalog circulation as we continue to optimize all of our marketing spending. Looking at our international business, our revenue was negatively impacted by approximately $5 million from foreign exchange fluctuation primarily in Europe. On a constant currency basis, our international revenue was essentially flat. The decline in the retail segment reflected an 8.7% decrease in same-store sales combined with nine fewer locations at the end of the quarter compared to the same period last year. The decline in same-store sales was primarily driven by many of the same factors which impacted our direct business in addition to an overall drop in traffic that are Sears locations. We ended the quarter with 227 shops at Sears and that compared to 236 at the end of the fourth quarter last year. Moving onto gross profit, gross profit was $199.1 million, a decrease of 10.4%, which compared $22.2 million for the quarter last year. Gross margin for the quarter decreased 200 basis points to 42%, if you exclude the impact of foreign currency exchange rates, gross margin was down approximately 150 basis point year-over-year. The direct segment gross profit decreased 9.9% and gross margin in the direct segment decreased 220 basis points to 43.1%. The retail segment gross profit decreased 14.1% and gross margin in the retail segment decreased by 110 basis points to 35.3%. The decrease in both segments was attributable to a highly competitive retail environment resulting in increased promotional activity, deeper product discounts and an unfavorable sales mix during the quarter. Looking at total selling and administrative or S&A expenses for the quarter decreased 1.6% to a $151 million that compared to a $153.5 million in the fourth quarter of last year. Total S&A expenses as a percentage of revenue, increased by a 150 basis points to 31.9%. The S&A expense deleverage was primarily due to the decreased sales volume partially offset by lower costs. The drivers of year-over-year decrease in expense include lower personnel cost, a reduction in professional fees as well as a decrease in catalogue cost as we continue to optimize our circulation. All of these saving s were combined with favorability from currency exchange rates. Other operating expense was $39,000 in the fourth quarter of 2015 compared to $3.2 million in the same period last year. Other expense for the fourth quarter of 2014 included $3 million of expense that related to product recall reserve, which was recorded in the fourth quarter of last year. Operating loss was $54.8 million that compares to operating income of $60.5 million in the fourth quarter of 2014. The decrease was primarily due to $98.3 million of a non-cash impairment charge related to the write-down of intangible assets that combined with lower volume all partially offset by expense savings. The income tax benefit for the fourth quarter of 2015 was $21.1 million and that compares to an income tax expense of $21.7 million for the same period last year. Net loss in the fourth quarter was $39.5 million or a $1.23 per share as compared to net income of $33.1 million or a $1.03 per share in the fourth quarter last year. Again excluding the $98.3 million or $62 million after tax non-cash impairment charge, net income for the fourth quarter of 2015 was $22.6 million or $0.71 per share. Excluding the impact of the product recall, net income in the fourth quarter of 2014 was $35.9 million or a $1.12 per share. In addition to the GAAP measures outlined above, adjusted EBITDA's an important profitability measure that we use to manage our business internally. For the fourth quarter of 2015, adjusted EBITDA was $48.1 million or 10.2% of revenue, this adjusted EBITDA excludes the $98.3 million of the non-cash impairment charge. This compares to adjusted EBITDA of $70.4 million in the fourth quarter of 2014, which excludes the impact of the product recall in last year's fourth quarter of $4.7 million. For the year, net revenue was $1.42 billion and that compares to $1.56 billion in 2014. Fiscal 2015 net loss was $19.5 million or $0.61 per share compared to net income of $73.8 million or $2.31 per share for fiscal 2014. Excluding the after tax $62 million non-cash impairment charge and the impact of the reversal of the product recall accrual, net income was $40.4 million or a $1.26 per share in fiscal 2015. Excluding the impact of the product recall net income in fiscal 2014 was $76.6 million or $2.39 per share. Now let's take a look at the balance sheet. Total cash and cash equivalents at the end of the quarter were 228.4 million and that compares to $221.5 million at the end of 2014. Inventory for the quarter increased to $329.2 million which compares to $301.4 million mainly due to the softer sales and increased receipts during the quarter. We're taking the necessary steps to move through the excess products and we are adjusting future receipts and our plan would be to normalize our inventory levels throughout 2016. Long-term debt decreased to $500.8 million as compared to $506 million at the end of last year with the reduction due to the quarterly principal payments. Looking at operating cash flow for the year, it was $35.9 million compared to $211.1 million in fiscal 2014, the decrease in operating cash was mainly the result of lower operating earnings and increase in inventory receipts and the one-time favorable impact of approximately $25 million that related to the separation from our former parent that was in prior year's cash flow. Before I open up the call for questions, I want to make a couple of comments on our cash flow and investments. First, we'll continue to remain prudent in our cash management in 2016. While making strategic investments where we believe we can yield a positive return. As we look at our marketing spend for 2016, we expect to see catalog circulation decline in the first quarter and build sequentially year-over-year in the remaining quarters. As we continue to optimize our circulation spend, we will focus on our active customer base and we recognize that it will take some time to build back our relapse customers and to capture new ones. However, we remain confident and we can do both overtime and believe that we are well positioned to see sequential improvement and performance beginning in the second quarter. And finally, for 2016 we plan to invest a total of approximately $40 million to $45 million in capital expenditures, the entire year-over-year increase in CapEx is attributable to our investment in our ERP system implementation. We feel this investment is critical to ensure that we have a sufficient infrastructure in place that deliver our initiatives and to drive improvement in our business. Our investment during 2016 will focus on our finance functions, merchandising operations and our inventory planning systems. After our 2016 investment, we will be approximately 75% complete with our multi-year ERP plan with our largest remaining investments coming in our order management systems and our warehouse management systems. And now with that, we’ll open up the call for questions. Operator.

Thank you [Operator Instructions] Our first question is going to be from Mark Rosenkranz with Craig Hallum Capital. Your line is open.

Hi great thanks for taking my question and congrats on a good fourth quarter. I was just wondering if you could maybe expand a little more. You talked about delivering sequential improvement during in the second quarter. Could you give us a little bit more on kind of what areas do you expect to see an improvements and kind of what catalysts do you think we’ll have in the second quarter that will kind of drive that through the rest of the year?

Well good morning. I guess, I will start with that and maybe Federica can chime in. We’re probably not going to give any specific guidance as to the drivers, but as I have said and as I think Federica walked through with all of the initiatives, many of the initiatives that we have in place you will start to see them take hold later in the year. We’re going to continue to optimize that marketing and advertising spend and I think as we go through the quarters, we’re going to get more efficient there. And I think you will see us drive our productivity and also from a product perspective, we have limited amounts of new product in the first quarter, you’re going to see that build a little bit in the second quarter and then you will see that be more impactful in the back half.

Okay great and that makes a lot of sense. Could you maybe talk a little bit more about the improved marketing kind of what areas you can see some room for improvement there and how you are going to make that even more efficient as you go through the year?

First of all good morning everyone. We already an improvements in last year on the efficiency and the progress is to continuously improve on the productivity of our catalog. We can say that we increased the average response rate and because of that we can also adjust today the circulation in the next quarter to make sure that we really target in active customers and guessing an higher profitability from each catalog, because as you know from the marketing spend, the catalogs are the biggest spend. Of course, as we said, we also trying to improve efficiency also in our digital spend, this year in particular we want to make sure that every dollar that goes into the digital market will be target to the right consumer on the core, core as I said before is the number one priority for us. And we will do that while also acquiring new customers. And these new customers are definitely even more responding to digital marketing. So part of that spend will also be targeting the new customers. And as we said, we are improving the brand awareness not just nationally, but also internationally. So it is important to note how our advertising campaign today is much more relevant and focused. Again, there are moments where we focused more on the core and that is for example in the Q4 was the holiday campaign, we spoke to the families, to the multi-generational families and through the 2016, we will have a balance between the initiative for the core customers and the initiative for the new customer. And as I said, in few weeks we will launch a new collection dedicated to the new generation, which we consider an expansion of our current customers.

I think Mark as Federica noted is absolutely true of that. We are obviously trying to drive productivity across all of our different marketing vehicles. You see us talking more certainly about the catalogue just because that is the biggest piece. The goal is there to continue to refine our model there, continue to drive productivity. We have made some changes last year, we gave you a little bit of insight as to how we see the spending flowing this year, the first quarter of this year will be our first pass at making some changes there. I think as we get into the second and third and fourth quarter we will be making changes over prior year changes and I think we will get smarter as we go.

Okay thank you that's very helpful and then last question from me, you talked a little about how you know the non-seasonal items you can see some opportunities there. Could you just kind of talk about how you are going to handle kind of the balance between these seasonal and the non-seasonal items in the store. What kind of [promise] (ph) is needed to make the right touch there. To emphasize those products as available, but not you know overshadow the strong seasonal trends in the in a given time of the quarter.

Of course, what we saw last year was a very bad weather both for the spring and for the fall. We had no summer and we have a very warm winter and for a company like us that it’s not as exposed on trends, fashion but its exposed to seasonality, because our two biggest categories are the swim and the outerwear. I wanted to make sure that we have always something that is considered a core also for different categories. So the first things and this is one of the reasons why even in this spring summer you see more products on the apparel on the clothing for year around users. That is very key to succeed in the clothing business. This part should grow and to do that what we did was I consider streamlining the merchandizing offer that means that we eliminated this excuse that were unproductive, again efficiency is remains the key elements, the key criteria to define the strategies of both in the marketing and also in the merchandizing offer. So by eliminating that I could conclude newness both on the core and as you will see in the new collection. There are various ways of introducing non-seasonality in products and one of this and you will see through the year that my focus will be also the Activewear, because at leisure its often an area where we can grow. And this is a non-seasonality product and will help us to stay strong in moments where either we're in transition between the spring and the summer or winter. And in fact this is the moment where we think to put our focus this year and also to grow the business in this area where the weather will not influence the buying.

Thank you. Our next question is from Steve Marotta with C. L. King and Associates. Your line is open.

Good morning everybody. Just following up on that question as it pertains to the split between seasonal and non-seasonal in fiscal 2015 roughly what was that split and roughly what would you expect that split to be in fiscal 2016.

We don't give exact number on the split, but what I can to you is that of course as I mentioned, the seasonal product are the pillars of our business, but we saw a great response to also product that can be year around and because of the fact that we didn’t develop the collection. Thinking about that in the past that will be of course a journey as everything so will not change dramatically but will be introduced and you can have a sense of that by just walking through our current spring, summer collection that is on the website or is in the catalogue. So you see that there are more products that can be used again for year around and at more responsible thinking about how U.S. which is the biggest market for us, how the weather is there and 50% of the country is exposed to the warm weather year around. So we need to consider that when we create the collection. But again that will be made by always reducing the product excuse that are non-productive and introducing more productive and opportunities. So will be again a journey, so the percentage don’t expect a dramatic change, but an increase season-after-season and of course we will be flexible in understanding the data and see the customer acceptance.

Okay, thank you. Jim as it pertains to the inventory, can you delve a little deeper into the composition what the percent of aged inventory is within the particular pool of inventory currently. How you would expect the promotional cadence to look over the course, let’s say the next six to 12-months. The concern of course is that considering that inventory is up and some of it appears age that margins will remain under pressure due to high promotions in order to jettison the older inventory for what is now filing through some of the newer stuff. If you could just delineate it a little clear that would be great.

Yes absolutely, as I mentioned in my prepared remarks, we’re certainly seating on a little bit more inventory than where we plan to be, where we want to be. And I also said that I think from adjusting future receipts, we are going to be able to move back to normalized level of inventory. What I would tell you though is I’m pretty happy actually with the quality of inventory. If you look at it both from an age perspective, we’re in a better position today than what we were a year-ago. And also a little Federica mentioned or talked a little bit about the seasonal and basic mix, we have a greater percentage of basic product than where we were a year-ago. So as you think about how we’re going to move through, I don’t anticipate us needing a significant amount of mark-downs in order to move through this inventory. It will be more a matter of time and being able to adjust future receipts and based on our inventory commitments that we have out there. it’s certainly going to take us a quarter or two to move through this, but I wouldn’t anticipate significant margin pressure as a result of inventory. I think from a margin pressure if anything, you are still talking a very competitive retail environment, you are still talking a very promotional retail environment and if there is any margin pressure I see it coming more from that than I do from our current inventory position.

Okay that’s great, can you disclose what the plan was you said, it was slightly above what would you liked to have ended the year with on an increase. Can you talk a little bit about what that range may have been?

No. we’re not going to get in specifics on the plan, but the year-over-year inventory is slightly higher and I would say that the prior year inventory, if you go back and look at that was probably little also a little bit artificially lower than what a normalized inventory level would be. But really because of, if you look at our performance on a top-line sales that’s really what drove a little bit the excess inventory at the end of the year.

Okay. I have two other questions as it pertains to the promotional cadence through 2015. Can you comment - Federica you have mentioned in the past that you endeavor to make the brand messaging less promotional to the customer and to dial back heightened promotions as what has say occurred over 2014 and some of 2015, are the 2016 promotional plans right now just the plan are they fewer or similar or more than 2015?

First of all Steven, the most important thing is always to be in-line with market and that’s our lesson let’s say last year. So every time we were not in-line with what was out there in the market, we actually needed to change, because dialing back when everyone else is doing a very strong promotion then you simply just lose the top-line, but we did some tests to verify what is the best way to drive more high margins within the promotion. And so this is the first thing. We have more data and more knowledge on how to drive an higher margin in the promotion and how to do it, when to do it. So I think that it was really the year where everyone of us was sitting dealing especially in Q4 to define the best promotion to drive top-line and margins. This year, we wish not to be that promotional. No one likes that I think no company would like to be in that situation and definitely it’s not in the strategy to become more and more a trend with higher value and we will like the consumer shop at Lands’ End, not because of the promotion, but because they like what we gave to them. But as we said, the consumers are becoming more and more price conscious. So again, we want to be very flexible. What I'm doing with the launch of the new collection is also to see and to test products that cannot be and will not be promoted as we used to so far with the product offering that we have. So that would be another learning for us. You will witness this year, so the intention is definitely to improve the margins, not to be as promotional, but again as I said, stay flexible and very diligent in driving top-line.

That's helpful and just one other question. You mentioned that there were some sweaters that were tested in the holiday season and you felt that you have got some pretty good reads on them and can make better inventory decisions regarding those successful tests and I would assume the following season in the fall winter. Is it possible that the test and react model can represent a larger portion of Land's End sales in future years than it has, is this a tactic that you think you can use more aggressively and across categories.

For sure, as I'm always saying one of my pillars on the three pillars that is growth, profitability, the third is the adaptability and the more you can adapt to the market the faster you can do it, the bigger are the results. It's important to read the data and to react immediately on the data. Of course, as you know, our product lead-time is long, so we have to be able to read the data way before, but I think this is one of my skills. And I'm working with the team to make sure that we understand more the trends and the insight that we can get from a first read, but I'm a very big fan as my team also is on the test for not just the product, but on all the activities that we do so.

Steve, I would add to that too. In my comments on our incremental CapEx that we are spending this year that's a big reason why we are investing there too. We had data available at this company, but it's significant amount of homegrown systems and I think our investment in that infrastructure is not only going to allow us to get data more accurate data, but I think data that comes quicker and it's more actionable. So we can do more of these read and react tests and be more timely in the market.

That's helpful. All the best.

Thank you.

Thank you.

I’m not showing any further questions. This concludes the Q&A portion of today's call. Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may all disconnect. Everyone have a great day.