Lands' End, Inc. (LE) Q1 2020 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by and welcome to the Lands' End First Quarter 2020 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to introduce your host of this conference call, Mr. Bernard McCracken. You may begin.

Good morning, and thank you for joining the Lands' End earnings call for a discussion of our preliminary first quarter fiscal 2020 results, which we released this morning and can be found on our website landsend.com. As noted in the release, the results are preliminary, pending the completion of our quarterly procedures and preparation and filing of our quarterly report on Form 10-Q, which we expect will take longer this quarter due to COVID-19 and therefore are subject to change. On the call today, you will hear from Jerome Griffith, our Chief Executive Officer and President; and Jim Gooch, our Chief Operating Officer and Chief Financial Officer. After the company's prepared remarks, we will conduct a question-and-answer session. Please also note that the information we're about to discuss includes forward-looking statements. Such statements involve risks and uncertainties. The company's actual results could differ materially from those discussed on this call. Factors that could contribute to such differences include, but are not limited to those items noted and included in the company's SEC filings, including our annual report on Form 10-K and quarterly reports on Form 10-Q. The forward-looking information that is provided by the company on this call represents the company's outlook as of today and we do not undertake any obligation to update forward-looking statements made by us. Subsequent events and developments may cause the company's outlook to change. Of note, in this respect, the COVID-19 pandemic continues to have a significant impact on our business operations, financial results and cash flow. The uncertain and dynamic nature of current conditions and its duration can materially alter our outlook. During this call, we'll be referring to non-GAAP measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures can be found in our earnings release issued earlier today, a copy of which is posted in the Investor Relations section of our website at landsend.com. With that, I will turn the call over to Jerome Griffith.

Thank you, Bernie. Good morning and thank you all for joining our first quarter earnings conference call. I hope that you and your families are healthy and safe. The COVID-19 pandemic has created a complex environment on many fronts to say the least. We believe that our business model provides the flexibility to mitigate some of these challenges that this pandemic has created across the industry. I am extremely proud of our team's efforts in helping us navigate through this difficult period and encouraged by the more recent trends we have seen in our global e-commerce business. I want to thank the Lands' End team for their hard work and commitment over the past few months. I also want to extend my thanks to our business partners, as we continue to work closely together to manage through this period. We were extremely pleased with the continuation of strong trends we saw entering the first quarter. While our results were impacted by the outbreak of COVID-19, we are no less optimistic about our future for several reasons. First, we are a digitally driven company, with 95% of total revenue coming from e-commerce. Of that 95%, approximately 80% is direct-to-consumer revenue. Second, we provide key item basics at great value with great service, at a time when we are seeing growing demand for our offerings. So while we saw a significant impact in consumer demand at the onset of the virus, these attributes enabled a rebound in the following weeks. Third, we have demonstrated the adeptness and agility to appropriately adjust our cost structure, as we reset the new normal. And finally, we see opportunities to expand our customer base through more recent strategies, including the planned launch of Lands' End on Kohls.com and in 150 Kohl's retail stores this coming fall. I will speak more to our growth opportunities following Jim's remarks. Now, I want to touch on our business response to the COVID-19 pandemic. In March, as the outbreak spread, we took decisive actions to reduce our costs, cut capital spending, adjust our inventory receipts, negotiate select terms with business partners and, in general, prudently manage our cash flow in order to create better financial flexibility during this highly uncertain period. Jim will discuss these actions in more detail. But it is important to note, that our quick and deep actions were necessary to preserve the long-term health of the Lands' End brand and we believe they will position us as an even stronger company on the other side of this crisis. Looking back on the first quarter sales trends, performance in the first five weeks were ahead of our expectations. In mid-March, in conjunction with the spread of the COVID-19 pandemic, we began to see an impact on both our U.S. consumer and business segments. And on March 16, we temporarily closed our 26 U.S. stores. We focused our marketing efforts to drive our e-commerce business, which led us to a rebound in sales volume, beginning mid-April, which accelerated through May. We are very pleased with these recent trends, which clearly demonstrate the resiliency of our business. Our e-commerce business remains an important area of strength for us. The scale of our e-commerce business and supporting infrastructure enabled us to meet consumer demand and fulfill online orders, as the retail industry shifted almost entirely online. The vast majority of our inventory is located in our Wisconsin distribution centers and we were able to remain operational and fulfill customer orders. We also benefited from the heightened demand for comfort and value during the shelter-in-place restrictions. We emphasized these product categories in our online presentation, catalogs and customer communication and saw strong performance in apparel-related categories, as well as our home business. We were also encouraged by a low double-digit increase in new customer acquisition in April, which accelerated to a high double-digit growth in May. We continue to focus on driving eCommerce sales through outreach to existing and new customers and we are in the process of a phased reopening of our retail stores, which we expect to complete by the end of June. This is being done in accordance with governmental guidance and an adherence to CDC health and safety recommendations to ensure safety of our employees and our customers. Our product offering has also been an important differentiator for us in this new industry landscape. Lands' End is best known for high-quality at a value price point, offering our customers a composition of basics, seasonal basics and newness. Over the past few quarters, we have seen success in many of our casual comfort categories, which we expanded in the spring and will further build upon for the fall. Consistent with the shift in customer dynamics, as more people work from home, we are seeing strength in this offering, as well as select multifunctional items with UV protection within our swimwear category, as people are ready to spend more time outdoors. Home is another category for which we are seeing strength, as consumers are creating a more comfortable living space with the increase in time spent at home. In our Outfitters business, we completed the American Airlines launch in the quarter. But due to COVID-19, we saw declines, particularly in our large national accounts and small and mid-sized businesses. Relative to our other business segments, we expect Outfitters to see a slower recovery. In summary, during the quarter we continued to deliver against our core growth strategies across product, digital, unit channel and infrastructure, despite the volatile landscape, while building new growth opportunities across channels. Our dynamic eCommerce business limited retail footprint, attractive value-oriented basics product assortment, solid liquidity position and lean operating structure provides us with a firm foundation to navigate through this temporary disruption. Looking ahead, when the environment improves and the consumer begins to recover, we believe the secular shift to online shopping will continue and we are well-positioned to capitalize on this change. I will speak further on these points following Jim's review of our financial performance and detailed discussion on actions we have undertaken in response to COVID-19. With that, I will turn the call over to Jim.

Thank you, Jerome and good morning. Before I get started, I want to take this opportunity to thank everyone on our team for their hard work and for their commitment throughout this very challenging period. I'll begin with a review of our financial results before detailing the actions we've taken in response to COVID-19 to protect our business, improve our financial flexibility and maintain our liquidity. While the pandemic had an adverse impact on our results in the quarter, our business model is resilient particularly our eCommerce channel and we expect all of our segments to recover albeit at different rates. As Bernie noted at the outset, our results are preliminary pending the completion of our quarterly procedures and filing of our 10-Q. We started out the year building on the momentum from the fourth quarter. For February revenue was up 11.1% with strong performance across all of our business segments. As the pandemic began to impact the U.S. consumer in mid-March, all of our segments were pressured initially before we begin to see a recovery specifically in our global eCommerce starting in April. As a result, our total company revenue for the first quarter decreased 17.3% to $217 million compared to $262.4 million last year. In our U.S. eCommerce business sales decreased 16.5%, while sales in our international eCommerce business remained relatively flat for the quarter. Following a significant drop in consumer demand at the outset of COVID-19, we saw a sales rebound in April. We are pleased to see this trend continue into May with global eCommerce business accelerating to double-digit revenue growth versus prior year. Our efforts in this channel not only led to increased engagement with existing customers, but true new customers as well. We saw strength in our comfort assortment including knits, loungewear and UV-protected basics as well as in our home categories. These categories delivered strong double-digit growth in the quarter as we emphasize these assortments with the drastic shift in consumers working from home. While our overall buyer file declined in mid-single digits for the quarter, we did see low double-digit increase in our new customer file for April as consumers sought comfort and value. Within Outfitters, our sales decreased 26.2%. We completed the American Airlines launch during the first quarter totaling $4 million bringing total revenue for the launch to approximately $44 million. As to be expected the Outfitter business has been slower to recover. Outfitters operates in three market segments: large national accounts; small and mid-sized businesses; and schools. Each of these segments represents approximately one-third of the business. As several of the larger national accounts are in the travel industry this business has been hit particularly hard by the pandemic. And we expect that it will take the longest to recover. In our small and mid-sized business segment, we expect spending to recover at varying rates depending on the industries these companies serve. While the school uniform business was also adversely impacted, the first quarter is the smallest season for school uniforms and we expect this business to recover to prior year levels assuming schools reopen on time. Moving to our retail business, I'd remind you that in contrast to traditional retailers, we only have 26 U.S. company-operated stores and brick-and-mortar represents less than 5% of our total business. We had a strong start to fiscal 2020 with comps up 14% in February. However, as a result of our temporary store closures in mid-March, our U.S. retail sales decreased 65.2% in the first quarter from $10.2 million to $3.6 million. As Jerome mentioned, we expect a phased reopening in these stores and an additional five new stores opened by the end of July. Gross margin in the first quarter was down approximately 230 basis points to 43.4%. The gross margin decrease was primarily due to increased markdown activity in response to a more aggressive promotional environment and additional inventory reserves. Selling and administrative expenses declined approximately $11 million due to actions taken in response to COVID-19. These include employee furloughs and temporary tiered salary reductions for the executive team and corporate staff. As a percentage of sales SG&A deleveraged to 48.8% of revenue, compared to 44.5% in the first quarter of last year. Interest expense decreased to $5.3 million as compared to $7.8 million largely due to the $100 million voluntary pay down of the debt slightly offset by interest resulting from the borrowings under our ABL facility. Income tax was a benefit of $9.2 million compared to $4.9 million last year. The first quarter 2020 rate reflects the estimated tax benefits as a result of the CARES Act. Net loss for the quarter was $20.6 million, or $0.64 per share compared to a net loss of $6.8 million, or $0.21 per share last year. In addition to the GAAP measures that were outlined above adjusted EBITDA is an important profitability measure that we use to manage our business internally. For the quarter, adjusted EBITDA was a negative $11.6 million that's down $14.6 million from a positive $3 million in the first quarter last year, and it is directly attributable to the significant challenges related to COVID-19. Turning to the balance sheet. Total cash at the end of the quarter was $59.1 million compared to $40.2 million last year. Looking at inventories at the end of the quarter we were at $383.2 million compared to $319.3 million a year ago. This includes approximately $30 million in American Airlines inventory that we added to support American's ongoing business. In addition, higher inventory levels were the result of weakened consumer demand directly related to the pandemic. While we did end the quarter with some excess seasonal inventory overall levels remain manageable and we're very comfortable with our current composition as we navigate through this challenging period. Our spring and summer inventory had largely already been received, but we were able to reduce our receipts for fall and holiday as a hedge against potential softness in consumer demand. Based on our current inventory position, we expect to largely maintain our normal promotional cadence. However, we will respond accordingly based on the competitive environment and sales trends. We also plan to leverage our demand forecasting system and expanded replenishment capabilities to quickly react to changes in consumer demand. Turning to our IT initiatives. We're on track to deliver the final phases of our enterprise order management system in 2020, which will increase our inventory productivity and improve our ability to fulfill orders through additional channels and marketplaces. We expect this implementation to drive both top line and working capital improvement. For fiscal 2020, we expect to significantly limit our capital spending levels focusing on projects that are largely concentrated on consumer-facing enhancements. As Jerome discussed, we're focused on maintaining our financial flexibility through this challenging environment. At the end of the quarter, we had $59 million in cash, that's including $75 million from our ABL facility. Based on the improvement in the global e-commerce trends in May, we recently reduced these ABL borrowings to $50 million. With this reduction, we currently have $141 million in capacity remaining under our $200 million facility. The facility also includes the potential of an increase to $275 million through an accordion feature. With respect to our term loan, we remain in the process of working to refinance this loan, due in April of 2021. As a reminder, we've continued to pay down the principal over the past few years and have $384 million that remains outstanding. As Jerome highlighted, we've taken decisive actions to preserve our liquidity through this pandemic. As part of this, we previously announced that we've undertaken a number of cost management initiatives which I spoke to earlier and we'll continue to review further cost-cutting opportunities within our expense structure. In addition, we reduced our capital expenditure projection from $40 million to approximately $20 million. Given the uncertainties and the rapid changes in the U.S. consumer behavior in response to COVID-19 pandemic, we're not providing full 2020 guidance at this time. Instead, we would like to provide our sales outlook for the second quarter as well as directional commentary on our view for the remainder of the year. For the second quarter, we expect net revenue to decline between mid- to high-single digits versus prior year. This assumes high single-digit growth in our global e-commerce business offset by declines in our Outfitters and retail businesses. We expect to see continued recovery in the back half of the year, although at varying paces across our segments. We expect global e-commerce trends to remain strong and our retail stores to open by the end of June and ramp up to normalized levels by the end of the year. We expect a slower recovery in our Outfitter business, specifically in our large national accounts and to a lesser extent, our small- and medium-sized businesses. As a reminder, we'll be lapping the largest portion approximately $40 million of our American Airlines launch in the fourth quarter. Turning to gross margin. We expect pressure to continue into the second quarter due to industry-wide aggressive promotions, as competitors take steps to reduce their excess inventory. We expect our gross margin rate to be less pressured in the back half of the year, due to our strong performing e-commerce business and our healthy inventory position. Lastly, we expect that our continued focus on managing our operating expenses will return our SG&A rate to historical percentages for the remainder of the year. This outlook does not incorporate a potential second wave of COVID-19 and additional government-mandated closures. And with that I'll turn the call over to Jerome to discuss the progress on our core growth strategies in our longer-term positioning.

Thanks, Jim. While this is a highly unprecedented environment, we believe there is opportunity for us to emerge stronger on the other side of this crisis. Despite focusing on and responding to the crisis, we continue to make progress in building on our key strategies. The economic challenges and uncertainties we are seeing today are only accelerating the secular changes that have been evolving across the retail landscape over the past 10 years. The four core strategies we established a few years ago remain true today, and we will continue to be guided by them. These include getting the product right; being a digitally driven company; implementing a unit channel distribution strategy; and continue enhancing our infrastructure and process. With respect to our product, we remain focused on owning the water, owning the weather, layers, layers, layers, and we fit everybody. We have seen this strategy continue to resonate with our customers, which has only further accelerated in this environment. We made meaningful enhancements to our product offering over the past few years by improving our mix, quality and styles to more closely reflect our customer. We are also increasingly leveraging our data capabilities to define our product offering and capture the shifting customer trends. An example of this is our casual comfort offering, which we have been building upon over the past few seasons. We will continue to emphasize our casual comfort aesthetic in our fall assortment, which we believe will resonate as we expect people to continue to work from home. Within digital, data remains an important cornerstone in informing our decisions. We are expanding our comprehensive database to build out our consumer insight capabilities, which we are leveraging across our organization. Our mobile experience remains a priority. We know that we need to be where the customer is shopping. We have seen the customer shifting their shopping preferences to this channel over the past few years. We are continuing to upgrade our mobile experience by increasing the speed of navigation, checkout and payment options, among others. While we are seeing a higher mix of online shopping to PCs, which we attribute to work-from-home policies, we expect mobile to remain the preferred shopping channel longer term. We remained focused on improving and refining our approach to our customer file. As our customer database grows, we are able to improve our algorithms to enhance our predictive capabilities. We use these insights to drive repeat purchases from our existing and new customers. As I mentioned earlier, our new customer file increased in April and we will continue to leverage our data to identify and pursue opportunities to expand our reach. At the same time, we remain committed to loving our current customer by providing the product quality and value they desire. In terms of our marketing spend, we are maintaining our flexibility to better align with the current soft consumer environment. We have significant variability in our digital spend and our catalog, albeit to a lesser extent. This flexibility has allowed us to take advantage of select opportunities, particularly on the digital side. We also continue to benefit from our strategies in the online searches and media initiatives. During the quarter, we launched our new marketing campaign, Let's Get Comfy, which highlights our comfort-driven offerings. This was a big initiative for us this spring, and we will accelerate this messaging as we leverage social media channels in order to make the Lands' End brands synonymous with comfort. We will carry this messaging into fall and holiday. With respect to our promotional and markdown strategy, we are committed to maintaining a disciplined approach. However, we have the ability to mitigate clearance markdowns, with half of our current spring/summer inventory comprised of basic styles. We are continuing to test and learn from our AI, where we have already seen more effective and profitable promotional and markdown cadences. In March, we implemented a number of tests to better understand customer behavior in this environment. We attribute the growth in U.S. e-commerce for April, partially to the application of learnings from these tests. As we continue to test and learn, we will improve our database, which will enhance our understanding of customer motivations. In light of the Lands' End team's demonstrated ability to listen to the customer react as they embraced let's get comfy and a stable strong converting website, I am pleased to announce the creation of the Lands' End marketplace. As a digital platform, Lands' End plans to open up our website to third-party sellers and brands who have a product offering, which is in line with exactly what our customer tells us they love, comfy. We are in the process of on-boarding several third-party sellers with an aim to add approximately a dozen in time for holiday peak. This July landsend.com will celebrate its 25th anniversary. We were innovators in the e-commerce space in 1995. And in 2020, we are pleased to push into this next era of digital innovation. Our uni-channel distribution strategy remains more important than ever as we look to serve our customer, wherever, whenever and however they want to shop our brand. We have been continuing to improve our shopping experience in both digital and physical channels. Our brick-and-mortar stores are just beginning to reopen and we believe stores will remain a component of the customer's apparel shopping experience longer term. We view these locations as extensions of our e-commerce business, as well as longer-term drivers of growth. These stores allow us to provide convenience and personalized service to our customers. We opened one store in February and we'll open five additional stores this year. We have paused further store openings for the foreseeable future. As we look at our long-term plans, we will monitor customer buying behavior to determine our retail expansion strategy. Beyond our own channels, we are constantly looking for ways to increase our customer reach through marketplaces, strategic collaborations and partnerships. We have been pleased with our distribution at Amazon where over 75% of purchases have been driven by either new or lapsed customers. We're excited about our fall launch at Kohl's where we will provide our full offering on Kohls.com and a limited seasonal assortment in 150 of its stores. Given that the Kohl's customer shares many similar demographic features as our customer, we have an opportunity to expand our reach. We're also continuing to explore licensing in select categories, such as footwear and men's suiting where we see benefits through a partnership. We also recently introduced swimwear collaboration with Reese Witherspoon's apparel brand Draper James and are pleased with how those products have been performing. We will continue to explore similar collaborations, which we see as compelling opportunities to drive incremental growth and brand awareness. These initiatives remain in early stages but they provide new and exciting opportunities for us to better leverage our iconic American brand heritage, as well as our production capabilities as we build growth longer term. We will continue to update you with our progress as it evolves. Lastly, turning now to our business process and infrastructure. We remain committed to driving profitable top line growth and leveraging our SG&A expense over the long-term. While 2020 will likely be a financial step back for our company, we know that the core strategies we have focused on and instilled in our company over the past few years will leave us better positioned longer term. The consumer landscape has drastically shifted and we expect many of these changes will remain once the crisis has passed. Looking at our long-term growth outlook. Heading into 2020, we were on track to achieve our 2022 targets based on the strength of our performance. While we remain highly confident in our ability to meet these targets given the challenges presented by COVID-19, we now expect these objectives will take longer to achieve than we initially planned. With our resilient e-commerce business and casual and value-oriented product assortments combined with our lean operating structure and liquidity, we are uniquely positioned to capitalize on the opportunities ahead. While we expect the environment to remain difficult, we are excited about the future of Lands' End. With that, we'll open it up to questions.

[Operator Instructions] Our first question comes from Alex Fuhrman with Craig-Hallum Capital.

Great. Thank very much for taking my question. We've got certainly quite an accomplishment that you're able to get the e-commerce business back to such nice growth here in the month of May with everything that's been going on in the world. I would love it if you could kind of walk us through a little bit the pace of business. It sounds like things obviously took a big step back in March and have been recovering. Since then can you give us a sense of kind of how the business has been recovering on a category-by-category basis? I know swimwear is typically a big category for you in the spring. Obviously, that could have been pressured with just travel being hampered and town pools and things like that not opening. I would love to just get -- if you could give us a sense of kind of the different lines of your e-commerce business kind of what's been coming back first? What's been coming back fastest and how that looks today?

Thanks for the question Alex. Much appreciated. As far as e-commerce has gone it's been interesting for the quarter. Overall, we had a pretty good start to the year. February looked really good for us. We were up double-digits overall. Even our retail comps were up 14%. But as we went into March, demand slowed somewhat in week 1 but then weeks two through five were really tough for us. And then we started to see e-commerce bounce back in April. Slow in the beginning of the month. We saw pretty decent single-digit increases towards the back part of April. And then into May it's been solid double digits. So, we are pretty happy about the outlook on direct-to-consumer. What's been selling is swimwear still a very big part of our business. Though the best sellers have changed a little bit, it's gone a little bit more out of exact swimsuits and into cover-ups and t-shirts and UPF protection. But some of the outstanding product categories that we've seen knitwear which really lends itself to our let's get comfy marketing campaign has been fantastic both in men's and women's. We've also seen increases in sleepwear, loungewear, activewear and home categories have been all high double-digit increases for us. So, we're still seeing the trends good into June. But it will be interesting to see as other companies start to open up their store networks how that affects e-commerce we're still a little bit unsure. So, we're still cautious.

Sure. No that makes a lot of sense. And then I guess a follow-up question just on that caution. Just looking at the release and hearing your comments in the prepared remarks it sounds like you're significantly going to be reducing your inventory receipts coming for the fall and holiday. Can you give us a sense of how much you'll be reducing? What categories are going to be reduced the most? And just thinking about your inventory that you have currently or had at the end of April can you give us a sense of how current that is and what actions you might need to take to right-size that?

Yes sure Alex. Actually I think we feel pretty good about where we are from an inventory perspective. We finished the first quarter obviously with about $60 million of inventory greater than last year. But remember about half of that is from the new American Airlines business. So, the other half is the direct result of that short-term consumer drop that we saw mostly in March directly related to the pandemic. But with these improved trends that we've seen in May, with the strong performance that we're forecasting for the second quarter and for the rest of the year, we've made the necessary adjustments from an open/buy perspective. And right now we feel really comfortable that we're going to be able to quickly return to a normalized level of inventory.

That’s great, appreciate that. Thanks very much.

Thank you. Our next question comes from Steve Marotta with CL King & Associates.

Good morning, Jerome and Jim.

Good morning Steve.

Can you talk a little bit about customer acquisition costs? You alluded to it in the call that that's probably tracking relatively favorably right now with consumers migrating online. Have you -- and I know you don't disclose the number specifically, but is it accurate that that number is on the decline versus last year?

Generally yes. What we've seen over the course of the first quarter and it's changed a little bit depending on the month or the week, but customer acquisition costs have been a little less expensive for us based upon traffic on the web. So we've tried to take advantage of it. And what we've seen even for the full quarter where we saw a slight decline in our overall file, we saw low double-digit increases in new customer acquisition in April. And then in May, we've seen high double-digit increases there. So we feel pretty good about picking up new customers and picking up market share. That seems to be working for us both domestically and internationally.

That's helpful. Will commodity costs, sourcing costs benefit COGS in future quarters? And if so when would you expect that benefit to manifest itself in the income statement?

Well, if we did see any benefits you're probably looking at probably next spring before you'd really see it. Right now most of those costs were already committed for our short-term buys through the rest of this year.

That's helpful. As far as the Outfitter business goes and clearly travel is challenged, are there other business segments that you can potentially capitalize on, like healthcare for instance? Are you pitching larger contracts in other segments that might be benefiting or might not have the headwinds that travel does right now?

In the Outfitter business -- basically there's three parts to that business. About 1/3 of it is our national accounts, 1/3 of it is small and midsized businesses, and another 1/3 is school. So when you look at the national accounts yes we skew a little bit heavy in travel particularly with Delta and American. So we think that business is going to take a little bit longer to recover. For small and mid, we're pretty active on looking at new customers out there. And you'll see probably a turnover of some small and midsized businesses which will have a more difficult time and others which will have pent-up demand. Again, we think that will take a little bit longer to recover, but we've got a better outlook for small and midsized. And school is very dependent on what happens with schools going back into the fall. But so far on a per customer basis, we've seen the same trends that we've seen in the past in school. So as long as that begins to start to open up in the fall, I think that business will bounce back pretty quick.

That's helpful. Jim I have one housekeeping question as it pertains to interest expense given what you've drawn down. Will -- do you expect interest expense to vary significantly in the second, third or fourth quarters of this year than it did in the first quarter?

No. I think you'll have the normal curve that you saw in prior years going into the back. You'll obviously have borrowings as we go into our peak season. But as you said we -- with the stronger performance that we saw in May and with what we're projecting in the second quarter we felt very comfortable paying the $25 million down against that $75 million that we had drawn in the first quarter.

Okay, perfect. Thank you very much.

Thank you.

Ladies and gentlemen this concludes the Q&A portion of today's conference call and it does conclude the program for today. So you may all disconnect and have a wonderful day.