Vince Holding Corp. (VNCE) Q2 2015 Earnings Report, Transcript and Summary

Good afternoon. My name is Mike, and I will be your conference operator today. At this time, I would like to welcome everyone to the Q2 fiscal 2015 earnings call for Vince LLC. [Operator Instructions] I will now turn the call over to Jennifer Poland, Vice President of Finance and Planning. You may begin your conference.

Thank you, Mike, and good morning, everyone. Welcome to our second quarter 2015 earnings conference call. I am Jennifer Poland, Vice President of Finance and Planning. Joining me today is Mark Brody, our Interim Chief Executive Officer; and David Stefko, our Interim Chief Financial Officer and Treasurer, who will be your speakers for today's call. Before we begin, let me remind you that certain statements made on this call may constitute forward-looking statements, which are subject to risks and uncertainties that could cause actual results to differ from those that we expect. Those risks and uncertainties are described in today's press release and in the company's SEC filings which are available on the company's web site. Investors should not assume that statements made during the call will remain operative at a later time and the company undertakes no obligation to update any information discussed on the call. In addition, in today's discussion, we are presenting our financial results in conformity with GAAP and on an adjusted basis. The adjusted results that we present today are non-GAAP measures. Discussions of these non-GAAP measures and reconciliations of them to the most comparable GAAP measures are included in today's press release and in related schedules which are available in the Investors section of our website at investors.vince.com. After our prepared comments, we will be available to take your questions for as long as time permits. Now, I'll turn the call over to Mark.

Thank you, Jennifer. And thank you everyone for joining us today to discuss our second quarter 2015 results. I'll begin with an update on the quarter and our revised outlook, followed by some comments on our near-term and long-term growth initiatives. Then, I'll turn it over to Dave for a more detailed review of the financials and outlook. First off, I am delighted to be serving as Interim CEO for Vince during this transition period. As many of you know, I have served on the Board of Vince since Sun Capital's original acquisition of Kellwood in 2008, and continue to believe that Vince is a powerful brand with tremendous long-term growth potential. I would also like to thank Jill Granoff, who has been very helpful in transitioning her responsibilities to me, following her resignation in July, and we wish her well in her future endeavors. I am also pleased that Dave Stefko has agreed to take on the role of Interim CFO and Treasurer, as we search for a new CEO and CFO. I have worked with Dave for four years at Sun Capital, and we are both extremely focused on improving the business, while also ensuring a smooth transition. Since I took on an interim executive management role at Vince in June, I have spent considerable time working the teams to gain a deeper understanding of their issues and strategies. Based on this work, I continue to believe that the overall strategy is the right one for the company, specifically enhancing our women's assortment, further developing our men's business, selectively opening new retail stores, leveraging e-commerce to drive awareness in sales, and broadening our international reach. However, to achieve these strategic goals, we do need to focus more than ever on improving the product and our operational performance as well as take corrective actions to protect and enhance the strength of the Vince brand. Vince has a strong team in place, who is passionate about the brand, and we are working closely with these individuals to take aggressive steps that will put us on the path to improved performance. In the area of product, which is paramount at Vince, while we continue to evolve and improve our lines, we are intently focused on creating exceptional products that are properly aligned with the styles most desired by our Vince customers. We also want to provide them with a beautiful fit and an improved balance of good, better, and best products in our assortment. As mentioned in our release in July, we are very excited about the addition of Livia Lee, as Senior Vice President of Merchandising. Livia brings a strong track record to Vince, and is off to a great start in the brief time she has been with the brand. In regards to improving our operational performance, our top priority is to focus on improving our inventory management. During the second quarter, we saw further weakness in our wholesale business, due to lower than expected sell-throughs and customer reorders, which significantly increased our inventory position. As a result, we wrote down current year product estimated net realizable value. In addition, our off-price customers reported high levels of inventory. Given our efforts to reduced sales to the off-price channel, we decided to dispose the vast majority of the prior-year product that was being allocated to this channel, which we believe is in the best long-term interest of our brand. Combined, these actions led to a $14.4 million write-down on excess inventory in each product. This measure should better position us to provide a consistent flow of newness to our department and specialty store partners, while enabling us to reduce our penetration in the off-price channel. We also took steps to ensure that sales, planning, and sourcing teams are fully aligned on all aspects of our inventory buys, with the goals of optimizing our full-price selling opportunities and delivering stronger gross margins. This will help us to facilitate improved inventory management by buying tighter upfront and create a more consistent flow of newness to our customers. In addition, we are exploring ways to shorten our product development cycle and improve efficiencies in the supply chain. As it relates to our outlook for the remainder of the year, given our recent performance as well as additional insights we have gained on our customer sell-throughs and inventory positions, we have reevaluated our second half outlook. We now expect further weakness in our wholesale channel above what was factored into our previous guidance. In our DTC channel, we are reducing our comp outlook to reflect softer selling trends. We also expect gross margin to be negatively impacted by increased discounting that we believe will be required. As a result, we are lowering our fiscal 2015 sales and earnings guidance. Dave will provide details on our updated guidance in his remarks. As I said earlier, we remain committed to executing the long-term growth strategy that has been laid out for the business. Let me now walk you through some of the progress we are making on our key growth initiatives. We are working to further develop our handbag business. As mentioned in our prior call, we took feedback from our customers from our initial launch, and improved product functionality and adjusted price points to be more competitive with our offerings. These changes were introduced with our fall collection, and while we are encouraged by the improved sell-throughs, we still see opportunity to improve our handbag offering and drive incremental sales in the category. We also continue to grow our handbag distribution, and our fall 2015 handbag collection will be presented in 180 doors as compared to 45 doors with the initial launch. Our licensed footwear business continues to perform well. With our fall 2015 collection, we are on track to expand our women's footwear to over 500 doors and our men's footwear to nearly 150 doors. As a result of the strong consumer demand, we are dedicating more space in our new retail stores to showcase the expanded footwear assortment. We are also highlighting this expanded assortment digitally on our website to drive further growth. In addition, we recently made the decision mutually with our licensing partner to exit the kid's line, as this is not a core business for Vince. And we felt it was productive to focus on other areas, where we see bigger growth opportunities. We are also focused on continuing to grow the direct-to-consumer business through both, store openings and expansion of the e-commerce channel. We've opened seven stores year-to-date and plan to open an additional four stores by the end of fiscal 2015. Overall, we continue to be pleased with the performance of our new stores. International expansion also remains a significant part of our growth strategy. We are focused on increasing penetration in key markets and growing our international business, which is approximately 10% of total sales. This past quarter, we hired a highly experienced Vice President of International to help us drive this growth. At the end of the quarter, we opened new shop locations in Printemps, Selfridges, Liberty, and Harvey Nichols to showcase the women's product line. In conclusion, there is a lot of work to be done to get business back on track, and we are diligently working to find a new CEO and CFO for the business. While we are undertaking numerous steps to drive improved performance, we expect the pressures we are facing in the wholesale channel will take time to correct, and expect these pressures to continue as we head into fiscal 2016. That said, we are committed to taking additional aggressive measures to get the company on the right path to deliver consistent, long-term growth, while we continue to move forward with our multiple strategic growth opportunities. With that, I'll turn it over to Dave to review our financial performance.

Thank you, Mark. For the second quarter, net sales decreased 10.4% to $80 million versus $89.3 million in the prior-year period. Our wholesale channel sales were down 21.6% to $58.3 million, due to a decline in our U.S. wholesale segment. Our direct-to-consumer segment sales increased 44.7% to $21.7 million in the second quarter, as we added 11 new stores since the second quarter of last year and grew our comparable store sales including e-commerce by 13.4%. Our comparable stores sales increase was driven by growth in both, our bricks-and-mortar stores and our e-commerce business. While our direct-to-consumer business showed growth during the period, margins were pressured by increased promotional activity. Moving on to profitability. Gross profit in the second quarter was $20.8 million or 26% of sales, which includes a $14.4 million charge associated with the write-down of excess inventory and aged product. Excluding the inventory write-down, gross profit was $35.2 million or 44% of net sales. This compares to gross profit of $44 million or 49.3% of sales in the second quarter of fiscal 2014. The adjusted gross margin decline was due to the deleverage on lower wholesale sales and increased returns and allowances. Selling, general and administrative expenses in the quarter were $27.3 million or 34.2% of sales compared to $24.1 million or 27% of sales for the second quarter of last year. SG&A also included net management transition cost, inclusive of severance and related cost of $2.9 million. Excluding these costs, SG&A would have been 30.6% of net sales in the quarter. Excluding the secondary offering cost, SG&A as a percent of sales was 26.3% in the second quarter of fiscal 2014. The increase in SG&A was largely driven by store labor and occupancy cost, associated with 11 new store openings since the end of the second quarter of fiscal 2014. The increase in SG&A as a percent of sales was attributable to lower wholesale sales. The resulting operating loss for the quarter was $6.5 million. This compares to operating income of $19.9 million for the second quarter of last year. Excluding the inventory write-down and management transition cost, operating income was $10.8 million or 13.5% of net sales. Excluding the secondary offering cost, operating income for the second quarter of fiscal 2014 was $20.5 million or 23% of net sales. Net loss for the second quarter was $5 million compared to net income of $10.5 million in the second quarter of last year. Diluted loss per share was $0.14 compared to diluted earnings per share for the prior year's second quarter of $0.27. Excluding the inventory write-down and net management transition cost, net income for the second quarter was $5.2 million or $0.14 per diluted share. Excluding the secondary offering cost, net income for the second quarter of fiscal 2014 was $10.8 million or $0.28 per diluted share. Now, moving on to the balance sheet. Our debt increased by $1.8 million to $84.8 million during the quarter. And year-to-date, we have made $12.5 million of voluntary payments under our term loan facility, which were financed from borrowings on our revolving credit facility. Our debt leverage ratio at the end of the second quarter of fiscal 2015 was 1.6x on a reported basis and 1.2x on an adjusted basis. Our debt-to-leverage ratio at the end of the second quarter of fiscal 2014 was 2.1x on both reported and an adjusted basis. At the end of the second quarter we had $27.9 million of availability remaining under our revolving credit facility. I also want to note, we had expected to make a payment to an affiliate of Sun Capital under our Tax Receivable Agreement of $22.8 million, plus accrued interest in the fourth quarter. As a result of lower than expected cash from operations, due to weaker than projected performance and the level of projected availability under company's revolving credit facility, we have entered into an amendment to the agreement to postpone this payment to September 15, 2016. With this change to the TRA, we believe that we will have sufficient liquidity for the next 12 months. Inventory at the end of the quarter was $45.6 million compared to $58.6 million at last year's second quarter. The year-over-year decrease was primarily driven by the increase in inventory reserves, partially offset by the addition of 11 new retail stores since the second quarter of last year and incremental handbag inventory. Capital expenditures for the quarter totaled $4.8 million, of which $2.4 million was attributable to new stores and shop-in-shop build-outs, and $2.4 million was related to infrastructure cost associated with our IT migration project and e-commerce platform migration. We signed seven leases for stores that we expect to open in the remainder of fiscal year '15 and early 2016, with several other leases in various stages of negotiation. As of today, September 3, the company has 44 stores in the U.S., including 32 full-price stores and 12 outlet stores. In addition, we are continuing to invest in the business to build a foundation to support the company's long-term growth. One of the larger initiatives discussed in prior calls was the implementation of our new IT systems, as we migrate away from Kellwood support structure. The IT conversion was planned for the later half of 2015. However, we defer this project due to competing priorities within the business. This delay will also defer the implementation of our new e-commerce platform. However, we feel confident that our current platform will continue to support the growth until the new platform is implemented. I also wanted to note that as we announced in today's press release, the Board of Directors and majority stockholders have approved a one-time stock option exchange program to permit the company to cancel certain stock options held by some of its employees and executive officers in exchange for new replacement options. If all options are exchanged, this option exchange program will impact roughly 445,000 shares. Also approved was an amendment to the company's 2013 employee stock purchase plan to allow the issuance of shares of common stock under the plan at a discount of 10% to the market price of such shares at the end of the offer period. Now, turning to our updated outlook for fiscal year '15. The outlook we provided in the first quarter assumed a decrease in our domestic wholesale business and high single-digit comps, including e-commerce in our DTC channel. In addition, we assume that all distribution channels will achieve double-digit growth rates with the exception of domestic wholesale. We also expected to see gross margin expansion for the year. Note that our updated guidance for 2015 is adjusted to exclude charges associated with the write-down of excess inventory and aged product to expected net realizable value, and the net management transition costs related to executive severance and related costs reported in the second quarter of fiscal 2015. The guidance also excludes potential additional costs related to the ongoing management transition. We are now forecasting total sales for the year of $285 million to $295 million. The reduced sales expectation is primarily the result of the aforementioned issues in domestic wholesale segment, largely in the off-price channel as well as the recent softer selling trends expected in our direct-to-consumer channel. Additionally, this incorporate sales from the opening of 11 new retail stores and comparable sales growth, inclusive of e-commerce sales in the mid single-digit range. This is below our previous guidance of high single-digit comp growth. Also note, that due to the recent softer selling trends and our direct-to-consumer channel and the shift in the timing of certain promotions from the third quarter to the fourth quarter, we expect our third quarter comp could be in the low-to-mid single-digit negative range. Additionally, we now expect gross margin to decrease by 140 basis points to 190 basis points as compared to last year, due primarily to increased markdowns across segments and expected assistance to wholesales partners. This excludes the $14.4 million inventory write-down in the second quarter of 2015. Adjusted selling, general and administrative expenses are expected to increase by $13 million to $15 million as compared to last year or by 945 basis points to 990 basis points as a percent of sales over the adjusted fiscal 2014 rate of 28.2%, driven primarily by growth in our retail channel from new store openings. This excludes the impact of ongoing net executive transition cost of approximately $3.9 million in 2015, including the $2.9 million incurred in the second quarter and $600,000 for secondary offering cost incurred in 2014. As a result of these revised expectations, we now expect diluted earnings per share for the year to be between $0.31 and $0.37 per share, excluding the aforementioned adjustments. Finally, we continue to expect our capital expenditures to be in the $18 million to $20 million range for fiscal year '15. Capital expenditure investments will be driven by new store openings and incremental shop-in-shops as well as our new Paris showroom, LA design studio and IT investments. This concludes my comments regarding our second quarter financial performance and outlook for the remainder of fiscal year 2015. We'll now open the call to questions. Operator?

[Operator Instruction] Your first question is from Matthew Boss from JPMorgan.

It's Christina Brathwaite on from Matt. So with the reset of the wholesale distribution channel behind us, what do you see as a normalized wholesale growth rate? And what do you see is the target level of wholesale mix versus retail longer-term?

First off, the mix that we have right now between our men's and women's business is about 84/13 [ph]. And overtime, we look to see that to grow about 80/20, 75/25. And as we are looking to longer-term growth rates, that's getting a bit into our 2016 guidance and we're really not there at this point in time to put forth guidance for '16. So it something we're really going to be looking a lot at it the rest of the year, and when we're ready to do that at the end of the year, we'll give guidance on that.

I guess, additionally, what's kind of the best way to think about store growth going forward, and you guided to some more stores this year. But any thoughts probably on the growth and any concern with the store productivity just given the environment right now?

We've been opening in general about eight to 10 stores a year. And we've talked previously about having kind of a 100 stores is our target. I mean, ultimately, the number of stores we're going to open is going to be dependent on how many good stores we can open, because we really look for stores that have good financial returns. So if it ultimately turns out there is a 120 stores, we're going to look to do that. If it's 80, it's 80. But we're going to look at it very economically. The stores we have opened in general are performing to our expectations, so we're pleased with that. We have had a little bit of issue in our outlets. And we talked some about some of the issues in our outlet channel, and we're working to address our outlets. So we'll be evaluating really that outlet and full-price retail store ratio going forward.

Your next question is from Mark Altschwager with Robert W. Baird.

Just following-up again on the lower wholesale orders, could you just talk about the trends that your retail partners are seeing at POS for the Vince brand? And I think last quarter, management talked about some of the missteps in the tops business specifically, but is the softness now more broad-based in that or just the magnitude of the pullback maybe increasing those categories? And then additionally, I think you said, you expect the pressures to continue into fiscal '16. Is there a way to back out the impact of all the inventory build in that channel over the last couple of years and just ascertain a base level of revenue for the wholesale channel?

I guess, first off, when you think about how things have happened itself, basically sell-through at POS at our customers, it's kind of a story of women's versus men's. We have said how we see men's as a big area of growth. Men's in the first half of the year has been up mid-double digits and has been a nice area of growth for us. It's really women's that's been hurting us, and they've been down at POS about mid-single digits. As we're really looking to get growth from some smaller categories that are working, which is we talked about in previous calls are mixture of good, better, and best products, and that has a lot of that entry-level products that's in the good category, and that's been some areas that have been missing, which is really what we're looking to really fix going forward and improve that distortion of product. Probably not going to be till the latter half of next year, and we can get that good, better, best allocation back more in line to where we historically have been. But beyond that -- and what we've said about being kind of tough in the first half of the year of '16, but we don't have much guidance beyond that. Did that answer you question?

That is helpful, yes. And then just secondly, is there a way to think about kind of a base revenue level for the wholesale channel?

Well, I guess, that would be kind of getting into what we foresee is guidance for '16. And so we're not really there to, at this point now, to start talking about that.

And maybe just switching gears real quick. On the DTC side, comps accelerated in the quarter. It sounds like you're expecting that to reverse quite a bit in Q3. Could you just elaborate a little bit more on what you're seeing there and what's driving that?

So one of the things that's impacting our comps or how we're projecting our comps to be in the second half of the year is a real focus on reducing our promotional capabilities. So for example, last year we had a two-tiered promo that we ran for 25 days through our DTC channel. We significantly knocked that down for this year, and that's going to have a negative impact on our comps here in Q3. But we also think it's the right thing for the brand. You have to become less promotional. It's what our wholesale full-price customer accounts want from us as well, and we think it's great for the brand and we'll enhance more full-price selling of our products.

The next question is from Jeff Van Sinderen with B. Riley.

I wonder if maybe you could share a little more detail on the retail metrics just for your own stores. Just wondering, I know, you said both brick-and-mortar and e-com were positive. And I was just wondering if you could maybe break that out for us for the quarter, maybe give us metrics like AUR, UPT, ATV [ph], I'm just trying to get a sense of that, transactions, traffic, that sort of thing. And then maybe also, I know you talked about the recent softening in the direct channel. Are you seeing that more in your brick-and-mortar stores? Are you seeing that in e-com as well? Maybe we can start there.

So you got me with the few questions all in that whole thing there. So I'll try to address them all. So first off, we don't separate our metrics between our e-commerce and our brick-and-mortar stores. We basically consolidate them. I will say, U.S., for example, how are some statistics, like AURs, so overall were pretty flat. They were a little stronger actually in our e-commerce than our brick-and-mortar. And brick-and-mortar was like more impacted, because our AURs in our outlets were actually a little lower. We've been increasing some of our MFO product, which has some lower price points and those have actually been selling pretty well.

And then, well, I guess I can't, since you're not really going to break that out. Let me ask you this. As far as the wholesale segment, if we can shift to that for a minute, maybe you can just give us a sense of what you're seeing in spring order book trends. I'm not asking you to give guidance for next year, but in terms of order of magnitude what you're seeing there?

Spring, that will be, I guess, somewhat an easy question to answer, because we haven't gone to market yet. That's going to be happening over the next few weeks and we'll be certainly watching that closely and working with our customers on it. And in some of my earlier remarks that I had, we talked about 2016 where we expect kind of the start of the year to still be challenged. And that's really us just looking at how our products been selling through and really just working on the assumption that our wholesale accounts are going to kind of be buying us into how we've been selling that we would expect to see some decreases year-over-year, as we head into the beginning of '16. But we're going to really know that a lot better here, after we get through market the next few weeks.

The next question is from Richard Jaffe with Stifel.

If you could go sort of back to the beginning and talk about Livia's contribution, the timing for contribution, and maybe a sense of what she is thinking? She has been there a bit. She has had a chance to presumably meet everybody, get a look of what's in the pipeline, and reflect little bit on what needs to be done in the timing. So if you could sort of take us from her perspective and the timing for the impact as well?

First up, as I said in my remarks, and we even issued a press release when Livia started. We're really excited to have Livia on Board. She has got a track record as a merchant. And this really I think going to be a great addition to the team and really develop great working relationships with everybody here so far. As far as starting to feel the impact of what she can do on the merchant front, just given the product development cycle that we have, it's probably going to be more to the latter half next year, like fall of '16 product that we can really start seeing some impact of her contributions.

So just to be clear, so the team is intact. The big change is just Livia and now she is comfortable with her soldiers, the team, is that correct?

Yes, it's just same team that she is just now leading the merchant function, which is really a position we needed and are glad to have her there for.

And the design counterpart; is there any changes anticipated for that side of the equation?

No, not at this time. They're working in collaboration together on our -- we have designer for men's and designer for women's and handbags and they all work in collaboration with Livia.

I guess, I understand the need for Livia and I share your excitement about what she can bring to table here. But I'm concerned that if the product has been uninspiring for several quarters, that the design team, which is responsible for that product now has have far greater responsibility, but they got it wrong once. What's going to change to get them inspired in a new direction, I'm just trying to understand that.

As far as we were talking about Livia, this is really going to help them kind of hone in on the right product assortments and make sure we stay in the guard rails of who are target customer is. I mean, I think when I talked to Livia about moving out of the good, better, best range, probably got a bit too aspirational, got a bit too much better and best product, and not enough good, and that's I think an area where Livia is going to be able to contribute to them.

Then next question in from Erinn Murphy with Piper Jaffray.

This is Christof Fischer on for Erinn. I wonder if you guys could talk a little bit more broadly, just on kind of category trends that you guys are seeing, maybe over the past couple of months and how you guys think about that going forward. In particular, I'd be interested to hear your guys on kind of handbag and the footwear category.

I guess first you asked about handbag and footwear, so as it relates to handbags, we mentioned that we launched it last year, we had a make some adjustments in some of the functionality of the handbags and that's in place, but frankly we continue to evolve that and look to keep improving it. We also adjusted the price points of the bags, so that happened this past season as well. You put those together, we start to see some improved sell-throughs on those handbags, but still not where we wanted to be, but frankly we're not even a full year into it yet, and so we're still hopeful, but it's frankly still small part of our business, so still got a lot of potential. Footwear, that performs very strong. Our women's continues to grow quite well. And we launch men's in the latter part of last year. So that's been helping our comps this year and it's been a good category for us. Also, men's continues to grow, and really bottoms and outerwear, both in men's and women's is really an area of growth for us.

And then maybe as a follow-up, I'm wondering if you guys could give anymore granularity on kind of the outlook performance versus full-pricing, and your outlets was little bit softer. But any kind of thoughts how you guys think about that going forward or what kind of strategies you guys have in place to kind of put that into the soft?

We haven't broken out separately full-price or outlets. Frankly, our DTC is put together as one, including e-commerce. I did mention a little bit ago about the softness in outlets, and we attribute that really to a couple of things, but traffic is certainly one. We've seen some traffic challenges in our outlets. Some of it is just things you hear about declines in international travel and visitors and things like that. How we're combating it, is we're looking to put in some selective marketing campaigns, not big money, but enough to start driving some traffic hopefully to our outlets. We're also working on improving our promotional cadence within the outlets as well to make sure we're price competitive, but really have good sharp prices for our product and move out the excess product when we need to.

The next question is from Joan Payson from Barclays.

Could you talk a little bit about your long-term operating margin target? Did that changed at all? And at what point you would expect margins to begin expanding again?

Right now as we sit here today, I mean, we still feel like the long-term strategies of Vince are still intact. We're not looking to change any of our strategies. We're looking to hopefully execute on them better. And with all that, we're not at the point where we're saying we're looking out to long-term guidance directionally or saying our operating margins should be different number, we're not really to that point yet. But our operating margin is still, we think could be quite strong.

And then as you're beginning to focus on rightsizing parts of the North American business, does that correspond to any of the international expansion strategy.

Not at all, we actually just recently hired an individual here in July to be our Vice President of International [ph] Craig Samuelson. He is got a wealth of a experience in the international area, particularly in Asia, and he is been traveling all over the world in his first month and a half. So I think he is going to bring nice contribution to our scenario.

The next question is from Lindsay Drucker Mann from Goldman Sachs.

I wanted to just follow-up on maybe a view as the team has come in and sort of tried to get a better handle on how business shifted as dramatically as it did, going back from a year ago to today. You talked about perhaps pursuing the higher price points too aggressively and collecting some of the entry of the product. I was curious if there was anything else that you could identify as miss-steps that could have been avoided to have maintained business momentum or if some of this is just sort of broader category weakness that came home to roost. Maybe just some perspective on how things deteriorated?

I mean, I think ultimately it's being true to the core of what the Vince customer is, and the fabric, the hand feels that our Vince customers are looking for. I mean we got a little broad in that, and I think we need to focus a little more on that. I think more of our everyday essential type products available to them, and once again having a high penetration of great price product in the good category.

And then maybe just following-up on Joan's question. As we think about your margin structure versus peers, you still do have businesses operated at very high margins, and it's typically been a function of I think OpEx as a percent of sales rather than gross margins. I'm wondering if you feel like those areas you've underinvested and where we need to beef up some of the investment and could see some deleverage there?

When we look at the business, I mean, obviously we've had some challenges in sales right now, a lot of it coming from the off-price channel frankly. That's probably about half of our drop that we're seeing in our reduced sales guidance. So you that is in area where frankly we have much investment or need to have a lot of investment. Our investment is really in the other areas of the business. Our wholesale sales team, our operations team, our design, technical teams. And it's a great group of people we have there today, and we're always looking to strengthen that team. We're frankly right now looking at adding regional sales specialist in our wholesale team around the country to better serve our wholesale accounts. And so we're going to continued to invest in that, because it's frankly a great return.

There are no further questions at this time. I will turn the call back over to the presenters. End of Q&A

Thanks everybody for joining the call today. And look forward to talking to you again next quarter.