Vince Holding Corp. (VNCE) Q2 2016 Earnings Report, Transcript and Summary

Good afternoon. My name is Christine and I will be your conference operator today. At this time, I would like to welcome everyone to the Vince Holding Corp. Q2 2016 Earnings Results Conference Call. [Operator Instructions] Thank you. Jean Fontana of ICR, you may begin your conference.

Thank you and good afternoon everyone. Welcome to Vince Holding second quarter fiscal 2016 earnings conference call. Also in the call today is Brendan Hoffman, Chief Executive Officer and Dave Stefko, Chief Financial Officer. 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 the company 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 website. 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, the company is presenting its financial results in conformity with GAAP and on an adjusted basis. The adjusted results that the company presents today are non-GAAP measures. Discussions of these non-GAAP measures and the reconciliations of them to their most comparable GAAP measures are included in today’s press release and related schedules which are available in the Investors section of the company’s website at investors.vince.com. After the prepared comments, management will be available to take your questions for as long as time permits. Now, I will turn the call over to Brendan.

Thank you, Jean and thanks everyone for joining us today. Overall, our second quarter results came in as expected. We planned our wholesale business down with reduced inventory levels in both the full-price and off-price channels. As we discussed in our last call as part of our transition to our new product line, we planned a significant reduction in shipments of our work pre-fall line as we reduced the size of this collection by approximately half. We did see an improved response among our wholesale partners despite lower inventory levels, which is evidenced by a sequential acceleration and sell-through. Importantly, we have maintained our leadership position in the department stores, which gives us further confidence heading into the back half of the year. Similar to our wholesale channel, our retail comparable sales were impacted by the planned reduction and inventory. The elimination of one of the pre-fall deliveries resulted in a meaningful change in our store presentation. While this was not ideal, we believe it was absolutely the proper thing to do to reset the brand. We also took a more strategic approach to our promotional strategy both in the wholesale and retail channels just having short-term impact in our top line, but more importantly will help protect our brand. So far this year, we have opened 6 stores, including our two most recent locations, which were opened last month in Fashion Valley and King of Prussia. In addition, we are selectively identifying new locations to open in the first half of 2017. We remain excited about the potential for both our existing as well as our new stores. We did very well during the Nordstrom anniversary sale in July and we are pleased with the strong response in both women’s and men’s. This is an encouraging sign as this product is the first to incorporate the influence of Rea and Christopher. Over the last few weeks, the women’s and men’s collections from our founders have been hitting the floors. While product was slightly delayed in shipping to our partners due to our distribution center migration, our floors are now set and we are cautiously encouraged by the initial response. As we head into fall and cooler weather, we expect to get a much better sense of consumer reaction to the product. I also want to remind you that given the timing of Rea and Christopher’s return, it will not be until our holiday delivery in the fourth quarter that you will see the on-floor assortment fully represent the look and feel of the brand. To support the product launch, we are working closely with our wholesale accounts. Christopher has been personally visiting our major partners around the country to educate the selling associates and help build excitement around the new line. This has been a true grassroots effort as we work account by account to ensure that the product is optimally presented and marketed. Our largest partners have been very supportive in helping re-launch the brand, including showcasing us in their windows on their e-commerce homepages and double exposing us within the stores. We are already analyzing what’s working well and using these learnings as we go forward to improve our overall brand experience and identify growth opportunities. That said our partners remain conservative with their initial buys given the current retail environment, which is what we expected. However, we have been more efficient with our supply chain and maintaining inventory levels that are enabling us to more nimble and capture additional orders as we see strong sell-throughs. We completed the transition of our e-commerce site to Demandware in July and have continued to see strong performance in this business. The site looks fantastic. We now have added functionality which will further enhance our customer experience. We are incredibly pleased with the elevated look and feel on our website as well as the way that has translated to our social media outreach as we work to reconnect and reengage customers with the Vince brand and recapture the DNA. I would note that the product changeover for fall was delayed a few weeks by the migration to our new distribution center, which was not entirely unexpected with the project of this nature. It is largely behind us now. Importantly, our infrastructure, e-commerce site and POS system in our stores are now all live. We are still working and upgrading the systems for our wholesale business and back-office functions and expect these transitions to be substantially completed by year end. Overall, we are where we expected to be as we head into the back half of the year. Our new fall collection is in stores and we are even more excited for a holiday product, which will fully embody the Vince DNA that Rea and Christopher created. We are working hard to support the launch both in our wholesale business and our retail stores and are pleased by the reaction from the associates as they have reset their floors with the new product over the last couple of weeks. Finally, we are making the necessary infrastructure, operational and strategic investments to support the business over the long-term. As we look to the remainder of the year, we believe that we are well positioned to reach our sales and earnings goals. Now, I will turn it over to Dave to review our financial performance. Dave?

Thank you, Brendan. The second quarter net sales decreased 24.1% to $60.7 million versus $80 million in the prior year period. Our wholesale channel sales were down 32.1% to $39.6 million, which reflected the planned reduction in full-price orders related to the transition of product under our new design team. As we have discussed over the last few quarters, we have been selling through the excess inventory and aged product identified last year in the second quarter. This sell-off of product earmarked for the wholesale channel was completed in the second quarter of this year. As we move forward, we expect that the flow of product through this channel will be more in line with our desired level of off-price sales mix. Our direct-to-consumer segment sales decreased 2.8% to $21.1 million in the second quarter as a result of an 18.7% decrease in comparable sales including e-commerce partially offset by the addition of 10 new stores since the second quarter of last year. The decrease in comparable sales was primarily the result of a decline in the number of transactions, which reflected our planned decrease in inventory levels. Gross profit in the second quarter was $27.4 million or 45.1% of net sales. This compares to $20.8 million or 26% of net sales in the second quarter of last year, which includes a $14.4 million charge, associated with the write-down of excess inventory and aged product to expected net realizable value. Excluding the inventory write-down, gross profit in the second quarter of 2015 was $35.2 million or 44% of net sales. Excluding the write-down in the prior year quarter, the increase in gross profit rate for the second quarter of 2016 reflected lower year-over-year inventory reserve adjustments, which were partially offset by an increase in the rate of sales allowances on lower net sales in the quarter. Selling, general and administrative expenses in the quarter were $31.6 million or 52.1% of sales. This compares to $27.3 million or 34.2% of sales in the second quarter of last year, which included $2.9 million of net management transition costs related to executive severance and related costs. Excluding these costs, selling, general and administrative costs in the second quarter of 2015 were $24.5 million or 30.6% of net sales. The increase in SG&A was largely driven by an increase in store labor and occupancy costs associated with 10 new stores openings since the second quarter of fiscal year 2015, increased incentive compensation costs and cost for the consulting arrangement with our co-founders as well as other strategic investments. The resulting operating loss for the quarter was $4.3 million. This compares to an operating loss of $6.5 million for the second quarter of last year. Excluding the inventory write-down and net management transition costs, operating income for the second quarter of fiscal 2015 was $10.8 million. Our tax rate for the second quarter of fiscal year 2016 was 62.8% compared to 41% in last year second quarter. The increased tax rate for the second quarter of 2016 was due to the impact of certain non-deductible executive compensation costs. Under our current guidance, we anticipate our 2016 full year tax rate will approximate this level. Net loss for the second quarter was $2 million or a loss of $0.04 per share compared to a net loss of $5 million or $0.14 per share in the second quarter of last year. Excluding the inventory write-down and net management transition costs, net income for the second quarter of fiscal 2015 was $5.2 million or $0.14 per diluted share. Now moving on to the balance sheet, we ended the quarter with $21.3 million of cash and $55 million of borrowings under our debt agreements. Our debt to leverage ratio at the end of the second quarter of fiscal year 2016 was 3.4x on a reported basis. At the end of the second quarter, we had $33.7 million of availability remaining under our revolving credit facility. Inventory at the end of the quarter was $34.7 million compared to $45.6 million at the end of last year’s second quarter. The year-over-year decrease was primarily driven by more disciplined inventory management, partially offset by the addition of 10 new retail stores since the second quarter of last year. Capital expenditures for the quarter totaled $5.6 million primarily attributable to new stores and IT migration costs. As of today, including our most recent two stores opened in August, the company operates 54 stores in the U.S. including 40 full price stores and 14 outlet stores. Now turning to our outlook for fiscal year 2016, we continue to expect total sales for the year to be between $290 million and $305 million, including revenues from the six new retail stores already opened this year and comparable sales growth inclusive of the e-commerce sales in the flat to low single-digit range. Total sales guidance continues to reflect a flat to positive mid single-digit sales increase in the second half of the year. As Brendan discussed, the full impact of the changes made to our collection by our returning founders will not be reflected until our holiday deliveries, which we believe will therefore have the greater benefit to our comparable sales in the fourth quarter than in the third quarter. We now expect gross margin to be approximately 46.2% for the year due to additional strategic investments both already made and expected during the second half to support our long-term objectives. The higher rate of sales allowances for the first up and the lower mix of full price sales in the first half resulting from lower inventory levels. As a reminder, all of these factors are part of resetting the brand. We now expect SG&A to be between $128 million and $133 million. As one would expect, SG&A would be impacted by the level of annual incentive compensation costs realized based on our financial results. With this, we continued to expect diluted EPS to be flat to $0.06 per share. Capital expenditures are now expected to be between $12.5 million and $14.5 million due to continued branding investments and the costs associated with our IT migration investment. This concludes my comments regarding our second quarter financial performance and outlook for 2016. We will now take your questions, Operator?

[Operator Instructions] Your first question comes from the line of Erinn Murphy from Piper Jaffray. Your line is open.

Great. Thanks. Good afternoon. I guess the first question on the guidance from a full year perspective, it does seem like you have a pretty significant acceleration in the direct-to-consumer side of the business in the second half to get to that flat plus guidance, could you just maybe walk through some of your assumptions and maybe kind of weave in, what you are seeing in terms of the current reads that are giving you that confidence?

Well. Yes. Hey Erinn, it’s Brandon. We always knew that the back half of the year was one we needed to see and expected to do see the direct-to-consumer improvement. Last year, we were – a tremendous reduction in inventory levels, which carried through the spring season. So just now we are starting to build back up the inventories closer to last year levels and we will see the inventory levels finally start to have an increase over last year as we get later into the quarter and back half of the year and as we have been out-trending our inventory levels all year that gives us a lot of confidence that with this new product we will be able to hit those numbers in the back half of the year.

Okay, that’s helpful. And then maybe just in terms of the wholesale, you talked about being better aligned with your off-price, can you talk about where you are at right now at the percent of the total sales and where do you think they will be at the end of the year?

Dave can try to calculate those numbers or we will get back to you. But I will say that our inventories are much cleaner than they have ever been. It’s something that Rea and Christopher along with the developing great products, they really brought a lot of discipline back to the company. And inventory management is really top of mind. So we have flushed out at the beginning of the year in Q1, a lot of the old inventory that we were settled with and that we have talked about. And we have just done a much better job of making sure that we keep the inventories clean. And we have started to communicate that to our off-price customers that we are still going to have merchandise, that’s part of the business. But at least in the short-term while we reset the brand, it’s going to be a less important part of our go-forward business.

Yes. Erinn, when you – and it’s not the mix of off-price business. It wasn’t was as in the second quarter, it wasn’t as steep as it was in the first quarter, but it’s all obviously influenced by the amount of that ’15 and prior product that we continue to move to and completed moving through in the second half – I mean, the second quarter. And then if you look at the fact in the second quarter that we pulled back on one delivery that just drove full-price sales in the quarter lower. So off-price is a higher percentage due to both of those two factors. You get back on the fact that, we have talked about in the past that business being in that 20% to 25% range, that’s lower from that standpoint. That’s kind of the area where we had projected in our guidance.

Okay. And then just last question for me on the fall deliveries, it sounds like you are seeing a good response at wholesale, I think you said that sequential rate of it sell-through results are accelerated in the second quarter, so could you just maybe just speak to what you are seeing more from a granular perspective from Saks, Nordstrom, Nieman and some of your key accounts at that merchandise that hit the floor? Thank you.

Well, in the second quarter as I mentioned in my remarks, we did see better sell-through performance at – with our wholesale partners. This was a big reduction in inventory in part, as Dave mentioned, we had one less delivery. But we were really pleased with how the trends improve. So certainly a negative trend, but as far outpacing the inventory reduction. Now as we are into Q3, we have just delivered the first couple of deliveries of our new product with fall. It just really got in the floor last week. And so we are anxious to start to see the customers’ reaction. The sales associates reaction has been phenomenal, just walking some stores again today. And now that we are – past Labor Day and up until today in New York, we had a little bit chill in the air. We said we are cautiously optimistic that the customer is going to respond really well on this product.

Great. Thanks for that and all the best.

Thanks Erinn.

Your next question comes from the line of Matthew Boss from JPMorgan. Your line is open.

Thanks. So your gross margin guidance was lower, I think around 80 basis points, can you just elaborate on the additional strategic investments that you mentioned in the release. And then just speak to the overall promotional environment that you are seeing out there? And more particularly, when do you fully lap the change in promotional – the change in your promotional cadence and how should we think about that?

So, from the strategic investment side, two factors. One, things we have been working on, we have talked about the transition of our warehouse to our independent third-party provider away from Kellwood and then there are some factors of headcount that we have added. And then when we look at the back half of the year, we are looking at things just from a delivery standpoint. Being more efficient in our supply chain, how quickly you can get product from one of his support on to the shelf investments in that. Some of looking at supply chain is causing us look at some investments in leadership, which we may make. And then also exit packaging, looking at how we deliver to the customer when you look at our direct-to-consumer channel.

Yes. So, those are some of the strategic investments. And I think the second part of your question, Matt, we – in our own retail stores, we are up this month against the buy more, save more tiered promotion that we had last year that we eliminated in the spring. We are up against the last bit of that this month. After that, we have a little bit of a headwind against our own friends and family later in the quarter. But then, we have really cleaned up our own DTC channel. So, we are thrilled about that. And likewise, in the – with our retail partners, I mean they have been terrific by the understanding what we are all trying to do with the brand and committed to reducing the amount of promotions we are in. It’s very strategic now that we all know ahead of time where it’s going to be and where it’s not going to be. And I think we all feel good about the things we have done to support the brand, so that it can sell at regular price and doesn’t get caught up in all this promotional activity that as you know now, when one retailer is doing it, some others do it as well. So, it’s a chain reaction that we just needed to end. So, we feel starting this season, you are going to see that cleanup happening.

Great. And then just a follow-up, what’s the best way to think about wholesale as we move into next year, are we back to an even playing field so that we could consider a potential return to sales growth in wholesale or is there still consolidation of doors and receipts that we need to think about it in the front half?

Well, I certainly hope there is the opportunity to grow again. I think we shrunk it quite a bit and cleaned up the business and – but that will really be dependent on the performance over the next 6 or 8 weeks as they start to think about 2017. Certainly, their headwinds at a macro level from the department store industry that you won’t know better than me. But as I have said before, they have all been cleared that there are brands that are winning and lot of them are taking a bet on Vince right now. And so as we can validate that confidence, I think that there will be upside opportunity as we get to 2017, but we will have to give more clarity on that when we speak in the future.

Great. Good luck.

Thanks.

Your next question comes from the line of Ed Yruma from KeyBanc Capital Markets. Your line is open.

Hi, this is Noah Zatzkin on for Ed. Thanks for taking my question. First, as we are seeing increasingly tighter buying in the wholesale channel, has anything changed with how you are thinking about the back half? And I know you mentioned being nimble, how are you planning for potentially chasing it for new product works?

Yes. No, I mean I think as we just discussed we are all aware that the department stores are reigning in their receipts, but we have pretty good visibility into what the receipts are supposed to be in the back half of the year, so shorter performance not being where it’s supposed to, we have good confidence and clarity into what the receipts flow is going to look like. And we are already – Rea and Christopher are terrific at being very proactive and already is trying to get reads on the early selling to start to position ourselves, to be able to take advantage on chasing goods and doing reorders. And Rea part of what she does so well is, as she is producing the line, she is thinking about where she wants to have some excess fabric and have production flexibility, so that she can go and be nimble and chase merchandise. And it goes back to what we talked about a few minutes ago, why we feel it’s so important to be lean and not be saddled with so much inventory is so we have the flexibility to go after the high margin product that’s working.

Okay, great. And maybe just one more, given the aggressive clearing during the first half and then the off-price channel, has anything changed with how you are thinking about full-price selling in the second half? And I guess what gives you the maintained confidence with your ability to do that? Thanks.

Well, yes, I mean I think that this is the reset of the brand. So, the product that’s hit in the floor now at full price is Rea and Christopher’s first collection of – since they returned. And going back to the fabrics we used to use and the factories we used to use and the attention to detail and fit and sizing. So, that’s what gives us the confidence that what’s in the off-price channel won’t impact the opportunity to sell to a different customer at regular price and to recapture that customer. We used to have that recognized the intrinsic value of Vince at full price. And clearly over the last few years, that’s gone away from us as the product has changed. So, this is what Vince is all about. This is the beginning of reset of the brand. We think it will only get better as we have discussed on our last calls. The full impact won’t be into the fourth quarter. When the pre-spring or holiday delivery follows the current fall delivery, then we will truly have all of the founder’s product on the floor and pre-spring holiday will give them the full complement of time or luxury of time to have produced and develop these goods, where fall was a little bit rushed and compressed based on when they came back and quite candidly is kind of miraculous what they were able to achieve and the whole team was able to produce that as I said, you are able to see on the floor for yourself on that.

Thanks so much.

Your next question comes from the line of Mark Altschwager from Robert W. Baird. Your line is open.

Good afternoon. Thanks for taking the question. Just as we build our models for the back half of the year, obviously, a lot of timing shifts year-to-date with the delivery timing, but can you just help us with the cadence on wholesale, retail and margin trends that are embedded in your outlook, just any big callouts as we look at Q3 versus Q4?

I mean, from a standpoint – Q3 versus Q4, I mean, again, we look at Q4 to be the stronger quarter due to the waiting for the full collections of Rea and Christopher’s product to be on the floor.

Yes, I mean, to follow-up what Dave said and kind of what I just implied earlier, we did what we needed to do to deliver a great collection for fall now. Having more time for pre-spring, we found we were able to negotiate better prices, get better upfront margin, which we are excited about, that being the more go forward pro forma to run our business on. And so in the back half of the year that gets a little bit blended, but a lot of these things as we clean up the business as was asked earlier, it’s exciting for us, because it’s more indicative of the go forward opportunity the brand has even though it’s still muddied as we continue to clean up from the last few quarters.

Thank you.

And just – obviously, as DTC grows with the additional stores and the outsized growth that somebody mentioned – that Erinn mentioned earlier, that’s obviously a higher internal margin. So, that should help the overall mix as well.

That’s helpful. Thank you. And then can you give us some initial views on how you are thinking about SG&A dollar growth beyond fiscal 2016? Should we see a moderation in that growth rate given some of the big projects this year, just what are some of the key drivers moving forward?

Well, the key driver has been the opening of these stores and the SG&A that goes along with opening up all those stores. So, we certainly are going to be opening stores in the future although it will be tough to match the – how many we just opened. But in terms – when you strip away those expenses, it’s our expectation that we will get efficiencies out of the business. And especially as we get beyond this kind of re-launch of the brand, we will be able to look for – to make sure we are allocating our resources appropriately. And also keep in mind in this year’s SG&A is an incentive comp number that we haven’t – we didn’t payout last year that we are hoping to be able to payout this year and that have included in our pro forma.

Great. Thank you and good luck.

Thanks.

Your next question comes from the line of Jeff Van Sinderen from B. Riley & Company. Your line is open.

This is Richard Magnusen in for Jeff Van Sinderen. Can you speak more about what you are seeing in terms of early sell-throughs over the fall, maybe give us a little more regarding what we should expect to see in terms of product content in the holiday season and maybe – more on how that differs from last year’s fall holiday merchandise assortment?

Well, there is not much more I can say on the current selling. I mean as I say, it just got in the floor last week or so. So it’s very anecdotal encouraging signs, but far too early to make any overall predictions other than the fact that everyone seems to be excited about what they are seeing. And the product looks like it’s perfectly geared for the fall season as we get a little taste of cold weather. As you go into pre-spring, you just see a continuation of what you are seeing in fall in terms of what Vince is known for bringing Vince back to its roots, so great knitwear, great pants, a lot of the T-shirts in pre-spring that was a category that the company kind of left fall off a little bit over the last few years and Rea was very excited when she came back, to get us back in that business. We aren’t able to do it for fall, but it’s a big part of pre-spring. And when we say T-shirts, we don’t just mean basic Ts although we have those. We mean, T-shirts that could be at a great fabric set, $195 that we call T-shirts but are really, really shirting fabrics that people will wear. And so I think, you will just – the accounts that saw the line are our major partners. We are thrilled with the way it evolved from fall and love the colors, and love the seasonality of the product. And we go into market for spring next week. And I think they will continue to be have their expectations exceeded. Especially, also by the value, I think that was a real takeaway as we – I think, I mentioned the last time we were starting to take the product to the selling associates to preview and there were just gasps at the pricing. $695 for an unbelievable outerwear piece or $350 for that unbelievable cashmere sweater and that’s what Vince was always known for. It was – the intrinsic value was there without the discounting and knows that we are big wins customers and years passed. Really recognized that and applauded that in the line that’s being delivered now and you will continue to see that banded on going forward.

Okay. And would you able to provide more detail on your wholesale order book trends and when you think we will see bookings some positive and the full-price wholesale business revenues begin to grow again within this current environment of tight open device and maybe how you position inventory for the second half?

I think, some of that we have touched on. The inventory will continue to be lean which gives us great flexibility and allows us to be nimble as we start to see what’s working. I think I touched on the – for wholesale as we get into next year in terms of being one of the brands that are winning even in this tight environment and getting the increases that come with that. But this is all – as I said, they are seeing – the customers are seeing spring next week. So that’s the stuff that delivers at the end of January or really into early February. So we will start to get a better read over the next few weeks on what they are thinking. Again, it’s we will probably have a better indication once they get some real performance on the stuff that’s on the floor now, but hopefully, even by next week or another week of early reads that will give them confidence.

Okay. And would you be able to give us a little bit more color on what you are seeing in your own retail stores in terms of traffic conversion, AUR, UPT, any other metrics that you could you tell us?

I mean as I mentioned earlier, spring – we have lot less inventory in the stores in spring. At one point, it was down about 40% late in the quarter and the stores partially because we reduced that one delivery. And the stores were struggling to – that we were struggling to fill the stores. And so now just in the last week and a half, the inventories hit to get them closer to last year levels. And we are excited to see what’s – how that performance is going to increase. And we have some – we are doing a first new event and reaching out to our customers over the next couple of weeks do some in-store marketing and excited to get that customer that used to shop with Vince back in the stores. And so lot of phone calls by our associates, really going after more social media. If you are seeing our Instagram and some of the other ways we are out there, investing in outreach to the customers so that she can come rediscover the brand. And I will say we are patting ourselves from the back a little bit, our website looks phenomenal right now. We morphed over to Demandware, timed it with the new creative assets as we brought in Tomoko, our new Brand Director and the website just looks fantastic. And so that’s all we think reenergizing and reinforcing the brand that we are moving forward with.

Alright. Thank you very much. That’s helpful.

Sure.

Your next question comes from the line of Richard Jaffe from Stifel. Your line is open.

Thanks very much. And guys, I am wondering how you are planning inventory both in your stores and in your retail partners, obviously you have been running the inventories down quite leanly and defensively and wondering how much you planned to ramp it up and how much – how do you plan to keep dry as you mentioned to chase the key successful style?

Yes. I mean in our own stores, we will start to have positive levels of inventory as we get later in the quarter and then really peak them. As we get closer to holiday, we think there is a big opportunity there, as we discussed earlier, in part because we were so lean last year and in part because we just think the product looks fantastic. In terms of our wholesale partners, we have talked about they are – as I said last time we were very pleased with the orders that they gave us for fall and holiday. We understand the cautiousness everybody has right now. We think they placed orders that allow the line to – the customer rediscover us. And we are certainly prepared and already working with them as they start to see some things working to maximize opportunity.

And I guess, inventories in your stores to be back to 2014 levels, is that a reasonable thing to anticipate in the fourth quarter?

Well, we have so many new – they will be above 2015 levels by the time we get to holiday and significantly so because they were so far under. So they are probably closer to 2014 levels by the time we get to start fourth quarter. Although, composition is a little bit different because we got so broad with so many SKUs we couldn’t even get them on the floor. So we really got and I think I talked about last time gone through SKU rationalization. We are reconstructing replenishment either for a lot of SKUs. And so we pull that back and we will see what categories and products earn their way through future replenishment. But we have more depth so that we can stay and stock longer. We also reduced the breadth of our size assortment. So that allows us to stay in stock on key sizes. So we think we made all the right moves to better stock our own stores. And now, we will see how the customer votes.

Thanks very much.

There are no further questions at this time. Mr. Brendan Hoffman, I will turn the call back over to you.

Okay. Well, thank you, everyone for joining us today. We look forward to giving you an update on how Q3 goes and the new product when we speak to you in December.