Greetings. And welcome to YETI Fourth Quarter 2019 Earnings Conference Call [Operator instructions]. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Tom Shaw, Vice President of Investor Relations. Please go ahead, sir.

Good morning. And thanks for joining us to discuss YETI Holdings' fourth quarter and full year 2019 results. Before we begin, we would like to remind you that this conference call will include forward-looking statements, which are subject to various risks and uncertainties that could cause our actual results to differ materially from these statements. These statements are detailed in our risk factor discussions that can be found in this morning's press release as well as our filings with the SEC, all of which can be found on our website at investors.yeti.com. We undertake no obligation to revise or update any forward-looking statements or information. During our call today, we will be discussing YETI’s adjusted EBITDA and certain other non-GAAP measures pertaining to completed fiscal periods and 2020 outlook. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are included in the press release issued this morning as well as in the supplemental reconciliation, both of which are available in the investor relations section of the YETI website. We use non-GAAP measures as a lead in some of our financial discussions as we believe they more accurately represent the true operational performance and underlying results of our business. Today's call will be led by Matt Reintjes, President and CEO of YETI and Paul Carbone, CFO. Following our prepared remarks, we'll open the call for your questions. With that, I'll turn the call over to Matt.

Thanks, Tom and good morning. We’re pleased to report a great fourth quarter holiday season and year for YETI with exceptional revenue growth of 23% during the quarter and full year revenue growth of 17% customer’s continue to embrace the YETI brand and our innovation. In the quarter, we showed the strength of our omnichannel efforts with the strong performance in each of our channels including our wholesale partners. In our direct channels, we delivered 35% growth reaching 50% of our mix during the period, highlighted by strength in customer acquisition, VP [Ph] purchase and with both consumer and corporate customization. For the full year, DTC grew 34% to reach 42% of total sales, marking a meaningful evolution from a 10% mix three years ago. Our national regional and specialty independent wholesale partners grew 14% for the quarter and 7% for the full year capping another strong year in wholesale. Both our product categories drove growth in the quarter and throughout 2019. Drinkware grew 34% in the quarter, and 24% during 2019, while coolers and equipment delivered double-digit sales growth of 12% for the quarter and 11% for the full year. Along with tremendous top line momentum, we continue to focus on high quality revenue as we delivered a record 54.5% gross margin for the quarter, and 52% for the full year. These results drove adjusted earnings per share growth of 29% and 32% for the quarter and year respectively. Paul will discuss our results in more detail in his remarks. The financial performance achieved in 2019 was a result of ongoing progress against our four strategic growth drivers, consisting of expanding our customer base, introducing new products, omnichannel growth, and international. Our conviction around these growth drivers remains high, and we'll continue to lead with these initiatives as we…

Thanks Matt, and good morning everyone. I'll begin with an overview of our fourth quarter and fiscal 2019 results, followed by our fiscal 2020 outlook. YETI’s fourth quarter net sales increased 23% to $297.6 million compared to $241.2 million in the year ago period. This was our highest growth rate in the past six quarters, and reflects strong momentum as we move into 2020. For the full year, net sales increased 17% to $913.7 million. The full year results were above the high end of our previous outlook of 14.5% to 15% sales growth. While we don't specifically discuss individual customer contributions to our growth, I'm proud to say, that even excluding the impact of Lowe's in the quarter, we would have still exceeded the high end of our full year 2019 net sales outlook. Looking across our channels, direct-to-consumer net sales for the quarter increased 35% to $149 million compared to $110.5 million in the same period last year. This impressive growth was driven by momentum across yeti.com, Amazon marketplace and in particular corporate sales, where we were well positioned to capitalize on increased demand by expanding our capacity for customization during the quarter. We also experienced strong demand in our two primary product categories with Drinkware leading the way. Full year, DTC net sales increased 34% to $386.1 million representing 42% of our overall sales mix. Wholesale net sales for the quarter increased 14% to $148.7 million compared to $130.7 million in the year ago period, with strong performance delivered in both product categories. Full year wholesale net sales increased 7% to $527.6 million. And as I mentioned earlier, our existing wholesale accounts drove the majority of the growth during the quarter, and the year. Internationally, net sales rose 124% for the quarter to reach 5% of total…

Thank you. [Operator instructions] Your first question comes from the line of Peter Benedict with Robert W. Baird. Please proceed with your question.

Hey guys. Thanks for taking the question. I guess. Thanks for the color. I guess, Paul or Matt maybe can you help us understand how maybe you're thinking about Lowe's either quantitatively or qualitatively in terms of how that plays into your plan for 2020? Clearly, they are still there, won't all be incremental because there'll be some cannibalization, but just, maybe help us understand what Lowe's is doing with respect to your 2020 plan? That's my first question.

Sure Peter. Good morning. Let me let me start. So it's to be fair, it's pretty early in the process with initial stores rolling out in late December, and we're still ahead of true spring buying. That said, we remain excited to continue to work with Lowe's. As we talked about in the fourth quarter, our over performance in both wholesale and in total was only part of it was Lowe's. So again, as we look to 2020, we will continue to see how the rollout goes, how sell through goes, we're very excited about it. And as they continue to expand the area of assortment and drive merchandising excellence across all our products. So it's something that we continue to be very very excited about.

The only thing I would add, Peter good morning is the -- is we previously talked about we're going to be thoughtful and methodical and how this rollout happens, and we previously communicated, we expect it to stretch into 2021, and stay in close partnership, but we're excited about the engagement, the assortment, how the rollout has gone to date.

Okay, that's helpful, guys. I think Paul, you mentioned maybe the second half from revenue standpoint might grow a little faster than the first half. Can you maybe tease that out a little bit, what's driving that?

Yes. So we do expect growth to be moderately higher in the second half versus the first half, really three things; somewhat driven by higher new product contribution. Right. So in the second half you have the first half products in the second half. Higher planned, wholesale, new wholesale customer contribution. And then thirdly, the impact of the 53rd week. So those three items are driving the moderately higher growth in the back half versus the first half.

Understood. Great. And my last question, I'll let some other guys get on here. Just how are you guys thinking longer term about gross margin. I mean clearly, the plan for 20 kind of gets us beyond I think where you guys were thinking a year ago or 18 months ago, where the margin would go. Just what’s your latest thinking about gross margin, any structural limits to that, where you’re thinking that could go? Thanks so much.

Yes, you're welcome. Thank you. So we are particularly pleased with the continued expansion of gross margin as we believe, that's a true measure of strength, when evaluating the health of the brand. You know at our IPO, we provided a 50% to 52% long term range and we believe today, it's a bit early. Six quarters into update that long term range. That being said, we do not necessarily see a margin ceiling at 52% which is evident in the 2020 guidance showing further gross margin expansion above and beyond the 2019 actual of 52%. The opportunity to drive that continues to be the same as it was in 2019, so higher direct-to-consumer mix and cost improvements across the portfolio will continue to drive that mix higher.

Okay. Thanks, so much guys. Good luck.

Thanks, Peter.

Your next question comes from the line of Peter Keith with Piper Sandler. Please proceed with your question.

Hey good morning guys, it's [Indiscernible] for Peter, nice quarter. I just want to follow up on your tariff commentary. Can you maybe just give a little more color as to kind of the cadence is valuable, recoup that tariff benefit in 2020? That’s my first question, thanks.

Yes sure. So in 2019, and we talked about this, we had incremental tariffs of about $9 million gross tariffs of about $10 million, because we had some back in 2018. So that's a difference between the incremental and the gross. The what we're seeing the benefit going into 2020 is no longer having tariffs on our soft goods, as we move that out of China. We continued to have tariffs List 3 on Drinkware, accessories, and a couple of small items, the chairs and blankets and then List 4A on our one-gallon jugs and Dog Beds is kind of what's still under tariff. So of the gross number of approximately 10 million of tariffs in 2019, we get back about half of that with the move of the supply, the soft good supply chain out of China.

Thanks. I appreciate that a lot. And then just separately, just wanted to ask about the free cash flow, it did come down quite a bit in 2019. It's largely inventory gimmick, can you kind of just let me speak to how you're thinking about your free cash flow outlook for 2020 in any the growth now that, inventory growth will be less than in 2019? Thanks.

Yes sure. So yes, certainly 2018 we had significant free cash flow driven by the reduction of inventories vis-à-vis 2017. In 2019, as we used prepositioning of inventory as a mitigating lever for tariffs inventory, and we talked about that. We used cash flow for inventory. In 2020, we see our free cash flow projection around 60 to 70 million. So, certainly higher than 2019 as we as we talked about in my prepared remarks, as we normalize inventory throughout 2020.

Great. Thanks guys. And good luck.

Thanks.

Your next question comes from the line of Alex Walvis with Goldman Sachs. Please proceed with your question.

Good morning guys. Thanks so much for taking the question here. My first question is on the customs and corporate business. You call that out as a strong driver in the quarter, and indeed for the year. How big is those businesses today, and how much of the growth were they driving in 2019, and then perhaps a comment on the extent of growth expected from them in 2020?

Good morning, Alex. So we don't break out custom specifically or corporate sales. So you know if we step back for the quarter direct-to-consumer was 50% of the business, and overall for the year was 42%. And then inside that, as you know yeti.com, Amazon and then corporate sales. Corporate sales across all three platforms as I talked about in my prepared remarks, and very strong results in the quarter in the year. We really liked what we saw in customization, certainly in the fourth quarter having going deeper into the quarter, and we still believe there is opportunity there. So in the -- on the consumer side of the business, guaranteed shipment for holidays was Black Friday. Now as you know Black Friday was a week later too. So not only do we go deeper into the holiday season, Black Friday was a week later, so it was certainly longer than last year because we cut off before Black Friday weekend. So we really like what we saw and customization across both corporate sales and DTC and still think there's growth there in 2020.

Fantastic. Thank you. The second question is on the introduction of some of these new products I believe that's been a little bit of discounting activity in advance of that. Can you talk about the strategy behind that, whether there's any change from previously, I know that's a way that you tend to prepare for new product introductions, but I'm just wondering about the extent of that activity versus usual.

Hi Alex. Good morning. This -- as we think about these prior transitions exactly as you said, this is consistent with how we've transitioned but as you know we've been very supportive of map pricing and as I said in my prepared remarks, through the holidays in our DC channels we're very supportive of keeping the full price selling. But when we go into these -- these product transitions, one of things we're very thoughtful about and we plan to advance, and we plan with our wholesale partners is how to effectively make a transition generation-to-generation on a product. So, exactly what you said, what you're seeing today and we have already announced that there is a new product coming behind it. We go, move the channel and get the channel to have the right inventory position. So as we launch the new product -- the new product comes out and we have a clean channel to launch into it. So I think one of the patterns that we've built is exactly this when you see YETI come off price, we'll be announcing a new product coming behind or you can expect something new coming behind it, much like we're doing right now in bottles and coasters.

Fantastic. Thanks guys, for all the color on all that.

Thanks, Alex.

Your next question comes from line of Randy Konik with Jefferies. Please proceed with your question.

Yes, thanks a lot. Hi guys. So a couple of questions I guess, I guess first topic that would be very helpful is getting some questions around how we should be thinking about the wholesale growth rate in general and how to think about it organically or like-for-like ex-Lowe's addition, that would be super helpful if we get a little bit more granular, or directional help on how we should be thinking about that segment of growth, that channel distribution’s growth first? Thanks.

Sure. Good morning, Randy. I would go back to our long-term guidance, or long-term outlook commentary and that hasn't changed from a top line 10% to 15%. And then inside that what we've talked about is and again, to your point x, x any new customers coming in on a like-for-like basis, we would say wholesale should be mid-single digits, and we continue to expect wholesale to perform mid-single digits. Most of that from velocity, so not new door additions, so sell through new product introductions, things of that nature. But again, we still expect that at mid-single digits.

Very helpful. And then, when we think about the DTC channel, as a margin accretive channel, you know you touched upon it reaching 50% which I think is well in advance what we had originally thought you know years ago would get to this point. So we're getting there quicker. Is there any kind of color you can give us within the channel of how the dynamic is playing out between the Amazon marketplace and yeti.com itself? Because obviously we know that yeti.com is going to be higher margin than the Amazon marketplace, so I'm just kind of curious on what that dynamic is looking like, how it's changed over the last 12 months and how we could expect it to change over the next one to two years?

Randy, Matt. It's as we look across our DTC channels, as Paul said and has been consistent theme is, we like the contributions we're getting from each plank of our direct-to- consumer business including our small but growing retail presence. What we tend to see is yeti.com continues to be our flagship in the DTC business. It's the one that we can present the best stories, drive new customer acquisition. We like the mix we're seeing of new customers versus repeat buyers on yeti.com. The Amazon marketplace we believe tends to be a bit more of a transactional and an ease of purchase place. And also for consumers that are -- that are trained to start their search in the Amazon platform, it's a -- that's a very natural place for them to buy. So we're cognizant of how we -- how we balance -- how we drive those businesses, but we like the contribution we're seeing from every element of our direct-to-consumer business, and the growth rates we're seeing across there.

Got it. And then, I guess my last question is, is there any perspectives you guys can give us on new product or new color way contribution as a percent of the revenue base? And then you give us a little -- maybe elaborate a little bit more on what you're seeing on the repeat purchase behavior, as I'm just trying to get a sense of the story around your product innovation driving demand, and then you're getting a sense of customer longevity story unfolding through you know any statistics you can share around repeat purchase behavior? Thanks guys.

Thanks, Randy. A couple of things. When we think about color, and we think about color on existing or legacy product, it continues to be a really nice part of the growth story. And so that we're taking a product that has been in the market for multiple seasons, adding a new color, brings vitality and selection to it. And that's part of our strategy is, continuing to leverage longstanding products, and bringing new life into them, as we launch a wholly new product families, that growth, that growth is something as we've said in the past. We don't, we don't plan for big replacement growth, so big ups in new product and big downs in legacy products. We really want to drive additive growth and that's what our expanded product portfolio has been doing. We continue to like the repeat purchase statistics that we're seeing, in particular that are trackable, yeti.com and our magalog as I mentioned in my prepared remarks. Our Magalog has been a great indicator of the changing basket and the repeat purchase and what people buy and how you introduce them to a broader assortment and when they're introduced to a broader assortment, how it changes buying pattern, versus our controls. And so, while we're not sharing specific statistics around that, what I would say is, we spend a lot of time in 2018 [ph] building out capabilities and team and we're very focused not only on driving repeat purchase from our longstanding customers and creating great products for them, but also continue to attract new consumers into the YETI brand.

Helpful. Thanks guys.

Thanks Randy.

Your next question comes from the line of Sharon Zackfia with William Blair. Please proceed with your question.

Hi. Good morning. Paul, just a clarifying question on the wholesale expectations. I think you said mid-single digit. Is that an expectation for 2020 including Lowes?

So we don't -- so thank you for the question. We don't give an outlook down to the channel level. I would say that was our long-term outlook. X -- as Randy's question X any new participants or X Lowes. But we don't guide or given outlook down to that level. But you can infer, you can infer from my comments.

Okay, that's helpful. And then secondarily, on the reserves and the warranty provision in the quarter, can you give any commentary around that, and what that occurred around?

Yes. So it was really a couple of a couple of things. So it was our warranty reserves. So our warranty reserves are tracked to soft cooler sales and in my remarks I said, we had a great soft cooler a quarter. So just year-over-year with the growth in soft coolers warranty reserve is higher in dollars. That was number one. The second is, we had some if you go back to last Q4, we had some favorability of reversals of accruals, which didn't repeat this year. So in essence, that's a negative. And then the third piece is, with our transition to chug in line that we announced at outdoor retailer, we have reserved as well what we will do is, when that is introduced any existing inventory we have in our warehouse for our direct-to-consumer channel, we will rework into the new lid. And there was a reserve for those old lids as we scrap those and recycle those old lids. So those are those are the three main buckets of the warranty flash inventory reserves.

That's very helpful. Thank you.

Thanks, Sharon.

Your next question comes from the line of Robby Ohmes with Bank of America. Please proceed with your question.

Good morning, guys. I had a follow up on the D2C business. Can you talk about you know if you just take the D2C business and look at the expense trends there, is there any change in the variable expenses, are you know is there any change for example in the cost of operating marketplace on Amazon? And maybe work into that, what you've seen so far in store performance, and if there's been a lot of variability, Chicago versus Dallas versus Austin versus Charleston in terms of profitability maybe help us understand is the -- when you isolate the datas [ph] I know it's going to be a higher margin than wholesale, but is it, is it -- is the margin of D2C changing at all versus maybe what you would have thought a year ago?

Yes, so let me start with DTC piece. So as we've talked about and you're actually right, Robby, much significantly higher gross margin on a contribution margin and in a dollar perspective, it is -- DTC is still high on a dollar per unit basis as you think about it. We haven't seen significant changes and when I'm thinking about is the Amazon piece, we haven't seen significant changes in the cost structure there as that business continues to grow. The online marketplace fees as I talked about will grow with that on our own DTC business, outbound freight and things of that nature. 3PL are growing with the business. Overall on stores, I mean, it is early. I can tell you in the Charleston store, when we look at the Charleston markets, the -- and again it's two quarters in right. You think about Q3 and Q4 in that store. We like what it's done to the Charleston market relative to -- we look at the rest of South Carolina ex-Charleston, so where we're taking more out of the market which is which is excellent. So we're growing the business, and not impacting our wholesale business and things of that nature. It's early you know Q4 was a great quarter for all the stores. We saw a great ramp in the Dallas store. And the second store here in Austin, Chicago really ramped up, but it's early days and we're happy with that performance. And as we talked about planning on you know four to six stores in 2020, so we really like what the stores are doing.

That's helpful. And then separate question just the, can you speak a little to the Jersey partnership you guys announced and maybe remind us apparel percent of sales, and does this signal a change in strategy doing a lot more in apparel going forward?

Yes Robby, you know we’re as you mentioned we are incredibly excited about what we announced earlier this week with Austin FC. And that deal was really around two basic parameters. One, it was a chance to do something unique in the community here in Austin that was going to become a national brand, and the unique thing about soccer partnerships is when you do a jersey type deal, our brand carries along with that kit. And so in 17 or so urban markets around the country, we'll have -- we'll have a moving, a moving partnership playing on playing on the field and a fan base walking around with our brand. And if you go back to the very beginning, YETI in one of the founding stories was hats and T-shirts were a big part of building the brand and introducing the brand to people. So as they bought the original coolers and wearing it as a point and a sign of pride. We also think that soccer community much like our early days in the fishing community and hunting and climbing and surfing, that the soccer community is a unique community, both on the pitch and off the pitch. And I think that, that is what ultimately led us to being really excited about what this partnership can mean from a brand expansion in an authentic way to move in to move into a different passion-based community, but also one that travels around travels around the country.

And then let me give you some color on your question on apparels. I’m going to talk about it in the other category, which apparel is a piece of that. So for the year, other was 2% of sales, so small. And then inside of that or inside of channels as you think about that Robby, I'd say that apparel is the smallest in our host as a percent in our wholesale business. Then the next one in order of size would be our yeti.com site, and then in our retail store. So as you can imagine, our retail stores apparel, small step, or small amount of total revenue in the retail stores. But apparel is a much bigger piece than 2% in the total company would be indicative of.

Got it. That's very helpful. Thank you.

Thanks Robby.

Your next question comes from line of Jim Duffy with Stifel. Please proceed with your question.

Jim, are you there?

Jim Duffy, your line is now live. Are you on the line?

I'm with you. Sorry for that. A few questions from me guys. Good morning. With respect to Lowe's, can you talk about the assortment that's right for these stores and any early findings as to how Lowe's consumers engaging with the brand?

Yes. So, as we said, we will end with a -- what I would call a representative assortment of what YETI has. There are -- there are certain skews that we didn't launch into Lowe's right away. We went a little heavier on things like our buckets, and our go boxes, but we have a representative collection of our soft coolers, hard coolers Drinkware. This is something a store started rolling out in mid-December and through the end of the year, so based on that timing it's a little early to make any defined conclusions around assortment shifts or changes, but we like -- we like the partnership. We like the engagement of Lowe's. We're liking what we're seeing at retail in a -- in a small month in January, and up in a short stub period at the end of December. But it's something we will pay -- we'll pay close attention to. As we said, one of our thesis in going into Lowe's and signing up that partnership, was, they brought to us a relatively unique consumer and a different buying occasion that we see in the rest of our wholesale channel, which is the pro piece of it. And so we're paying a lot of attention to both how, what we call the consumer transaction happens at Lowe's, but also how the pro consumer reacts.

Helpful. Thanks. And then a question I'm getting often from clients, is there's something distinct about Lowe's versus Home Depot that suggests Home Depot couldn't be an opportunity in coming years?

I would say, we enter the Lowe's partnership as we started the conversations with them and the level of engagement and enthusiasm and understanding of what our brands could do together. The commitment to multiple points of placement within their stores, and the idea of how we build, how we build through a thoughtful ramp with all a lot of things that I would commend the Lowe's leadership and the team that we worked with on planning for. As we continue to move forward, we're going to stick to what we said, which is, we'll look at distribution if it does one of three things. If it brings a unique consumer, a relatively unique buying occasion or it augments or supports our existing wholesale accounts. So we like the flexibility we have within that, and we don't feel, we don't feel held back from future opportunities. But as you saw with Lowe's and how long it's been since we added a large national account, we're pretty thoughtful about when we bring them on board.

Very good. Thanks. And then Paul, in 2018 Drinkware was a strong driver and increased as a percent of the mix. I believe, to the benefit of the margin, should this mix shift in margin benefit continue in 2020?

Yes, so we see with our outlook gross margins continuing to expand, and that is both and we look at it channel wise. But it's also product wise as well. So in 2020, cost improvements will continue to drive gross margin expansion, channel mix will drive gross margin expansion. The good news on tariffs, the good news. The step down in tariffs will be a gross margin expansion. And then if you think about, I also mentioned the strengthening of the currency would potentially go against us. But both Drinkware/DTC mix drives gross margin expansion.

Helpful. Thank you, guys.

Thanks. Operator, I want to be respectful of people's times as the top of the hour. Let's take two more questions.

Absolutely. Your next question comes from the line of Kimberly Greenberger with Morgan Stanley. Please proceed with your question.

Great. Thank you so much. I really appreciate it. Wholesale grew 14% here in Q4 Paul, and I'm wondering, do you have a number excluding the low sell-in that would be sort of an apples-to-apples growth rate. And then, the advance stalking of spring deliveries looks to be very fortuitous at this point given what we're seeing happening in China with factory production. I'm wondering, if you've heard any word from your Drinkware factories, are they back to work? Do they have a sort of scheduled time to get back up and running? And roughly which months here over the next three to six months, when do you need to start receiving goods again to make sure that your sales trends are not disrupted by the potential delays, let's say in receiving product because of some of the factory shutdowns there?

Right. Thanks Kimberly. Let me start and then I'll turn it over to Matt. So it has been our practice not to comment on specific customers even pre-Lowes and dimensional eyes, any particular customer. What I would say and I would refer back to my prepared remarks. I mean, this will give you some great post [ph], that even without or ex-Lowe's, we would have exceeded the top end of our full year guide, and then you can infer Q4 as you did when we gave it at the end of Q3. So 14.5% to 15% for the full year, we finished at 17%. We would have been above that 15% even ex-Lowe's. So it wasn't while giving our guide without Lowe's was the right thing to keep it apples-to-apples. The takeaway is, we would have beaten that or we would have -- we would have beaten it even without Lowe's coming into the picture.

And on the -- the supply chain in China, a couple of things worth pointing out. We have a team on the ground in China. We have a team that's working with them daily, and working with our partners as they come back online. And as I'm sure you're hearing in the market, there are varying timelines for factories to come back online. We're optimistic about the progress, but this is early days, and it's a very fluid daily situation that our teams on top of and our team on the ground is monitoring. And we're working not only with our Tier 1 factories, but with their supply chain and looking at the Transportation and Logistics options. As I mentioned in my prepared remarks, one of the -- one of the advantages in addition to having some inventory is that we also have in product in work in progress in those factories, so factories aren't fully starting cold. So when they -- as they come back online, and workers return to work, we'll see the ability while the rest of the supply chain in China comes back online. So it is something that we're managing very very closely, and paying attention to. And we feel based on what we know today, and currently, we don't expect near-term disruption, but it is something that as the year goes on we're going to stay close to, and stay abreast of how it evolves.

And Matt, did you say, you could air in goods potentially if there are some delays or what sort of the backup plan if there's some delay in getting product out of the factories?

Yes, I would say two things. If there's delays in back to full capacity, and how they would define the full capacity, there’s -- there's a few things that we'll use. One, we'll take advantage of the inventory in the product that's already in process. So that's the quickest to become finished good. And then we would look at the range of expedited opportunities and it could be those, there's expedited opportunities on the water and there's expedited opportunities in the air. And we -- as we as we build our plan, we would contemplate some of those contingencies.

Okay, great. Thank you.

Thanks, Kimberly.

Your final question comes from the line of Alex Maroccia [ph] with Berenberg. Please proceed with your question.

Hey, good morning guys. So I'm looking at the guidance here for interest expense and what you mentioned earlier on free cash flow and it makes it look like by the end of the year you'll be at about half a turn on the leverage ratio. I guess, off of that point, or my debt repayment assumptions in line, and how should we think about your capital allocation priorities for the year?

Yes, good morning. So from a debt repayment perspective, the new credit agreement and the amortization required payments for the year will be approximately $15 million. And then from a capital allocation standpoint, it's still we continue to talk to the board about this. The leverage ratio moves closer to 1 times and then to your point, if you do the math slightly below, our near-term focus is paying the -- the mandatory payments of 15 million which will give us the leverage and then you know it's really all about as we've talked about is driving shareholder value and shareholder returns. Whatever levers we use across our options.

Okay. That makes sense. And then just thinking about new stores for this year, I've noticed Fort Lauderdale popping up as a potential opening soon in addition to the previously announced Denver 1. Can you just pinpoint any other markets that interest you guys at the moment?

Yes, I think as you can, you could understand we survey quite a few markets, and real estate's a matter of right market and right opportunity. And so, we have -- we have a team that tracks multiple markets and that we think would if the right opportunity came up, would be something we'd move in. We're also cognizant of looking at what we would call heritage versus non-heritage markets. You know the balances of the Chicago versus the Charleston's. And so we have -- we have a pipeline of cities, we have a pipeline of opportunities, and we'll act on them as the right opportunities come up. And as we learn more now with six stores, and soon to be eight rooftops, we'll build more that muscle, and balancing a longer term type opportunities and commitments versus shorter term. And for a lot of those examples, one of the shorter term opportunities in a market that all of our other data points would say is a very strong market for us, so we think there's a really natural place for us to put our next location.

All right. That's great. Thanks a lot.

Thanks, Alex. With that, I want to thank everyone for hanging in there, a little bit longer. Thank you for your time, and we look forward to talking to you as we wrap up Q1.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.