Greetings, and welcome to the YETI 2Q 2020 Earnings Conference Call. . At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Tom Shaw, Vice President of Investor Relations. Thank you, Mr. Shaw. You may begin.

Good morning, everyone. Thanks for joining us to discuss YETI Holdings' Second Quarter 2020 results. Before we begin, we would like to remind you that some of the statements that we make today on this call, including those statements relating to the impact of the COVID-19 pandemic on our business, may be considered forward-looking, and such forward-looking statements are subject to various risks and uncertainties that could cause our actual results to differ materially from these statements. For more information regarding these forward-looking statements, please refer to the risks and uncertainties detailed in this morning’s press release as well as the risk factors discussed in our Form 10-Q for the quarter ended July 27, 2020, filed with the SEC earlier this morning. We undertake no obligation to revise or update any forward-looking statements made today as a result of new information, future events or otherwise, except as required by law. During our call today, we’ll be discussing YETI’s adjusted EBITDA and certain other non-GAAP measures pertaining to completed fiscal periods. Reconciliations of these non-GAAP measures to their 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. We’re also working remotely and connecting with you from different locations today, so please bear with us should we experience any delays during the call. With that, I’ll turn the call over to Matt.

Thanks, Tom, and good morning, everyone. YETI had a remarkable second quarter driven, first and foremost, by the agility and perseverance of our employees, our customers and our partners. As we consider our evolution over the past few months, amidst all the challenges, I am tremendously proud of how we responded and how well the brand has resonated. We were incredibly pleased to see the resilience of demand for YETI through this unprecedented period driven by people’s interest in being outside, be it near home or in the backyard. YETI’s product performance, durability and versatility are key as customers rely on and invest in brands that help them enjoy outdoor activities. For our second quarter results, revenues increased 7% year-over-year, while showing substantial growth recovery throughout the period, improving each month, off an April decline in the high 20s, primarily driven by the impact to our wholesale and our corporate sales businesses. The intra-quarter growth trend reflects strong sustained e-commerce growth, improving wholesale as stores reopened, rebounding corporate sales and a successful execution of Mother’s Day through Father’s Day. We were particularly pleased to see both our U.S. wholesale and corporate sales businesses return to growth in June, a significant feat given the impact felt on these businesses at the beginning of the quarter. YETI generated a 550 basis point improvement in gross margins for the period, benefiting from the ongoing mix shift to e-commerce, strong price point integrity as well as continued product cost improvements. Overall, adjusted operating margins also expanded 300 basis points, absorbing the cost of servicing our e-commerce business and benefiting from our cost management efforts that we outlined last quarter. With our improving operating performance, we also repaid the $50 million we drew down on our revolver last quarter, underscoring the financial strength of our…

Thanks, Matt, and good morning, everyone. I’ll begin with a review of our second quarter results, followed by some high-level thoughts as we look at the business in the back half of the year. I would also like to echo Matt’s comments on both the continued strength of demand for the brand as well as the incredible resilience of our team. Their collective efforts in this ongoing work-from-home environment have been instrumental in supporting the strong results we are reporting today. For the second quarter, net sales increased 7% to $246.9 million compared to $231.7 million in the prior year period. While not our normal go-forward practice, we will again provide some select intra-quarter trends during my commentary. As we mentioned on our Q1 earnings call, total net sales were down high 20% range in April, net sales then turned positive in May and sequentially improved in June. This incredible progression, in part, represents a shift in consumer behavior towards outdoor leisure activities and related products, areas that YETI excels at and that will remain a core focus as we go forward. By channel, direct-to-consumer net sales surged 61% to $133 million compared to $82.5 million in the same period last year, driven by strength in both Coolers & Equipment and Drinkware. The overall channel benefited from the broader outdoor leisure trend as well as a shift to online spending, given the sheltering in place. Total DTC reached 54% of net sales for the period compared to 36% in last year’s period. Yeti.com led the DTC channel with triple digit growth in each month of the quarter, even while the wholesale channel steadily reopened. The Amazon marketplace had growth across all months with particular strength in May and June as the platform’s focus on essential items normalized. Unsurprisingly, corporate sales…

[Operator Instructions] We have a first question from the line of Randy Konik from Jefferies. Please go ahead.

A quick question. I guess, Matt, can you elaborate a little bit more on the perspective you gave on – in the direct-to-consumer channel, new versus existing customer growth? And any differences in buying behavior of – by product category within those two buckets of customer sets in the quarter?

Randy, as we mentioned on the call, we really like the strength that we saw, both from new and existing customers, through our D2C channel and continued to see through – continue to see that through the quarter. And we saw a little strength from our existing customers coming back and buying more in our new innovation, but I would call it marginally different between new and existing, so both were really tracking well and driving that elevated growth, which continue to trend that we’ve been seeing quarter-over-quarter. From a mix perspective, our mix – obviously, we had a very strong quarter in C&E broadly and a good quarter in Drinkware, albeit a little slower, as we said, held back a bit by the corporate sales disruption and the wholesale disruption. But in our D2C channel, we feel very good about the strength and performance across both C&E and Drinkware.

And then how about in terms of thinking through you said, I think it sounded like you got really nice demand for the products in the quarter despite your turning on some of the marketing. Why don’t you give us a little bit more of an elaboration on what you’re seeing there? It sounds like, I guess, the theme is awareness of the brand is picking up dramatically. Maybe give us some perspective on where awareness sits today? And then as you think about marketing strategies for the back half of the year and into next year, how should we be thinking about those marketing strategies? I think you’re going to be more digital. And then any changes in your product launch patterns that we should be thinking of for the next six quarters?

A couple of things on that. One of the things we mentioned on our last call and continued through the quarter was our marketing strategy with the disruption and the work-from-home and really the full kind of digital acceleration is, we really turned our efforts towards driving digital engagement, both from a product marketing perspective and also from a brand marketing perspective. Early in the quarter, that was leveraging a lot of assets that we had. It was being thoughtful about our OpEx and how we spent into that unknown early period in the first half of the quarter. And then as the quarter started to – and continue to accelerate, we continue to lean into both the product marketing and the brand marketing. One of the muscles that I think we had been building and really got to flex in the second quarter, that you’ll continue to see us flex into the future, is driving original content and digital engagement, both around existing products, but also new products and then as we drive broader brand awareness. We have a program, as we mentioned on the call out right now, One For the Roadies, which was really a nice way of driving giveback in a community that’s highly disrupted right now in the music and venue space, while also combining it with one of our new products. And so you’re seeing those things. And when we mentioned investment in creative and digital, a lot of those results are from the investments we’ve made in people and in technology within our business. So you’ll continue to see us do that. Awareness, we believe, continues to rise. We haven’t reported our latest awareness numbers, and we’ll update those in future calls. But we like the balance that we’re seeing of growth in our longer standing markets and the growth we’re seeing in the geographic distribution in the U.S. and as we mentioned on the call, the e-commerce and digital acceleration we’re seeing around the world. From a product launch perspective, I’d refer back to our last call where we said we’ve made certain decisions on products that may have come in the back half of 2020 that we would move out into 2021 because we think the time in the environment will be better suited for those product expansions. But that’s a dynamic process that we do all the time. We gauge where the market is. We gauge how product receptivity is and as we ramp into new product launches.

Thank you. We have next question from the line of Sharon Zackfia from William Blair. Please go ahead.

Congratulations on the nice rebound and trend. I guess, one thing that really stood out on the balance sheet was just your inventory levels. And Paul, you mentioned you’ll be chasing inventory. But can you give us any idea of where you might be constrained relative to demand here in the third quarter? And kind of how quickly you expect inventory to be, I guess, back where it should be to meet that demand? And then I just wanted to ask a question, too, on DTC. It sounds like it has maintained a very healthy level. I just want to confirm if it has been consistent kind of at that 60% level as the wholesale channel has reopened?

Sharon, thanks. So I’d say, we are actively and aggressively, but thoughtfully, ramping to meet demand. And as we talked about in our prepared remarks, we took a defensive position ahead of the tariffs earlier, which let us leverage during the early supply chain disruptions. We managed inventory closely during the early part of the late part of Q1 and the early part of Q2. And really, what we’re doing now is flexing capacity to meet demand throughout the balance of the year. So we will continue to flex capacity to meet that demand. Your question about, is there one area in particular, it’s – if we think about hard coolers and soft coolers, and if you look at our website, you see sporadic outages by color as we have new merchandise coming in. So that’s really where we’re trying – where we are flexing capacity to bring in more product. And then on inventory levels through the balance of the year, we will continue to increase inventory levels, but now expect to end the year down year-over-year versus previously. We thought we would be up slightly. So we will continue to build even into 2021.

Sharon, this is Matt. I’ll take the D2C question. As I said in our prepared remarks, one of the things that we saw, and we reported this in the last call, was early in the quarter, really strong growth in our e-commerce business. One of the things we were most pleased with is, as the world started to settle out, as wholesale started to reopen, that business and that trend continued. And so we feel good about the strength that we saw in our e-commerce business and the continuity of it.

Thank you. We have next question from the line of John Kernan from Cowen. Please go ahead.

Congrats on a phenomenal quarter. Paul, obviously, very impressive to be able to return to the long-term targets, that 10% to 15% top line growth. As we think about that for the back half of the year, how should we think about the margin profile of business between gross margin and SG&A? And I have a follow-up question.

Sure. So we will continue to see gross margin expansion really driven by mix shift as we saw in the second quarter. So we expect gross margin to expand. On the SG&A piece of it in the OpEx, we think about that in two buckets the way we report it. So with DTC growing faster than the balance of the company, we would expect variable cost to continue to deleverage due to mix. And then we will continue to spend into the non-variable part. So we haven’t cut back on – as we look in the back half of the year, we’re going to invest in marketing. We’re going to invest in things like that, of course, something like T&E. We will see reductions in T&E just because of travel restrictions. So long and short, I’d say we expect gross margin to see expansion in the back half of the year with the top line and the mix shift to DTC, variable expenses will delever, and we will continue to spend to drive the business in the variable piece. But that’s kind of how we think about the back half.

That’s helpful. And maybe just a quick follow-up. Drinkware, obviously faced a lot of exposure with the – on the corporate side of things. How do we think about the mix of Coolers & Equipment and Drinkware in the back half of the year as you return to those robust top line targets?

So I would say, as we talk about Drinkware, and in my comments, we returned to positive Drinkware growth in May and June. So it was really April with the disruption of wholesale, and then the corporate sales. And corporate sales, we talked about then being positive, exiting the quarter positive in the month of June. So as we look forward, I see growth in that top line, 10% to 15% in the back half of the year. We see growth across both categories.

Thank you. We have next question from the line of Peter Benedict from Baird. Please go ahead.

First, I guess, Paul, with respect to the 10% to 15% top line over the second half of the year, is there anything within the inventory situation that would have either of the quarters at this point envisioned to be below that range? Are you thinking it can happen in both areas given the tight inventory?

I would say both should be in that range is what we’re looking at today.

Okay. And then just – I mean, I know you don’t have the guidance for this year, but given the shifts you’ve seen in the channel mix, how are you thinking kind of longer-term about how the structural profitability of YETI has maybe been impacted by what’s been going on here. And I know there’s a lot of uncertainty still out there, but maybe just talk about how you guys thought about the profitability opportunity pre-COVID? And then maybe what are the key things that may or may not stick as we try to compare what you’re seeing today to what might be out there a couple of years from now?

So Peter, what I would say is the profitability makeup of the company and the shift to DTC is where we were expecting it, but for it just accelerated. So we like where it is going, we like where it’s transitioning, and it’s just going faster. So the DTC piece continues to be gross margin – very gross margin accretive. It has higher variable costs. And then as we come down, it is operating income positive. So it’s really just an acceleration versus significantly different than where we were thinking the business was moving to.

Okay. No, that’s fair. And my last question would just be around the international expansion and supply chain plans that you guys had kind of coming into this year. And maybe how has that evolved as you look out over the next couple of years? What are kind of the key, I guess, entry points and supply chain opportunities that you have to go after in order to grow that business over the next couple of years?

So I think when we look for – towards international, we’re going to continue developing that supply chain. Right now, we are – in the U.S., we added a note in Salt Lake City, for instance. But looking at international, we will continue to expand shipping directly from manufacturer to those locations – international locations. And just as the international business increases, we will continue to build the supply chain muscle and processes to support that growth.

Thank you. We have next question from the line of Camilo Lyon from BTIG. Please go ahead.

I wanted to get your thoughts on what you’re seeing from the competitive landscape during the volatility of the pandemic. Have you seen competitors start to pull back or subside or become more promotional?

Camilo, this is Matt. Thanks for the question. What we would say largely, our focus in Q2 was on delivering the demand that we were seeing from YETI with, as we talked about on the call, a high level of price integrity. We haven’t seen any significant shifts in the competitive landscape, either new entrants or any behaviors that I would say are – haven’t been historically consistent in those channels. We continue to like the strength that in the doors where we are open or the doors that are open, the strength we’re seeing in consumer demand, the strength we’re seeing in our retail partners' e-tail or e-commerce business and then through our own D2C. And so we feel really good about where we’re positioned. And I would say, largely, we haven’t seen significant shifts in the overall competitive landscape.

Got it. Paul, for you, would you be able to share how your July momentum has progressed? It seems like business has accelerated certainly on the wholesale side throughout the quarter. Has that continued into July? And does that – there’s a strength from a category perspective, should that change as we go through the balance of the year? Coolers is obviously getting the benefit from a lot of the outdoor activity surge that you’ve talked about. How should we just think about the components of those two category trends into the third and fourth quarter?

So thanks for the question. This will be an unsatisfying answer. We are going to return to our practice of not commenting on intra-quarter results in the quarter that we’re in. But I will say, for us, to – at this point to be able to stay in the back half of the year that we’re going to return to the 10% to 15% growth, with all the caveat of another disruption or something else that we – that may happen. But as we’re looking at the business today, we feel good about returning to that 10% to 15% growth. And then both categories growing as well in the back half of the year as we had answered earlier. So I can’t give you any color on July.

Okay. So then – so the components of your long-term growth, DTC and wholesale, I think was 20% to 25% DTC and wholesale mid-single digits, that’s – if I remember correctly. So that’s how we should think about the normalization of the channel growth?

Yes. I wouldn’t go down to – so we were – we toggled back to the 10% to 15% of long-term growth to give you all a way of thinking about how – or share the way we’re thinking about the back half of the year. I think below that, I think there are – it’s going to be the variability of what could happen, and it’s going to change month-to-month. So I would say we toggled or we anchor to that 10% to 15% to get everyone back to kind of how we’re thinking about the business in the back half of the year. But certainly, the DTC business and the mix between DTC and wholesale, it was significantly different in the second quarter, obviously. So I wouldn’t look into anything below top line from our outlook.

Got it. Okay. So basically, the strength that you’ve been seeing – maybe said a different way, the April performance of the weaker parts of the business, Drinkware and wholesale, the continuation of that and improvement of that throughout the quarter, no reason to believe that that’s changed going forward, and you want to keep the high level 10% to 15% intact despite the fact that DTC was up 60% and wholesale is on an improving trajectory.

Correct. And as we said on the Drinkware, it really was driven by April, and then it did turn positive in May and June. But yes.

Thank you. We have next question from the line of Robby Ohmes from Bank of America Merrill Lynch.

Matt, Paul, nice quarter, great execution. A bit of a – and Paul, I love the three themes, maybe a bit of a follow-up on Camilo’s question. Just you guys called out the demand surge for outdoor recreation. I know you’re not giving guidance on the back half, but what activities correlate the most with YETI in Drinkware and Coolers? And how would you tell us to think about the activities in the kind of fall/winter season that might have – be driving a similar surge? And how do we think about YETI in the back-to-school period historically and might – what might be different in this environment?

Robby, this is Matt. I’ll take that one. There’s a few dynamics at play. And one of the things that we’ve talked thematically about YETI and YETI products from the very early days is our products are pursuit agnostic, meaning they get used in all kinds of different environments in all kinds of different use cases. And so one of the things we like about the flexibility we have with the business is if large group gatherings are disrupted, that same cooler you use in a large group gathering is used in a small backyard gathering. We’re seeing is broadly a report of the market. A lot of more near-end activities, people getting out to parks, looking for open spaces, taking nearcations versus going to the airport and flying places, and we think that lends really well to our Drinkware; it lends really well to our Coolers & Equipment; it lends well to our emerging bags category. And so there’s a lot of dynamics we really like. With things like back-to-school, in-person school, still up in the air in much of the country, there are still dynamics at play there that we like around Drinkware. And we just recently wrapped up a short run awareness campaign around individual, single Drinkware with a customization message on getting ready for school, not necessarily needing to be physically in person. And so we have a lot of flexibility in how we continue to keep our product and our brand in front of the consumer, whether that’s on bigger adventures like going off on a fishing trip or being in your local park or your local neighborhood. And so there’s a lot of flexibility there from a messaging perspective, from a product relevance perspective, from keeping consumers as they continue to stay close to home. This is also an evolution of a trend that we had seen well before the pandemic, which is that interest and focus around being active and outdoors and from a fitness and a lifestyle perspective. And so we think this much like the digital acceleration. This has been a little bit of an acceleration in people getting out and adventuring. And so we like both the near-term and long-term dynamics that it’s creating.

That sounds great. Just a quick follow-up. How does – when you look at your larger wholesale partners, how are they thinking about YETI percent of business they’re going to do going forward digitally versus in their stores? And does that change any dynamics for you guys? Are you seeing more demand for inventory on your wholesale partners' websites? And how does that kind of change how you guys think about the business?

You know I think as we said on the call, I think, for our wholesale partners, the acceleration they’ve seen in their e-commerce business has created some new opportunity for them and also some evolutionary opportunity. And one of our tenets of our omnichannel strategy is to help them evolve and partner closely with them, much like we did at retail, as we think about things like point-of-sale and merchandising, it’s the same in the digital space for them. So we continue to like that trend. I think that, that’s – they’re training consumers in a different way of buying, we mentioned on the call, and it’s obviously talked widely about curbside. But also just that idea of when there is an affinity or a loyalty for a wholesale partner and their e-commerce site, we want to be there and make sure that YETI shows up and supports them in that.

Thank you. We have next question from the line of Joe Altobello from Raymond James. Please go ahead.

So you mentioned you saw strength in both existing and new YETI customers in the quarter, but I was curious if you noticed any perceptible shift in the demographics of your customers during the pandemic. Are they skewing younger or more female? Is anything noteworthy from a geographic standpoint as well?

Joe, a couple of things. Geographically, we like the continued strength and evolution that we’ve seen over the last four or five years, which is that, that evolution from being a well-known brand in the south and southeast to being a national and emerging international brand. That trend continues, and it’s a positive one. And we like both the repeat purchase we’re getting broadly geographically and from existing customers and also the new customer acquisition. Mostly, from a demographic perspective, the period we’ve just gone through and the period, in many ways, we’re still in, we’re still measuring that. We are seeing some trends we like as we kind of touch other age groups and as we expand geographically. But we’ve always really been positive on our demographics. And I would say the things that we’re seeing only continue to strengthen that.

That’s helpful, Matt. Just secondly, on the corporate side, you said you delivered growth later in the quarter. Curious what helped to drive that. I think working from home is still pretty prevalent at this point.

There’s a couple of dynamics when you think about. In the middle of March, most businesses had their snow globe shaken pretty hard and had to learn what, all of a sudden, running a remote workforce is. So things that were in progress, all of a sudden were thrown in the air. And so you had to get that part of running a business settled, we all experienced it, and get your business settled and get back on track. What we like about the corporate sales business is the focus around sustainability, the focus around elimination of single use hasn’t changed. And what we see is opportunity to continue to use our corporate sales business for companies that have a remote workforce and is a way for them to stay engaged with that remote workforce. So the near-term dynamic, we continue to be very positive on that business. And we think the long-term thesis and long-term dynamic for corporate sales growth remains intact.

Thank you. We have next question from the line of Jim Duffy from Stifel. Please go ahead.

Terrific execution. Congratulations on the team effort to adapt so quickly. So we understand you’re chasing inventory. Can you speak to lead times on different product types? And then if I am interpreting you correctly, your comments seem to suggest you’re planning inventories to be back in balance with demand by the end of 3Q. Is that correct?

So let me – yes, let me take that, Jim. I am going to start on the second one. So we are flexing capacity to meet demand throughout the balance of the year. I would expect to see inventory levels down year-over-year throughout the back half of this year. So to your question of, will I get back to meeting demand? We’ve said, sales 10% to 15% in the back half, but we’re expecting inventory to be down. So I don’t think I, in that sense, catch up. From a lead time perspective, we are working with our suppliers to flex capacity. And we have some options. There’s actually faster boats. There’s air; air is still very, very expensive. But we have the option of faster boats to get product here faster. And we have deliveries coming in, obviously, daily. And that’s why as you look at yeti.com, one day the – maybe Tundra 65 maybe out; and then two days later, it’s back in. And then what we’re also doing is we’re thoughtfully allocating inventory across our omnichannel, right? So that’s both our channels, our wholesale channels can meet that consumer demand. So it is something that we work on, on a daily basis to meet that demand, and do the best we can to meet that demand. But we will be working at this all through the second half of the year.

Understood. And then, Matt, I had a question on the digital marketing. The step-up in digital engagement was really impressive. I’m curious how much of that was in the works entering the quarter versus accelerated in a pivot from previous plans? Did you pull forward some campaigns? And given the backdrop of the pandemic, are you able to produce content at such a pace that you have a pipeline sustained into the back half of the year?

Great question, Jim. I would say we didn’t pull forward campaigns that were ready to go. In the natural sense of, you pull something forward, then you got to go backfill it. A lot of the content you saw was truly some of the exceptional efforts of our team to go create content from pieces or elements of things we had in our digital library films that we had shot and they found ways to put those to work. It was leaning back into our library of content and putting it back out in front of the consumer. But really, things like this One For the Roadies Campaign we have going right now, some of our new color campaigns that you’re seeing right now, those things were all created in the midst of this pandemic and shows the power and the commitment we have to investing in our in-house creative and then partnering with content makers outside of YETI to make really engaging both brand storytelling and product storytelling. So I expect our team to continue to produce incredibly high quality, high production value work and continue to push the edge of what brand marketing and what product storytelling is.

Thank you. We will take our last question from the line of Kimberly Greenberger from Morgan Stanley. Please go ahead.

Matt, I wanted to ask you about distribution. How is the Lowe’s partnership coming along? And are you looking at any new distribution? And then I just had two follow-up questions for Paul.

Thanks, Kimberly. From a distribution perspective, obviously, we started the Lowe’s partnership late 2019 and continued that expansion in early 2020. I would say the partnership continues to go very well. As we said from the very beginning, even before the disruption, we’re going to be really thoughtful with how we roll out Lowe’s, how we partner with them. They have been very engaged and a good partner, as all of our wholesale has during an incredibly unprecedented time. Lowe’s was deemed in many, if not all, of their stores largely essential, and so they remained open through this period. And we feel good about the balance and strength of our omnichannel. As far as opening additional wholesale, obviously, with what we’ve seen for the last four months with a newer partnership in Lowe’s and with the continued great relationships we have with the rest of our wholesale partners, we really like the omnichannel base we have today, and we’ll continue to kind of evolve and drive. And as I’ve said in the past, we look at new wholesale if it delivers really one of three things; it’s a new customer to YETI, a new buying occasion or augments and supports our existing wholesale. And so we’ll continue to have that mindset mantra as we move forward.

Great. Perfect. And then, Paul, I just wanted to follow-up on SG&A. Is there a way for us to think about if we look back to 2019, what percentage of your SG&A was variable with sales and what percentage was fixed? And I assume that ratio sort of changed a lot in the second quarter with the surge in DTC. So if you could just help us understand if how those percentages may have looked kind of in the second quarter, that would be super helpful.

Yes. Thanks, Kimberly. I’d say in the second quarter with the DTC surge, variable and with our cost initiatives, which obviously were focused on non-variable, our variable became a bigger percent than historical, both because of the DTC surge and some – as the beginning of the quarter where we took some cost containment. I think from a percent of sales, and if you go back, you can kind of do the math of what piece of our total SG&A is variable from our filings, and I would – as a percent of sales, I would expect that to continue to be relatively flat as a percent of DTC sales. It is really about where we’re getting the deleverages where the – and I’ll use second quarter as an example, the enterprise is growing at 7% and DTC is growing at 61%. So deleveraging at the enterprise level, but inside of direct-to-consumer, that variable is relatively flat as a percent of sales.

That was last question. I would like to turn the floor back over to Matt Reintjes for closing comments. Over to you, sir.

Thank you. Thanks, everyone, for joining us today. We look forward to updating you as we come back together for our Q3 results.

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