Citi Trends, Inc.

Greetings and welcome to the CityTrends second quarter 2025 earnings conference call. At this time, all participants are on a listen-only mode. A question and answer session will follow the formal presentation. If anyone requires operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Nisa McKee, Senior Associate at ICR. Thank you. Please go ahead.

Thank you and good morning, everyone. Thank you for joining us on CityTrend's second quarter 2025 earnings call. On our call today is Chief Executive Officer Ken Stifel and Chief Financial Officer Heather Platino. Our earnings release is sent out this morning at 6.45 a.m. Eastern Time. If you have not received a copy of the release, it's available on the company's website under the Investor Relations section at www.citytrends.com. You should be aware that prepared remarks today made during this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Management may make additional forward-looking statements in response to your questions. These statements do not guarantee future performance. Therefore, you should not place undue reliance on these statements. We refer you to the company's most recent report on Form 10-K and other subsequent filings within the Securities and Exchange Commission for more detailed discussion of the factors that can cause actual results to differ materially from those described in the forward-looking statement. I will now turn the call over to our Chief Executive Officer, Ken Seiple. Ken?

Thank you. Well, good morning, everyone, and thank you for joining us today on our second quarter earnings call. I'm pleased to report another quarter of consistent performance, demonstrating discipline execution and progress across every area of our business our transformation remains guided by a clear three-phase framework designed to deliver sustainable profitable growth first phase one is repair that's restoring our fundamentals and establishing a strong foundation phase two is our execute phase embedding consistent best practices and driving reliable performance And we're going to be entering in the future phase three, which is optimized, leveraging new systems and expansion capabilities to accelerate our growth. These three phases create the foundation for a disciplined approach to capture the near-term and long-term opportunity of growth for CityTrans. Now turning to our results. In the second quarter, we generated strong comparable sales growth of 9.2%, marking our fourth consecutive quarter of mid- to high single-digit comp sales growth. Year-to-date, we've delivered year-over-year comp growth of 9.6%. And I'm happy to report that sales momentum, consistent with our first-half top-line trends, has continued into the back-to-school season. This August, we'll be representing 13 consecutive months of comparable store sales growth. Gross margin dollars have increased meaningfully, achieving our highest rate performance in the last several years. As our buying teams have fine-tuned assortments for our core customers, we've experienced faster sell-throughs of regular-priced product, reduced markdowns, and improved operational controls for shrinkage in transportation rates. Our SG&A was slightly deleveraged in the quarter due to the inclusion of incentive compensation for the consistent financial performance of our employees. It's been quite a few years since the company achieved its bonus targets. so I'm excited to add performance-based bonus back to our financial profile. Excluding the new performance bonus incentive compensation, our SG&A leveraged in the quarter and leveraged year-to-date consistent with our guidance. Our top line continues to grow to be broad-based and healthy. Transaction growth has consistently accounted for the majority of our sales gain, which validates the strategic advantage of our neighborhood locations. And additionally, we saw growth in units for transaction while maintaining stable average unit retails. Also, our performance was consistent across climate zones, regions, and store volume deciles, which underscores the breadth of improvement across the business. Our turnaround is rooted in a clear and unwavering focus on the needs of our African American customer, who is at the center of everything we do. Neighborhood-based locations remain a differentiated advantage, with proximity and word of mouth serving as powerful traffic drivers. We continue to strengthen this connection by elevating the cultural relevance of our assortments, refreshing the shopping experience to better align with our brand voice, and investing in customer engagement. Work is underway to design and implement a CRM and loyalty platform that will deepen interaction with our most frequent shoppers, thus enhancing long-term customer value. Our product performance in Q2 was broad-based and balanced across apparel, non-apparel, family basics, home, and lifestyle and children's categories. In all categories, customers responded well to elevated fashions and expansion of brand name apparel. Women's Plus and Big Men's apparel had strong performance and both remain early stage businesses with significant runway ahead. Men's delivered improved results as trend-relevant assortments and improved in-stocks on basics resonated with customers. And children's, a cornerstone of our business, has continued strong year-over-year performance. And our customers continue to respond to extreme value deals on well-known brands at exceptional prices as we continue to build capabilities to expand this important segment of our strategy. Looking ahead in product, we've made good progress in improving our three-tiered good, better, and best product assortments, but we are still in early stages. The majority of our initial initiatives, which include better in stocks on basic product, accelerated growth of women's plus and big men's sizes, expansion of the consumables category, and the addition of extreme value products have had good early success. We see significant growth runway ahead, though, as we continue to fulfill consumer demand in all of these categories. In addition, our merchants have identified several growth opportunities through assortment refinement as we learn more about our customers. For example, our men's team is working to develop an expanded and more refined assortment for young men. We believe we are underserving this trendy value-oriented consumer. Young men's will complement the already strong men's classic and core business. In our women's apparel, customers are responding to the increased offering of trendy, misty-sized product. Misty product broadens the availability of style and size for women and complements the strong offering of junior product. Customer reaction to our best trendy product has been strong, giving us confidence there's more demand to address. This has led us to add a trend director to identify emerging trends and guide curation of product assortment. We were fortunate to find an accomplished trend director with a successful track record of trend curation at well-known brands in the industry. I believe the elevation of trend in our men's and women's assortments will be additive and supportive to our merchant teams and resonate strongly with our customers. From an operational standpoint, we made continued progress in our initiatives in the second quarter. Foundational improvements in preseason product planning, in-season allocation execution, and supply chain speed have enabled us to support a 9.2 comp growth while operating with 5.7% less in-store inventory than last year. Working capital optimization provides liquidity and flexibility to react quickly to emerging trends and deal opportunities while also enhancing gross margin. Our stores continue to make strides in improving neat, clean, and organized shopping experiences for customers. We've implemented improved in-store navigation signing and updated presentation standards to make shopping experience easier. Our supply chain remains stable with progress against productivity and speed goals. And looking ahead, we're in the process of implementing improved work processes throughout the DCs and implementing special handling areas to assist us in overall processing speed and capacity to grow extreme value product and family footwear. I look forward to sharing more on this initiative on future calls. Looking ahead in operations, test results for our new AI-based allocation system have been well above expectations, allowing us to more accurately allocate products based on individual store demand, which has in turn increased sales and improved inventory turns. We are in the process of implementing AI-based allocations to all categories with expected completion in mid-September, in time to impact holiday. And currently, we're in the early stages of developing a complementary AI-based merchandise planning system that we hope to have ready for early 2026. Here again, we'll keep you updated on our progress. As we all know, retail is detail and execution without measurement is just simply guesswork, which is why our use of KPIs and dashboards for all key functions is critical. The visibility provided helps our team stay on track, identifying where we're hitting the plans and where we need more attention. The combination of simple, repeatable processes supported by operating procedures plus KPIs makes us confident that we'll be able to drive continual operational improvement for years to come. And a few comments on tariffs. As evidenced in our results, we are successfully navigating the ever-changing tariff landscape. In fact, we've actually found the off-price product deal-making environment to be very robust and advantageous. My direction to the team is be aggressive, remain flexible with ample liquidity. Our strategy is working. We intend to play our game and win at our game. Now I'll turn the call over to Heather to discuss the financial performance. Heather?

Thank you, Ken, and good morning, everyone. I'm excited to have the opportunity to walk you through the details of our second quarter and first half results, as well as our improved outlook for the year. Before I do that, let me echo some themes from Ken's comments. The transformation of City Trends is underway and is driving significant improvement in both top and bottom line results. As I've said in previous calls, there's a new energy at City Trends, and the results we get to share with you today are proof that our team's hard work is paying off. Turning to the specifics of second quarter results. Starting with the top line, Q2 sales were $190.8 million, up 8% compared to Q2 2024, with comp store sales growth of 9.2%, our fourth consecutive quarter of mid or high single-digit comps. We delivered high single-digit comps in each month of the quarter and saw growth to last year in each of our retail metrics, traffic, basket, and conversions. as the impact of our revised merchandise assortment, including off-price deals and more branded extreme value products, continues to resonate strongly. As Ken mentioned in his remark, and similar to our first quarter results, second quarter top line improvements last year is a story of consistency. We saw consistent results across climate zones and across store volumes, and we drove consistent broad-based strengths across most product categories. We produced a 40% gross margin rate in the quarter as planned, our highest Q2 rate since fiscal 2021, and an 890 basis point expansion versus Q2 last year. Recall that in the second quarter of last year, we incurred significant markdowns from our strategic inventory reset. allowing us to exit aged and slow-moving products while freeing up open-to-buy for our revised product strategy. The effect of lapping that event, net of the in-season markdown cadence established last year, significantly improved year-over-year markdown expense. We also drove decreased shrink expense in the quarter as a result of ongoing cross-functional efforts, plus the lapse of an accrual adjustment last year. Our broad-based Q2 margin rate improvement was also impacted by higher selling margins due to increased full price selling and a favorable mix of higher margin products, all while maintaining our sharp price value equation throughout the store. And finally, we saw improvement in cost of freight from favorable contract rates put in place last fall. Second quarter adjusted SG&A expense totaled $78.9 million compared to $72.1 million in the prior period. The increase to last year was driven by higher incentive compensation accrual on improved business performance and store and VC expense to process higher sales. As we shared with you in our last call, we reinstated incentive compensation accruals in Q1 of fiscal 2025 after incurring very minimal bonus and equity expense in the last three quarters of fiscal 2024, causing a bonus to no bonus comparison in the second quarter. On a rate basis, Q2 adjusted SG&A was 41.3% of revenue, 50 basis points higher than the 40.8% rate in Q2 last year. The rate increase was driven entirely by this year's incentive compensation accruals. All other SG&A levered by approximately 150 basis points in the quarter, reflecting continued discipline cost controls and the impact of improved top-line results. And it's important to note that for the first half of the year, total adjusted SG&A, including incentive comps, levered about 90 basis points to last year. Adjusted EBITDA for the quarter was a loss of $2.6 million in line with management expectations and an increase of $14.6 million versus Q2 2024 results. In the quarter, we sold our 72,000 square foot building in Savannah, Georgia, realizing a gain on the sale of approximately $11 million, which is included in reported net income and reported EBITDA, but is excluded from adjusted results. We will maintain our presence in Savannah, having leased a new, smaller office space not far from the building we sold, giving our teams a fresh new space for continued collaboration. During Q2, we remodeled 19 stores, ending the quarter with 28% of the fleet in an updated format. We also closed one store in the quarter, bringing our total store count to 590 locations. Before turning to the balance sheet, let me provide a few details on our performance in the first half of fiscal 2025. First half comparable store sales were 9.6%, with a two-year comp stack of 10.3%. First half comps were driven by approximately 6% increase in transactions. Adjusted first half EBITDA was $2.8 million, an increase of about $21 million to last year. EBITDA growth was driven by $29 million of incremental sales, 480 basis points of gross margin rate expansion, and 90 basis points of SG&A leverage. Now turning to the balance sheet. Total inventory dollars at quarter end decreased 12.9% compared to last year, with average in-store inventory down 5.7%. Our success in driving high single-digit increases Sales increases with less inventory reflects our focus on improved inventory efficiency through higher terms, plus improvements in supply chain speed. We remain pleased with our inventory level, composition, and freshness. At the end of the quarter, we remained in a healthy financial position with a strong balance sheet, including no debt, no drawings on our $75 million revolver, and $50 million in cash. Now turning to our fiscal 2025 outlook. Based on our first half results, our confidence in the continued effectiveness of our turnaround plan, plus recognition that the macroeconomic environment remains uncertain, we are pleased to update our outlook for 2025 as follows. With the strength of sales in the first half of the year, we now expect full-year comp store sales growth of mid to high single digits. above our previous outlook of mid-single-digit growth. We now expect full-year gross margin expansion of approximately 210 to 230 basis points versus 2024, slightly above previous outlooks due to improved inventory efficiency and initial progress on our planned supply chain improvements. SG&A is expected to leverage in the range of 60 to 90 basis points versus 2024, consistent with our first half trend and an improvement to our previous outlook. Note that this is inclusive of the build of the incentive comp accrual. To be clear, we now expect full-year SG&A expense of approximately $310 million and increased guidance due to cost to process and support higher sales and a higher bonus accrual on better business performance. With these updates, we now expect full-year EBITDA to be in the range of $7 million to $11 million, an increase to previous outlooks. This revised guidance is $21 to $25 million above fiscal 2024 results. There is no change to our expected effective tax rate of approximately 0% for the year. We now expect to open three new stores, closed three stores, and to remodel approximately 60 locations in the year. And finally, full-year capital expenditures are now expected to be in the range of $22 to $25 million. Before I turn the call back to Ken, I'll reiterate that we are very proud of our Q2 and first half results and the meaningful progress we've achieved so far. Our teams remain focused on continuous improvement with full recognition that there are still significant opportunities ahead of us. We still have processes to refine and areas to optimize as we continue the transformation of our business. The consistency of our performance over the past four quarters gives me confidence that we're building something durable and that our disciplined approach to driving shareholder value will continue to deliver results. With that, I'll turn the call back to Ken. Ken?

Thank you, Heather. Before we open the call to Q&A, I do want to share a few thoughts about our longer range of growth for CityTrends. So looking forward, we are preparing for store expansion growth. We expect to remodel approximately 50 stores per year and expand square footage in the mid single-digit range. We have engaged a third-party analytics team to assist us with dissecting the demographics, psychographics, and geo-proximity location of our current customers right down to the individual household level. These insights, coupled with a robust financial performance, will greatly improve our accuracy in real estate site selection, leading to improved new store return on investment performance. We've identified several MSAs that are attractive expansion opportunities for CityTrends in 2026 and beyond. Long range. Our goal at CityTrends is to achieve $40 million or more of EBITDA by 2027, in 2027. This will be driven by consistent single-digit sales growth, gross margin dollar expansion, leveraged SG&A, and new store expansion. Each industry within our value creation plan is supported by clear accountability, key performance indicators, and execution rigor. Our leadership team is highly engaged in building out the detailed plans to execute and is fully committed to making these plans a reality. In summary, CityTrans has delivered four consecutive quarters of comp growth underpinned by transaction increases, broad-based product strength, and disciplined execution. Our strategy is working, our operational capabilities are advancing, and our customer connection is strengthening. But there's still a lot of work to do. We have processes to refine. We have categories to optimize and more systems to build. But the path forward is clear. We are confident in our ability to deliver continued transformation, drive shareholder value, and expand our role as a leading neighborhood retailer for African-American families. I'll say thank you to our CityTrends team for their discipline, their dedication, and great results. And thank you to our shareholders for your continued confidence and support. And with that, I'll turn the call back over to the operator for questions. Donna?

Thank you. The floor is now open for questions. If you would like to ask a question, please press star 1 on your telephone keypad at this time. A confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. We do ask that you please limit yourself to one question and one follow-up. Our first question today is coming from Michael Baker of DA Davidson. Please go ahead.

Okay, great. Thanks. Hopefully you can hear me. I wanted to ask, great quarter. Thanks. One question, one follow-up. Let's first just talk about the expenses and the incentive comp and how that plays out going forward and just sort of how should we think about expenses on a quarterly basis? I think, I think, I think the math implies about $78 million in SG&A for each quarter in the back half on average. Is that the right run rate going forward as we think about, you know, 2026 and 2027?

Hey, Mike, Heather here, you loud and clear. Question on SG&A, sure. $78 per quarter, I think that's exactly right. The thing that I will remind you of, though, that's a good average per quarter, but Q4 ticks up about 3% versus Q3 because of holiday sales. So just kind of think about that as you calendarize. And as we go forward into 2026, we haven't conveyed that yet broadly. I can help you with modeling in our follow-up call.

Well, I guess I don't want to waste my follow-up on this, but... Well, let me ask you more if I could. Just thinking about that and the gross margin outlook, what's the right sort of incremental margin flow through on incremental sales? I understand there's a lot of noises here, particularly as you cycled some things last year, but more about 2026 and 2027. How do we think about incremental margins?

Yeah, so we've mentioned before that our goal is 20% to 25%. EBITDA flow through, which we define as the change in EBITDA over the change of sales versus the prior year. This particular fiscal year is a little choppy because of some odd compares in the last year period and the build of the incentive comp this year. So if you try to normalize that, then you end up at about 25%, certainly in the back half of the year of 2025. But that's what we're looking at going forward is 20% to 25% profit flow through.

Got it. All right. If I could sneak in one more, uh, I'm intrigued by the, uh, trend director, I think you called her or fashion creative director or him. I guess I don't know if they're, uh, any examples of, of, of what you're learning from that new hire? Um, how, how we think that might show up in terms of, uh, what the merchandise looks like.

Yeah. A couple of things on that. Uh, Mike, thanks for the question. Um, Since she's joined, she's really been acutely focused on really interpreting and understanding the consumer but more importantly, the current landscape around the consumer. And what we've been able to gain from her insights is really taking what I call the voice of the consumer and starting to translate that into tangible style and tangible trends. So looking at, obviously, all the emerging things that are happening culturally around on the landscape, it's pretty difficult to sift through all that. But she's done a nice job of sifting through all the things, all the noise out there and distilling it into a handful of key focus trends. And what that has allowed, um, our merchants to do then is to go to market with very specific filters, uh, on, on curating against this trend. And so we're starting to see some of that show up. I, you know, I gave props to our men's team earlier. They've done a nice job of embracing the concept right out the gate and, and they're getting good results. Um, in addition to the work that they're doing in their core programs, which has been good work. So these two things kind of coming together give us a sense that we're on to something. And I believe that you'll start to see the results of better, more accurate, and more thoughtful curation as we get into Q4. I'm really excited about where we're headed there.

Awesome. Great. Appreciate the time.

Thanks, Mike.

Thank you. The next question is coming from Jeremy Hamblin of Craig Callum. Please go ahead.

Thanks and congrats on the impressive results. I wanted to get into the commentary about, sounds like the momentum's really continued here in Q3, even as you're lapping, much, much tougher compares. Wanted to see if you can provide a bit more color on what's driving that sustained momentum. I know you talked about broad-based execution in Q2. But are you seeing more branded deals potentially driving the sustained strength or more well-rounded assortment? Any color you might be able to share on that would be helpful.

Yeah, sure, Jeremy. Thanks for the question. It literally is all of the above. What's happened, I think, in the course of the last year is we've continued to refine. Starting first with, I mentioned on the call earlier, our preseason planning capabilities where we've really been thoughtful about how do we go in and attack the season, as we call it. So we put a good roadmap out there for winning in Q3 and what do we need to do to get Q3 off to a good start from a back-to-school perspective. And then that was supported with very thoughtful plans from all of our merchant teams. We do something in the category review process where we're trying to put stakes in the ground or what categories can grow. And then behind that, when we back that up with the finances, right, and the open to buy and the amount of receipts required to support those ideas. And it's a very basic program. To be honest with you, most retailers do it, but I think we're doing it better than ever. and very disciplined and very thoughtful about it. And then the bottom line is you can put a good plan together, but then it comes down to execution. So that's where our teams have been out in the market, finding the better product, finding the better styles. So I'll give you a combination, and you can see this in our store, but to give you one example, the team really embraced a brand, True Religion, which has been around for a while, but it's actually resonated across the board with our consumers, and it was shared against multiple categories, and it's showing up across the store in all lines versus just in one category where we might have approached that in the past. And those ideas like that, there are many more, but our teams are building on each other's ideas, and we're starting to see a much – better curated product assortment for the total consumer. And then I'd be remiss if I didn't mention, you know, our teams in the field and the execution that's going on there, uh, where they've really stepped up their game considerably when it comes to moving freight from the back room to the floor in a more expedient way. Presentation standards have improved and our DC as well as moving things through. So it's, it literally is from my desk. It's a combination of all things kind of coming together quite well. And, um, I guess I would also share with you that as we sit around as leadership team and think about what's working and what opportunities we have ahead, frankly, we come up with more things on the to-do list than we do on the done list, right? And it's a little bit humbling to realize how far we've come and how far we really have to go. But anyway, sorry about the rambling answer there, but the point is it really truly is a combination of all of the detailed execution of the strategy kind of coming together.

Very helpful. I wanted to shift gears then and talk a little bit about the store base. So you've increased the number of remodels from 50 to 60 that you plan for this year, and I think it sounds like 50 on an ongoing basis. And then as you plan to get back into a unit growth mode, should we be thinking that FY26 is a mid-single-digit type unit growth. And then if you could, just share some of the economics behind how much the remodels cost, what type of lift you're getting from them, and then what you expect kind of the new store economics to be on new openings on a go-forward basis.

For sure. I'll give you some of the strategies and have Heller fill in some of the color on the results there for you. But Yeah, a couple things. So this year we did adjust. We actually added a few more remodels. I think we previously announced 50, and we had line of sight to add 10 more for strategic reasons. Actually, to let you know what we're up to, we added some stores in our Jacksonville market in Columbia, South Carolina market, to complement a couple new store openings we have in those markets. We're going to try to go in and revitalize those markets and refresh the brand on an entire MSA basis. I'm excited about what that might do. We're going to learn a little bit more about that. Our new stores open up in October, and all of those remodels will be completed there. So the reason we added 10 more stores was just to accomplish a full remodel in both of those marketplaces. Going forward on a new store growth perspective, we are going to get into the mid single digits. We have lined a site to a number of sites already for 2026. We don't have an exact number of where we're going to be in there, but there'll be some number between 25 and 40 new stores in 2026. I would expect at least 25 in that mix, and there may be more. We'll see. I'll be able to announce that on future calls more specifically, but it'll be in that range. And then the out years after that, we'll have the flywheel built. So we're still kind of building our pipeline. And as I mentioned earlier in my remarks, we're looking very specifically at opportunistic MSAs across the nation. We've identified many of those already as places to go. And now we have the hard work of trying to get in and find the right site inside of the market. So that work is underway as we speak as well in a lot of key markets. The final thing I'll say in terms of return on investment at a high level, Our new stores, we're putting them under a financial rigor. And I want you to think about our new store growth going forward as a triangle, right? There's on one side of the triangle is the rigor and discipline around making sure that we have the right site selection, consumer demographics, and so forth. The other part of the triangle, is the actual in-market site itself being an attractive center and so forth. And then the third part of the triangle is financial rigor, which is making sure that we hold ourselves to a high standard of return on investment. And so with that, I'll turn that over to Heather to let her fill in a little bit of color on that as well as the remodel question you had.

Yeah, I'm going to start with a remodel, if you don't mind, Jeremy. Good morning, by the way. You asked about remodel expense and results. So remodel expense, you'll remember, I think it was 2023, we cut the expense of a remodel in about half, right? So on average, we're at somewhere between 85K per location to 130K. I can tell you that the remaining remodels for this year are averaging at 100K per store. And these are high-volume stores, like 1.9 million per store. And then from a results perspective, we continue to see sales lift when we remodel stores. It varies by market, but we're still very comfortable that we're getting return. I think it's important, though, that on a store-by-store basis, that amount is going to change store-by-store. So in some locations, it's really a matter of refreshing the fleet and doing a market presentation, right? So Ken just talked about Jacksonville, talked about Columbia, South Carolina. We're going to touch stores in that market to make sure that we are doing a full market press on here's the new iteration of city trends. And we want excitement in every door. We want excitement with our associates. We don't want anybody to feel left behind. So we're thinking about remodels maybe a little bit differently in that it's about fleet maintenance as much as it is about driving incremental sales. For new stores, the financial rigor that Ken spoke of, yes, absolutely. We are applying financial metrics, making sure we've got the right return on investment, we've got the right payback period, we've got the right with the right, the right, right? We're looking at it very closely in partnership with our real estate team. Top line, you've heard Ken talk about this before. Ideally, we want our per store average at about 1.45, not to put too fine a point on it. but $1.45 million per door. Are we going to get that every time? No, but that's what we're striving for, right? And rents at 10%, we've got controlled payroll, all of that, right? So from a four-wall flow-through, we look for mid-teens and up to make sure that we're supporting the financial performance of the full chain. So that's kind of a look behind the curtain there.

That's a great color. Um, if I could sneak in just one more, um, Ken, on the last call, you'd mentioned some supply chain initiatives that you're working on trying to reduce, um, you know, I think the number of days and supply chain and that, uh, would allow you to, uh, you know, see, to save some, some money and costs. Um, and I wanted to just understand where are you on that initiative? I know it sounds like, uh, As you make progress, you realize you have more progress to make. But I was hoping for a quick update on where that initiative stands. Thank you.

Yeah, for sure, Jeremy. We are in, again, I use the term early stages, but I think it's fair to say early stages there. We've, what I would call, taken out the low-hanging fruit. Obviously, we're much faster now. And so think about the supply chain in three big parts, okay? Part number one is vendor to D.C., and we're better at managing that in our transportation routing and speed of picking up from there. We've taken out a few days of that moment. Then you have your in-DC processing, and then the third part is DC to store. And we've actually sped up the DC to store considerably. We've changed our routing to actually UPS carrier. It's taken three or four days out of supply chain from DC to store. So the team did that really at the beginning of the year. We learned how to optimize that, and so we're significantly faster there. The area that we're really focused on right now is what I would call the in-DC portion. And some of the work that is underway is, is in our receiving characteristics. I mentioned earlier in Invent Analytics, the AI-based system. When we throw the switch on that in September, that will save two days out of our receiving process, a day and a half right there. And then we're going to be adding to that better ticketing standards, which are already being worked on and getting in place right now. That will speed up our ticketing portion. And then there's a processing portion, which will speed up as well. So those things have been designed now. We understand what we need to do. Now it's a matter of getting them implemented. And so we're at different stages of implementation, but I would expect over the third quarter that the majority of these ideas will at least be implemented in our D.C., and then we'll start to kind of see and feel better optimization as we get into Q4. So it definitely is a work in progress, but we've made good steps forward with a lot more to do there in the D.C.

Thank you so much for all the color. Appreciate it.

Thanks for the question, Jeremy. Appreciate it.

Thank you. At this time, I would like to turn the floor back over to Mr. Seiple for closing comments.

All right. Well, I want to thank everyone for joining us today. We look forward to keeping you updated on our progress. Goodbye.

Ladies and gentlemen, this concludes today's event. You may disconnect your lines or log off the webcast at this time and enjoy the rest of your day.