Duluth Holdings Inc.

Good morning and welcome to the Duluth Holdings Fourth Quarter 2020 and Fiscal Year Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. To withdraw from the question queue, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Donny Case, Investor Relations for Duluth Holdings. Please go ahead.

Thank you and welcome to today's call to discuss Duluth Trading's fourth quarter and fiscal year financial results. Our earnings release, which we issued this morning, is available on our Investor Relations website at irduluthtrading.com under Press Releases. I am here today with Steve Schlecht, Chief Executive Officer, and Dave Loretta, Chief Financial Officer. On today's call, management will provide prepared remarks and then will open the call to your questions. Before we begin, I would like to remind you that the comments on today's call will include forward-looking statements, which can be identified by the use of words such as estimate, anticipate, expect, and similar phrases. Forward-looking statements, by their nature, involve estimates, projections, goals, forecasts, and assumptions, and are subject to risk and uncertainties that could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements. Such risks and uncertainties include, but are not limited to, those that are described in our most recent annual report on Form 10-K and other SEC filings as applicable. These forward-looking statements speak only as of the date of this conference call and should not be relied upon as predictions of future events. And with that, I'll turn the call over to Steve Schlepp, Chief Executive Officer of Duluth Trading. Steve?

Good morning, and thank you everyone for joining today's call. It was one year ago, almost to the date that we announced our first store closings, primarily in the Northeast due to COVID. At that time, we didn't know just how far reaching the impact would be, but it was clear that our plans for 2020 were suddenly disrupted. I won't go into all the details of our COVID response as it was pretty much standard procedure for all responsible retailers. Protect the staff and customers and protect the financial position. What I think is more important are the lessons we learned from operating in an altered retail reality. First lesson, you don't know if your business model is resilient until it's pressure tested. By the end of March, all 62 of our existing stores were closed due to the pandemic, and we had absolutely no idea when they could reopen. In the prior year, retail store sales accounted for 43% of total revenues. So this circumstance presented a giant mountain to climb to fill that revenue gap. Fortunately, we already had a strong omnidirect channel in place that allowed customers who traditionally shopped in stores to shift their buying patterns online. When our stores closed, we also ramped up digital marketing and promotions to draw current and new customers to our website. And it worked. Direct sales closed the retail gap and ended the year accounting for 72% of total 2020 sales. The second lesson was that the currency of the Duluth Trading brand was validated in a difficult retail environment. When your entire organization is dedicated to creating innovative, solution-based, high-quality products and an outstanding customer experience, you have created a lifestyle brand that can prevail in challenging times. Our online activity soared as both established and new customers recognized that Duluth products hit the sweet spot of their new normal at home and outdoors. As customers found their way to Duluth Trading Brand, we saw a 17% increase in new buyers, the largest percentage gain in three years. Our third lesson, never stop investing to make your company stronger and more competitive. Were it not for the substantial investments made over the last three years in distribution facilities, expansion, and capabilities, in replatforming our e-commerce channel and value-added services like Bopas, We would never have been ready to handle the surge in direct business. Fourth lesson, believe in the power of newness. During the past year, we expanded our playbook to focus on new ways to delight customers. We made headway building out our family of brands platform that celebrates the can-do spirit of Duluth. We developed 40Grid, a no-frills basic workwear line to appeal to a younger, more price-sensitive customer. We expanded our Alaska Hard Gear line with a new fishing collection and added the best-made brand of premium hard goods and workwear to our family of brands. We continue to drive innovative product development with new lines like swimsuits for men and women, Dank Soft underwear, Nova Natural, and additional pant sizes for men. For all these reasons and the challenges encountered in 2020, I'm very proud of what our team accomplished to deliver net sales of $639 million, up nearly 4% year-over-year, adjusted EBITDA of $55 million, up 7%, and free cash flow of $38.5 million. So what's ahead in 2021? As we've discussed before, we have paused our retail store expansion until there's more clarity around consumer buying patterns post-pandemic. Right now, we have only one signed lease for 2021. Looking beyond this year, we'll be studying new store concepts to reflect the changing retail environment. We'll continue to focus on new product innovations and potential line extensions, including possibly adding a women's collection to 40 Grits, Alaskan Hard Gear, and Best Made. We'll continue to make investments to expand digital capabilities that will provide more customized marketing and then improve our localized assortments in stores. And we are exploring the benefits of partnerships. In the beginning of March, we entered into a pilot test with Tractor Supply Company to have Duluth displays of buck naked underwear in 13 of their stores. Tractor Supply is not only one of the biggest successes in retail today, It is also closely aligned to the Duluth customer base. If the pilot is successful, the concept will be rolled out to other tractor supply locations. I think this type of partnership makes sense for Duluth. We see this as a great opportunity to expand our brand awareness with a top-tier partner. That said, it's way too early to count any chickens. In today's press release, we announced that board member Dave Coolidge has decided to retire, at the time of our upcoming annual shareholder meeting. Dave has been involved with Duluth for 20 years, having served on our earlier advisory board and then on our public board, providing invaluable advice and guidance to our company. Brett Paschke has been slated to replace Dave on our board. Brett is a partner and managing director of William Blair's Equity Capital Markets and was instrumental in bringing Duluth public. His deep experience in the capital markets and public company directorships will be a complimentary benefit to our board. I also want to mention that we have engaged a search firm to identify our next chief executive officer. When I reassumed the CEO role in September of 2019, I didn't expect to stay on this long. However, COVID made the continuity of leadership a deciding factor. Frankly, jumping back into day-to-day management gave me a greater appreciation for the talent and dedication of our team. I'm proud of the work we did together during the most trying of times, and I have more confidence than ever in the future of the company. Finally, Duluth Trading has always been committed to the principles of corporate social responsibility, and many of its principles are embedded in the ten wells that shape our culture of striving for greater purpose. like we treat customers, coworkers, and vendors like next-door neighbors. We strive for growth, both personally and collectively. We build lasting satisfaction into our products, and we aim to achieve a fair profit. I admit that we have been a laggard in communicating our commitment to CSR and ESG, but in 2021, we are going to do a better job. We have already formed an ESG steering committee and are adding ESG to the oversight responsibility of the nominating governance committee of our board of directors. We understand this is an important initiative for our many stakeholders, our customers, employees, vendors, investors, and the communities in which we have facilities. With that, I'll turn the call over to Dave Loretta to cover the details of our financial and operating results for the fourth quarter and full year.

Dave?

Thanks, Steve, and good morning, everyone. I'll begin today with a brief overview of our fiscal year results. Then I'll cover our fourth quarter performance and conclude with commentary on our outlook and guidance for 2021. As Steve mentioned in his comments, the Duluth team rose to the challenge and demonstrated agility and resourcefulness throughout a difficult year. The strength of our omnichannel models shine through, as many customers shifted to online while retail stores were closed for up to 10 weeks during the early stages of the pandemic. We delivered net sales of 638.8 million, an increase of 3.8% over the prior year. Our direct fulfillment network, including the role our stores played in shipping orders and expediting BOCUS orders, handled the surge in online sales with minimal disruption as the direct business overall grew to represent 72% of full year sales, compared to 57% in 2019. We entered fiscal year 2020 with plans that reflected an emphasis on growing our brand in new and existing markets, leveraging expenses, and expanding bottom line results faster than top line sales. While the pandemic altered our approach, the actions we took coming out of our first quarter to increase financial flexibility enabled us to generate cash flow from operations of roughly $84 million over the three quarters. In addition, we grew pre-tax earnings by close to 12% compared to net sales growth of just over 5% over that same nine-month period. In 2020, we opened only four new stores versus an annual pace of 15 store openings in prior years. While new stores have been an effective way to attract new customers, We were very successful in growing brand awareness and reaching new customers through digital channels. In fact, 2020 delivered our largest gain in customer acquisition in recent history with a 17% increase in the number of new buyers. And we did this without losing sight of our existing customers, where we've seen improving rates of retention and reactivation all year long. Another year-long initiative was to right-size our inventory levels and free up more open to buy for newness in the assortment. A year ago, we were sitting on inventory that was over 50% higher than the prior year. This expanded by the end of the first quarter to 68% higher over the comparable period. By adjusting our future order flow and being more aggressive in our clearance strategy throughout the year, we ended 2020 with inventories that were roughly flat to last year. Our gross margins were impacted by these aggressive actions But sequential improvement each quarter and realizing a 20 basis point year over year improvement in Q4 gives us the confidence that we've now turned the corner on our inventory position. That being said, we are realizing some delays today in inventory receipts due to the current challenge state of inbound shipping channels and congestion caused by record high imports and COVID related labor shortages. I'll address the impact this is likely to have on our first and second quarter sales trends shortly. Overall for fiscal 2020, we delivered $55.5 million in adjusted EBITDA, an increase of 6.8% over the prior year. This reflects greater operational efficiencies and a focus on optimizing the investments we've made over the last three years in technology and infrastructure. These investments are boosting our capabilities to increase delivery speed, customer spend, and inventory efficiency, and we expect this will continue in 2021 and over the coming years. Finally, in 2020, we generated positive free cash flow of $38.5 million compared with a cash burn of $22.4 million in 2019. As a result, we ended 2020 with a much stronger balance sheet and cash flow to fund our next phase of growth initiatives. Turning now to the fourth quarter, we reported net sales of $256 million, down 1.4% compared to the prior year. As we mentioned on our Q3 call in December, the holiday season began earlier this year. Peak sales volumes were pulled forward several weeks as many retailers encouraged early holiday shopping to avoid the strained delivery networks. Our direct business continued its positive growth trend up 15% in the fourth quarter, although down sequentially from third quarters plus 40% growth rate. This reflected the early holiday shopping and the shifting a key sale event from November into October to avoid the elections. As we progressed through the peak holiday period, customer traffic to our stores was impacted by re-emerging concerns with COVID lockdowns. For the quarter, our retail store sales were down 29% and reversed the improving trend we saw from the third quarter. Our omni-channel initiatives helped offset the soft traffic with our stores, fulfilling 22% of all direct demand in Q4. Also evident of the shifting buying patterns, our direct sales in store markets increased 20%. compared to an increase of 13% in non-store markets in Q4. Store traffic trends improved in January and continued into February, giving us confidence that 2021 will see a significant rebound in the store sales channels as the vaccines rollout continues and more customers return to stores. With industry-wide constraints on shipping deliveries in the fourth quarter, Pulling some peak holiday sales forward did help alleviate delivery delays. However, competitive pricing and free shipping offers weighed on our shipping fee revenues, which were down $1.9 million in the fourth quarter. Additionally, as mentioned last quarter, we expected higher costs associated with strains on the last mile network and heavier staffing needed to fulfill direct orders. Overall, roughly 2 million of incremental costs related to UPS shipping surcharges and COVID pay premiums were incurred in Q4. Turning to our product update for the fourth quarter, overall, our men's apparel was down 2% compared to last year, and women's apparel was down 3.5%. Softness in our button-down woven tops and core men's outerwear were below last year. However, In both men's and women's, our core bottoms, our outdoor active and workwear collections had strong performance. Comfortable basics continue to be in high demand, underwear, no yanks, and the noga collection. In men's, holiday-themed underwear, Duluth Flex fire hose pants and flannels contributed to men's volume. A bright spot was Alaskan hard gear products, which increased 9% to last year. In women's, we had a strong response to seasonal goods like outerwear and sweaters and flannel. The plus business is holding strong at 11% of the total apparel business and is responding well to the outerwear and the bottoms. Additionally, we added two new collections to our brand lineup in the fourth quarter, 40 Grit and Best Made. 40 Grit saw increased momentum in the fourth quarter, representing our latest introduction for entry-level workwear at an everyday low price. Best Made launched on our platform in October as our new digitally native premium men's brand, and we quickly sold out of best-selling colors and styles within the first few months. We are excited about the potential of these two brands under the Duluth trading umbrella. We believe the new brand structure, including Alaskan hard gear and our core men's and women's Duluth brands, establishes Duluth as a destination for like-minded outdoor and workwear lifestyles. These emerging high growth brands speak more directly to targeted customers based on their needs and wants and will benefit from our scale and infrastructure platform in a way they couldn't achieve on their own. Turning to expenses, SG&A for the fourth quarter increased 1% to $105 million compared to $104 million last year. This included increases of $4.4 million in general and administrative expenses and $4 million in selling expenses, offset by a $7.2 million decrease in advertising and marketing expenses. As a percentage of sales, SG&A expense increased 110 basis points to 41.1% compared to 40% last year. This increase was largely due to the incremental cost incurred to meet customer expectations in a unique holiday shopping environment. and the higher mix of direct sales as a percentage of the total. Selling expenses as a percentage of net sales increased 170 basis points to 16.7% compared to 15% last year. The carrier surcharges and heavier use of stores for direct order fulfillment pressured our cost per unit metrics and increased delivery expenses. On the advertising front, Our continued investment in digital prospecting drove growth in mobile traffic, conversion, and sales rates, although at a slower pace than the third quarter. Planned cuts to TV ads, mainly during live sports in October and November, impacted site traffic and brand search in subsequent months. Our brand search and website traffic were up 9% compared with 30% in Q3 and 2% in the fourth quarter of last year. Despite the slowdown in holiday traffic, we realized significant advertising leverage in Q4. Advertising and marketing costs as a percentage in net sales decreased 260 basis points to 10.6% compared to 13.2% last year, primarily due to reduced catalog and TV advertising spend, as well as cutting billboards in local store markets, partially offset by higher digital advertising. General and administrative expenses, as a percentage of net sales, increased 200 basis points to 13.8% compared to 11.8% last year, largely due to higher depreciation and amortization on new technology investments. Our store count remained stable at 65 stores during the fourth quarter. We are on hold at this time for adding new stores while we observe customer shopping behavior and the economy begins to return to normal. Adjusted EBITDA for the fourth quarter was $38.7 million, a decrease of $1.3 million versus the comparable period. We reported net income of $21.8 million or $0.67 per diluted share. compared to 24.4 million, or 75 cents per diluted share, reported in the fourth quarter last year. Moving on to the balance sheet, we ended the quarter with net working capital of 115 million, including 47 million in cash and 48.3 million outstanding on our term line of credit. Clearing through the elevated inventory levels from earlier in the year, and reduced capital spend relative to prior years helped generate positive free cash flow of $38.5 million in 2020. Free cash flow will fund future growth, will lessen our reliance on the credit facility, and support the exploration of new third-party distribution channels, as Steve articulated before. As we begin the new year, we're focused on improving profitability through increased sales in the stores, cleaner inventory management, and greater automation in our distribution center network. In addition, the initiatives to support our emerging brand platform are on track, and our new customer data warehouse and analytic tools are ramping up to enable deeper customer segmentation and personalization. Altogether, we are very optimistic for what the future holds at Duluth. That being said, given the continued uncertainty with respect to COVID-19, we remain prepared for a range of scenarios to ensure we can sustain growth and continue to accelerate our operating efficiencies. Based on the assumption that our stores will remain open over the course of the year and vaccination rates will continue to improve, we expect to deliver sales growth in the range of 6% to 10% overall for the business. This includes one new store opening in Cherry Hills, New Jersey, currently slated for a November 2021 opening, and the closure of our Mall of America test concept store next month. The quarterly mix of sales by channel will shift dramatically in 2021, given the easing effects of the pandemic. We do expect some near-term pressure in the first half of the year due to the delays in inventory receipts. Our best estimate at this time is that sales growth will be at the lower end of that sales range in the first half of the year and at the higher end of the range in the second half of the year. With cleaner inventory levels, we expect to realize gross profit percent improvement of 50 to 100 basis points. This will drive operating margin improvement of at least 100 basis points for the full year as we realize leverage in selling expenses, and stores contribute up to 35% of company sales. We are entering the year with a number of key investments in place that have added to our overall depreciation and amortization estimate of 31 million to 32 million for 2021. Adjusted EBITDA is expected to be 66 million to 70 million this year, which represents growth of roughly 25% over 2020. In addition to this healthy growth in earnings, with only one new store in the pipeline, capital expenditures, including software hosting implementation costs, will be down slightly year over year to about $15 million. As a result, we are expecting to generate positive free cash flow of at least $20 million in 2021.

With that, I'll open the call for questions.

We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw from the question queue, please press star then 2. The first question comes from Jonathan Comp of Baird. Please go ahead.

Yeah, hi, thank you. Good morning. Dave, maybe first just wanted to get your thoughts on the near-term environment. It sounds like you've had a good start to the first quarter, and you're about to cycle, if not already, the past few days. You had a pretty significant disruption last year, so how are you thinking kind of the current trajectory and maybe the balance of Q1, Q2, and any thoughts on how that might play out by channel would be appreciated.

Yeah, sure, John. Yeah, we are in the middle of a period that's, compared to prior year, going to be significant shifts, right? It was a year ago that we did start to have to close our stores. So going against those comparables is going to look different than we have as of recently. But the trends overall in the business are very encouraging through February. For the month of February, our total business was up 13% by channel that represented direct, up a little over 40%, and the retail channel still negative, but a little better than the fourth quarter, down minus 20, 24%. In March, the first two weeks of March, we're seeing that improvement continue and remain in the mid to even slight high teens overall. This past week is when we really start to see our stores comp positively over the prior year as traffic was dwindling and then stores started to close. So when we look at our first quarter, we're expecting the quarter to be in the mid teens overall for the business. and that means direct is going to be slightly down from its current trend because last year we were very aggressive near the end of March and in April with some promotions, clearance events, and so we're not expecting the direct to be as much by the end of the first quarter to be as positive, but retail should be significantly higher, 60% to 70% over last year. So the combination of those two gets you to sort of a mid-teens for the Q1 outlook right now.

Okay, great. And maybe on margin, the full year gross margin expansion as well as it looks like a little bit of implied G&A leverage for the year. Could you maybe just differentiate some of the drivers for both of those pieces, if you're willing?

Yeah, certainly. We do expect that gross margin will see some improvement. Last year, we had a significant hit to our gross margin, so we'll see some improvement in the first quarter, likely a little over 100 basis points. And for the full year, 50 to 100 basis points improvement in gross margin based on our promotional plans right now. But yeah, our leverage is going to be coming from selling costs and overhead, the big component of overhead is simply having our stores open and being able to leverage the occupancy and the fixed cost in that channel. But in terms of ad spend, we're expecting to be relatively flat in terms of our percent of sales. We held some back last year, and we're going to shift it around. We'll have significant leverage in the first quarter, but we're just moving dollars into more of the back half of the year. You know, full year guidance that we gave on earnings growth is sort of what those components will get us to.

Okay, excellent. And just last one on the new pilot selling and tractor supply, the handful of stores so far. Any broader thoughts how to – shape the, you know, the strategy, how it's evolving around where you may be willing to sell Duluth product. And I know it's very early, but just given the current margin profile of the business of selling in your, in your own channels, if you did decide to ever meaningfully increase the portion that you might be willing to sell in other channels, any, any kind of broad stroke talks on what that might mean from a, from a margin contribution standpoint, understanding it's early. Any thoughts there would be helpful?

Yeah, it is very early. And, you know, the product that we picked for that test is our most, you know, tried and true, well-known product, and it carries some of our best margins. So we, you know, we expect that net will see some accretion and margin overall from this activity if it really takes off the way we hope it will. You know, we don't necessarily need to apply the same level of ad spend on that effort, so you get some benefit there, and then it's, you know, the partnership is really a one company to another, and it's a well-known company, so, you know, we don't have any plans at this point to to ramp up a wholesale division or, you know, internal cost to really manage a growth in that. But this was simply a first attempt at us to see what our product would look like in other retail places that can gain some customer awareness and pick up new customers.

I look forward to seeing that. Thank you. Yeah, thank you.

The next question is from Jim Duffy of Stiefel. Please go ahead.

Thank you. Good morning. So, guys, a good year all in all. Very good progress on the inventory. After growth in both the second quarter and the third quarter, the inflection to a revenue decline, however, in the fourth quarter came as a bit of a surprise given the new customers acquired, technology advancement, new products offerings. We would have thought the direct business would have been stronger, but What was the direct deceleration larger than your expectations in the fourth quarter? Do you guys think maybe you cut advertising expense too much in the fourth quarter? And then, Dave, I'm curious what's embedded for direct business in the full year outlook.

Well, let me start there, Jim, in terms of our outlook. You know, for the full year, we're not expecting that direct is you know, needs to generate much growth at all compared to the prior year. We, as you saw, you know, from April through November, direct was on a very, you know, high growth rate. The deceleration in the fourth quarter truly came in some of the critical weeks in December, and possibly pulling up on ad spend did impact that, but Given the dislocation of where the shopping was happening, and the concerns around delays of deliveries from our carrier network, we were concerned that if we stepped on the gas further in that period of time that we may disappoint customers. That's something we didn't want to do, having a delivery not made when they expected it. Um, that that's partly why I think we saw some deceleration there, but, uh, it really re, uh, reinvigorated itself when we came into January. So no concerns that, that there's a channel, um, issue with, with our direct business. Um, and I think we could be, you know, uh, my, my estimate for 2021, but, um, you know, retail is really where we're expecting the growth and the top line to come in 2021.

Okay. With respect to the direct business, you've greatly tightened up the inventories. It's your intent to be less promotional. There's some inherent tension there between promotion and supporting that direct business. Are you confident that you can stabilize a direct business while being less promotional, or do you view that less promotional stance as being a headwind we should consider an estimate?

No, we can demonstrate growth in direct during periods where we're not as promotional. You started with the comment of the file, the customer file base is much larger and that's that's right it is so I think in the periods where we are introducing new products that are seasonally you know right and hitting that sweet spot then we you know we're going to see nice momentum indirect but it'll be hard to compare to the prior year but it doesn't mean that we're really going backwards in that channel okay

And the last one for me, and I'll let someone else jump in, just a point of clarification on the guidance. Dave, is the tractor supply rollout reflected in your commentary about mid-teens growth quarter to date, and are you embedding any assumptions about a wholesale revenue contribution in your 2021 outlook?

No, it's not contemplated in the outlook, and the test that we're in right now, you 13 stores of tractor supply. You know, it's just our buck naked skew across a few colors and sizes. So it's fairly small and not material at this point. But if things progress well and we expand it to other stores, then we'll obviously refresh our outlook to contemplate that. But it's not in there today.

Okay. Thank you, guys. Thank you.

As a reminder, if you have a question, please press star, then 1. The next question comes from Dylan Carden of William Blair. Please go ahead.

Thank you very much. Just curious, you had mentioned kind of the outperformance of hard gear, and it sounds like Best Made Co. is off to a good start. Could you kind of just break down the contribution at this point between kind of plus hard gear, some of these newer categories and brands? as they stand now or maybe as you anticipate them to stand for 2021?

Yeah, Laskin Hard Gear is certainly much larger than Best Made and 40 Grit. It's about 5% of our business, but growing at a faster pace. So that's probably more of a meaningful sub-brand that's going to move the needle when it does well. Best Made and 40 Grit today are less than 2% in what they're planned, but we're going to see significant growth in those channels or in those brands in 2021, but still relatively small compared to our core men's and our core women's, which are driving most of this volume for us right now.

Great. And then when you talk about this next phase of growth, You know, maybe talking about sort of why CapEx hasn't stepped down a little bit more this year with only one store coming online and kind of what you're putting capital towards now if stores aren't kind of the primary growth engine. Is that pay down kind of anticipated and uses of cash go forward? Anything there would be helpful.

Okay, yeah. Certainly CapEx is a function of a store. stores and with one store, then we'll see less spend there. But the other areas that we've got teed up and that we're working on right now include a software implementation, our merchandise lifecycle management tool that'll provide us with tools to allow for assortment planning, forecasting and replenishment. You know, these are basic infrastructure that retail organizations have and We've gotten by with the patchwork of systems and manual procedures, but it's really due time to have this initiative. So that's going to be several million dollars, three or so million dollars of CapEx to get that initiative stood up. And then the other big spend is going to be in our logistics area. We are going to add some efficiency and capabilities in our Belleville warehouse. But more importantly, we're adding a third distribution center in Salt Lake City that will have several million of implementation and fixture costs to get it up and running. And what that will do is it gives us the capacity during the peak period and a closer delivery time to the West Coast as well. But that capacity will give us further confidence during the fourth quarter to step on the gas, like I articulated, and really be confident that we can deliver and meet our customers' expectations. So these are capital spend that are infrastructure-related and are necessary, but we'll get benefit from for the foreseeable future, three to five years at least. That's kind of the big pieces.

That's great. Thank you very much for that. And then the final one I have is just I'm kind of trying to understand guidance here. You're off to kind of a mid-teens pace total top line, it sounds like. That should theoretically get a little bit better as you let up closures. But it sounds like you're expecting of the 6% to 10% sales outlook for the whole year, there's a first half. The first half is going to come in kind of towards the lower end of that range, the back half towards the higher end. It sounds like there might be just some volatility between quarters. and then stores making up 35% of total for the year. Is there any sort of way that you can kind of contextualize what that looks like front half versus back half, Dave?

Yeah, certainly first half, we're going to see direct going against some significant volumes in the end of the first quarter and in the second quarter, and we're not anticipating that for a channel growth that we'll see any growth, it'll likely be down to prior year in the mid single digit. But that's gonna be offset with retail, that could be up as much as 50%. So that's the rough map to get you to the low end of our sales guidance range for the full year. And then in the back half of the year, we will expect direct to start to grow, especially in the fourth quarter, But for the full back half of the year, it'll probably be mid-single digit, and retail will be closer to 20% to 30% growth as we're going against periods where the stores have been open, but traffic wasn't as strong last year with the pandemic concerns. So we think the back half of the year can combine those two to be higher to the high end of that range, the 10% growth.

Really appreciate that, Dave. Thank you.

There are no other questions at this time. This concludes the question and answer session and today's conference. Thank you for attending the presentation. You may now disconnect.