Duluth Holdings Inc.

Good morning and welcome to the Duluth Holdings, Inc. second quarter 2022 conference call. All participants will be in a 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 telephone keypad. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Nitsa McKee. Please go ahead.

Thank you, and welcome to today's call to discuss Duluth Trading's second quarter financial results. Our earnings release, which was issued this morning, is available on our investor relations website at ir.duluthtrading.com under press releases. I'm here today with Sam Sato, President and Chief Executive Officer of and Dave Loretta, Chief Financial Officer. On today's call, management will provide prepared remarks, and then we 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 risk 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 Sam Sato, President and Chief Executive Officer. Sam?

Thank you, Anitza, and thank you for joining today's call. We're excited to share progress and updates on our key strategic initiatives as we move into the back half of the year and prepare for the fall winter season. As you recall from last quarter's earnings call, We recently updated our brand positioning by introducing the Duluth by Duluth trading and the AKHG sub-brands to our brand platform. We also launched our AKHG women's collection to fill the open space for innovative and technical outdoor clothing designed for women. The brand positioning directly addresses our customers' desire for apparel and gear that meet their active work and outdoor recreational activities while staying true to the Duluth trading heritage of standing for quality, durability, and problem-solving functionality. The customer response to our brand positioning has been strong and confirms our view of long-term growth potential embedded in our strategic plans. In particular, we see the women's apparel categories across our sub-brands having outsized expansion opportunities. During the second quarter, women's grew nearly 4% over last year and represented a nearly 30% increase from the pre-pandemic period in 2019. The introduction of the women's AKHG collection was a key driver of this growth in Q2. But also contributing to the multi-year expansion is our core Duluth Garden and Wayforgers workwear collections. By focusing on both fit and function, our broad size-inclusive options and trusted technical designs continue to build loyal brand consumers. Moving to a more balanced assortment across men's and women's expands our addressable market potential and leverages the technical and logistics investments we're making to support product offerings that appeal to a broader customer base. I'll share more regarding recent product launches and customer insights informing our growth strategy shortly. But first, I'd like to touch on our recent results. Today, we reported second quarter net sales of $141.5 million, net income of $2.4 million, and earnings per share of $0.07. While these results fell short of our internal plans as we were not immune to the heightened level of macro uncertainty and inflationary pressures impacting discretionary spending, we're encouraged by the healthy momentum in our direct channel, which posted a slight year-over-year increase in the quarter and improved sequentially when compared to the 12% decline in Q1. Additionally, our cleaner inventory position this year weighed on the top line sales growth with sales of clearance goods down roughly $13 million compared to the second quarter of last year. Excluding clearance goods, net sales in the quarter were up roughly 5% over last year. While we are seeing some signs of consumer spending softness with store traffic down the prior year, and customers' purchase behavior influenced more by promotional events. Our product selling gross margins were nearly flat to last year, and average transaction size for the retail channel also held firm. Additionally, store conversion rates increased to prior year, supporting brand health and strong product acceptance. Dave will share more details on the gross profit margin for the quarter but nearly all of the 120 basis point decline was attributed to an isolated inventory write-down on goods damaged while in transit. Our overall inventory position is in good shape after shipping delays that impacted last year and the first quarter have mostly subsided. Importantly, aligned with our strategic shift to carry meaningfully lower levels of clearance inventories, our end of season clearance represented roughly 8% of total inventory compared to 10% last year. We are entering the fall selling season clean and well positioned to capture demand. Having said that, we are pertinently adjusting our sales outlook for the back half of the year to reflect an evolving yet uncertain macro and consumer operating environment. But we still do expect to recapture sales that were missed last year because of the significant shipping delays. As a reminder, we ended our second quarter last year with inventory levels down 20% against the prior year in which we missed sales in the second half due to these delays. As we enter the third quarter Our inventories are up 22% versus last year, and if you exclude in-transit inventory, our year-over-year inventory is up 13%. Importantly, nearly 90% of the increase in inventory is made up of year-round goods. With our total inventory in a much better position and with an improved flow of new seasonal receipts, we believe our better in-stock positions will support overall sales growth. We are managing expenses well in the face of inflationary headwinds and remain committed to the investments we previously discussed in support of our Big Damn Blueprint to build out our infrastructure and technical skill sets while also investing in our teams. Progress on our logistics expansion and automation project in our new fulfillment center in Adairsville, Georgia is going well and on track to be operational mid-2023. We are in the final stages of adding capabilities to speed up inbound and outbound inventory flows in both our Belleville and Dubuque fulfillment centers, which will better support our needs as we enter the all-important peak holiday season. Additionally, we've kicked off a key technology project to upgrade our Microsoft ERP system to the current generation, which is an important piece of our technology initiative to advance our internal capabilities and build the foundation to support long-term growth. The new ERP system is expected to go live mid-2023. Finally, we recently announced the hiring of a new Chief Technology and Logistics Officer, AJ Cetera. AJ has tremendous experience and expertise across the critical components of our strategy and we're very excited to have AJ join the Duluth family. We are also committed to building our family of brands with the necessary awareness, marketing, and customer data insights needed to flex our mix of advertising. The customer's adoption of digital platform and influencer-based purchase behavior has never been greater and is informing our shift to prioritizing social media and paid digital media to gain greater visibility to our sub-brands. The best return on advertising spend comes from where we're able to leverage data models to identify specific customer segments to focus on purchase frequency within priority geographies. As we further develop our customer insight capabilities, we're refining our understanding of who makes up the most valuable Duluth Trading customer in terms of their initial purchase, spend frequency, and average transaction size. Our data tells us that customers who first purchase with a heavy promotional or clearance discount typically have lower retention rates and lower overall spend. Over the last two years, Many new buyers made up this profile and account for roughly 20% of our buyer file. These buyers are more price driven and lead to lagging lifetime value. Buyers who first purchased was not on a steep discounted transaction make up the 80% of our buyer file and on average are worth twice the lifetime value. These customers are our conventional spenders who retain better and spend more than price-driven buyers. While new buyer acquisition is critical to our long-term success, more importantly is acquiring conventional spend customers, even when that means we may acquire fewer new buyers annually than we have over the last two years. Once acquired, our focus on messaging shifts to engagement and retention. Our marketing technology capabilities are allowing us to introduce new communication tracks and enhance personalization through triggered and transactional communication. Understanding the unmet needs, perceptions, attitudes, and purchase decisions of our target customers are better informing our differentiated and competitive offerings in-store and online to drive incrementality. Altogether, we've recently mapped a 12-month new customer journey program that begins with digitally driven prospecting through social media and paid search based on lookalike customer modeling. Next, we focus on an onboarding process designed to introduce the Duluth brand values, share peer reviews and customer picks, prioritize premium brand messaging, and encourage the new customers to follow and share our stories. Finally, with data-driven recommendations based on prior customers, we provide personalized offers for a second purchase to nurture loyalty and cross-brand selling. This intentional approach to building customer retention informs our marketing decision and test and learn acumen for ongoing refinement. The early results of these efforts have led to a mid single digit increase in new conventional spend buyers. During the second quarter, we realized a high single digit increase in website visits and nearly 70% of all visits came through mobile devices, generating just over half of total direct net sales. These results continue to give us confidence that investing in a digital first strategy is the right way to go. The benefit of employing more targeted messaging in more real-time platforms is that our seasonal product categories have greater relevance and appeal during their best-selling timeframes. When we can capture business that is buy now, wear now, we not only meet our customers' real-time demand and fuel brand loyalty, but drive higher sell-throughs at full price, resulting in higher gross profit margins. This is a good segue into recent merchandising performance as we transition between our spring-summer season and our fall-winter season. Our seasonal categories, such as gardening, swim, shorts, and short-sleeve shirts, are continuing to build year-over-year momentum in both Duluth workwear and AKHG outdoor recreational collections. Also, our proprietary fabrications that serve customers' needs in the warmer climates, such as Dry on the Fly, Armachillo, and Coolmax, are among the strongest positive growth product sets for us. Included in these product categories are items within our first layer brands, such as the Armachillo Cooling Bra, which has been selling extremely well, along with the overall bra business that grew nearly 60% in the second quarter. Total, women's first layer category grew nearly 20% in the quarter with continued strength in our no-yank tank collection. From a sub-brand standpoint, AKHG led the pack with total sales growth of 21% in the second quarter, followed by our first layer collection at 2%. Overall, Duluth by Duluth trading was down in the quarter 9%, with the largest impact coming from less clearance sales. The good news is we're already starting to see good demand for new fall products such as flannels, Duluth Flex fire hose pants, and footwear items such as our Duluth grindstone work boots and Jack Pine hikers. Our fall and winter season is poised for growth with exciting new collaborations that include a sponsorship with the Green Bay Packers on a limited edition Duluth game day apparel assortment and a partnership with Mossy Oak for the introduction of camouflage patterned and highly visible outerwear items for our hunting enthusiasts. We are also expanding one of our best and longstanding men's program of long-tail tees that will provide a wider assortment of fit, features, and colors to further command ownership in the workwear first layer category. In the women's first layer business, we are introducing new silhouettes of our successful line tamer collection of bras and underwear that feature invisible bonded seams and super soft construction, providing the ultimate comfort and support our customers are asking for. Lastly, we're excited to share the publication of Duluth Trading's first corporate responsibility report, that articulates our commitment to critical aspects of our ESG initiatives. The report showcases where we delivered, how we are progressing, and the ways we plan to grow in our commitment to sustainability, being a people first organization that values diversity and inclusion, and practicing good corporate governance. As with any organization, we understand we have work to do and strive for continuous improvement. With guidance from our ESG Steering Committee and Board of Directors, our approach to reporting is to be straightforward, realistic, and not overstate or obscure where we are in the process. As we demonstrate in the report, our responsibility goes beyond our own business, and I'm proud of the initiatives we have pursued and of the meaningful progress our team has made. With that, I'll turn it over to Dave to provide more details on our second quarter results and discussion of our back half of the year outlook. Dave?

Thanks, Sam, and good morning. For the second quarter, we reported net sales of 141.5 million, down 5.1% compared to 149.1 million last year, and up 3% compared to the same period in 2020. The decrease in clearance sales between this year and last was roughly $13 million and was the contributing factor in our sales decline year over year. Our direct channel sales were up 0.1% from last year, while the retail channel was down 12%, driven by a decline in store traffic, partially offset by an improvement in store conversion. As we shared on our last call, Better inventory balances combined with our new brand positioning and marketing support drove sales growth in April and during the first six weeks of Q2. However, a slowdown leading into the Father's Day selling period impacted both channels. Our direct channel recovered in July with sales growth of mid-single digits driven by adjustments made in our digital advertising mix and continued focus on the new brand messaging. Additionally, direct sales and store markets outperform non-store markets, with strength coming from both established markets in the Midwest and newer markets in the southeast and mountain states. As Sam mentioned, our other strategic objective is to adjust our new customer prospecting to attract conventional spend buyers versus purely price-driven buyers. Early signs of progress here show a mid-single-digit percent increase in the second quarter in conventional spend buyers. As we continue to strategically utilize deeper customer analytics to inform our media and messaging strategies, we expect our active buyer file will continue to shift slightly younger and will be reflective of customers whose long-term value is tied to our brand propositions. Our second quarter gross profit margin was 53.4% compared to 54.6% last year. This represents a 7.1% decline in gross profit dollars from $81.4 million last year to $75.6 million this year. Of the 120 basis point decline, 110 basis points was related to inventory adjustments, most of which was the result of a one-time inventory write-down on goods that were damaged during transit to our fulfillment center. These goods were core men's underwear that are on regular replenishment cycle and therefore will not have an impact on sales. The remaining 10 basis point decline in gross profit margin was due to the impact of selling mix between full price, promotional, and clearance sales. As we previously noted, our position in clearance goods is less than the prior year, and at the end of Q2 was 8% of total inventory compared to 10% last year. Importantly, as supply chain congestion has eased over the last six months, we are in a much better position on core year-round items and are seeing good inflows on our fall-winter seasonal items, giving us the confidence that we'll recapture a portion of the early seasonal demand that was missed last year due to shipping delays. Turning to expenses, SG&A for the second quarter increased 5% to 71.7 million compared to 68.3 million last year. As a percentage of net sales, SG&A expense increased to 50.7 percent compared to 45.8 percent last year. This included an increase of 700,000 in general and administrative expenses, 2.3 million in advertising and marketing expenses, and an increase of 400,000 in selling expenses. Selling expenses as a percentage in net sales increased 100 basis points to 15% compared to 14% last year, driven by the higher hourly wage rates implemented across our store fleet and fulfillment center network in the back half of 2021. Additionally, fuel surcharges on our outbound customer shipments contributed to the selling expense deleverage. we expect to realize a slight deleverage in selling expenses in the third quarter before annualizing the wage rate increases and realizing efficiency gains to offset the higher costs. In terms of the fuel surcharges, we are anticipating the elevated levels will continue throughout the year. Advertising and marketing costs as a percentage in net sales increased 210 basis points to 10.3% compared to 8.2% last year because of our increase in paid digital media advertising as we continue to shift from traditional catalog marketing to brand and product messaging aimed at target customer audiences in the social and search platforms. Overall, we expect our advertising and marketing costs will be slightly below last year for the back half of the year, and we will realize leverage of 80 to 100 basis points to last year with all of that improvement coming in the fourth quarter. General and administrative expenses as a percentage of net sales increased 180 basis points to 25.4% compared to 23.6% last year. The $700,000 increase from last year represents personnel and technology costs as well as fixed costs for our Cherry Hill New Jersey store and Salt Lake City fulfillment center that opened in the back half of last year. We expect a similar deleverage in our third quarter for the same reasons. For the fourth quarter, we expect to realize expense leverage in G&A in connection with anticipated sales growth. As of today, our store count stands at 65 with no planned store openings for the balance of the year. As we discussed previously, We are evaluating locations for potential store sites in 2023, and we'll share more details once we have more information on the timing. Adjusted EBITDA for the second quarter was 13.2 million, a 38% decrease from last year, and 500 basis points of adjusted EBITDA margin contraction. Our net income was 2.4 million, or 7 cents per diluted share, compared to 27 cents per diluted share reported in the second quarter last year. Moving on to the balance sheet, we ended the quarter with net working capital of $102.4 million, including $15 million in cash and zero outstanding on our line of credit. Compared to the same period last year, we had $19 million in cash and zero outstanding on a line. During the second quarter, we took the opportunity at minimal cost and no increase in our borrowing rates to increase and extend our line of credit. With the amendment completed with our existing bank group, the facility now stands at $200 million in revolver capacity and expires in July of 2027. As of today, we have $5 million outstanding on the line of credit and expect to minimally increase our borrowings during the third and fourth quarters to fund our inventory ramp-up as is typical for our seasonal liquidity needs. We expect the borrowings to be paid down with an excess cash balance by year end on the balance sheet. Our inventory level is 22% higher than last year at quarter end and is in a healthier position than last year at this time with a lower level of clearance and a higher mix of year-round goods. Our year-round mix drove roughly 90% of the increase The increase in total inventory units is roughly 19% over last year, with a delta to our total dollar increase reflecting higher average costs and a shift in the mix of balances with growth in our AKHG sub-brand. As a reminder, delays on the inbound receipts we experienced last year resulted in an inventory decrease of 20% compared to the prior year. Our capital expenditures year to date of $19 million including the cost of software implementation, is in line with our plans. Our outlook for the full year CapEx remains at $40 million and reflects the investments we're making in logistics automation, the expansion of our fulfillment network with the new facility in Adairsville, Georgia, and technology upgrades. We now expect free cash flow for 2022 will be flat to slightly positive. Consistent with our Big Dan blueprint, The investments we're making across the business will facilitate an expanded and more automated distribution capacity, product and brand development capabilities, and add to our customer insights and data analytics to better inform our assortment and marketing mix. These investments are all focused on being more digitally led as a business and positioning our business to support continued organic growth and consider strategic acquisition opportunities down the road to summarize our outlook for the third and fourth quarters we expect sales and our direct channel to be up high single digits in the third and fourth quarters for retail sales we expect to be down to prior year mid single digits in the third and fourth quarters we expect gross profit margin to be down roughly 120 basis points in the third quarter and down 50 basis points in the fourth quarter with the full year gross profit rate close to flat year over year. We plan to increase advertising expense in the third quarter by roughly $2 million and decrease in the fourth quarter by roughly $3 million compared to last year. With selling expenses, we expect the third and fourth quarters to be flat to up 30 basis points as a percentage of sales. Overhead expenses in the third quarter will increase as a percentage of sales by roughly 180 basis points and be down 150 to 200 basis points in the fourth quarter relative to last year as we gain leverage on sales growth. We are updating our full-year guidance with net sales of 680 to 705 million, adjusted EBITDA of 69 to 73 million, and EPS in the range of 61 cents to 71 cents. In closing, while we recognize that consumer uncertainty has challenged our original business plans for 2022, we remain committed to driving demand and awareness in our multi-brand positioning, as well as committed to the capital investments necessary to unlock the company's full value creation potential. Our teams remain focused on what is in our control and making the adjustments needed to navigate a dynamic consumer environment. And with that, we'll open the call for questions.

Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. And the first question will be from Jonathan Komp from Robert Baird. Please go ahead.

Yeah. Hi. Thank you. Good morning. I want to just start on the changes to the guidance for the year. Could you maybe just break out how you've thought about roughly the $50 million reduction and the revenue guidance for the year. And as we think about the plans you just outlaid for the second half and the sequential acceleration in both of your channels, can you just share more how you're thinking about modeling that in light of some of the uncertainties out there?

Yeah. Hi, John. This is Dave. You know, certainly the back half of the year, as we look at it, always had a significant opportunity from year-over-year standpoint, given the inventory shortages that we had last year. So, despite some of the kind of macro headwinds that we know we're facing, we really feel like we're in a position with the inventory to, to recapture lost sales that were missed last year. And some of it was in a good part of Q3 where we know we didn't have an inventory and we dialed down marketing in response to that and then continued with a greater delay in inventory in Q4. So that's the primary driver for saying some of the inflection on sales growth rates heading into the back half of the year. I'll say, you know, quarter to date, we're trending similar to the overall Q2, down slightly in aggregate, low single digits, but direct is outperforming retail. And retail has improved relative to where it was at the end of the second quarter. So momentum is improving, and the inventory position is really what's going to be a big driver of that sales growth in addition to putting into place the marketing tactics that we held off last year in doing.

Just as a follow-up, could you maybe share what you're seeing in terms of promotions across the industry and just how you think about competitive promotional intensity impacting your business, especially as you shift your focus to more high-value customers?

We're pretty happy with our gross margin performance. Despite the write-off that we talked about in the second quarter, our product margins are holding pretty strong, especially you think about year-to-date, you take out some of the isolated items, we're up significantly year-over-year on gross margins on product selling. So while we're seeing some customers shift to more promotional periods, we're holding our margin rates fairly healthy on that front. Average transaction value in the retail channel is strong and holding where we've been at. Conversion rates continue to be better than prior years. And, you know, we're just in a better in-stock position as well throughout this period of time now that the supply chain is released. And I'd say on top of that, we're excited about the women's collections that are a lot of momentum. with the launch of AKHG and base layer categories. So I think, you know, competitively, we're feeling like we're in a good spot.

Got it. And just last one for me, bigger picture question on the margin. The adjusted EBITDA margin for this year I think now is guided a little bit below 2021. And so just thinking – More broadly, longer term, I know you have your long-term targets for 14% to 15% adjusted EBITDA margins. Are those still viable and realistic in this environment, or are there changes in the degree of spending or the intensity of some of the investments or other efficiencies you see that still keep those as relevant targets out to 2025? Thank you. Yeah.

John, I mean, we're still seeing a high receptiveness for our products and selling performance, so I don't think that pulls down some of our longer-term goals at this point. We'll see how the back half of the year goes, and we'll refresh our long-term goals when we come out of this back half of this year and share our perspective there, but we don't see any underlying signs of of not being able to achieve those operating margins in that timeframe. Okay, fair enough.

Thanks again.

And the next question will be from Jim Duffy from Stiefel. Please go ahead.

Thank you. Good morning. Good morning, Ben. Good to speak with you. Guys, because so much of the earnings power is in the fourth quarter, there's going to be a lot of focus on trajectory, momentum, and the assumptions in the guide. I wanted to dig in some about just trends across the quarter and into the 3Q. You spoke about things slowing around Father's Day. Was that true for both retail and direct-to-consumer, or was that more of a retail comment?

Yeah, Jim, that was really more of a retail comment. foot traffic situation where direct was coming out of the first quarter much stronger and and and pretty healthy now that you know direct I think also was impacted a bit by the slowdown but relative to the trend it was on it's it was much better so so it's foot traffic to the stores is where where we saw the slowdown materialized the most.

Presumably maybe some link with gas prices there. I'm curious, as gas prices came down into the third quarter, did you see any improvement in traffic trends in the retail locations?

Yeah, we have seen, you know, since August and through this past month, the trend improved from what it was on. whether that was gas prices or not. But when we do look at our customers, those that live further away from the stores is where the impact was most. And those that are closer to the stores had a better performance. So I think that's probably a connection to possibly driving and gas prices.

Okay. And then the guide for the second half seems to improve excuse me, imply improving retail productivity in 3Q and 4Q, and it sounds like much of that is your belief that you're better in stock and in a better inventory position, and that should help conversion. What's assumed for traffic in this?

Well, the assumption is that we'd still be down slightly to last year, but we're talking mid- single digits versus, you know, the mid-teens that it was in the second quarter. And so, you know, continuing at the pace that we're now on right now where retail foot traffic is down, again, mid to high single digits instead of double digits. And that's what we're going to assume is going to continue through the back half of the year.

And then from a technical standpoint, guys, should stored traffic remain challenged or be more difficult than you'd anticipated? What's the philosophy around promotion? Do you see promotion as a tool to drive traffic or given your focus on acquiring consumers at full price, is that something you hope to avoid?

Yeah, I mean, you know, Jim, at a high level, you know, we want clearance and promotions really to be just a necessary evil, so to speak, and continue to drive greater regular price business and importantly, drive engagement through our highest value, most loyal consumers. And so while we're watching carefully the competitive landscape, we're watching some of the macroeconomic headwinds like gas prices. You know, we're also going to make sure that we're prudently managing our costs, but also, you know, ensuring that we're making the right pricing decisions to help our consumers, but also not compromise our longer-term brand position. And so as I said in my prepared remarks, you know, the consumer purchasing behavior has shifted a bit more heavily towards our promotional timeframes. But when you do the math and you look at the reduction of clearance sales at those really low margins, our gross product margins are remaining pretty healthy and near flat for the quarter. And we expect that it'll be similar as we get through the back half of the year. You know, we're going to be really thoughtful and purposeful about our pricing and promotional strategy, more focused around the long-term than any kind of near-term benefits that we may get from just taking severe price actions.

Understood. I'll leave it at that. Thank you, guys. Thanks, Jim.

Thank you. And the next question is Dylan Cardin with William Blair. Please go ahead.

Thanks a lot. Just kind of continuing on that same vein of sort of the outlook here, and I agree with Jim that that's kind of the crux of this. The deleverage or the reduction of $3 million in marketing spend in the fourth quarter, I'm just trying to kind of track that with having the inventory back in stock and having pulled back in marketing last year. I guess what am I missing? It would stand to reason then that you would increase at least the dollar amount. I guess what's the nuance in that outlook?

Yeah. Some of that is really just a shift from the amount of dollars we had allocated last year in response to the inventory delays. So we are increasing our marketing in Q3, knowing that we're in a better position heading into the back half of the year. And so the reduction in Q4 is really just a shift. The minor decline is coming out of some of the TV national brand awareness areas of advertising that's you know, not as efficient in the short term. What is efficient in the short term is the digital spend, and that's where we are increasing quite a bit in both quarters. So digital, social, and paid search are where we're seeing the most near-term traction in driving traffic and sales. And so it's more of a mix opportunity in our overall spend to get to those sales. Got you.

And then just kind of the best way to ask this question, but is having the inventory enough here? I mean, it seems like we're kind of almost in a similar position that we were in, you know, coming into the second quarter where it was sort of anticipation of acceleration in sales predicated on having certain, you know, inventory backed up by marketing. And I get all the enhancements to marketing, and I agree with them. But is the guidance now reflective of simply just having – core basic items that you didn't have last year and kind of that customer you know is going to show up? Or is there a certain amount of kind of recovery still necessary in the broader economy to kind of hit the new targets? Does that make sense?

Yeah, dealing with Sam, I would say a couple things. One is when you look at our year-over-year comps, you know, last year, as we analyzed our business, we were pretty short on a big chunk of our core products, and that represents over half of our business. And so the fact that we are going to be or are and will continue to be in a much better in-stock position relative to our needs, and certainly when you look at it year over year, that absolutely gives us greater confidence in the back half of the year. You know, we really try not to build much into, you know, the improvements in the macro conditions. You know, it's so uncertain and so choppy that it just wouldn't be prudent of us to do that. And so we really believe that that combination of being in really good stock in our year-round goods coupled with the early reads we're getting on new products for fall in some big categories for us, like flannels, as an example, and then the continued escalation of our women's business continues to give us confidence that, you know, the back half, we've got some opportunity for some expansion there relative to not only our current trends, but equally important, you know, relative to the year-over-year comparisons. Okay.

And then finally, just in closing, any sort of update on how wholesale is performing in this environment?

Yeah, well, if specifically tractor supply, you know, our results there, we continue to see positive momentum. In fact, we're in the process now of expanding our test to an additional 70 stores ahead of the peak holiday season. So we'll now be in 180 stores and then online. We recently partnered with them on an offer through their loyalty club membership, and that resulted in thousands of new Buck Naked customers from Tractor Supply. So, you know, we continue to work closely with them. They've been great partners and continue to look forward to expanding that business.

And is that customer, how does that customer match up with that kind of core customer you're kind of speaking to, speaking with, talking to, speaking with directly through some of these new engagement tactics? Is that a more, I guess, agricultural working class customer or does that line up pretty closely with who you are trying to get on the other side of the retail business?

Yeah, I think at a high level lines up really well with us. You know, it's it's a segment of that consumer. So to your point around, you know, this agricultural farming industry, you know, that's only a subset of, you know, the more high-level consumer we're focused on. But certainly, you know, within demographic, sociographic, you know, economic standings and whatnot, it fits really nicely within where, you know, Duluth continues to, you know, target our our engagement and customer journey strategy. Very good. Awesome. Thanks, guys. Thank you. Thanks, gentlemen.

Ladies and gentlemen, this concludes our question and answer session and thus concludes Duluth Holdings' second quarter 2022 conference call. Thank you very much for joining today's presentation. You may now disconnect. Take care.