Duluth Holdings Inc.

Good morning and welcome to the Duluth Holdings, Inc. fourth quarter 2023 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 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 fourth quarter and full year 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, and Hina Agarwal, Senior Vice President and 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 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 for joining today's call. Before I share some of the details of our business performance and progress on key strategic initiatives, I'd like to first introduce Hina and welcome her to the Duluth family. Hina is joining us as our Senior Vice President and Chief Financial Officer. And with more than 20 years of finance and leadership expertise, Hina brings a breadth of experience across different facets of global finance, accounting, and mergers and acquisitions. Hina was recently with Contour Brands, holding the position of Global Wrangler and Global Contour Supply Chain Chief Financial Officer. We're thrilled to have attracted such a seasoned executive to fill the important Chief Financial Officer position at such a pivotal time for Duluth Trading. Ina's extensive experience and strong finance and leadership acumen will play a critical role in the evolution of Duluth's long-range plans as we remain steadfast on executing the pillars of our Big Dan blueprint. As a brief review of our fourth quarter performance, Net sales increased approximately 2%. The quarter was highlighted by growth in both the Duluth and AKHG brands, driven by strong outperformance in our women's business, which registered year-over-year growth of 12%. We were particularly pleased with the continued momentum in our AKHG women's business, posting stellar year-over-year quarter growth of more than 20%. Product performance highlights in our women's business included positive momentum in our newest hero product, the Heirloom Gardening Bib, in which we introduced a lined version, making it suitable for year-round wear. Flannels and bras also played a significant role in our fourth quarter growth, with both categories up strong double digits. In flannels, our improved in-stock position benefited sales during the peak gift-giving period. In bras, the success we are seeing is a testament to our unique product innovation and growing brand loyalty, and our T-Lux bra was the number one style in its launch season. The broad-based positive trends and exceptional customer responses across our women's business indicate continued growth potential. In the fourth quarter, our men's apparel business was flat. Men's AKHG first layer woven tops and bottoms grew as our unique product continued to resonate with our loyal customer base. This was partially offset by softer trends across our cold weather categories of outerwear, sweaters, and footwear, which was impacted by the warmer weather. Product performance highlights in our men's business included double-digit growth in underwear, double-flexed denim, and flannels. Success with double-flexed denim was driven in part by the introduction of new elevated washes and was brought to market through our monumentally durable campaign. Men's underwear with humorous photo-reel prints resonated with consumers, and flannels were bolstered by new pattern designs, color palettes, and a strong in-stock position. During the quarter, the industry saw consumers gravitate to promotional purchasing. We saw a significantly higher portion of our holiday sales occur during the Thanksgiving through mid-cyber week period when we ran our global event. Our Black Friday sales were the strongest in our company's history, and we saw a pull forward of sales from the following weeks. In January, we introduced new product innovation and saw sequential improvement with our full price sales trend. Let me spend a few moments on our product innovation strategy. Within our core categories, as well as our AKHG brand, we introduced more newness than ever before. Most of these introductions came in the form of soft launches, but the successful initial results and consumer excitement highlights our ability to develop, design, and deliver innovative and unique first-to-market fabrications and features that set Duluth apart in the marketplace. Key new offerings late in the fourth quarter included a new addition to our iconic fire hose pant collection featuring the strongest flex work pant fabric on the market with a lighter weight than our original fire hose. This product, we've named Flex Fire Hose HD, comes in two styles and truly represents the next generation of workwear. We also expanded our core Buck Naked category by offering Men's Buck Smooth, which provides the same comfort and function as the fan favorite Buck Naked, adding a smoother, more vibrant, and patterned construction. Our quick-drying, dry-on-the-fly technology was expanded into tees and underwear across both men's and women's. And finally, we launched AKHG Fitness, our first-ever fitness apparel offer, The assortment, built for nature's gym for both women and men, includes tanks, shorts, hybrid jackets, and after-sweat sweats. Our fitness apparel includes features and technologies that stretch, wick, breathe, and dry in a flash, and is offered in sizes up to 3X. AKHG Fitness is off to a great start, and although a small contributor to the business today, we see this as a white space opportunity to build on our unique fabrics, features, and functions to create and support AKHG Fitness as a growing and year-round category. To bring awareness to our innovation and product offerings, our marketing and creative teams ramped up our investments in social influencers which delivered meaningful engagement and strong growth from new, younger consumers. We continue to balance brand awareness and high converting digital tactics to optimize our return on investment and consistently deliver relevant content to both existing and new consumers with creative concepts across streaming video and audio, as well as cable TV. Throughout the year, we strategically retargeted past consumers, leading to an 11% increase in reactivated buyers during the fourth quarter. Personalized content reengaged lapsed consumers, reinforcing the trust and loyalty they have in our brand. In addition, new buyers grew in Q4 as our high-quality, solution-based product appealed to consumers who had not previously purchased from Duluth. Our strategic shift towards targeting a younger consumer is gaining traction, as our new consumers are, on average, five years younger than our existing consumers. Our previous investment in replatforming the DuluthTrading.com website to the next generation of e-commerce tailored for mobile usability is paying off. Our goal is to enhance accessibility and provide a frictionless shopping experience, and because of our investment, we saw high single-digit direct channel growth driven by higher traffic and conversion in mobile, more than offsetting retail softness. In fact, fourth quarter mobile sales increased over 20% from a year ago, and mobile now represents our largest channel for consumer interaction and purchases accounting for over half of our total direct channel sales. Shifting to the foundational drivers of the business, we remain steadfast on our commitment to the pillars outlined in our Big Damn Blueprint. As initially introduced in 2021, the five pillars of our Big Damn Blueprint include, one, lead with a digital mindset, two, intensify our efforts to optimize our own DTC channels, Three, evolve the company's platform to grow into a multi-brand and multi-channel business. Four, prioritize test and learn to unlock long-term growth. And lastly, five, future-proof the business through investments in capabilities and infrastructure. I'm extremely proud of the tremendous progress we've made on related key strategic initiatives. The benefits of these investments are reflected in a greater penetration of digital sales, especially mobile, lower variable fulfillment costs, and future gross margin expansion. These investments will also enable us to drive revenue growth opportunities in the future. Let me update you on the progress we made in 2023. First, As mentioned on previous calls, we went live with our new highly automated fulfillment center in October and are achieving our plan to process up to 60% of all online orders and store replenishment volume through this facility. In addition to shortening delivery times to keep pace with evolving consumer expectations, the enhanced automation in this center drove lower variable cost per unit to fulfill an order in this facility which was 42% of the average cost of our three legacy fulfillment centers during the last four months of the fiscal year. As this approximately $55 million investment represented the largest individual capital expenditure in the history of Duluth, I'm proud of the cross-functional team's ability to execute and deliver the results we expected. This step change in logistic capabilities allows us to further optimize our own DTC channels and serve as a significant enabler to future-proof and scale the enterprise. Second, we've meaningfully advanced our sourcing and product innovation functions, which we believe is another critical strategic unlock, allowing us to bring to market high-quality, innovative products more frequently, increase our speed to market, and significantly reduce our product costs. Several team members were onboarded during the year, including our new vice president of sourcing during the fourth quarter. Our sourcing and product innovation team is accelerating this initiative, and the benefits will begin to materialize in 2024 and continue to build over time. Finally, we made great strides completing several foundational initiatives to execute our technology transformation roadmap, the continuation of which will become the primary focus of our capital expenditure outlays. These initiatives will enable the optimization of the business, focusing on a centralized data repository, customer data and analytics, as well as tools to maximize the logistics network capabilities and strategic planning and assortment decisions. Our focus for 2024 will accelerate the operational improvements of the strategic roadmap by expanding our pipeline of new and innovative products, optimizing our marketing mix, improving gross margin rates, and controlling what we can control by prudently managing expenses and inventories. In closing, I'm proud of the progress we've made on our foundational initiatives and remain steadfast in our strategic roadmap. With that, I'll turn the call over to Hina to discuss Q4 and the full year 23 financials in our 2024 outlook.

Thanks, Sam, and good morning. First, I'd like to express how thrilled I am to have joined the Duluth Trading family. In just shy of four weeks in my new role as CFO, I have had the pleasure of meeting with our board of directors and the entire leadership team. I visited several stores and toured our fulfillment centers in Edersville and Belleville. I'm impressed by the strength of our brands, consumer loyalty, innovative product design, engaging storytelling, and the strategic choice to invest in infrastructure to capitalize on growth opportunities. I look forward to partnering with SAM and the entire leadership team as we further pursue our growth initiatives. I firmly believe Duluth Trading is uniquely positioned to expand its reach, and I am excited to leverage my experience to drive our next phase of profitable growth. Let me begin with a review of our full year 2023 and Q4 financial results. Today, we reported full year 2023 net sales of $646.7 million. adjusted EBITDA of 33.4 million, and EPS of negative 28 cents. Our Q4 reported results were net sales of 245.6 million, adjusted EBITDA of 21.1 million, and EPS of 21 cents. Starting with the top line, for the full year 2023, net sales were 646.7 million. down 1%. In Q4, we saw a trend reversal from prior quarters as net sales grew 1.6% to $245.6 million, powered by acceleration in women's and AKHG. Women's business grew double digits across both Duluth and AKHG brands, driven by flannels, intimates, fitness, and garden collections. The men's apparel business reversed trend from prior quarters, and was flat to last year, with growth in AKHG and growth in cold and loose categories of first layer, bottoms, and woven tops, offset by declines in cold weather categories of outerwear, sweaters, and footwear, impacted by warmer winter weather. From a channel perspective, our retail channel sales declined 12%. This was more than offset by our direct channel sales growing 9% through higher conversion and greater penetration of mobile. As Sam mentioned, mobile grew 20 plus percent and moved up to our number one sales channel for the quarter. Moving to gross margin. For full year 2023, our gross margin contracted 230 basis points to 50.3%. Our fourth quarter gross margin was 48.2%, down 300 basis points, as we saw our highest ever Thanksgiving through mid-Cyber Week sales contribution in the fourth quarter, during which we ran our global event. I will provide fiscal 2024 guidance details shortly, but through acceleration of our sourcing and product innovation initiatives, I want to reiterate that that we expect growth margin benefits over the next several years. Now onto SG&A. For full year 2023, SG&A decreased by 1% to $333.8 million and was flat to last year as a percentage of sales at 51.6%. For the quarter, SG&A decreased 3.8% to $108.8 million. and leveraged 250 basis points to 44.3% of sales. The Q4 leverage was driven by lower fulfillment costs across the network, primarily due to efficiencies from Adairsville, further maximization of our marketing spend, and prudent management of our general and administrative expenses. Full year adjusted EBITDA was 33.4 million or 5.2% of sales. Whole year net loss was negative 9.4 million, or negative 28 cents per diluted share. EPS was weighed down by non-cash depreciation expenses from infrastructure investments. Q4 net income was 7 million, or 21 cents per diluted share, compared to net income of 7.5 million, or 23 cents per diluted share last year. Fourth quarter adjusted EBITDA was $21.1 million, an increase of 2.4% over last year, and expanded slightly as a percent of sales to 8.6%. Moving on to the balance sheet, we ended the year with $32.2 million of cash and no outstanding debt on our credit line. leaving us with liquidity of $232 million. Inventory was down 19% or $29.2 million. Our inventory composition is healthy with 90% in current products and a 30% decrease in clearance items. Our capital expenditures for 2023 of $53.2 million were funded by cash and were primarily used to invest in strategic infrastructure initiatives, including our new fulfillment center in Edersville and digital capabilities as per our IT roadmap. Now turning to our outlook for fiscal year 2024. Our full year net sales guidance is 640 to 660 million, including the 53rd week, which is worth approximately 150 basis points of growth. We expect the first half to be down low to mid-single digits as we continue to navigate a dynamic macro environment. We expect growth margin for the full year to be up 200 basis points, with improvement expected to begin in Q1 and build throughout 2024, driven by our sourcing and product development initiatives. As I mentioned earlier, we expect further improvement in margin in the out years as we continue to optimize our sourcing. We expect SG&A to deleverage by approximately 100 basis points in the coming year, mainly driven by higher fixed costs and depreciation from strategic investments, partially offset by improvements in variable costs benefits being realized from these investments. Advertising expenses are planned to be in line with sales growth and approximately 11% of sales as we plan to continue to invest behind our brands, support new product innovation, and drive omnichannel sales. Variable expenses or selling expenses, which include outbound shipping costs, as well as labor across our contact centers, fulfillment centers, and store fleet will continue to leverage, driven by optimizing our logistics and fulfillment center network. Fixed expenses, or general and administrative expenses, will increase in 2024, primarily from annualizing depreciation and fixed costs from strategic initiatives. We expect a year-over-year EBITDA improvement, to outpace net income and EPS growth as we bear the depreciation impact of strategic investments in our P&L. With that, our full-year adjusted EBITDA guidance is 39 to 45 million, and EPS in the range of negative 22 cents to negative 7 cents. This includes estimated diluted shares of approximately 33 million and a tax rate of 25%. Our capital expenditure spend will be reduced by more than half to approximately $25 million, and the primary focus will shift from the logistics network to our strategic technology roadmap, enabling efficiencies and scalability. In closing, we are being prudent in our outlook for 2024 and are beginning to see the benefits from our foundational investments fueling adjusted EBITDA growth, Our capital expenditures are normalizing, and our liquidity remains strong. With that, we open the call for questions.

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 are 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 the roster. And our first question will come from Janine Stitcher of BTIG.

Please go ahead. Hi, good morning and welcome, Hina. I wanted to ask a bit about the promotional strategy. If we think about the past few quarters, it's been the fact that consumers are shopping more around the promotions than they have in the past. That's been pressuring growth margins. As you think about the growth margin expanding 200 basis points next year, is that entirely due to the sourcing initiatives? I'm curious what you're assuming for planned promotions and then the consumer shopping behavior around those promotions.

Yeah. Hi, Janine. So maybe I'll just answer at a top top level then and then I know he has got some comments you know we expect there to be ongoing consumer headwinds and you know last year was heavily promotional and you know we anticipate something similar this year having said that you know a lot of the strategic initiatives we've put in place specifically around product development and sourcing and We believe we'll start to show benefits in this coming year, beginning with Q1. As Hina stated, gross margin improvement of 200 basis points is contemplated in our guidance over the course of the year, but we think that there's ongoing upside. And so, you know, we're going to remain balanced in our approach to pricing and competitiveness with brand integrity. and really rely more on our product development strategy to bring more newness more frequently. And as I said in my prepared remarks, we delivered more newness than ever before, and the pipeline as we go through Q4 looks really strong.

Yeah, thanks, Sam. Hi, Janine. Thanks for your question. Yes, we did see a significantly higher portion of our holiday sales occurred during Thanksgiving through mid-cyber week period when we ran our global event, and our sales during this period were the strongest in our company's history. We are evaluating the season's performance, and we will continue to monitor the macroeconomic and competitive environment. Our guidance for 2024 assumes AUR to be similar to what we experienced in 2023. We are being prudent in our sales outlook and inventory management for 2024. As Sam mentioned, our sourcing and product development initiatives are enabling greater and more frequent introduction of new products, which positions us to drive more full-price sales. Our expectation on top line is to be down low to mid single digits in the first half, and our guidance for the full year reflects gross margin up 200 basis points, as said in my prepared remarks, and that is mainly driven by by our sourcing and product development initiatives while maintaining AURs year-on-year.

And as Sam mentioned, we expect further improvement in margin in the out years as we continue to optimize our sourcing strategy.

Great. That's helpful. And maybe along the lines of some of the sourcing initiatives enabling quicker product development, can you talk about some of the soft launches that you mentioned in the prepared remarks how quickly you can chase into a broader launch of those assortments.

Yeah. So, you know, as I said earlier, you know, items like Flex Firehose HD, you know, as we build on our iconic firehose pant program came in and the reception to that was really strong. Buck Smooth is interesting. We've talked about Buck Smooth leading up to Q4 as being a new innovation in fabric that allows us to actually print kind of photo real print on there. And that was met with overwhelming success. I would also add, you know, our Intimates program in women's, we've introduced some new bras, T-Lux bras, being our number one bra in its first season. And then last call, we talked about the excitement around our AKHG fitness category. And that came in the last week or so of December and really came out of the gate strong. And we think that across AKHG in total, but specifically AKHG fitness, that there's a long runway. So You know, a lot of these things are not just about items. They're kind of strategic building blocks to some of our other key merchandising initiatives, like our strategic focus on growing the women's business. The women's penetration was 30% and it increased 200 bps. And so, you know, we've mentioned in the past that we think the women's opportunity to be a larger business in total and a larger share of our business, we're starting to see some traction in that regard. And women's, again, double digit increase for the quarter, up high single digits for the year. And so a lot of these soft launches were Yes, item-driven, but, you know, critically, a critical component of the strategic building blocks is some of these other longer-term product initiatives.

Great. Thanks so much for the call, Aaron. Best of luck.

Thanks, Janine.

The next question comes from Jonathan Komp of Baird. Please go ahead.

Yeah, hi, thank you. Good morning. I want to follow up. I know there was reference to seeing an inflection in the business during the fourth quarter. If you could just maybe share a little bit more, are there some underlying metrics or full price selling or anything that you would highlight? Just because from a reported perspective, still seeing gross profit dollars declining, it's hard to see signs of the inflection. So just hoping you could maybe share more insight there.

Yeah, hi, Jonathan. Well, so a couple things I'll say. One is the holiday or the Black Friday weekend through the midpoint of Cyber Week was the strongest sales results we've seen in the history of the company. It was, you know, as we've seriously done over that time period, you know, that's where we run our global event and, and, you know, there's competitive aspects to that. And, you know, because of, of the global event plus the amount of demand, um, it, it drove a bit of the top line, but, you know, the flow through clearly wasn't, you know, what we expected or what we've seen in the past. And so, um, you know, that, that was a bit of, of, drag on us. It also, you know, as the holiday season played out, you know, it was clear that it pulled sales forward from the week leading up to Christmas, where we typically do more business at higher margins. And so that was a bit tough. But then as we go back and, you know, we're assessing the business both today and during During the quarter, we did see a sequential improvement in our regular price sales bucket as a percent to total sales, especially as we started to bring in early these new spring goods and launch them in the back end of the fourth quarter. And so January in particular, as all of those items I just mentioned to Janine, As those new items started to hit the last week of December, it really moved the needle for us from a regular price perspective in January. And so we expect, you know, while we expect kind of the headwinds to remain challenging, you know, as we go through the first half of this year, we're also optimistic about the sales on early launched goods, as well as what the product development and sourcing initiative is bringing us. And so we believe that while the top line will be challenged, we're going to get better flow through over the course of the year.

Yeah, thanks for that, Collar. That's helpful, Sam. And just as a follow-up, could you maybe just speak to, you know, ideally or from a target perspective, what percentage of product would you like to sell at full price and and how far off are you today? And then, you know, really a broader strategic question, just, you know, what needs to change in sort of the focus? You know, if you look at the guidance here for the year, still, still, you know, not profitable at a net basis, even though you're realizing benefits now from some of the multi-year supply chain initiatives. So, you know, what, what, what needs to change? And if you could share any more, more insight on that.

Yeah, absolutely. So a couple of things. The product development and sourcing initiative, as you know, is about creating more newness, more new innovation, more frequently, which, you know, this is now just kind of starting to ramp up. You know, we really started this initiative last year, and so this is kind of the first full-year initiative based on our order timeline that the work that was done last year starts to come to retail. And so, you know, we expect that, as Hina mentioned, you know, gross margin improvements. And yes, while today it's still adding up to a negative, you know, you think about over the last year and a half or so with where our margins have moved towards from a competitive perspective, you know, this becomes kind of the starting point for us to move the margin upwards as we move, you know, through 24 and beyond. And then, you know, Daresville really just kind of got up and running in Q4 of last year, really October, so call it, the end of Q3. And, you know, as I shared on the Q3 call, you know, we saw some benefits in some of the metrics, whether it was, you know, CPU or time to delivery metrics. in that last month of Q3. And then Q4, you know, we saw lower variable cost per unit. And the actual number is it's about 42% of our average legacy FC cost per unit. So, as we go through this year, you know, we expect to see the variable costs coming out of that fulfillment center. helping us leverage the total cost, total variable cost of our FC network. So I guess what I would say is, you know, a lot of the things we've invested in are now starting to show some benefit. And I think, you know, 24 becomes the year where, you know, we start to realize them over the course of the full year. And as we start building on top of those, you know, you'll see incremental improvements in gross margin, for instance.

Okay.

And just last question for me, but I mean, would it make sense to maybe change focus instead of targeting top line growth? And it looks like you're embedding inflection as the year goes on for total revenue, but would it make sense in the short term to focus back on profits instead of revenue in terms of how you're managing the organization or just any thoughts there.

Thanks again. Yeah, I think it's a combination of both. We have to be focused on the top line, and that's what's driving a big part of our product development and sourcing is how do we create a pipeline of more frequent new products, because that also drives to your earlier question, greater full-price sell-throughs, which then translates to greater you know, bottom line profits of the company. And so I think it's a combination of both. What I'll tell you is that the variable costs of our business will continue to improve as we move forward and leverage as a percentage to sale. Where our costs... continue to grow a bit are on the fixed side of it because of the investments we've made in these strategic initiatives. So, you know, our P&L, as you know, you know, is hampered a bit by the depreciation associated with those investments. But in terms of the manageable cost and the benefits we're getting out of these investments, that part of the expense structure is starting to lever. And that's what we're looking for right now. And then there becomes this inflection point as we move forward, specifically, you know, CapEx is now going to be less than half of its high last year, and that's largely going to be associated with our technology roadmap that should result in improved sales and margin because of our ability to better allocate by style, size, color, and location, as well as enable, you know, other opportunities for us. So, I think we're being prudent about how we're managing the business and we're doing it in a very intentional way without cutting our nose off despite our face. Hina, do you have anything you want to add to that?

Yeah, I would say our focus for 2024 will be to accelerate the operational improvements that we are seeing from the strategic roadmap by expanding our pipeline of new and innovative products optimizing our marketing mix, improving gross margin through our sourcing initiatives, and controlling what we can control by prudently managing expenses and inventories. The other point I would make is, as I said in my prepared remarks, we are seeing capital investment cut in half in 24, and we will continue to see EBITDA, adjusted EBITDA, outpace net income and EPS.

as we get through the depreciation that from the capital investment we've already made in the past years hit our P&L.

Okay, I appreciate all the color. Thank you. Thanks, Jonathan.

The next question comes from Dylan Cardin of William Blair. Please go ahead.

Thanks. Yeah, kind of similar line of questioning a bit. I guess... I'm trying to think about the decline in gross margin over the years, you know, 700, 600 basis points going back to 2015, 2016. Is that all best understood as an increase in promotion? And then can you quantify or even directionally sort of the margin drag from the retail channel kind of over that same period you've seen productivity in your stores effectively halve? just taking those two things together to kind of think about how then you glide path back to above the line on profitability, if there's a risk around kind of having your customers now so used to higher promotions, et cetera, et cetera, and sort of how you maybe get the retail chain back on some firmer footing. Thanks.

Thanks, Dylan.

Go ahead.

So, you know, on your long-term gross margin questions, We've meaningfully advanced our sourcing and product development initiatives. And as I mentioned in my guidance, we are expecting 200 basis points of improvement, which will continue to build over the coming years and get back to our pre-pandemic levels in a few years. So we see a path forward to get back to those higher gross margins.

Can I stop you there? But the promotional impact, I get the sourcing and the benefits that that can do, but as far as how much you're embedding as far as being able to get back to a higher price point, higher initial mark on whatever, however you want to quantify it, relative to what was predicted.

For 2024, we are being prudent in our outlook, and we are not assuming any AUR improvement in our guidance. But we are... looking at what our seasonal performance is and how to optimize it.

And also how our new innovation can drive, position us to drive more full price sales. So that's one thing.

And then on the store question, you know, I've been able to visit several of our stores which have a unique and engaging experience for the consumer. And they are part of our omni-channel strategy along with digital and mobile. And they create an ecosystem where it helps us get consumers and retain them. And so they are a critical part of our strategy going forward. All of our stores are cash flow positive. Having said that, we do have an opportunity to, in the context of the omnichannel environment, look at the size, the format, the depth of assortment to make them even more efficient and profitable. So

So we will be instituting more rigor as we think about new locations going forward.

Okay, thank you.

This concludes our question and answer session. The conference has now also concluded.

Thank you for attending today's presentation