Torrid Holdings Inc.

Greetings and welcome to the Torrid Holdings Inc. Third Quarter Fiscal 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Chinwe Abelu. Thank you. You may begin.

Good afternoon, everyone, and thank you for joining Torrid's call today to discuss our financial results for the third quarter of fiscal 2023, which we released this afternoon and can be found on our website at investors.torrid.com. With me today on the call are Lisa Harper, Chief Executive Officer of Torrid, Mark Mazzico, Chief Commercial Officer, and Paula Dempsey, our new Chief Financial Officer. Before we get started, I would like to remind you of the company's safe harbor language, which I'm sure you're familiar with. Management may make forward-looking statements, including guidance and underlying assumptions. Forward-looking statements may include, but are not limited to, statements containing the words expect, believe, plan, anticipate, will, may, should, estimate, and other words in terms of similar meaning. All forward-looking statements are based on current expectations and assumptions as of today, December 7th, 2023. These statements are subject to risks and uncertainties that could cause actual results to differ materially. For further discussion of risks related to our business, see our filings with the SEC. This call will contain non-GAAP financial measures, such as adjusted EBITDA. Reconciliations to these non-GAAP measures So the most comparable gap measures are included in the earnings release, furnished to the SEC, and available on our website. With that, I will turn the call over to Lisa.

Thanks, Chinwe. Good afternoon, and thank you for joining us to discuss our third quarter results. Before I dive into our financial performance, I would like to take a moment to thank our more than 7,000 employees across the U.S. and Canada who are dedicated to the brand and to our customers. I'd also like to thank our more than 4 million active customer base for continuing to love the brand while providing the most value-added feedback. This quarter, the Torrey Foundation, with the support of our loyal customers and employees, contributed over three-quarters of a million dollars to the Breast Cancer Awareness Campaign. Thanks to you all. I'm also thrilled to announce the appointment of Paula Dempsey, Chief Financial Officer. This well-deserved promotion reflects the outstanding leadership and invaluable contributions Paula has made in the last 10 months since joining our team. And I believe she will continue to be instrumental in delivering our strategic growth plan. Thank you and congratulations, Paula. I'm happy to report that our assortment journey over the past year has begun to deliver positive results. We took a hard look at our assortment and understood the need to pivot towards a more casual and relevant style, ensuring a diverse range across our product lines. It's encouraging to see this shift resonate. From a store perspective, we've launched an initiative with our sitting room Fridays where our store teams personally try on our products. This hands-on approach has not only enhanced our team's understanding and enthusiasm for our products, but also infused a new dynamic into our store atmosphere. As a result, we're witnessing a positive response from a broad range of customers who are attracted to our brand's renewed energy and balanced casual approach. I will start by reviewing our performance in the third quarter, detailing our achievements and future strategies. Following that, Mark Mazzucco will take over to elaborate on our merchandising and marketing strategies. Paula will then review our financial aspects and offer insights into our projections for the rest of the year. I'm pleased to report a strong third quarter with sequential traffic improvement both in stores and on the web. For the quarter, we generated net sales of $275 million and adjusted EBITDA of $19 million. These results were higher than anticipated due to the strong demand experience during the quarter. We also ended the quarter with total inventory of $171 million, down 14% compared to the same period last year. We can attribute these results to a number of initiatives that started earlier in the year and that are now providing favorable results. During the quarter, we focused on executing our key initiatives. Number one, broadening our assortment and pricing strategy. Number two, strengthening our marketing message. And number three, optimizing our cost structure and inventory. Starting with broadening our assortment and pricing strategy, which refers to the importance of a balanced across casual and dressier options and a range of price points across the product portfolio, supported by expansion in key items and core programs. Initial results of this more balanced, strategic approach to assortment and pricing are promising, with an appeal across a broad range of customers. We will continue to scale this initiative in the spring of next year. Our second priority has been focused on strengthening our marketing efforts. I will highlight some of these strategies while Mark will go into a deeper discussion later on the call. Based on our recent strategic review, we proactively reallocated and increased our marketing investment, enhancing our reporting infrastructure to align more closely with our core objective of optimizing EBITDA. This re-calibration of resources and focus has already begun to bear positive results. During our testing period in October, we observed an uplift in both incremental revenue and EBITDA. This improved performance in digital marketing efficiency is not just driving top-line growth, but also contributing to a healthy flow-through to EBITDA. During this period of testing, we also witnessed a steady increase in our traffic trends, both on our websites and in stores, signaling a strong resonance of our brand with customers. Our strategic efforts to optimize our in-store assortment, coupled with our refined marketing approach, are reshaping the tone and content of our messaging across all channels. This synergy between in-store experience and digital engagement is creating a cohesive brand narrative, further solidifying our market position, and enhancing the overall customer journey. This outcome underscores the effectiveness of our agile and data-driven approach to resource allocation, affirming our commitment to driving sustainable and profitable growth. Finally, our strategic emphasis on cost and inventory management yielded strong outcomes. Our visit to our vendors in Asia this summer played a key role, resulting in a notable 120 basis point increase in our product margin after accounting for cost benefits and discounts. Furthermore, I am pleased to report that the pilot program consisting of three clearance stores, which was launched on September 10th, has proven to be a success. These developments will undoubtedly serve as the catalyst for the expansion of our overarching strategic initiatives. These stores, along with their feeder stores, have experienced a significant margin improvement relative to the rest of the fleet. By utilizing clearance stores, we are moving through markdowns more profitably and facilitating greater regular price assortment exposure in the feeder stores. Across the portfolio, we identified opportunities to rebalance investments in departments and channel breadth focusing on the ratio of web-exclusive choices, including pillar extensions versus one-off choices, to minimize regular price sell-through and reduce markdown exposure. These efforts, combined with improving demand, have led to a year-over-year inventory decrease of 14%. We anticipate further improvement in our inventory levels over the next year. Regarding SG&A, our results aligned with our estimates. We are committed to disciplined expense management without adversely affecting our future growth strategy. Our focus remains on investing in our core strategies to ensure a positive return. As we reflect on this quarter, it's clear that our targeted strategies in merchandising, both in depth and breadth, along with our smart marketing investments and rigorous attention to cost management are beginning to show real results. Yet, we remain prudent in this current market. We're currently steering several initiatives that I believe will solidify our position moving into the fourth quarter and next year. Moreover, I'm confident that our focused approach will lead to expansion in our EBITDA margin in the next year. And with that, I will now pass the call over to our Chief Commercial Officer, Mark Mazzico.

Thanks, Lisa. I'd like to start today by briefly discussing some of the highlights for the third quarter and then providing some updates on a few of the initiatives that our teams have been working on. Our merchandising and planning teams remain focused on generating product margin expansion through better product sell-through and continued improvements in pricing and promotion. In the third quarter, we began to see some broad improvement in these trends. We generated improvement in our top line trend, better year-over-year full-price product terms, and product margin expansion. While we are encouraged by our progress so far, we know that we have much more work to do. There are opportunities for us to enhance our channel and assortment planning and to improve our product ranking and buy accuracy. Our expectation is that we will continue to see improvement in these trends over the coming quarters as the changes we're making continue to arrive in stores in the fourth quarter and throughout 2024. In the third quarter, we saw improvements across most of our major categories. Our teams have been focused on driving the casual assortment and especially those pieces that have the versatility to be dressed up or dressed down. And we have started to see positive trends both in our stores and on our website. In apparel, we were pleased with the performance in our tops business driven by plaids, graphics, and sweaters. In our bottoms business, we saw the customer react positively to a variety of leg shakes, including wide legs, boots, flares, and joggers. We also had a great response to our trio denim launch and have seen our leggings business show steady improvement over the course of the year. In the curved intimates business, we saw strong performance in push-up bras, bralettes, and in the panty businesses. Lounge was also strong, driven by cozy separates and wear now silhouettes and styles in our super soft fabrication. In addition, we continue to see nice results in the outdoor segment of our active business. Turning to marketing, we continue to make progress on several fronts. In promotional events, we've learned a great deal about the timing and cadence of our events, how we communicate them to the customer, and how we synchronize our selling channels. As a result of these refinements to our strategies, our toward cash redemption in October was by most measures the most successful of the entire year. Our expectation is that we should continue to see improved customer response to our event calendar as we utilize the data from each event to shape our future promotional calendar. We recently launched a new data platform with our digital marketing agency. In October, we began testing the amount and allocation of our digital marketing spend. The preliminary results were positive and we are continuing these efforts in the current quarter with the goal of maximizing the profitability of our marketing spend with a focus on how these efforts are increasing the size and performance of our customer file. In addition to these initiatives, we've continued to elevate the creative content that our marketing team produces and have made great progress in improving the user experience of our websites and apps. To summarize, Our team continues to make positive changes to our merchandising, planning, and marketing processes. We believe that many of the small successes that we're beginning to see in the business have opportunities to lead to greater margin expansion going forward and improve customer file growth. While there is still much to improve upon, we remain focused on building and maximizing our brand. And with that, I will now turn the call over to Paula.

Thank you, Mark, and good afternoon, everyone. First, I would like to say I'm thrilled to have been appointed the Chief Financial Officer at Thorid. Having joined nearly a year ago, I have seen many positive developments with the company and feel honored to be part of such a great brand alongside industry veterans. My commitment to supporting Lisa's vision and driving sustainable growth through measured strategies has not changed. I have confidence in our leadership team and I'm delighted to be here. I will now start with a detailed discussion of our third quarter performance, followed by an update on our outlook for the fourth quarter and full year. Our third quarter results exceeded our expectations in both the top and bottom lines. We focused on driving traffic to our stores and online, which led to sequential improvement in our comparable store sales trends, while we have continued to carefully manage expenses and inventory. Now let's start by discussing our top line performance. During the third quarter, net sales were 275 million compared to 300 million last year, with comparable sales in the quarter down 8%. We were encouraged to see that our latest collection, available in stores and online, was met with improved customer traffic trends. In addition, our tour cash events exceeded our expectations, driving a sense of urgency as customers have begun to adapt to the changes we have made to the promotion. This event continues to be our most effective promotion. Growth profit margin declined 80 basis points to 33.2 compared to the third quarter of 34% last year. Selective promotional activity relative to a year ago and improved product cost drove 120 basis point improvement in product margin. This was offset by store occupancy, which deleveraged 80 basis points on lower net sales, a 75 basis point decline in private label credit card revenue and trade income, and due leverage of 45 basis points in merchandising payroll costs and distribution expense. SG&A expenses in the quarter were 72 million or 26.1 of net sales compared to 69 million or 23.2% of net sales last year. The primary increases in SG&A were driven by a one-time $1.6 million expense reversal in the prior year related to the performance incentives and $1 million in non-cash severance payout from the reduction in force in August of this year. We maintain a strong focus on managing controllable expenses while capitalizing on efficiencies within our distribution center, improves technology capabilities, and maximizing returns from product cost reduction as a result of increased supplier productivity. Marketing expenses in the quarter were $12.7 million compared to $12.6 million in the third quarter of last year. As a percentage of net sales, marketing increased 40 basis points to 4.6 compared to 4.2% in the third quarter of last year as we continue to effectively invest in digital marketing across all channels, leveraging traffic both in stores and on the web. Turning to our bottom line performance. Our net loss for the quarter was 2.7 million or a loss of 3 cents per share versus net income of 7.3 million or 7 cents per share for the same period last year. In addition to gap measures, we believe that adjusted EBITDA is an important measure that we use to evaluate and manage our business. Adjusted EBITDA was 19 million or 7% of net sales compared to 32 million or 10.7% of net sales in the quarter of 2022. Turning to the balance sheet, our cash and cash equivalents stood at 16 million at the end of the quarter. Total liquidity at the end of the third quarter, including available borrowing capacity under our revolving credit agreement was 153.1 million. Total debt at the end of the quarter was $314 million compared to $327 million in the third quarter of 2022. Our net debt to adjusted EBITDA was 2.8 times at quarter end. Inventory at the end of the quarter decreased 14% to $171 million compared to $200 million at the end of the third quarter of fiscal 22. We are comfortable with our current inventory levels. In Q3, we opened five storage stores and closed one store, ending the quarter with 643 stores. We recognize the value and impact our stores have on our customers and business results. Over the last 12 months, we have seen a greater shift to customers acquired through stores approaching 2019 levels. The stores hold an important value in our customer journey as it plays a pivotal role in converting single channel customers to omni customers within the first year. The spending habits of these omni customers are key as they spend an average of more than three and a half times than their single channel counterparts. With that in mind, we remain focused on an integrated omni channel strategy seamlessly bridging our brick and mortar stores with our web business, creating a pleasant experience for our customers. We're making progress improving store profitability through diligent inventory management, streamlined supply chain, and strategic labor management processes. In addition, we continue to review the process of evaluating our store fleet as well as taking a detailed approach to determine future locations. This includes repositioning some of our stores to new shopping centers, These targeted improvements are in line with our customer expectations and traffic trends, reinforcing the importance we place on our customers' views and experiences. We are seeing that this comprehensive approach to both operational efficiency and customer-centric strategy will translate into increased traffic and customer acquisition. We remain focused on delivering exceptional value to our customers while driving sustainable growth for our shareholders. Moving to our outlook, while we're encouraged by the trends in our business and believe that we're well positioned for the holiday season with our new marketing strategies and latest new collections, we remain mindful of the pressure consumers are under today. The current macro environment creates a heightened level of uncertainty, which causes us to be prudent in our guidance. We will remain focused on carefully managing expenses and expect our headcount reduction initiatives will yield favorable results. Looking ahead, we expect to see a more significant impact from our initiatives in fiscal 2024, driven primarily by improved product cost and pricing architecture. For fiscal 2023, given our stronger than expected third quarter results, we are raising our outlook for the year. We now expect sales to be between $1.125 billion and $1.140 billion in adjusted EBITDA to be between $99 million to $103 million, which includes the impact of the 53rd week. We anticipate net sales of the 53rd week to be between $14 million to $18 million. Capital expenditures to be between $25 million and $30 million for fiscal 2023. reflecting technology investments and between 34 to 36 new store openings for the year. For the fourth quarter, we project net sales to range from $267 million to $283 million and adjusted EBITDA to be between $9 million and $13 million. With that, I will now turn it over to the operator for questions.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. One moment please while we pull for questions. Thank you. Our first question comes from the line of Brooke Roach with Goldman Sachs. Please proceed with your question.

Good afternoon, and thank you so much for taking our question. I was hoping you could elaborate on the cadence of consumer trends that you've seen as you've moved through the third quarter and into holiday in terms of traffic, ticket, and conversion. And as you make these changes to your marketing and merchandise strategy, how are you thinking about the opportunity to return to positive sales growth going forward? Thank you.

Hi, Brooke. This is Lisa.

We are seeing sequential improvement in both channels through the third quarter in terms of traffic. Our average unit retail is up. Our average transaction size is down slightly. We think that can be attributed to lower inventory levels, so lower clearance inventory associated with that as well. We're seeing more consistency in our ability to forecast and rationalize the trend of the consumer. I would still say that they continue to be picky, and we think that the move toward casual and kind of a younger feeling on the overall product assortment has been very well received by this customer. I would expect that on a year-over-year basis we should start seeing comp improvements positive side as we move next year, and that would be accompanied with some margin expansion related to the things that we've talked about in terms of cost of goods and the margin initiatives that we have in place. I think I might have missed the last part of your question.

I think you covered it. We talked about traffic ticket conversion and the opportunity to return to sales growth. I guess just a follow-up for Paula. Can you elaborate a bit more on what you're seeing in credit card income and how you're forecasting that going forward? What impact could you see if there's a change in industry late fee structures or other changes to consumer credit?

Yeah, of course. So what we did see is from a penetration standpoint, our private label credit card was slightly down from last year but not overly concerning. We are definitely seeing consumers being a little bit – you know, slower on spending on their private label credit cards because of current interest rates. I think as we move forward, we don't necessarily know what the decision will be and whether the fees will be changing or not. So at this point, we are just like everybody else in the industry, just watching the news and essentially starting to prepare plans just in case there is a change. But at this point, we just have to just just do the best that we can and listen to see if there's any updates.

Thanks so much. I'll pass it on.

Thank you. Our next question comes from the line of Alex Stratton with Morgan Stanley. Please proceed with your question.

Hi, this is Katie Delahunt on for Alex Stratton. Thank you so much for taking our question and congrats on the quarter. I just was wondering, I know you had spoke to a number of initiatives that you thought were contributing to kind of this better than expected print. You know, the wider price points, the improved assortment, marketing, the additions to the cash event. Is there any one in particular that you would point to as the main driver or is it really just kind of a compounding of all of these together?

I think the most important thing we've done, the two most important things we've done are assortment oriented or moving toward a more casual younger assortment and inventory management because those are kind of the basis for every other strategy that we employ. I do think being in line with inventory allows us to focus on margin expansion. Having the right product allows us to build margin. I think the marketing initiative is something that has a long tail to it that I think will improve customer acquisition, retention, and frequency over time. And I think that what we're doing in terms of, you know, those are the main ones. I think the clearance store strategy or the feeder clearance combination generates more margin than the rest of the fleet. That's really compelling. What we're trying to do is make sure that we are very carefully focused on assortment and inventory levels and then layering in these margin initiatives and margin improvement initiatives on top of that. And then the marketing move and increased investment in digital marketing and the careful implementation review and data analytics that determine how we're investing moving forward and the short-term return on that as well as the mid and long-term return of those investments needs a fundamental shift for us that's going to continue to pay off as we go into next year is that helpful yes very helpful thank you and maybe one more from me um i we were just wondering you know what is your fourth fourth quarter guide assuming in terms of demand

And if you could speak to, you know, any quarter-day trends strictly, you know, around Black Friday, that would be really helpful. Thank you.

Sure. We were happy with the performance during November, particularly around Black Friday and cyber. We were less promotional on a year-over-year basis, so it was really not as much of a top-line story as it was a margin expansion story. We were very happy with how that... I think, again, as we rebalance assortments and inventories, we're being able to really focus on gross margin dollars, and that was the tone of how we approached black variety and cyber events.

Great. Thank you.

Thank you. Thank you. Our next question comes from the line of Corey Tarlow with Jefferies. Please proceed with your question.

Great. Thanks. Lisa, I was wondering if you could just talk a little bit from a trend perspective. What worked for you in the quarter and into holiday? And how are you flexing into some of those trends as we head throughout the next couple of key weeks here of the fourth quarter?

Sure. So some of the things that are working well for us are anything in the cozy area. So sweatshirts, any cozy fabrications, graphics are working for us, denim and a lot of different leg shapes. So denim is down overall, but as we've gone into flare and wide leg and boot and a variety of leg shapes, that is really catching the attention of the customer and delivering. I think that We've done a good job with our holiday kind of sparkle assortment, and that's been very, very well received and moving through. So what's interesting about it is that we have kind of the high-end event-driven product that's working, and then we have the cozy casual pieces that are working as well. And so that is, I think, a precursor of how we're thinking about our assortment and our customers' end use as we move forward. The other pieces that are working in Intimates, bralettes, panties, push-up plunge, silhouette, are all working really well. Sleep has worked really well. Anything Christmas specific has worked really well. So as we move forward, obviously the Christmas pieces are less relevant, but I think the balance between casual, cozy, and you know, a higher, an event-driven end use is a better way for us to manage our business as we progress.

Great. Thanks. And Paula, just on the gross margin, as you think about the factors that have impacted the gross margin so far this year and in the third quarter, as you've think holistically about some of the puts and takes of the margin, headwinds and tailwinds. What are some that you expect to stay for a little while and what are some that perhaps are going to come away as perhaps sales get better and we start to see a much higher margin in the future?

Yeah, that's a great question. So as you noted, for Q3, our growth margin was slightly down, but as we mentioned, our product margin was up. So it was down really due to deleverage, more to do so with volume, just net sales. As we move forward into Q4, from an expectation standpoint, we think it's going to be aligned with where we were last year, more in sales. As sales continue to improve, we're definitely going to see that improvement in growth margin into the next year. Hopefully that answers.

Great. Thanks so much. Best of luck.

Thank you. Our next question comes from the line of Mark Altschweiger with Baird. Please proceed with your question.

Hi. This is Amy Teske on for Mark. Thank you for taking our question. You noticed some positive results from the testing of the clearance stores. Were there any traffic trends here that were different from the balance of the chain? And is this attracting a different type of customer? And then bigger picture, could you just help us size the opportunity here, how many stores could become clearance stores? Thank you.

So for the clearance centers and the clearance feeder stores, I think the highlight of the performance is the margin expansion that we saw in the feeder stores in particular, which was driven by a few things. One, there was a shift out of clearance selling into REG because there was much less clearance on the floor, of course. And the second part is that we took some of the space and we put some more of our REG price assortment in it. So there was a pretty nice expansion of margin dollars in the feeder stores. We're still doing some work on trying to optimize the particular model of how many feeder stores there are per clearance center, how to continue to drive even more margin dollars in the clearance centers themselves. As for the traffic and the customer trends, It was not meaningfully different. We didn't really dissect it yet to see if there are differences in demographics going in. The traffic trends were very similar. It was just more of a makeup of what they were picking up that was driving it.

Okay, thank you.

Thank you. As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. Our next question comes from the line of Dylan Cardin with William Blair. Please proceed with your question.

Thank you. I'm just trying to feel out what, if any, conservatism you're kind of baking into guidance. You know, given the performance you just put up, kind of looking at pre-pandemic sales levels, it would suggest something of a deceleration. I just want to sort of make sure I understand kind of how you're thinking about the world here.

I would just say that we are watching the customer from week to week. There's a lot of business to be done right now. We don't peak the same way that other retailers peak in the fourth quarter. We have a big event toward cash in January that, again, is something that's always back loaded in our performance. As I mentioned earlier, we were happy with margin performance particularly, which was our strategy over Black Friday and cyber, and we're very happy with our inventory levels. So we don't have a lot of product to clear. We don't have a lot of areas of inventory that are backlogging us at all. So it is a cleaner scenario, but we are watching the consumer week by week and becoming more and more comfortable with that performance. So I can't tell you what scale of conservatism that we're... In here, we're trying to be as pragmatic and prudent as possible as we move forward with executing some of our strategies and refining them.

Makes sense. Thank you. On pricing and sort of lower clearance levels, cleaner inventories, any way to scale... maybe in potentially sort of product margin terms, sort of a structural level that you're targeting as far as sort of what that opportunity, the magnitude, I would think it would be pretty big, just kind of giving some of the history here.

We think there's, over the next year or so, substantive expansion in margin in the products. I can't say we're going to go back to our high level, you know, from a historical basis, but we certainly feel that with all of the stress, with the costing, the improved assortment and inventory management, and all the other strategies we've talked about, which are we have strategies in place that we did not have optimized in kind of the prior experience of the brand that we think that there is, I would say, substantive margin expansion opportunity in the business.

Right. Would the high water mark not be feasible given input inflation, or why wouldn't you expect to be able to get back to your point you sort of implemented?

Well, if you look at total mix, because we're so heavily – we shifted from 19 through the pandemic to much higher penetration online, where we were more like 50-50 in 19, but we're higher than that. Now that there's, you know, the fundamental economics of the web channel really won't allow us to get back, I don't think, at this point to the top-line historical merge margins that we've been able to hit in the past. But still a substantial improvement overall.

Right. And finally, just on the marketing testing that you're doing – and apologies if I missed this – When are you kind of looking to do a fuller rollout? And is part of the thought here that maybe you would wait for, I don't know, better macro or a more meaningful quarter before you kind of start leaning into that more seriously?

Well, the results we saw didn't give us any indication that we have reason to pull back. So the extra level investment that we started in on October, we've continued through November and into this quarter. And it's still very early. Every metric that we look at makes us feel like the level that we have is right. We're not ready to make a call on whether that gets increased to another level yet. But we monitor all the metrics and analyze the data on a weekly basis. And so we're constantly having conversations about how to reallocate, where to increase, and what the overall levels should be. So we'll certainly continue to monitor that and hopefully have future conversations about the direction that we're taking.

We think it's a very important area to invest in. And as we mentioned, I think, in the comments today, Our customer acquisition numbers as a percentage are up in stores to 2019 levels, but we think that we can do a better job in terms of customer acquisition and retention through the digital channel to augment that more effectively. And I think the team's done a great job in using the data on a daily, weekly basis to make really smart calls in those investments.

Got it. And when you say it's sort of EBITDA-creative, What are the primary drivers of that? Is that just throughput, leveraging?

Well, the primary drivers are where the returns on the levels of what we're spending are such that the price per customer session or traffic or store visitor and the conversion rate that we're getting are... are flowing through to EBITDA. In other words, we're getting more than enough sales, margin dollars, considering all the additional variable costs that there are to cover the investment and have EBITDA flow through after all of that. Okay.

Did I answer your question? Yeah. Thank you.

Thank you. There are no further questions at this time. I'd like to turn the floor back over to CEO Lisa Harper for closing comments.

Thank you all for joining us today. We appreciate your attention on our brand and business. I hope all of you guys have a wonderful holiday season, and we look forward to connecting with you guys in the new year with fourth quarter and full year results. Thank you so much.

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