Designer Brands Inc.

Good morning and welcome to the Designer Brands second quarter 2024 results conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. 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 Dustin Honstein, Senior Vice President of Finance. Please go ahead.

Good morning. Earlier today, the company issued a press release comparing results of operations for the 13-week period ended August 3, 2024 to the 13-week period ended July 29, 2023. Please note that the financial results that we will be referencing during the remainder of today's call exclude certain adjustments recorded under GAAP unless specified otherwise. For a complete reconciliation of GAAP to adjusted earnings, please reference our press release. Additionally, please note that remarks made about the future expectations, plans, and prospects of the company constitute forward-looking statements. Results may differ materially due to the various factors listed in today's press release and the company's public filings with the SEC. The company assumes no obligation to update any forward-looking statements. Joining us today are Doug Howe, Chief Executive Officer, and Jared Poff, Chief Financial Officer. Now let me turn the call over to Doug.

Thank you for joining us this morning. I'm pleased to report that during the second quarter, we made continued progress on our plan to return designer brands to growth. As anticipated, we did see consistent improvement in our top line performance throughout the quarter and have now experienced three consecutive quarters of sequential cost improvement. However, with consumers being increasingly mindful of their discretionary spend, that improvement has been more muted than anticipated. In spite of this, as expected, our comps have now turned positive as we've moved into the back half of the year and reached our anticipated inflection point. We expect positive comps to continue in the back half, supported by our strategic initiatives. We've been particularly pleased with our back-to-school business, which has carried its momentum into the third quarter, supported by our expanded athletic and athleisure offerings. Turning to our results. In the second quarter, our sales were down approximately 3% versus last year. We saw roughly 1% decline in comparable sales versus last year, a sequential improvement as our efforts to reinforce and grow relationships with our key national partners are paying dividends. Our top eight brands, all in the aesthetic and add leisure categories, continued to generate outsized growth in the second quarter, up over 30%, which was in line with the growth that we saw from them in Q1, and showcases the benefits of developing keeper relationships with key brand partners. Further, the penetration from these top eight partners climbed to 39% of sales in the quarter, a significant increase over the prior year penetration of 30%. While our assortment pivot is gaining traction, our over-penetration in dress and seasonal once again pressured results. We remain committed to reducing our reliance on these categories, and we're encouraged by the continued comp improvement as we exited the second quarter stronger than we started. As I mentioned earlier, we've seen that momentum continue quarter to date, primarily driven by strength in the back-to-school season. Gross margin contracted by 170 basis points to 32.8%, influenced primarily by lower IMU on athletic and athleisure products, as we prioritize growing our penetration in those categories, as well as pressure from promotions needed to clear through seasonal inventory. As we head into the fall season, we are maintaining our disciplined inventory allocation, which we believe will enable us to be less reliant on promotions to sell through inventory and capitalize on any momentum shifts we may see. Though we still expect IMU to be a continued headwind as our athletic inventory expands. Let's first talk about our retail business. According to Sukana, DSW outpaced the overall footwear market by one percentage point in the second quarter. In total, our U.S. retail sales declined roughly 3% versus last year, while posting a 1% decline in comparable sales as we saw increasing pressure on seasonal volume in the spring. However, thanks to our efforts to increase our athletic offerings, we had a powerful tailwind, with total athletic sales increasing 16% for the quarter. Allow me to briefly provide an update on the progress that we are seeing across DSW's three strategic pillars. reinvigorating our assortment, elevating our marketing, and enhancing our omnichannel shopping experience. Beginning with our assortment. Since the pandemic, the footwear market has undergone a structural shift to footwear more appropriate for everyday use. And we've made an effort to capture that shift by pivoting our assortment. Prior to the pandemic, our penetration of dress and seasonal was as high as 60% in 2017. compared to roughly 49% today. Conversely, athletic and casual was only 32% of our assortment in 2017 versus 42% today, a key driver in our improving overall performance. Being able to offer a robust selection from Nike, the largest kids' athletic brand, is also a notable tailwind for us. the strength in athletics this quarter was robust, with our adult athletic comps up 15% versus last year, along with kids' athletic growing over 25% versus the prior year period. At this time, we expect kids' and athletic comparable results to continue to strengthen in the third quarter, bolstered by the majority of our back-to-school efforts following during this time period. As a result of the success in athleisure, we're also taking a new look at our strategy in adjacent categories, One new initiative we implemented was an increase of inventory in athletic stocks. As we leaned into this newer area, we saw a 52% increase in athletic stock sales in the quarter and expect stock growth trajectory to climb further in the back half of the year as we continue to lean into this offering. Although a relatively smaller part of our assortment, affordable luxury offerings provide a bit of differentiation in our assortment while also having the potential to enhance margins. Our recent reinvestment into the space has promoted the differentiated value that DSW can provide to both new and long-time customers who enjoy the treasure hunt that comes with our buzz-worthy closeout buys, and we have seen strong growth as a result. As we reduce our reliance on seasonal undress, we have taken substantial actions in planning our fall assortment. Notably, we are planning boots to be down in the double digits versus last year. As we continue to rebalance our assortment to athletic and athleisure, we anticipate seasonal and dress penetration to continue to further contract over time. Moving to our marketing, as we evolve our assortment, our ability to effectively utilize marketing is crucial. In the second quarter, Sarah Crockett joined DBI as our new Chief Marketing Officer. bringing extensive experience in consumer marketing, having led marketing efforts at Dickey's, Backcountry, Vans, and Burton, amongst others. Sarah's work going forward will augment our efforts to evolve our assortment and enhance our omni-channel experience, which we expect will drive further momentum with new and existing customers. In the near term, our teams are executing our ongoing VSW brand equity building through top-of-funnel initiatives, leaning in heavily to the back-to-school season. We've created a digital and physical back-to-school destination by integrating our marketing message with opportunities in stores, such as leveraging influencers and using a digital lookbook to drive engagement. We are also capitalizing on the presence of Nike in our marketing, given its stature as a cornerstone of the back-to-school season. In addition, we are increasing our presence on social media in new and different ways. This includes a renewed content strategy the expansion of our influencer program, and specific targeted enhancements. These marketing strategy changes are already driving an improvement in social media performance, where we are seeing a two-times list in performance in recent campaigns. On TikTok alone, we've seen our engagement rate increase over 450 basis points, outpacing the retail industry benchmark by over 100 basis points. We've grown video views and organic engagements by over 100% each, and are consistently gaining new followers. Finally, we continue to invest in personalization to further refine and improve our customers' experience with ESW and to more effectively engage last or about-to-last customers. As part of this, we are piloting new strategies in our loyalty program. This brings me to our third strategic pillar of enhancing the shopping experience across DBI sales channels. We're encouraged by the success of our digital platform, which continues to lead the business, sustaining mid-single-digit growth for the third consecutive quarter. In stores, we are actively upgrading aesthetics with enhanced visual merchandising and promotional signage, which goes hand-in-hand with our refreshed assortment and omni-channel marketing strategy. Turning to our Canadian business, Sales increased by 6% versus last year, driven by the acquisition of Rubino, while comps contracted by roughly 3% as the Canadian market experienced similar pressures to the U.S. As a reminder, last quarter we entered into the previously untapped Canadian territory of Quebec following our acquisition of Rubino. Quebec is a new territory for designer brands, and we are excited to compete here and extend our reach to another quarter of Canada's population. As discussed, we intend to continue operating the 28 storefronts under Rubino's legacy banner given their established brand in the region. As a result, we continue to anticipate no material expenses associated with integrating the Rubino business within our portfolio. This quarter, we opened one new shoe company store and one new DSW in Canada, bringing us to a net six new stores year-to-date on top of the 28 Rubino stores. And we expect to further expand our shoe company store count by two more stores in the third quarter. Now to our brand portfolio segment. As we shared last quarter, we have implemented new programs and reviews that have supported reducing costs, right-sizing the organization, increasing margins, streamlining and simplifying the way we work, and defining the role, purpose, and potential of the brands in our portfolio. We are elevating our core competencies and leveraging scalability to develop best-in-class brands that we expect will, over time, provide significant returns. Our product ideation process is being greatly revamped with the purpose of improving adoption rates and expanding profitability in the coming years. We continue to be excited about the growth we are seeing in our brand's portfolio, with Topo Athletics and Jessica Simpson being just two examples of success we are recognizing. Topo continues to gain momentum as we grow its recognition with a dedicated running community. We are constantly engaging premier fitness and outdoor channels to further expand Topo's accessibility nationwide and drove a 109% year-over-year growth in its wholesale channel in the quarter. Jessica Simpson also sustained the momentum it saw in the first quarter with high double-digit sales increases as the brand continues to appeal to customers for its colorful and unique style. We're embracing the Jessica Simpson brand momentum and have capitalized on this excitement with expanded wholesale distribution up 70% in the quarter. I want to reinforce our message from last quarter that this year is all about execution and discipline within our brand's business, and we've right-sized our inventories and are implementing new ways of working amongst our teams. Looking to the future, both Jared and I are working closely with our brand portfolio team to identify and pursue prudent investments where we can deliver the highest returns. As I conclude, I want to remark on our 2024 fiscal year outlook. As I've discussed already, and as Jared will elaborate upon further in just a moment, we are seeing the turnaround we have been steering beginning to come to fruition, and I am energized by the return of our U.S. retail business to positive comps. It has been a significant effort to get to this point, and I am grateful to all of our team members for diligently pursuing our current strategic initiatives to get us to this place. Even with this turnaround gaining traction and transitioning us back to growth, the ongoing macro uncertainty and the challenges we saw as a result of a pressured consumer in the second quarter, specifically related to sandals and dress, have muted the overall level of these improvements below what we were expecting at the start of the year. Accordingly, we are repositioning our full-year earnings guidance at 50 cents to 60 cents. As we shared last quarter, we continue to expect comp sales in the fall to be materially stronger than in the spring and, in fact, remain positive. Notably, as mentioned earlier, we have already seen positive comps to start the third quarter as our assortment evolution continues to take hold. We expect this to produce an improved EPS in the back half of 2024 versus the back half of 2023, while helping forge a recovery from last year's lackluster boot seizure. We are in a transitional period for designer brands, as our refreshed leadership team implements thoughtful, strategic, and operational improvements, and we are excited by the initiatives that have been put in place by our new leaders and look forward to updating you on our continued progress. With that, I'll turn it over to Jared. Jared?

Thank you, Doug, and good morning, everyone. Turning to our financial performance, we were pleased with the results of our investment areas, primarily our continued penetration growth into athletic and athleisure, which supported notable market share gains in the quarter. According to Cercana, athleisure grew 4% in the second quarter versus last year in the footwear market, while fashion declined by 6% to last year. Driven by our strategic assortment changes, DSW drove athleisure sales growth of 8% to last year, outpacing the athleisure market by over 4 percentage points, and thus grabbing share in this important and growing category. This helped us deliver another quarter of sequential improvement in our retail comp sales. And while comps sequentially improved for the third consecutive quarter, the level of improvement was below what we were anticipating, as the consumer further pulled back on discretionary spend in dress and seasonal footwear, which, in spite of our pivot towards athletic and casual, still weighed heavy on our overall results. Let me provide a bit more detail on our financial results for the second quarter, followed by an update to our annual guidance. For the second quarter of fiscal 2024, net sales of $772 million were down 2.6% versus the prior year period as reported and were down 1.4% on a 13-week comparable basis. In our U.S. retail segment, comps were down 1.1% in the second quarter, an improvement compared to down 2.3% in the prior quarter, down 7.4% in Q4 of last year, and down 9.8% in Q3 of last year. As mentioned, our performance was led by strong double-digit comps in both our athletic and kids categories, which was offset by negative comps in our dress and seasonal categories. Our Canada retail segment comps were down 3.1% in the second quarter, driven by continued macro challenges that have led to a reduction in overall consumer discretionary spending activity. In Canada, we continue to invest in branding as well as explore opportunities to expand our geographic footprint, and we anticipate these will help drive an improvement in results. Finally, in our brand's portfolio segment, sales were up 14% in the second quarter. As a reminder, starting this fiscal year, we have harmonized our approach to how we transact business between our brand portfolio segment and our retail segments. This change resulted in approximately $22 million of year-over-year additional sales for our brand segment in the quarter that gets eliminated in consolidation. We saw notable strength in our DTC sites where we have been investing. In particular, Topo.com delivered a positive comp of 20.3%, and VinceCamuto.com reported positive comps of 4%. Consolidated gross margin of 32.8% in the second quarter decreased 170 basis points versus the prior year, primarily driven by slightly lower IMU as we prioritized growing our penetration of national athletic brands, as well as absorbing the impact of elevated promotions that were prevalent across the entire market. Our adjusted SG&A was 28.9% of sales compared to 26.9% in the second quarter of last year. This deleveraging was largely a result of a declining top line coupled with the increases of underlying fixed expenses and increased investment in talent and IT, specifically our e-commerce teams and back-to-school marketing, partially offset by the cost reductions we implemented at the beginning of the second quarter. As we look towards the future, we have kicked off a formalized expense efficiency initiative with the help of an outside consultant. We will be working to put a multi-year execution plan together that will help us to more meaningfully and sustainably optimize our cost structure moving forward. For the second quarter, adjusted operating income was $32.5 million compared to $62.6 million in the prior year. In the second quarter of 2024, we had $11 million of net interest expense compared to $6.9 million last year. Higher interest expense is a direct result of our term loan we installed last year, as well as higher interest rates on our ABL. Our effective tax rate in the second quarter on our adjusted results was 20.6% compared to 29.3% last year. Our second quarter adjusted net income was $17.1 million versus $39.4 million last year, or 29 cents in diluted earnings per share versus 59 cents last year. Higher operating expenses and interest expense weighed on this quarter's results. Turning to our inventory, we ended the second quarter with inventories up 5.9% versus the prior year, mostly driven by athletic, as we brought in more receipts earlier this year to support our back-to-school campaign and our retail segments. For the second quarter, we generated $28 million of free cash flow, defined as cash provided by operating activities, less cash paid for property and equipment, reflecting the receipt of our IRS tax refund. We believe our healthy liquidity position, including availability under our AVL, support our ability to navigate further potential uncertainty, and we do anticipate that we will be free cash flow positive in the back half of the year. We ended the second quarter with $38.8 million of cash, and our total liquidity, which includes cash and availability under our ABL revolver, was $193.9 million. Total debt outstanding was $465.8 million as of the end of the second quarter. With our CARES Act tax refund, our teams immediately paid down outstanding balances on our ABL revolver. Additionally, in the second quarter, our team and the board deemed it prudent to re-engage our share repurchase activity. To that end, we repurchased $18 million worth of DVI shares at an average price of $6.74 in Q2. We will continue to evaluate all opportunities to bolster shareholder value, and we believe this recent repurchase activity is evidence of our conviction in our long-term strategy. Before I conclude, I want to take a minute to discuss our fiscal 2024 guidance. We have always expected comps to improve as we work through spring, inflecting the positive in Q3, and our bottom line to turn to growth over last year for the fall. And this is exactly what we've seen year to date and are seeing currently as we start the back half. As of the first month of the third quarter, we have inflected the positive comps and expect those to continue. As a reminder, this includes the lapping of Nike's return, which we enjoyed during the entire fourth quarter last year. We remain confident in the calendarization of the trajectory of our comp trend and expect continued sequential improvement through the balance of the year. However, as we've discussed, the overall pace and level of recovery has been more muted than expected as a result of a pressured consumer, macro pressures on the overall footwear market, and a lackluster spring seasonal business at DSW. As such, we are revising our full year guidance accordingly. We are adjusting our net sales growth guidance for the full year to be flat to up slightly versus prior guidance of a low single digits increase. As a reminder, this does include the headwinds of the sales recorded in the 53rd week of fiscal 2023. We continue to project our third quarter as our strongest sales growth quarter, and I want to remind you that while we also expect positive comp sales growth in the fourth quarter, our year-over-year total sales will be negatively impacted by the loss of the 53rd week from the prior year. We do believe our assortment and marketing strategies are being rewarded as customers have embraced the updated selection and promotional strategies that we are championing. And we have moved even more decisively to position ourselves for success in the back half, with the most notable adjustment to our seasonal assortment yet. We now anticipate external sales in our brand portfolio segment will be flattish as strong growth from Jessica Simpson and Topo are offset by declines in our DTC businesses overall. Turning to factors impacting our profitability, while continuing to see the investments over last year in people and IT that we've discussed previously, the expense savings from the reorganization we executed early in the second quarter have started to materialize. With these puts and takes coupled with a more muted top line, we now expect to see flat to slight deleverage in SG&A for the full year. We anticipate our effective tax rate of roughly 30% for fiscal 2024 and have updated our annual earnings per share outlook to be in the range of $0.50 to $0.60 versus our prior guidance of $0.70 to $0.80. Our weighted average diluted shares outstanding are anticipated to be approximately $57.8 million for the third quarter and approximately $58.3 million for the year given the share repurchase activity that has occurred thus far throughout the year. I remain energized by our plans to return designer brands to earnings growth in the back half of the year, including what is implied with this revised guidance of meaningful growth in EPS over last year. Importantly, the third quarter will mark the first quarter of positive comps since the third quarter of 2022, a testament to the fact that our strategies are working. At this time, we would also like to reaffirm our expectations for capital expenditures to be in the range of $65 to $75 million for this year. I remain confident that we are making the necessary changes to position our organization for growth as the footwear industry evolves. By investing in top talent, key relationships, top of funnel initiatives, and modernized infrastructure, we believe that we are increasingly well positioned to continue our recovery. With that, we will open the call for questions. Operator?

We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster? Our first question comes from Dylan Cardin with William Blair. Please go ahead.

Hey, guys. This is Alex Vastion for Dylan. Thanks for taking our questions. Firstly, just how would you describe the risk in the guide for the back half? You mentioned inflecting positive and comp with boots planned down double digits on easier compares. which appears to have been relatively de-risked. So could you just give a bit more color on what is contemplated in the larger inflection plan for the second half?

Yeah, I mean, this is Doug. Thanks for the question. I would start by just saying, again, we're encouraged by what we saw materialize through Q2 from a momentum perspective. And then, in particular, the fact that we moved to a positive comp as we got into Q3. So a lot of that is driven by, obviously, the penetration growing of athletic and athleisure. But the most significant change we've made as we moved through fall is we felt we had B risk that demand plan because we significantly planed down the season of B category. Again, that's a pretty seismic shift with regards to how we're thinking about evolving that assortment as we move through the back half and probably the most romantic move we've made.

Got it. Okay. Thank you. And then secondly, how are you or could you adjust or shape the branded portfolio to reflect the trends that you're currently seeing in the business? You mentioned earlier in the prepared remarks de-emphasizing dress and seasonal products. Is it within the realm of possibility to buy or get rid of any existing brands as you rework the branded portfolio? Thanks. Yeah. Yes, this is Jared. You know, what I would say is if you kind of look at the investments we've made most recently, they have been in brands that are in the growing part of the football market. So when you look at Topo and when you look at Keds, squarely in the athletic and athleisure side, and we're actually very energized with what we're seeing on that front. You know, when you look at our legacy dress brands, one, they are licensed brands. So we are still very much in the middle. of most of those licenses. However, you know, we have done certain things to even lean into where we are winning with those brands. So when you kind of look at our Vince Camuto brand specifically, and while Boots is declining, the wide cap boot and the oversized boot is actually... something we're winning in. So in those particular areas, we are finding some opportunities for wins while still being relatively conservative from overall growth. And then lastly, I would comment, and Doug may want to chime in, we are seeing a lot of traction with Jessica Simpson at the moment. And, you know, ironically, that's a dress-focused brand, but she very much has a vibe and kind of an aesthetic that right now is really resonating. So we're doing quite well with that brand. Yeah, and I would agree with everything that Jared said.

And, again, we looked at the store earlier as continuing to evolve. Again, there are components of that assortment that we'll continue to lean in and differentiate. Jared mentioned wide cap boots. That's kind of an ownable component that we did really well with last year on the wholesale side. We're getting more aggressive about that this year. Again, the investment in SOPA, we obviously feel really good about that. Just to remind everyone, Andrea is relatively new to the organization. She started, you know, early this year, but really impressed with the progress that we've made and she's made with the team so far today.

Perfect. Thank you. Very helpful. That's all for me. I'll pass it on.

Again, if you have a question, please press star, then 1. The next question comes from Mauricio Cernup with UBF. Please go ahead.

Good morning, and thanks for taking my questions. Maybe could you quantify how the quarter to date is performing and just how comfortable you feel about the second half, just given that Q4, I guess, like, I don't know if the implication is that it could be flattening down just because of the, you know, as you left the 53rd week.

Yeah, Mitch, I'll start. This is Doug. So I would say, you know, again, we don't want to get into a lot of detail in the current quarter, but we did comment that we moved to a positive comp, which was the first time that we've seen that since September of 2022. So, again, we think that's a critical intersection point. The majority of the back-to-school business still occurs in the quarter. So that's definitely something we feel very positive about. It's very early in the seasonal business, obviously. While we're encouraged by some very early reason it is very early, we have the majority of the season ahead of us. So, you know, we're focusing on controlling what we can control. I'm pleased with how the team has evolved that product portfolio assortment, but, you know, there is a little bit of caution out there just with regards to the macro environment. But, again, really focusing on what we can control, distorting the categories that are working, and we're positioned in a very good place because of how we plan seasonal.

I would add, Mauricio, to answer the end of your question. You know, we do anticipate positive comms throughout the fall. But to your point, you know, we do lose a 53rd week in the fourth quarter. That was about 40, a little over $40 million in total sales. While we still feel... pretty strongly even at the lower end of our guidance around Q4 positive comps. You know, depending on where within that guidance we lie, you know, you could see flattish or, you know, a bit more pressure on the sales side just given we're losing that $42 million week.

Got it. And then just very lastly on the gross margin, I mean, you talked about you expect for the year SG&A to be flat despite the leverage. How should we think about the gross margin for the full year?

Yeah, I mean, when we look at four-year margins, we kind of have two things going in opposite directions. You know, we continue to see pressure on our IMU just given the move into a higher penetration of national brands, specifically athletic brands. And as we've always talked about, you know, those certainly come with a bit more pressure on IMU than, you know, the dress brands do. But on the flip side, especially as we move into the fall, you know, we start seeing leverage on our markdowns. If you recall fall of last year is when we really, you know, had to clear out boots because we had invested in growth and certainly did not see that materialize. And so we're kind of seeing those offset to deliver an overall year that, you know, is a bit flattish in gross profit.

Very helpful. Thank you so much.

The next question comes from Dana Telsey with Telsey Group. Please go ahead.

Hi, good morning, everyone. As you think about inventory levels and where you expect them to be by the end of the year, both on your own branded side and wholesale, how are you thinking about it? And with the components of the comps in each of the channels, drivers of each, what do you see in ATV or conversion traffic, transactions? What are you seeing there and how do you think about it going forward given the inflection point that you've seen already? Thank you.

Yeah, thanks, Dana, for your question. This is Doug. I'll start, and Jared can add some color. Again, we're encouraged by the momentum that we're seeing with regards to the change in the trajectory. Again, we've commented on the fact that we saw a digital increase for the third consecutive quarter. We definitely have seen an improvement in traffic at the store component of that as well. Again, it's a little more muted than we would have anticipated, but it's encouraging and definitely moving in the right direction. We did see an uptick in AUR. So, again, that kind of explains a little bit of negative on traffic and positive AUR with the results. So we're, again, encouraged by that. The team has done a very good job of managing inventory. Again, we pulled forward some athletic receipts in order to be able to position ourselves for back-to-school, and obviously that's paying off in dividends as we move to a positive comp in Q3 so far.

Great. Just any update on freight expenses?

Yeah, you know, Dana, we are monitoring that closely. Obviously, direct importing is not a huge piece of DBI's solo business. You know, it impacts our segments differently. You know, we actually are seeing a bit of a different level of impact on our brands business versus the little bit of importing our our DSW business does, DSW pretty much what they do import arrives in the West Coast and we aren't seeing nearly the type of container pressures for those deliveries. When you look at what we receive in for our brand business because of where those infrastructures located in the U.S. We actually receive those on the East Coast. And we are seeing a pretty substantial increase on a per container load. Again, overall, it's not putting in a lot of volatility to DBI, just given direct importing is not as huge for all of DBI. But within our segments, we're seeing some of that pressure.

Thank you.

And we have a follow-up from Mauricio Cerna with UBS. Please go ahead.

Okay, just wanted to follow up on SG&A. Just want to understand, like given that, you know, you lowered the kind of like, you know, like you lowered a little bit the sales guidance. Is there like any change on the SG&A front just because of, you know, lower sales expectations or is that really essentially what is driving the, just want to understand if that is what is essentially driving the lower guidance at the ETF level?

Yeah, and we've kind of talked a little bit about we've got a relatively fixed expense structure, especially when you look across our segments and the way that those businesses are organized. I would say, however, that should we start to see performance coming, a little more challenge to start to pivot towards the lower end of our guidance. We do have a bit of flexibility. I'd call it probably between $5 and $10 million of SG&A dollars to flex with that. But overall, not a lot of wiggle room. That is why, as I mentioned in my prepared remarks, we have engaged an outside consultant to really look at our overall expense structure and what I'm calling physical therapy, just kind of looking to say, How should we be wired a little bit differently? Our expense structure has been dramatically changed over the last few years as we have added new brands that came with entirely existing infrastructures like TOCO, like TEDS. And so, you know, we are looking at that and anticipate putting together a pretty robust multi-year execution plan to really get more efficient and look at how we should be wired for SG&A.

And then just lastly, what are the expectations for interest expenses?

Interest is relatively in line. You know, right now we're projecting just under $40 million of full-year interest expense for 24.

Thank you so much.

This concludes our question and answer session. I would like to turn the conference back over to Doug Howell for any closing remarks.

Well, thanks again, everyone, for joining us today. I just want to reiterate that we are energized by the fact that we are seeing the turnaround begin to come to fruition. And, again, I am grateful to all of our team members who continue to pursue those strategic initiatives to get us to this place. We look forward to updating you on our progress as we move through the balance of 2024. Thanks again for joining us.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.