The Gap, Inc.

Ladies and gentlemen, my name is Justin, and I will be your conference operator today. At this time, I would like to welcome everyone to the GAP, Inc. first quarter 2021 conference call. At this time, all participants are in a listen-only mode. For those analysts who wish to participate in the question and answer session after the presentation, you may now press star 1 to enter the Q&A queue. As a reminder, please limit your questions to one per participant. If anyone should require assistance during the call, please press the star key followed by the zero key on your touchtone phone. I would now like to introduce your host, Steven Ostenfeld. Please go ahead.

Hey, thanks, Justin. Good afternoon, everyone, and thanks for joining us today. Welcome to Gatling's first quarter. 2021 earnings conference call. Before we begin, I'd just like to remind you that the information made available on this webcast and earnings call contains forward-looking information for information on factors that could cause our actual results to differ materially from any forward-looking statements, as well as a description and reconciliation of any financial measures not consistent with generally accepted accounting principles. Please refer to page two of the slides provided today shown on the investor section of our website, GapBank.com, which supplement today's remarks as well as today's earnings release. The company's annual report on Form 10-K filed with the SEC on March 16th, 2021, and any subsequent filings with the SEC, all of which are available on GapBank.com. These holdups and statements are based on information as of today. May 27th, 2021, and we assume no obligation to publicly update or revise our forward booking statements. So joining me on the call today are Chief Executive Officer Sonya Singhal and Chief Financial Officer Katrina O'Connell. So with that, I'll turn it over to Katrina.

Thank you, Steve, and thank you, everyone, for joining us today. We're very pleased with our first quarter results and especially pleased that our performance is giving us confidence to raise our full-year outlook on sales, operating margin, and earnings per share. Our four purpose-led billion-dollar lifestyle brands are competing well, gaining share and expanding gross margins, driven by strong product and creative execution and digital dominance. And we're making progress on our transformation initiatives that are critical to our goal of growing sales profitably and expanding operating margins. We're optimistic that the consumer will remain strong, particularly in the US, and that our iconic brands, well-located stores, and digital advantage will remain relevant as consumers transition back to work and school. And while our business did benefit from stimulus spending in Q1, as well as a faster recovery due to accelerated vaccine deployment, we're very pleased with the way we leveraged our competitive advantages, our brands, our portfolio, and our platform to win this quarter. With that, let me share a few highlights from the quarter that demonstrate our continued progress against our Power Plan 2023 strategy. starting with delivering sales growth. First, our revenue grew 8% versus 2019. We're pleased with this strong performance, recognizing it includes nearly five points of impact from our strategic North America store closure plan over that time period, as well as roughly two points of impact from COVID-related store closures outside of the U.S. Our U.S. market share is the highest we've seen in recent years at 5.5%, up 90 basis points versus last year. At nearly $4 billion, this was the largest Q1 revenue in the company's history. We're happy with the standout performance of Old Navy and Athleta, which grew net sales 27% and 56% respectively in Q1 versus 2019. Combined, Old Navy and Athleta represented 66% of company sales in Q1, moving closer to our target of 70% by the end of 2023. Sonia will talk more about how they compete to win a little bit later. There's also meaningful progress at Gap Brand. Gap North America delivered a 9% comp versus 2019, underscoring the progress the brand is making in the product and operations of its core business. The brand has become more digitally led and is realizing the margin benefit of closing unprofitable stores while also reinvigorating the brand with great creative and product execution. And lastly, we're excited about the changes occurring at Banana Republic. It's updated product design, realigned pricing architecture, in-store experience and updated brand creative. While we aren't yet seeing growth at Banana Republic, the team is focused on regaining relevance and repositioning Banana Republic for a post-COVID world. Our commitment to becoming digitally-led company is paying off. At over $6 billion in sales in fiscal 2020, our online channel was ranked number two in U.S. apparel e-commerce sales, and when leveraged with our well-located fleet, is a strategic advantage in serving our customers through an omnichannel lens. And in Q1, online momentum continued, with sales growth up 82% versus 2019, ending the quarter at 40% of total sales compared to 25% in 2019. next we're strategically driving down fixed costs and reallocating a portion to demand generation in support of our sales growth several expense levers strategic store closures and productivity and operating expenses especially in stores have helped us weather pandemic related costs in the quarter and allowed us to lean into demand generating investments such as marketing and digital enhancements Our strategic investment in marketing over the last several quarters has helped us gain market share in the dislocated apparel market, and we're leveraging that share consolidation to drive growth now. We've driven improvement in product margins over the last few quarters as customers have responded to our brand-building marketing. In addition, we've delivered creative execution and relevant product, supporting higher regular price selling and reduced discounts. While freight and shipping costs, as well as pandemic-related supply chain headwinds persist, This margin expansion provided an offset against these rising costs. Our fleet rationalization is on track and driving significant economic value. I'll share more details in a moment, but we remain on track to closing 350 Gap and Banana Republic stores in North America by the end of 2023. Higher online sales, store closures, both in the quarter and last year, along with lease negotiations and abatement settlements, contributed 430 basis points of ROD leverage in Q1 versus 2019. We're making progress on leveraging partnerships as a capital efficient way to amplify our iconic brands and drive profitable sales, particularly at Gap Brand. Yesterday, the brand announced an exclusive deal with Walmart.com to deliver Gap Home. Sonia will speak more about this later, but this is an example of how, through partnerships, we can extend the reach of our brands to customers across product categories, markets, and channels. Our strategic review of our European market presence is underway. We're evaluating options across France, Italy, the UK, and Ireland. Gap Brand has a strong brand recognition in Europe, and whether through a franchise model or online, we look forward to providing Gap products to our European customers. We'll share more progress on our evaluation as we move through the year. As part of our Power Plan 2023, we committed to profitably growing our $4 billion lifestyle brands. In support of this strategic initiative, we completed the sale of our Jamie and Jack business in the first quarter and completed the sale of the Intermix business early in the second quarter. While these transactions won't materially affect EBIT, the brands together contributed approximately 2% of sales on an annual basis. This change further enables management to focus on the core brands and removes fixed costs in the portfolio. And finally, we've generated meaningful free cash flow, ending the quarter with $2.5 billion of cash, cash equivalents, and short-term investments on the balance sheet. Our reliable cash generation and strong balance sheet supports our investment for growth in 2021 through capital expenditures, while also resuming our longstanding practice of returning cash to shareholders. We initiated a new dividend in the second quarter and are returning to our program of share repurchases intended to offset dilution. We're also closely monitoring our debt position. Based on current market prices of our notes, we don't believe it's in the best interest of shareholders to repurchase or restructure at this time. While we're not planning any near term actions related to our debt, we are actively watching the markets and interest rates so we can take action at the appropriate time. Before I move on to our revised 2021 outlook, I want to say I'm proud of how the team leaned into our competitive advantages, maximizing our strategies to drive long term shareholder value. As we look to the balance of 2021, despite the remaining uncertainty related to the COVID pandemic, our first quarter performance gives us confidence to raise our 2021 outlook today. On a reported basis, the company now anticipates full year diluted earnings per share to be in the range of $1.55 to $1.70. On an adjusted basis, we're raising our full year earnings per share to be in the range of $1.60 to $1.75. So let me turn to our Q1 financials and starting with sales. Net sales for the quarter were $4 billion, up 8% versus 2019. Comp sales were up 28% versus a year ago and up 13% versus 2019. While overall performance was quite good, Q1 sales were negatively impacted by the continued resurgence in the COVID pandemic that resulted in unplanned mandated store closures and restrictions across Canada, Japan, China, and Europe. As noted, the pandemic-related impact of first quarter sales versus 2019 is estimated to be approximately two percentage points. In addition, the sales decline related to strategically planned permanent store closures had an estimated impact of about five percentage points versus 2019. Overall store sales in Q1 were down 16% versus 2019. The decline in store sales is attributable to an estimated seven points of sales impact from permanent closures and an estimated three points of sales impact from international market COVID-mandated closures. Our online sales grew 82% versus 2019 and contributed 40% of sales in the quarter. For details on sales by brand, please refer to our earnings release. Turning to gross margin. First quarter gross margin rate was 40.8%, leveraging 450 basis points versus 2019. Our margin expansion is as follows. ROD leveraged 430 basis points versus 2019 due to the increase in online sales, coupled with savings from store closures and rent negotiations. Merchandise margins expanded 20 basis points versus 2019, reflecting higher product margin due to lower promotional activities, offsetting approximately 200 basis points of higher shipping costs associated with increased online sales. Turning to SG&A, first quarter reported operating expenses were $1.4 billion and 34.8% of sales. Excluding 56 million in charges related to divestiture activity in the quarter, adjusted operating expenses were $1.3 billion or 33.4% of sales, deleveraging 60 basis points versus Q1 2019 adjusted SG&A. The 60 basis points of deleverage is due to the following dynamics. De-leverage of 120 basis points due to elevated compensation costs as part of the company's pay-per-performance philosophy. Higher distribution center costs of 40 basis points in support of the company's online expansion. And importantly, productivity and store expenses of 230 basis points were partially redeployed into demand generation as marketing investment was higher and de-leveraged 140 basis points. The greater investment in demand generation resulted in nine-tenths of a point of market share gain for Gap Inc. in Q1 versus a year ago, ending the quarter at 5.5% of total U.S. apparel market share. Turning to operating margin, on a reported basis, first quarter total operating income was $240 million, or 6% of sales. On an adjusted basis, first quarter operating income totaled $296 million with operating margin of 7.4%, expanding 390 basis points versus adjusted 2019 operating margin. Moving to taxes and interest, the reported effective tax rate was 11.2% for the first quarter. The lower first quarter effective tax rate primarily reflects the one-time income tax benefit related to divestiture activity in a quarter. Excluding this impact, the adjusted effective tax rate was 23.5%. And first quarter net interest expense was $53 million. Turning to EPS, our first quarter reported earnings per share was 43 cents. Excluding charges related to divestiture activity, adjusted earnings per share was 48 cents. To provide some perspective on inventory, total inventory was up 6% versus the first quarter of 2019 and up 7% versus the year-ago quarter. The increase is primarily due to COVID-related U.S. port congestion and the impact on shipping lanes resulting in higher in-transit inventory levels. Importantly, we remain pleased with the content of our inventory, with markdown ownership below 2020 and 2019, and are confident in our ability to deliver product margins above last year's levels in Q2. We now expect Q2 inventory growth versus 2020 to be in the range of high single digits to mid-teens, acknowledging the volatility regarding COVID-related supply chain disruptions impacting in-transit inventory levels. Moving to real estate and store closures, in the first quarter, we closed six Gap and Banana Republic stores in North America, consistent with our strategy of improving the profitability of our store fleet. We still anticipate closing approximately 75 stores in 2021, which will bring us to approximately 75% of our goal of closing 350 stores in North America by the end of 2023. We anticipate that store closures in 2021 will be weighted toward the back half of the year based on the timing of lease expirations. In addition, on a net basis, we opened 25 Old Navy and Athleta stores consistent with our plans to expand their customer reach. During the quarter, we encouraged store-related cash outlays of about $6 million for North America. In 2021, we continue to estimate cash outlays of about $135 million related to store closures. As noted previously, as of the end of 2023, we expect that the full store rationalization program will yield annualized pre-tax savings of about $100 million. This estimate does not include the strategic review of our Europe market, which remains in progress. Regarding the balance sheet and cash flow, free cash flow was $216 million in the quarter. As a result of the company's strong cash flow performance, we ended the quarter with $2.5 billion of cash, cash equivalents, and short-term investments. The company ended the quarter with 377 million shares outstanding. Before I turn it over to Sonia, let me touch on our financial outlook for 2021, which we are raising across all key measures. We believe the biggest domestic impact from the pandemic is largely behind us, with the U.S. market showing signs of strength driven by stimulus in Q1 and a faster recovery from the accelerated vaccine rollout. While we are seeing a healthier macro environment in the U.S., we expect lingering impacts to continue globally, as seen in market closures and stay-at-home restrictions in Canada, China, Japan, and Europe. In addition, while our strategies are working and showing good results, we're also watching the evolving pressures on our supply chain from both COVID outbreaks in India and Southeast Asia, as well as the ongoing raw material supply pressures. With that in mind, I'd like to provide the following revised guidance for fiscal year 2021. On a reported basis, we now expect earnings per share to be in the range of $1.55 to $1.70. On an adjusted basis, excluding the Q1 charges associated with the divestiture activity, we now expect our adjusted earnings per share to be in the range of $1.60 to $1.75, a $0.40 increase versus prior year outlook. Both our reported and adjusted outlooks exclude the potential impact associated with ongoing strategic reviews in Europe. Now, let me provide you with some additional guidance metrics for 2021. We are raising our sales outlook and now anticipate full year net sales growth to be in the range of low to mid 20% versus fiscal year 2020. Notably, this revised outlook reflects the lost revenue attributable to the recent sale of Janie and Jackson Intermix, which combined on an annual basis represented approximately 2% of company sales. Our reported and adjusted operating margin guidance is now approximately 6%, an increase from our previous guidance of about 5%. This reflects an acceleration of our progress towards reaching a 10% operating margin by the end of 2023. We anticipate a modestly higher level of SG&A spending as a percentage of sales in Q2 versus Q1. With a disproportionate advantage in back to school, primarily at Gap and Old Navy, we plan to invest more heavily in marketing and digital assets to drive market share during this important time. Additionally, the integrated launch of our loyalty program in the fall is supported by elevated investments in customer-facing technology. This modest increase in SG&A spending Q2 is fully contemplated in the higher operating margin guidance for fiscal year 2021 of about 6%. And lastly, I want to note the company's focus on returning cash to shareholders. First, we announced earlier this month that the company will pay a Q2 dividend of 12 cents a share, recognizing the strength of our balance sheet and continuing a long history of paying regular dividends to shareholders. In addition, we'll resume share repurchases with the intent to offset dilution. Subject to market conditions and other considerations, the company expects to repurchase up to $200 million of shares under the program for the remainder of fiscal year 2021. In closing, our first quarter performance reflects a strong start to 2021, with profitable sales growth and operating margin expansion versus 2019. This strong start is giving us confidence to raise our full-year outlook, putting us on an accelerated path to our long-term goals. And with that, I will turn the call over to Sonia. Thank you, Katrina, and good afternoon, everyone. I'm happy to be here today to share our first quarter results. As Katrina mentioned, our sales were up significantly year over year and exceeded our 2019 results. Our strong performance in Q1 can be attributed to two things. First, and most importantly, our Power Plan 2023 is taking hold. And second, the macro tailwinds, which included a third round of stimulus checks and increased vaccine distribution, created an inflection point. Our teams are maniacally focused on growing our purpose-led billion-dollar lifestyle brands, and our customers are responding. The marketing investments we've made over the last several quarters to fuel demand, coupled with the macro tailwinds, are supercharging our business. The share we strategically took in 2020 during the consolidation in the apparel market drove outsized momentum in Q1, especially in Old Navy and Atlanta. And we're feeling great about the health of GAP's business in North America. According to NPD, our market share gains outpaced the industry average and, as Katrina shared, were the highest we've seen in recent years. Customers are emerging from the pandemic with a newfound appreciation for social connections and a chance to express their style. At the same time, customers are holding on to the comfort they found in the spaces and rituals created over the last year. As storage traffic rebounded, we sustained our digital dominance, with online growth up 61% year over year and 82% when compared to 2019. Growth in active and fleece continued to rise, showing customers' hesitance to let go of the cozy mentality, while we saw a resurgence in dresses and summer fashion as customers also wished for a spring awakening. While these trends benefited the entire industry, we are uniquely positioned to take advantage of the and factor. Joggers and dresses, digital and in-store, stepping out and staying in. Customers are embracing their own blend of and, which allows us to play to our strengths. While we're pleased with the Q1 and we are seeing great progress in our US market, we understand that the pandemic is far from over on a global scale. With the resurgence in cases in Canada, Europe, China, and Japan, COVID impact on demand in international markets is still meaningful. And more critically, due to rising cases in countries we source from, like India, we are facing supply chain and raw material challenges. Still, agility and flexibility and scale have become a strong muscle across the team. And as we monitor and mitigate these headwinds, I'm confident we have the right levers to pull. We're on track and feel positive about the progress we're making against our Power Plan 2023. We are taking swift action as needed while shifting investments to grow our iconic brands in new and profitable ways for the long term. Let me elaborate on some of Katrina's remarks and walk you through how this showed up this quarter, starting with the power of our brands. I'm particularly energized by how each of our brands are demonstrating brand power to compete and take profitable share. I attribute this to having trend right product, purpose led marketing, and brand amplifying creative partnerships resulting in improved brand health and stronger customer relevance. Across our brands, we are harnessing our pricing power, reducing promotions, and directly investing to drive demand. Let me first talk about Old Navy. While the overall market has strengthened, Old Navy is taking share, outpacing the industry. The brand maintains its position as the number two apparel brand in the U.S. and now sits as the number six apparel retailer on a rolling three-month basis, according to NPD. The stimulus, consumer optimism, strong product acceptance, and full funnel marketing drove a remarkable quarter. Old Navy stores delivered profitable growth even with COVID closures, and at the same time, our online growth continued to accelerate. Newly acquired customers are spending more thanks to marketing investments in brand building storytelling, like their Vintage Vibe campaign, which tapped into today's TikTok generation. In their most recent campaign, Old Navy teamed up with NBA Hall of Famer Magic Johnson to share the success stories of three inspiring graduates from our career skills and mentoring program this way onward. Growth in key categories like active and fleece remains strong, while seasonal categories like dresses, shorts, and denim are coming back. Strength in stores and the shift in product mix signal a new stage in pandemic recovery as vaccines roll out, enabling the return of family vacations and in-person learning. Old Navy anticipates distorted share acquisition in kids and baby from distressed retailers. and when paired with customer exuberance, sets us up for a strong back-to-school performance. Building on a successful sleepwear business, Old Navy extended into Intimates in April to further deliver on the needs of our customers' full lives. And since the launch, has picked up five-tenths of a point of market share and moved into the top 20 Intimates retailers. We're also looking forward to the brand's expansion of inclusive sizing to all stores later this year. With one of the broadest size ranges in the industry, but largely limited to online, this serves to further its commitment to the democracy of style and better serve our existing plus customers with a physical space to shop and engage with us. Next, Gap. Momentum accelerated in Q1, with modern American optimism coming to life through improved product, evolving and clearer creative direction, and overall sharper execution. While COVID-related closures in Asia and Europe impacted sales meaningfully in the quarter, GAAP North America is growing, healthy, and cool, delivering a positive 9% two-year comp with margin expansion. The team is focused on building relevance in the U.S., which in turn gives us the power to export that relevance globally. Gap's Generation Good campaign featured passionate teen activists and self-defined creators who are forging a positive and inclusive path forward. Resonated deeply, and that resonated deeply with customers. And they are responding to Gap's effortless style, driving lower discounting and giving the brand pricing palace. Priority categories, active, sleep, and fleece accelerated, resulted in double-digit sales growth versus Q1 2019. And like Old Navy, kids and baby sales were strong. As many kids returned to the classroom, they grew, and it all bodes well for a strong back-to-school season later this summer. Work is underway on the EasyGap collaboration with Kanye West. Again, we're approaching this launch with deep intention, and we expect to share more with you in the next few months. And as we announced today, we're optimistic about our venture into home with the launch of Gap Home at Walmart.com this summer. A $164 billion category in the U.S. alone, home is a natural extension of apparel and a category where storytelling drives sales, both a natural fit as we build lifestyle brands. Leveraging our model of partnering to amplify, the Gap and Walmart partnership is a capital-efficient alternative to acquiring capabilities in-house. The assortment is sustainably made, beautifully curated, incredibly priced, and we cannot wait to see GAP's modern American optimism translated to home and kids' dorm rooms later this year. Turning to Banana Republic. The new team at Banana Republic is making progress, laying the foundation for its transformation. Over the quarter, they've made strides in realigning their pricing architecture and yield management, improving the physical in-store experience, and updating brand creative. To restore brand relevance, the team has identified both target customer groups and the core cultural trends to inform our new brand positioning, our new product design, and our customer engagement approach. Banana Republic showed off stunning floral windows to welcome spring ahead of the launch of a capsule collection by the emerging designer Prep Curry, who mixes streetwear with bold florals and dual gender style. This collection largely sold out in under a week, showing the demand we can create through limited edition partnerships. Laying the path to the future will take time, and we are steadfast in our mission to reestablish Banana Republic's marketplace position as a leading affordable luxury lifestyle brand. Now, what a quarter for Athleta. Athleta drove outsized digital growth while achieving record full-price sales through gains in performance lifestyle products, particularly warm-weather shorts, dresses, swim, and tanks. and that really differentiates us from the competition. Performance of inclusive sizing has grown steadily since its January launch with 70% of the Athleta collection now available in 1X to 3X. Athleta has some really major wins in its effort to raise brand awareness by amplifying our values. The all-powerful campaign drove overwhelmingly positive engagement at two times the industry benchmark, with impressions across print and digital totaling over 160 million. And Athleta will have two gold medal athletes at the world stage in Tokyo this summer, who will amplify the brand's mission to empower women and girls. Simone Biles joins Alison Felix as the brand's newest ambassador and will bring her personal story of unparalleled career achievement along with her journey of pushing through pain and adversity. These value-led partnerships are driving the awareness of Athleta. And in fact, when we announced our partnership with Simone Biles, Athleta had the highest non-holiday search result in their history. Investments in digital are paying off, with app performance exceeding expectations, and success in digital marketing is driving new customer growth to historic highs, pushing Athleta's total customer file to 4.5 million in 2021. Athleta also announced plans to open stores in Canada later this year, joining Old Navy, Gap, and Banana Republic. With an online site launch later this summer and two stores planned for fall, this move is proof point in our strategy to extend customers' access through new entry points. Our vision to grow purpose-led billion-dollar lifestyle brands is taking hold. And as Katrina mentioned earlier, we're transforming our brand portfolio to align with our power plan 2023. We successfully wound downhill SETI and divested Janie and Jack at Intermix. These moves allow us to focus and prioritize our strategic intent and put resources behind the brands with the most potential and that generate the most sales. Next, the power of our platform. Our digitally-led mindset is paying off with our dominant omnichannel strength and scaled operations. Online sales grew nearly 60% versus the first quarter of last year and represented approximately 40% of the total business. even as sales rebounded in stores. And our Omni teams delivered the largest march on record, shipping 13 million packages to customers in North America. As I shared last quarter, one of our main priorities in 2021 is optimizing our mobile experience. We launched our Android native app in March, and we're excited to be engaging with our Android customers. And strong contribution from our alternative payments providers, PayPal and Afterpay, represented 20% of online spend in Q1. With our leading Omni platform, whether in stores or on mobile, through curbside pickup or our self-checkout pilot coming later this year, we're pushing for convenience and engaging experiences across the entire customer journey. We are laser focused on our SG&A transformation through increased productivity, organizational capacity, and demand-generating investments. We're on track to close North America stores across Gap and Banana Republic in line with our strategy of releasing unproductive sales. And the strategic review of our European business is still underway. Finally, the power of our portfolio. We're using our brand's collective power to grow our customer file and extend brand reach. I've shared several ways our brands are doing this through store growth, market expansion, and product extensions. And we have 62 million active customers globally. And we acquired over 60% more online customers than this time last year. And that is a really big deal. We're on a mission to create loyalists. We enrolled more than 5 million customers in our multi-tender loyalty program in Q1, and on average, they are spending far more than customers not in our program. This gives us confidence ahead of our integrated loyalty program launch this summer. We also announced a new credit card agreement with Barclays and MasterCard that will begin in May 2022. We feel that the level of technology and personalization capabilities that Barclays brings to the partnership fit perfectly with our strategy to use new and more effective ways to speak to our customers. The power of our portfolio also means our brands can drive sustainable change at scale. Old Navy's move to eliminate plastic shopping bags in the U.S. and Canada by 2023 is a meaningful step in our waste reduction efforts. Gap Brand's latest Generation Good collection has the most sustainable tees and denim to date. More than 60% of Banana Republic's 2021 spring collection was manufactured using more sustainable fibers. And through its solar power purchase agreement, the flood brought additional renewable energy to the grid that is helping offset more than 100% of the electricity it uses to power its stores. Finally, our freshly branded company mailer will be made with 50% recycled content, leaving an optimistic first impression on our customer and further reducing our use of virgin plastic. We choose to see sustainability through an inclusion lens, and these efforts demonstrate our deep belief in empowering women, enabling opportunity, and enriching communities, all part of our purpose to be inclusive by design. Now, before I turn it over to Q&A, I want to touch on our talented team because this is a team effort. We are creating a performance and owner culture for all with shared accountability in our business results. And I want to take a moment to acknowledge and honor a job well done over the last year and quarter. one that was particularly challenging for our frontline team members, 96% of whom maintained loyalty through furloughs and served as the lifeblood of our business through the acute COVID impacts. When business is good, we believe vehemently that this is the time to push ourselves harder, to strive for continuous improvement, and to reach even further for growth across our brands. Momentum is on our side, and we intend to capitalize. History suggests a spurt of innovation comes out of every crisis, and the strength of our brands, platform, and portfolio, coupled with our creative audacity, suggests an exciting road ahead. So with that, we'll open it up for questions.