Bed Bath & Beyond Inc (BBBY) 2016 Q4 法說會逐字稿

Welcome to the Bed Bath & Beyond's Fourth Quarter Fiscal 2016 Earnings Call.

(Operator Instructions) Today's conference call is being recorded.

A rebroadcast of the conference call will be available beginning on Wednesday, April 5, 2017, at 7:30 p.m.

Eastern time through 7:30 p.m.

Eastern time on Friday, April 7, 2017.

To access the rebroadcast, you may dial (888) 843-7419 with a passcode ID of 44538918.

At this time, I'd like to turn the call over to Janet Barth, Vice President, Investor Relations.

Please go ahead.

Thank you, Adrienne, and good afternoon, everyone.

Joining me on our call today are Steven Temares, Bed Bath & Beyond's Chief Executive Officer and member of the Board of Directors; Gene Castagna, Chief Operating Officer; and Sue Lattmann, Chief Financial Officer and Treasurer.

Before we begin, I'd like to remind you that this conference call may contain forward-looking statements, including statements about or references to our internal models and our long-term objectives.

All such statements are subject to risks and uncertainties that could cause actual results to differ materially from what we say during the call today.

Please refer to our most recent periodic SEC filings for more detail on these risks and uncertainties.

The company undertakes no obligation to update or revise any forward-looking statements as events or circumstances may change after this call.

Our earnings press release dated April 5, 2017, can be found in the Investor Relations section of our website at www.bedbathandbeyond.com.

Here are some highlights.

For the fourth quarter, net earnings per diluted share were $1.84.

Net sales were approximately $3.5 billion, an increase of approximately 3.4% compared to the prior year period.

Comparable sales increased approximately 0.4%, and comparable sales from our customer-facing digital channels grew in excess of 20% while sales from our stores declined in the low single-digit percentage range.

For the full year, net earnings per diluted share were $4.58.

Net sales were approximately $12.2 billion, an increase of approximately 0.9%.

Comparable sales decreased approximately 0.6% and comparable sales from our customer-facing digital channels grew in excess of 20% while sales from our stores declined in the low single-digit percentage range.

In addition, our Board of Directors today declared an increase in the quarterly dividend to $0.15 per share from $0.125 per share to be paid on July 18, 2017, to shareholders of record at the close of business on June 16, 2017.

During our call today, Sue will review our fourth quarter financial results and discuss some of our planning assumptions for fiscal 2017, and then Steven will give an update on some of the initiatives we are working on to position ourselves for long-term success.

After our prepared remarks, we will open up the call to questions.

I will now turn the call over to Sue.

Thanks, Janet.

I'll start with a review of our fourth quarter results.

Our net sales were approximately $3.5 billion, an increase of approximately 3.4% over last year, which is consistent with our model assumptions in December.

This increase is primarily due to a 3% increase in noncomp sales, including PMall, One Kings Lane and new stores and a 0.4% increase in comp sales.

The increase in our comp sales reflects an increase in the average transaction amount, which was partially offset by a decrease in the number of transactions in stores.

We believe in an integrated and seamless customer experience, and as we've explained previously, while we cannot tell you through which channel a sale was initiated, we can provide information based on where the sale was consummated.

With that said, comp sales from our customer-facing digital channels grew in excess of 20% while comp sales from our stores declined in the low single-digit percentage range.

Gross margin was approximately 38% as compared to approximately 38.6% in the prior year period.

This decrease as a percentage of net sales was primarily due to, in order of magnitude, first, an increase in net direct-to-customer shipping expense as a result of more promotional shipping offer activity, including a change in the Bed Bath & Beyond free shipping threshold from $49 last year to $29 this year and free shipping for the first 2 days of the quarter, which included Cyber Monday; and second, an increase in coupon expense, resulting from increases in redemption and the average coupon amount.

The inclusion of One Kings Lane reduced total company gross margin as a percentage of net sales by approximately 12 basis points, while the inclusion of PMall contributed 19 basis points to the total company gross margin.

For the full year, the rate of gross margin deleverage was the same as 2015, which was consistent with our model.

SG&A in the quarter was approximately 25.8% of net sales.

This compares to 24% in the fourth quarter of last year, which included a favorable net benefit of approximately 50 basis points from certain nonrecurring items.

The remainder of the increase as a percentage of net sales was primarily due to, in order of magnitude, an increase in advertising expenses and an increase in payroll and payroll-related expenses.

The inclusion of One Kings Lane and PMall increased total company SG&A expense as a percentage of net sales by approximately 15 and 5 basis points, respectively, in the fourth quarter.

Net interest expense was approximately $16.8 million compared to $24.5 million in the prior year period.

This decrease in net interest expense was primarily the result of an $8 million favorable change in the value of our nonqualified deferred compensation plan investment, which was fully offset in SG&A and, therefore, did not impact net earnings.

Our income tax rate was approximately 35% compared to approximately 36% in the prior year period.

The fourth quarter provisions included favorable net after-tax benefits of approximately $9 million this year as compared to about $7 million last year, due to distinct tax events occurring during these quarters.

Considering all of this activity, net earnings per diluted share were $1.84.

Moving on to the balance sheet.

We ended the year with approximately $578 million in cash and cash equivalents and investment securities.

Retail inventories were approximately $2.9 billion at cost, an increase of approximately 2.2% compared to the end of the prior year period.

This increase was due in part to the growth in inventory in our distribution facilities for shipments to customers as well as the inventory balances from PMall and One Kings Lane.

Retail inventories continue to be tailored to meet the anticipated demands of our customers and are in good condition.

Capital expenditures for the year were approximately $374 million with some of the anticipated spend for 2016 moving into 2017.

CapEx for the year included the following: enhancements to our digital capabilities; ongoing investments in our data warehouse and data analytics; expenditures for the continued development and deployment of new systems and equipment in our stores, including the implementation of our new POS system into some of our stores; investments in new systems and support to accelerate the expansion of our online assortment; the re-platforming of One Kings Lane's systems and integration of its support services; spending related to the opening of our new distribution facility in Lewisville, Texas; the expansion of our customer contact center in Layton and enhancements to its system; and investments in new stores, including the opening of Beyond at Liberty View in Brooklyn, store relocations and store refurbishments.

During the fourth quarter, we opened 9 new stores and closed 4 stores.

For the full year, we opened 29 and closed 13 stores.

Our store openings during the year included new store formats such as Beyond at Liberty View and the 2 new andThat!

stores plus additional Bed Bath & Beyond and buybuy BABY stores in Canada and new markets, primarily for Cost Plus World Market and Harmon Face Values.

Share repurchases under our current $2.5 billion share repurchase program were approximately $171 million in the fourth quarter, representing about 4.1 million shares.

This authorization had a remaining balance of approximately $1.7 billion at the end of fiscal 2016.

In addition, our Board of Directors today declared an increase in the quarterly dividend to $0.15 per share from $0.125 per share to be paid on July 18, 2017, to shareholders of record at the close of business on June 16, 2017.

Regarding our outlook for fiscal 2017, which is a 53-week year, we are working off a set of assumptions as we do every year.

Some of these assumptions are easier to model based upon our historical performance and current trends, and some of these assumptions are more difficult to model due to variables such as timing and the sensitivity to the changing retail landscape.

Then we have a number of things that are not included in our model, but could impact our financial results this year, such us potential regulatory changes, including corporate tax reform.

So with that in mind, let's start with the assumptions that are easier to model, given our historical performance and current trends.

Taking into account the 53rd week in fiscal 2017, we are modeling a low to mid-single digit percentage increase in consolidated net sales for the full year.

We are also modeling an increase in comparable sales.

However, the range is from relatively flat to slightly positive, including continued strong growth in our customer-facing digital channels.

We are modeling gross margin deleverage for 2017, including increases in net direct-to-customer shipping expense and coupon expense.

We anticipate the 2017 rate of deleverage to be less than that of 2016.

We are modeling SG&A deleverage as a result of payroll and payroll-related expenses and technology expenses, including related depreciation as well as the impact from the current expense structures of One Kings Lane and PMall, both of which were acquired during fiscal 2016.

We are modeling 2017 depreciation expense to be in the range of approximately $310 million to $320 million.

We are modeling net interest expense of approximately $80 million for the full year.

Capital expenditures are modeled to be relatively similar to fiscal 2016, subject to the timing and composition of projects.

In December 2016, we said that we were modeling CapEx spend to be between $400 million and $425 million for fiscal 2016, and primarily due to the timing of our projects, we came in less than that at approximately $374 million.

We believe for the foreseeable future that we are plateauing at about these levels.

In addition, more than half of the 2017 spend is planned for technology-related projects in support of our growing omnichannel capabilities.

In fiscal 2017, we plan to open 30 new stores and close approximately 15 to 20 stores.

We plan to open stores across all our concepts, including new formats and new markets.

We expect our positive cash flow to fund our operations and capital expenditures as well as our quarterly dividend and share repurchase program.

The completion of our current $2.5 billion authorization is planned for some time in fiscal 2020 subject to several factors, including business and market conditions.

Next, let's move to the assumptions that are more difficult to model, such as various components of our tax rate.

First, we anticipate that our tax rate will be higher as a result of the adoption of the new share-based payment accounting standard.

The effect of this adoption on our tax rate is expected to vary by quarter and does not affect our cash outflows for income taxes.

Second, even excluding the impact of this new accounting standard, we anticipate the net after-tax benefits from other distinct tax events will be lower than in 2016.

Considering these assumptions, we are modeling our 2017 tax rate to be higher than last year, but still within the mid- to high 30s percentage range for the full year, with the first quarter being the highest for the year, slightly in excess of 40%, primarily due to the impact of the new accounting standard and the timing of the grant date and vesting schedules of our stock-based compensation.

Finally, there are a number of events that we have not attempted to model, but could impact our financial results this year, such as potential regulatory changes, including corporate tax reform; interest expense deductibility; a potential border adjustment tax; and health care reform.

At this time, we don't have enough information regarding the timing and the scope of these potential events for us to make any reasonable assumptions.

Based on the items that we have modeled, including a slight benefit from the 53rd week, the anticipated deleverage due to our continued investment and a higher anticipated tax rate, we are modeling a decline in net earnings per diluted share in the percentage range of low single digits to 10% for fiscal 2017.

We believe our 2017 quarterly net earnings per diluted share will have a similar pro rata percent to the total year as they have in the previous year with the exception that the percent for the first quarter is anticipated to be somewhat lighter, due in part to the adoption of the new share-based payment accounting standard, and for the fourth quarter, it's anticipated to be somewhat stronger, due in part to the slight benefit from the 53rd week.

We look forward to giving you updates as the year progresses and as our visibility to the year improves.

Before turning the call over to Steven, please note that our next quarterly conference call will take place on Thursday, June 22.

At that time, we will review our first quarter results and provide an update on fiscal 2017.

Steven?

Thank you, Sue.

During fiscal 2016, we made significant investments to evolve our company and advance our mission to be trusted by our customers as the expert for the home and heart-related life events by continuing to build and deliver a strong foundation of differentiated products and services and solutions for our customers while driving operational excellence.

As Janet said, we reported fiscal 2016 net earnings per diluted share of $4.58, which was consistent with our model.

This marks the fifth year in a row that we've been in the earnings range of between $4.50 to just over $5.00 since we entered a heavy-investment phase several years ago.

It's important to note that while we are experiencing operating profit declines during this investment phase, we continue to produce some of the best returns in retail, which allows us to make the investments necessary to build a strong foundation for future growth.

We're excited about the advances we are making.

Today, I will provide an update on some of the key developments over the past several months that are strengthening our competitive position as the expert for the home and heart-related life events.

And by heart-related life events, we mean certain life events that evoke strong emotional connections.

These include the customer experience that we address through developing the best and largest wedding registry, our baby registry, our new mover programs, our college and camp businesses as well as our developing design consultation services.

Over time, these interactions allow us to cultivate deeper relationships and increase the lifetime value of our customers.

I'll start with some recent examples of how we are doing this.

As our footprint in the furniture and home decor category continues to expand and as we further our marketing efforts to create a more inspirational presentation of our offerings, we want to be able to provide more meaningful services and solutions to our customers who are making decorating decisions.

In early March 2017, we acquired Decorist in a non-material cash transaction.

Decorist is an online interior design platform that connects users to affordable, accessible and personalized home design services.

Through the Decorist platform, consumers and businesses can directly connect with vetted top-tier designers, including nationally renowned celebrity designers to collaboratively work through the design process.

To increase customer confidence in purchasing furniture pieces, Decorist has developed and offers photorealistic 3D renderings of how these items will look in their actual homes.

Decorist also offers additional online services, including a Design Bar Advice Tool, which provides free expert design advice within 24 hours; inspirational boards; an editorial blog; designer tips and latest trends to further enhance customer engagement and develop deeper customer ties.

While One Kings Lane and Cost Plus World Market have already partnered with Decorist to market and sell their furniture and home decor merchandise, we plan to add the growing home furnishings assortment from Bed Bath & Beyond and buybuy BABY to the mix.

Through these relationships, Decorist also serves as another vehicle to showcase our expanding footprint in the furniture and home decor category.

So we look forward to supporting Decorist in their efforts to continue building brand awareness of their online business, increasing their revenue opportunities and developing their technology to further their leadership in the online interior design space.

At the same time, as the interior design arm for Bed Bath & Beyond, we plan to leverage Decorist's online platform to initiate and/or enhance our design consultation offerings across some of our concepts.

In another example, as we focus on providing deeper and more personalized shopping experiences, we seek to strengthen our relationships with customers who are also cooking and baking enthusiasts.

In January, we made a small acquisition of certain assets of Chef Central, including the brand and e-commerce website.

We also added knowledgeable and talented associates to our company with great culinary retailing expertise.

As a specialty retailer, Chef Central has been a trusted brand among cooking and baking enthusiasts for more than 15 years.

We plan to leverage Chef Central's strength in merchandising and marketing to increase our ability to serve these customers.

This includes leveraging the know-how and providing a more experiential omnichannel shopping environment in store, including activities such as cooking classes and demonstrations.

We anticipate continuing to support the Chef Central e-commerce website and opening Chef Central-inspired specialty departments within Bed Bath & Beyond stores and potentially freestanding stores.

Our first Chef Central-inspired specialty department is scheduled to open this fall in Paramus, New Jersey.

These recent activities supplement the other investments we are making to develop a more deep-seated relationship with our customers, including those in One Kings Lane, which serves as a cornerstone for our growing offerings in furniture, home decor and design; and in PersonalizationMall, which expands our personalization services and brings a complementary portfolio, of differentiated product that helps celebrate life events and special occasions.

Collectively, these investments are furthering our ability to do more for and with our customers and advancing our position as the expert for the home and heart-related life events.

These recent transactions also advance our ongoing efforts to delight our customers through our merchandising.

Those of you who have been following us for years know that we are zealous about presenting an exciting and engaging assortment of products to our customers.

Our ability to do this over the years has always been a differentiator for us.

And today, product differentiation is more important than ever in keeping the interest of existing customers and attracting new ones.

We pursue product differentiation in several ways, including our own product development, and, exclusivity and limited distribution with our vendor partners.

For example, our product development team, partnering with industry experts, has recently introduced a new line of bed linens and bedding basics at Bed Bath & Beyond under our proprietary Wamsutta brand called Wamsutta PimaCott.

PimaCott is made from 100% Pima cotton and is not only softer, more durable and more vibrant than regular cotton, but it is also the first of its kind that can be tracked and traced throughout the supply chain using DNA technology.

As a trusted expert for the home, it is important to us that our customers are confident that the products they purchase from us are truly 100% Pima cotton, and they can be, by looking for the Wamsutta PimaCott label.

We also plan to launch a line of Wamsutta PimaCott bath towels later this spring.

Another example of our product development capabilities include the launch of the One Kings Lane Collection.

This line of proprietary furniture and lighting debuted several months ago and has been well received by customers.

The One Kings Lane Collection continues to grow and now includes a new line of outdoor furniture.

Again, we believe the home furnishing space provides us a tremendous opportunity to build a large curated assortment of differentiated product to engage with our customers in a meaningful way and to provide inspiration across various lifestyles.

Additionally, exclusive offerings further our efforts to differentiate our mix.

For example, we have recently introduced the second edition of our ED Ellen DeGeneres home collection, which is available in most Bed Bath & Beyond stores and online.

In addition to bedding and accessories, the assortment now includes kitchen linens, dinnerware and home decor, including rugs.

We're also excited to be one of a limited number of retailers authorized to sell an assortment of home furnishings for Magnolia Home designed by Joanna Gaines, the costar of the home improvement show, "Fixer Upper." In partnership with our vendor, the Magnolia home assortment includes a collection of rugs, pillows and throws that reflect Joanna's simple, fresh and timeless style.

This collection is available online and in select Bed Bath & Beyond stores, including some of our Texas stores, which showcase the whole collection in a Magnolia home-inspired department.

We also continue to broaden our merchandise offerings for Linen Holdings, our institutional business, which consist of Harbor Linen and T-Y Group.

Recently, Linen Holdings entered the hotel operational supplies and equipment segment, which basically covers many of the other items you can find in a hotel room besides the linens and towels.

By leveraging our vast product network, Linen Holdings can now provide our hospitality customers with a one-stop shop for everything needed to fit out a hotel room.

Just as our merchandising has always been central to our success, at the very center has been our focus on serving our customers.

While retailing continues to change, introducing so many new ways to engage and interact, we continue to focus on providing a great customer experience across all of our channels.

For example, recent enhancements to our digital channels include improvements in search and navigation to enhance the relevancy of customer search results.

We have enhanced the functionality of an existing search feature to make it easier for customers to search the Bed Bath & Beyond and buybuy BABY websites to determine availability of products in their local stores.

For our registry customers, we have recently launched an interactive checklist on these websites, which serves as a helpful guide throughout the online experience in providing a well-rounded giftable registry.

This new tool complements the high-quality, one-on-one registry service our in-store services provide to our customers every day.

An additional improvement to the customer experience is a new feature called Shop The Room found under the Trends and Ideas tab on the Bed Bath & Beyond website.

This online guide contains a series of curated rooms for the living room, bedroom and bathroom that showcase an array of different design styles.

The initial collection includes at least 5 different lifestyle trends for the home.

These collections are intended to engage and inspire customers as they think about their home decor options.

Over the coming weeks, we are partnering to begin piloting a new service online that will connect our customers to quality professionals for home installation and other home improvement projects.

As our assortment of home furnishings continues to grow, we remain committed to providing the services and solutions to excel in this category.

Even with the right merchandise and the best services and solutions, we strive to communicate with our customers in increasingly meaningful ways.

We've always used our marketing programs as a tool to forge these bonds.

But today, our customer-centric marketing strategy is also supported by our enhanced analytics capabilities as we develop deeper relationships with our customers through personalized targeted marketing, including e-mail and direct mail campaigns.

We are leveraging our improved predictive modeling tools to optimize our direct mail and print campaigns, including our newest seasonal home catalog titled Spring Refresh, which was mailed a few weeks ago to a select group of customers and prospective customers.

This new home catalog showcases our expertise of the home through a curated inspirational presentation of our expanded offerings, including within our home furnishings and decor categories.

The virtual version of this catalog is also available online at bedbathandbeyond.com.

As we evolve and grow our business, the opportunity to deliver best-in-class customer service across all of our channels is greater than ever, and we intend to do so.

In furtherance of this objective, we are opening an additional customer contact center in Florida later this year that will supplement our other 24/7 operations in Utah, New Jersey and Massachusetts.

As we work to differentiate our products and provide differentiated services and solutions to our customers, we also pursue operational excellence in everything we do.

This includes continued enhancements to our supply chain network.

For example, we plan to open a new 525,000-square-foot distribution facility in Las Vegas during fiscal 2017.

This new facility will replace a smaller fulfillment center in that area, which will close in late 2017, and provide additional capacity to support the growth of our digital channels.

We're also expanding our vendor direct to customer, or VDC offerings, into the Canadian market.

In addition, we are piloting third-party app-based delivery services from some of our Cost Plus World Market stores.

And later this month, we plan to begin a pilot for same-day delivery from certain Bed Bath & Beyond and buybuy BABY stores in several markets, including Dallas, Houston and Washington, D.C.

As we look back over this past year, we have made and continue to make significant investments in our company to advance our core objective, to be trusted by our customers as the expert for the home and heart-related life events by continuing to build on a strong foundation of differentiated products and service and solutions for customers while driving operational excellence.

By focusing on our mission and remaining grounded in our culture obsessed with satisfying our customers, along with maintaining strong financial discipline, we will become the customer's first choice for the home and heart-related life events and continue to achieve long-term success.

I would like to thank our nearly 65,000 associates, including our new team numbers from Decorist and Chef Central for their ongoing dedication and commitment to achieving our strategic objectives and improving our competitive position.

I'll now turn the call back to Janet.

Thank you, Steven.

We will now turn to the Q&A portion of our call.

(Operator Instructions) Adrienne, we're now ready to take questions.

(Operator Instructions) And our first question comes from Steve Forbes from Guggenheim Securities.

I realize it's early, but just maybe given the opportunity, how have the LOVE LOOK

and Shop the Room collections performed relative to the expectations?

And how do you think about building brand awareness, as the destination for furniture in general?

Are you targeting your best customers first?

Or just any color about how you're approaching the marketing aspect and brand building aspect of that opportunity?

Sure.

Thanks, Steve.

Well, I think it's early, first of all, to really see.

I think it's an awareness and it's a build.

And we really haven't done a real lot of marketing around it yet.

And it's the same thing with the furniture and home decor offering.

I mean, first, we're working hard to get the offering in place and to get the offering right, and there's a lot of growth that has to take place there, so we really haven't done significant marketing around it.

You might have seen the books that we did and they went out to a limited audience.

There was the book that went out in the fall and the one that went out now in the spring.

And it's a small segment of our population, and it's really a cross-section right now because we're trying to get the learnings from a cross-section of our customers.

We have our customers segmented and this is a tool to enable us to learn about each of their patterns, hopefully, over time.

So initially, that's the way we approached it.

And then as a follow-up, maybe expanding on recent learnings, can you touch on what you've gained so far from the BEYOND+ beta test?

I mean, are you seeing improved traffic trends?

And maybe, what channel is that customer migrating to?

And do you have insight into whether or not you're actually gaining share of wallet with that membership program or loyalty program?

Sure.

Again, it's early.

The results have been good, basically, across all the metrics that we're looking at.

I think at this week -- at the end of this week, we're planning on expanding the test group based upon those results.

At the same time, there's things about it like, when you really look at the lifetime value of the customer, we're very early into that lifetime analysis.

So we really have to understand over time as to what we're seeing that they continue, the types of products that our customer migrates to, how often they're shopping, the shipping expense associated with it.

So still, it's so early, but everything so far has been favorable, and we will be expanding the test later this week.

And our next question comes from Seth Sigman from Credit Suisse.

My first question is on online growth.

You've seen some really healthy growth, 20% plus for some time now.

Can you give us a sense of what's working well online?

What are you learning from the expanded assortment that you have online now?

And then as it seems to be cannibalizing the store to some extent, is it causing you to rethink the store format at all?

How many stores do you have today?

And ultimately, what the offering looks like in that store?

Sure.

We can start with the back end of the question about the store format.

I mean, we've been evolving the store format and continue to evolve it.

Years ago, we started anticipating foot traffic declining, our expense structure increasing, the wage structure, the writing was on the wall.

And it has only accelerated over time.

So it's the smaller stores combined with the different offerings, all these things are under way, and we continue to do those things.

And we only have stores, obviously, to the extent they make sense and with those stores we're more profitable than without those stores.

And there are other benefits just from -- besides the four-wall profitability of the store because we also look at the benefits that we get in the digital world.

And the fact that are able to benefit from the fact that we have a presence in a market for reduced advertising expense, convenience for a customer to reserve online pick up in store, for people to start or schedule appointments and initiate registry services in stores for other people to shop online for them.

So there's so many benefits that go both ways.

And the idea that, that cannibalization, that's a tough one to say because whether we do it or somebody else does it, the movement is to digital.

And so the fact that we're getting better at digital, that we're adding to our assortment, that we're improving our search, that we're improving our content, that we're improving the speed at the back end, if everything is improving with our site, that's great.

The notion that it increases cannibalization is a tough one to really assess because, again, that customers choosing to shop in a digital world, and if they didn't shop us, they'd shop someplace else.

Okay.

That's helpful.

And then my follow-up question, I guess, just in the shorter term.

As we think about the comp guidance for flat to slightly positive this year, any considerations as it relates to the cadence and maybe how you're trending early here in the first quarter?

I think, last year in the first quarter, you had some headwinds related to the Memorial Day shift.

I think there was an advertising shift as well.

Should we assume that comps continue to improve here sequentially versus what we saw in the fourth quarter?

Seth, we provided the year -- full year guidance that you mentioned of a comp increase of relatively flat to slightly positive, and that considers what we've seen to date through the first quarter.

Other than that, we gave a full year range.

Okay.

I think you talked about lower earnings growth potentially in the first quarter due to some other issues, but does it have anything to do with the comp and a difference in assumption in Q1 versus the rest of the year?

I think, the primary reason that we pointed out is the tax implications...

Yes, we did for Q1 and the comp guidance is for the full year.

But again, it considers what we've seen to date.

But as Steve mentioned, it was really, Q1, the lighter EPS modeling that we said was due in part to the tax rate change that we discussed.

And our next question comes from Kate McShane from Citi.

I wondered if we could get any more color on your shipping strategy, how you're thinking about some of the changes that you've made to the shipping fee, how you're thinking about free ship.

And then what percentage of your customer can you get to within 2 days of your fulfillment center in stores?

Yes, we built out a distribution network to allow us to get second-day delivery.

I think it's well into the 90% of the U.S. population we'd be able to accomplish that.

That's the strategy as far as distribution, the locations of our distribution centers and then as well as you know that we ship from stores directly.

So in every market, we have the capability for shipping directly from our stores.

As far as the strategy in the $29, I think we will be anniversary-ing -- we've anniversaried the $29, and I think there's a little period of time where we blip and then we go back to the $49 from last year.

But this year, we pretty much looked at it and modeled it at $29 for the year.

And we think right now, our assessment is that's pretty much a sweet spot, but we're always looking at the competition.

And obviously, when we talk about shipping, we're talking about the Bed Bath shipping, but each of the concepts have their own strategy and the tactics they use in connection with shipping.

But if you're talking about Bed Bath, that's how we've modeled it out for $29.

And we think that for the moment, that seems to be where our customers -- when we look at what our customer buys, the average purchased ticket of what they're buying, that seems to be a sweet spot for the moment.

Okay, great.

And then if I could just follow up on the CapEx spend, I think you mentioned half of it was going to technology.

Is there any way to bucket what technology that it is going to and how it differs to what you spent in 2016?

So for 2017, we did say that more than half would be allocated towards technology in terms of the growing omnichannel capabilities.

So that would include our website, our phone and mobile apps and also includes supporting continued SKUs being added online.

We also discussed our customer service center that will be opening in Florida, and the technology around opening that facility.

So some of that is the items that I would say were included from a technology perspective in CapEx for next year.

And our next question comes from Michael Lasser from UBS.

Steve, you've made some considerable operational expenditures and investments in the business over the last few years.

Yet, you're still looking for sales to be flattish -- or your comp sales to be flattish or maybe slightly positive this year, operating income down by a meaningful amount.

Do you think you're getting a suitable return on these investments?

And if you're not, at one point, do you slow the pace of investments and potentially look to contain cost?

Yes.

Well, first of all, we're not going to cut ourselves to greatness.

So that's -- again, we can't say that strong enough.

The investments we've been making have made us significantly better.

Are we where we want to be?

No, but what -- where would we have been if we didn't make this investment is the question that we have to ask ourselves.

Retail is littered with people who didn't invest enough or invested late or made the wrong decision.

So that's not where we intend to be.

So when we do measure each of the things that we invest in, we have expectations for them, and we think that we are a much better company than we were 18 months ago than we were 3 years ago.

We could produce better earnings in the short term by cutting expenditures, but we wouldn't be a better company or we'd be setting ourselves up for failure and what we want to do is set ourselves up for greatness and that's why these investments need to be made.

And how are you measuring that greatness?

Does that greatness come with your operating margin stabilizing at some point?

Or are you just looking to maximize and grow gross operating profit dollars?

Again, it will be measured by our customers trusting us to be the expert for what we do for home-related products and for these heart-related life events that we handle.

So being the largest player and what we think as the best choice when it comes to bridal registry.

When we look at our baby registry, when we look at our growing decorating business, when we look at our large Back to College business, our large new mover business, our camp business, all these things are being the best at them, and then being able to take these customers over time and through analytics, know who our customer is, speak to them on a personalized basis and to be able to be more important to them and be their first choice.

And that's something that's going to be vetted over time.

I mean, we cannot be and we won't be just a transactional merchant and be meaningful.

So we have to be trusted by our customers as an expert in this way and that's what we're focused on.

And the things that we're doing in terms of the differentiated product, all these services and solutions that we offer our customer as we try to always keep an eye towards operational excellence are the ways that we intend to deliver this for our customers and to accomplish our mission.

And our next question comes from Matt Fassler from Goldman Sachs.

My first question, Steve, relates to the category expansion that you executed primarily online under the core Bed Bath & Beyond heading.

Now that you're a year plus into that effort, how are you thinking about its success?

And quantitatively, is this one of the factors that's contributing to the upsized 20% plus e-commerce growth that you're seeing?

Yes, Matt.

The addition to the assortment is contributing to that.

And keep in mind that much of that product is vendor direct, so this isn't product that we take into our system that we don't handle, that we don't have the cost associated, we don't have the markdown risk.

So -- but yes, this is advantageous to us from a sales perspective.

Ultimately, it has to be quilted in a way that it's meaningful to the customer, that is if we have the right content, we have the right features and facets that it makes good sense for the customer that they think of us for these categories, we can market towards these categories, and we're a ways away from being there, but just the additional assortment in and of itself we're benefiting from.

And then my second and follow-up question is most likely for Sue.

So you have a couple of acquisitions that you executed over the past year.

And I guess, PMall is quite seasonal as we understand it.

So can you talk about what the seasonal fluctuations in that business will do to revenue and earnings in 2017 until you cycle the deal?

Well, as you've noted, PMall is more seasonal from a holiday perspective.

Each of the holidays throughout the year is a nice business to have.

So with Christmas being a bit stronger and then the rest of the year there are holidays where PMall does do some volume.

So that's all I could really say in terms of a seasonal perspective.

But like we said, I guess, we also gave the information on how it affected the fourth quarter, the impact it had on SG&A and the impact it had on our gross margin.

And, in fact, relatively strong time of the year, you could extrapolate from that as well.

And we acquired PersonalizationMall at the end of November so the December numbers were in our last year's fourth quarter, so we'll anniversary those numbers in next year's fourth quarter.

And the next question comes from Adrienne Yih from Wolfe Research.

My question is on the DTC and the direct piece of the business.

Where is it as of the end of last year?

And as you look out maybe 3 to 4 years from now, where do you think the penetration ultimately resides?

The balance between DTC, e-com and brick-and-mortar?

You're talking about direct from vendors?

I'm sorry.

Yes, I think.

Online business.

Sorry.

Online, online.

Online sales...

Yes.

Well, I don't know if we can break down those numbers, that's first of all.

But it's -- most of what we're adding online has been and will be DTC.

So from that perspective, you can anticipate that would be -- the penetration from that part of the business will be growing.

I'm not trying to be evasive, Adrienne, so if you want to ask that question again, I might have missed what you're trying to get to because we don't give the exact numbers.

I guess, let me ask it a different way.

So this earning cycle, I would say the first time that we've heard the numbers sort of 40% to 50% of people's ultimate sales, call it, in the next 3 to 5 years, coming from a comp, coming from the online channel, and 50% of it coming from brick-and-mortar.

And it was -- the first time that I've heard that number kind of well, well north of 30%.

And so it kind of begged the question, in 3 to 5 years, if you're planning now and you're thinking about that, how do you look at your real estate footprint?

And how do you plan for that ultimate penetration?

If that's even something that you philosophically think is going to happen.

Is that a better way of asking it?

I don't want to be judgmental, but I understood that better.

No, no, but I think it's a good question, and we didn't -- just so for clarity, we didn't say 40% or 50%.

Just saying that's an industry number you're hearing.

And we do believe that -- yes, we do see the movements to the digital world, and I think, it has been more aggressive than most people had anticipated.

And that's, I think, accurate.

Not the 40 or 50, I don't think we can predict what it will be.

But what we have been gearing our real estate in anticipation of that, it'd be -- there being less foot traffic and more expensive to run.

And we've -- and so when we look at doing a deal or redoing a deal, is that we look at over the term of the lease.

And sometimes, that might only have to be 5 years, 7 years or 10 years to make sense.

And we look at estimating or anticipating reduction in foot traffic of that number depending upon the market, it could be 5% to 10%.

We look at increases in the wage rate by market.

We know what's on the books and what's being discussed.

So whether it's going to be ramping up to $10, $11, $12 or $15 and what number is it going to be tied to that of other people in our building that will have to go up as well.

And we model it out.

And we only -- right now, we're only looking to do the stores if, over the term of that lease, we see four-wall profitability and that makes sense to have that store in the market, and we'd be more profitable for having that store than not having that store, meaning if business went to our other stores, where would we be?

So we're downsizing stores and we are -- in some cases, we're increasing the size and consolidating stores.

But every store we do has to make sense from that economic perspective, and we started doing that years ago.

So we're in a very good position.

Like I wish that there was -- I think that we would be perceived differently, perhaps, if we went to market and said we're closing 100 stores or 200 stores.

But it doesn't make sense.

If it does make sense at some point, we will.

These stores are profitable and they're more profitable and these markets are more profitable for having the stores than consolidating.

That's the situation today, and we make those decisions as we go forward.

But I think, you're right on both counts is that the digital world is ramping up and ramping up quickly, and that the bricks-and-mortar world will suffer for it and there will be ramifications.

And one of those ramifications will be reduced occupancy cost.

And what happens if the occupancy cost gets reduced?

Well, stores that don't make sense today make sense down the road.

So -- and again, as somebody asked earlier, I don't know if it was Steve or somebody else, but the format is changing also over time.

We're looking to add more experiential aspects to the store, give customers more reasons for being there.

We're trying to -- with our Beyond store, we're handling all the store orders.

There's online orders in the stores.

So these are additional services that we're trying to offer through the stores.

The appointment schedule that we have in the stores, like we said, the reserving online, picking up in the stores.

So all this is a purpose of having them as well.

But we're fortunate because we don't have a prototype.

We don't have a 30,000- or 40,000-square-foot store.

They don't have to be the same in every market.

So we have 18,000-square-foot stores and 120,000-square-foot stores, and we size it by market and we make economic sense by market and that's how we try to run the business intelligently and optimize our bottom line.

And our next question comes from Oliver Wintermantel from Evercore ISI.

In today's multichannel world and where pricing becomes more competitive and sales shift online, how do you think about your historic -- like more on the coupon side?

How do you think that works in a more promotional and more online world with the coupon?

Well, the coupon is available to our customers online.

At the same time, differentiated product is critical for us.

We don't want to -- we don't want to be -- we'd never want it to be all about price.

We've always been driven by merchandising.

It's a critical differentiator for us and it needs to be going forward more so than ever.

So differentiated product is important, but the coupon is important.

It's the value that we give to our customers.

So being at the right price is something that we're focused on that we crawl the web, we look at our competitors, we have a pricing group, that we're doing dynamic pricing today.

So all these things are in place to make sure that we're at the right price, with differentiated product.

And then also to the degree that most products with a plug, and a lot of our product is, it's maintained by manufacturers, the pricing, so that's -- and generally at the same price in the marketplace, so -- but it's a significant focus for us.

And over time, as we've always said, we want to get to be more specific with the customer, understanding what drives their shopping patterns, what's the value to them and make sure we're speaking to them, and that the value that we offer to them makes sense other than a general coupon.

But we're not getting rid of the coupon.

We understand how important it is and the value of it is, and so -- but we do need to migrate over time to, as we get more personalized with our shopper to understand what categories they shop, what they bought, what they're looking for, where they are in their buying patterns and make sure that we're dealing with them accordingly.

Got it.

And just a follow-up on online sales.

Can you give us maybe, now that you've reduced your free shipping level to $29, how much of your product is shipping for free today with $29 versus $49?

You're talking about just for the Bed Bath situation?

I don't think we share that information, okay.

We do know and we look at the shipping revenue when we look at -- and as we test things, where we need to be to make sense of moving that threshold.

But we do, like I said earlier on, it does appear to be a sweet spot for us when you look at what the average purchase is and what people are doing online and when we've tested otherwise, right now, that's absent competitive forces.

That's where we anticipate being for now based upon that due diligence that we've done.

And the next question comes from Brian Nagel from Oppenheimer.

So the first question I wanted to ask, I guess somewhat of a modeling question, maybe longer term.

So gross margins now have been under pressure for a while, you're deleveraging 20-plus quarters or so.

And if I heard you correctly in the guidance, you talked about maybe some, a somewhat better trajectory in -- next year.

It seems still down.

So as we think longer term, and recognize you don't give longer-term guidance, but just conceptually, is there a point at which given all that's going on, we should see margins flatten out or even start to turn positive again?

And for that to happen, what factors should have to come into play?

So thanks, Brian.

The gross margin deleverage that we modeled for 2017, that rate we did model to be less than that in 2016.

In terms of future modeling beyond that, we didn't share that.

But in general, there's many factors that would impact gross margin.

For example, it's something Steve just discussed, it's the free shipping threshold.

It's also, I guess, what I would say is margin in terms of mix of goods and products that are sold.

It's also, I would say, including freight cost and whatnot.

It would also depend on what folks are buying and that mix of products that they chose.

So given all that and those many factors, it's not possible to say this is exactly when we would see no deleverage in the future.

But those are the items that we watch and we look at, and obviously, that's what we're driving towards.

Great.

That's helpful.

Then a follow-up question, maybe open up with regard to online sales.

So as evidenced by the pretty substantial growth you got online, you guys are succeeding online.

I guess, the question I have is who -- and I know there's an easy answer to this, but who are you competing with online?

And is it just Amazon or are there other companies that play in your space that you're competing with?

And as you look at that competitive landscape right now.

Maybe part of it was Bed Bath & Beyond has been later to the online game, so if there's companies who are performing better, or capturing market share better than you, is it just a recognition amongst consumers because they were there first or earlier?

Or is there some factor you think that played out?

What are the reasons other companies are performing better online?

You could think that online but the truth is that we compete against many more people.

They are people that look for credible retailers, but a lot of people are searching for items or they're looking for inspiration in the furniture home decor area, and whomever shows up could be deemed credible.

And so there's a lot more competition online than there are -- or that there was in the four walls.

So I think that's the reality.

And when you say that there's things that you could do to increase your market share, and we do some of that obviously that are done -- that are rational for us, but there are things that you could do that are less rational and you can spend a lot more on your advertising to buy sales.

I mean we have competitors that do that and that's part of their -- the way that they chose to do business.

So ultimately, we believe that having the right assortment, having best-in-class website in terms of search content, assortment, services that are attached to it.

That, combined with the omnichannel experience, is a winning formula.

So -- but that short term, the decision whether you look every day, your ad-to-sales ratio on your advertising for your online is something that you could play with on a daily basis.

And you can, for short-term periods, you can buy sales but at the expense of the bottom line.

So -- and then you have to ask yourself what's the stickiness of that customer, the lifetime value of that customer, and you make a lot of assumptions and you test into it, and you look back on it to see if you were right or wrong.

But the idea that -- about the whole thing about market share is a tough one because when you look at, for example, coming out of the fourth quarter, I guess, there was a number of our competitors who are all great competitors.

The Williams-Sonoma, the Target's, the Macy's, the Kohl's, the Restoration's, all these people had not great quarters.

And so are we gaining market share?

Are they losing market share?

Or the people shop a little bit less in our category and so maybe the whole market share was a little bit -- the whole market was a little bit lower.

We don't have finite numbers to know those answers.

But clearly, our digital space is growing at a rapid pace, and we believe we're gaining market share.

We think that we're experiencing in our stores is similar or perhaps slightly better than what we see happening in the general retail marketplace.

So if those are correct conclusions, we would say that perhaps, we're picking up market share, but we're not satisfied and it's very negligible one way or the other and to really understand if that's the case.

Does that answer the question, Brian?

And the next question comes from Dan Binder from Jefferies.

This is Dolph Warburton on for Dan.

In light of all the retail store closures that are coming this year, several of them -- of these retailers compete in categories that overlap, categories that you compete in.

So given this, how do you assess the promotional environment do you see over the year?

And are there any particular quarters where you anticipate a little bit more gross margin pressure from heightened promotional activity?

Yes, I don't think that we will know that.

As we've said, I think we didn't see necessarily or know exactly when Linens and Things or 3D Strauds or LeeJays or Home Express or Pacific Linens or JCPenney Home stores or any of these people who are closing stores, we didn't know that Macy's was going to close those stores or that Penneys was closing those stores and what's going to happen with Sears or Kmart.

So we really can't tell you or predict in particular point in time that the competitive landscape shifts.

But when it shifts, we anticipate that the short term, there's some pain; and in the long term, there's benefit.

And our next question comes from Simeon Gutman from Morgan Stanley.

First question, just on guidance, just 2 quick parts.

The comp guidance, a little flattish to slightly positive for next year.

Can you just say what gives you confidence?

I know it's a slight improvement.

It looks like home furnishing retail sales are a little weaker than they were, let's say, 12 months ago.

And then, Sue, can you talk about the -- what's the embedded EBIT margin within the guidance or range?

Okay.

So starting with the comp guidance.

We're coming off a Q4, which was a positive 0.4 comp.

I think, Steve discussed some of the initiatives, whether it's furniture initiatives, personalization initiatives, becoming more inspirational.

Those are things we're working on throughout the year.

And coming off that positive 0.4 comp, that's our model.

That's where we see for now for modeling purposes and we'll update it as the year progresses.

Your second question, I believe, was on...

EBIT margin.

EBIT margin?

Correct.

Yes, the -- can you just show us the implied range within the EPS guidance?

Yes.

I don't think we provided that.

We did say that the tax rate would be higher in 2017 than it was in 2016.

We did.

Interest should be relatively flat year-over-year, at least we believe it will be.

So, I guess, the EBIT range would be slightly better than the EPS range on a per share basis.

But we didn't give details about that.

Okay.

And my follow-up, if you look back at 2016, could you have accelerated some of the investments, therefore, there'll be some less to do in 2017?

And then thinking about 2017, I realize this may be a never-evolving answer, but when we -- we've probably been asked multiple times, does this year represent the peak investment period, et cetera?

Again, it's evolving, but any sense on that?

Can you answer that with clarity at this point?

Well, we provided our model, which is around $400 million to $425 million.

We came in at around $374 million for 2016.

And so if you go back and look at it historically, that's about -- that's a peak for us at $374 million.

And we see that plateauing in that range of the model and where we ended up for certainly for '17.

A CapEx model is fluid.

Things happen throughout the year.

Sometimes, we are accelerating certain projects that we didn't originally plan, and sometimes due to sequential basis, we're pushing projects out.

And then sometimes, there's project that we didn't even initially plan that we end up part way through the year make best sense, whether it's for strategic reasons or financial reasons.

So we make those decisions as we go.

And that's our best model estimate at this time.

And our next question comes from Brad Thomas from KeyBanc.

One of the things the company has done very well over the years is to take a product from chains that it's acquired like Harmon and buybuy BABY and integrate it into the core Bed Bath & Beyond stores.

Could you maybe talk about what inning you're in with Harmon and buybuy BABY products and some of the other ones?

And what role, if any, you see for some of the online brands to have a presence in the Bed Bath & Beyond stores?

You can look at the website to see the numbers of Harmon health and beauty care full departments, I think it's a couple of hundred, I think, is the number there abouts.

I'm not giving one of the trade secrets.

So I do think there's an opportunity as we go forward for that.

I think, the buybuy BABY departments within store, very few relative to that, even.

And so all this is -- those are opportunities to do more of this as we roll over real estate opportunities because when we opened up those stores, they weren't sized for those additional departments and things that we have in the store are very productive and obviously, Harmon is commodity goods and BABY margins aren't Bed Bath margins.

So that's things that will evolve over time and it the cost of the real estate -- and all those things will play into what the stores look like going forward.

As far as the other online brands, I mean, overall, when we look at, for example, the PMall and the opportunity for them to create personalized product, we talked about them being seasonal and the opportunity for them to use all their processes and to provide products to Bed Bath & Beyond, for example, that's a significant opportunity for us and so that's something that we are working on.

So that we do see and we were growing personalized product in our stores.

Again, that's another differentiator for us, so we think that's important.

When you talk about somebody like a Decorist, we've looked at the ability to provide additional services decorating services within stores.

One Kings Lane has -- had the studio in San Francisco, a studio in New York and that's part of their -- and they just opened up something that is a hybrid situation in Connecticut which we think it's -- was very interesting.

But so the ability to do -- provide that decorating service in some of the Bed Bath & Beyond stores is an opportunity.

When you look at the fact that we're growing furniture and home decor online, the ability to take some of that furniture, whether it be One Kings Lane or other furniture offerings and show it to some degree or in a way in our stores so customers understand that we're in the furniture business, that's a growing opportunity for us as well.

But in each of these areas is that we do have to figure out or the right point of integration so the customer to understands that we have the product that they're looking for, for the entire home and that we can be trusted as the expert for the home.

So these are all things that are being done.

Some are further along than others and the ones that you pointed to, Harmon is further along than Baby that we have certain departments in certain parts of the country that take advantage of the Christmas Tree Shops seasonal merchandise because they do such a wonderful job with seasonal, so you can find that in Bed Bath & Beyond stores.

So all this is something that's very much continues to be a work in progress.

But over time, I think you will see more of it and we'll leverage it to a greater degree.

And our next question comes from Laura Champine from Roe Equity Research.

When you talk about adding more furniture into your stores, what do you move out to make room for that?

Or is this new assortment just going into expanded and remodeled stores?

Well, obviously, again, you're talking about Bed Bath furniture.

Already you can find furniture at Cost Plus, you can find furniture at Baby.

Obviously, a significant and important part of the Baby assortment.

That Christmas Trees sells furniture in Bed Bath sells certain furniture.

But again, as we -- there's a different thought process and different things that we'd be testing.

But if you even take a look -- I don't know if you've had an opportunity to see the studio experience at One Kings Lane, in a small amount of space, you could really explain to the customer that you're in this business.

So you might not necessarily sell much out of the store or carry much in the store, but you can really show the customer that we're in these businesses, we stand for these businesses and explain that they can find it online.

Because even when you're going to Restoration, right, they're offering -- it's limited relative to you find somebody walking around with a tablet and they show you the breadth of the assortment.

So really, the key is we don't expect and we're not saying that we're going to be a furniture store.

But how do we get across to the customer that were in the furniture business and the stores don't become a disadvantage where people say or think they're not in the furniture business because we don't show it at all in the stores, explain to customer that were in the business.

And our next question comes from Budd Bugatch from Raymond James.

This is David on for Budd.

Steven, I wanted to follow up with the answer you have just given.

So in terms of making customers aware of all the product lines and businesses that Bed Bath & Beyond stands for, what do you see going forward as you having to do to achieve that goal?

Is it spending more in advertising?

Is it more leveraging the customer list and doing more targeted marketing?

How do you think about it?

And what does it mean for some of the operating expenses and capital expenditures going forward?

Well, the first place, obviously, is that you could address it in our stores.

That if the people -- if our customers coming to the stores understood that we have an expanded assortment, that would be wonderful.

So there's a lot of ways to do that, that are not big capital expenditures.

And then there's what we do already and there's a shift in what we do.

So there's a shift in where we spend our dollars and how we spend the dollars.

So how do you -- what are in your e-mail campaigns?

What are in your CRM programs?

What are you doing with your catalogs?

What are you showing?

How much are you showing and how you're describing to the customers?

So a great deal that could be achieved through a shift.

And then obviously, if you're spending more to the degree that it drives the returns we're looking for, that would be wonderful as well.

So there's a lot of things that can be done, but really, we haven't even addressed the customers that walk into our stores and really have not done a sufficient job of letting that customer know the categories we're growing.

And again, we haven't been in a rush to do that because we don't have many categories.

We're at the point that we're rushing to get the customer there because we're presenting the merchandise in a way with content and features and facets and shopability in a way that makes it best in class.

So as we go down the road of showing rooms and being inspirational and having the photography right and having the content right and having the chat up to speed so that we can answer the questions and having our vendors up to speed so they can deliver appropriately, now we could deliver to people's homes with white glove delivery and we could deliver out of our stores with third-party partners who could pick it up and deliver it for the customers.

Until These things are more in place.

We're not in a rush to show the customers we're doing something not great.

But when we do things, we get to the point where we think that we're doing it well enough or great.

The last part and the easy part will be marketing to the customer.

Okay.

And then to follow -- the logical follow-up to that is when do you think most of the things will be in place?

Yes.

It's a gamut.

Because, for example, like even the delivery -- the delivery networks, to get delivery right, we find that there's a very local take to the last mile on delivery.

And that if somebody is delivering a sofa versus delivering a mirror that there's going to be -- in a lot of cases, a different delivery service.

So again, so everything that we're doing has a different time line and it's not as if we're going to wait for everything to be perfect before we start taking particular categories and shouting that we're in this business.

But literally, if you go online today and you take a look at some of the categories, you look at literally how we show it or how easily it's shopped or shoppable, there are things that leave a lot to be desired.

You shouldn't be -- when you're looking at it for upholstery or you're looking for sizes or you're looking for certain looks or feels again, it should be easy for the customer and we need to really to make sure that we're attributing product correctly, that we're showing it in a way that we are really resonating with the customer and being able to do things in an inspirational way.

So that it's close to best in class, at least, as we drive to get and will get to best in class.

So each of these things has a different time line.

I would now turn the call back over to Janet Barth for closing remarks.

Thank you all for joining us today.

We look forward to having you join us again on our next quarterly earnings call on June 22.

Have a good evening.

Thank you, ladies and gentlemen.

This concludes today's conference.

Thank you for participating, and you may now disconnect.