Duluth Holdings Inc (DLTH) 2016 Q1 法說會逐字稿

Good afternoon and welcome to the Duluth Holdings first-quarter 2016 conference call.

(Operator Instructions)

Please note, this event is being recorded. I would now like to turn the conference over to Donnie Case, Investor Relations for Duluth Holdings. Please go ahead.

Thank you, Denise, and welcome to today's call to discuss Duluth Trading's first-quarter 2016 financial results. Our earnings release, which we issued this afternoon, is available on our Investor Relations website at ir.duluthtrading.com under Press Releases. I am here today with Stephanie Pugliese, Chief Executive Officer, and Mark DeOrio, Chief Financial Officer. On today's call, management will provide prepared remarks, and then we will open the call to your questions.

Before we begin, I would like to remind you that the comments on today's call will include forward-looking statements. Forward-looking statements can be identified by the use of such words as estimate, anticipate, expect, and similar words and phrases. Forward-looking statements, by their nature, involve estimates, projections, goals, forecasts, and assumptions, and are subject to risks and uncertainties that could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements.

These forward-looking statements speak only as of the date of this conference call and should not be relied upon as predictions of future events. Duluth Trading expressly disclaims any obligation or undertaking to update or revise any forward-looking statements made today to reflect any change in Duluth Trading's expectations with regard thereto, or any other changes in the events, conditions, circumstances on which any such statement is based, except as required by law. Please refer to our SEC filings and our Investor Relations website for additional material and information.

And with that, I would like to turn the call over to Stephanie Pugliese, Chief Executive Officer of Duluth Trading. Stephanie?

Thank you, everyone, for joining our first-quarter 2016 conference call. We are off to a strong start this fiscal year and I am pleased to report that net sales for the first quarter increased 21% to $68.6 million, with gross margins increasing 30 basis points to 57.8% compared to the first quarter of 2015.

Our GAAP net income increased 20% to $3.2 million, and adjusted EBITDA grew 41% to $6.6 million versus the same period a year ago. We are on track to achieve our annual guidance.

Now I will take a few minutes to give you more color on the quarter and update you on our strategic initiatives. Net sales growth in both our direct and retail segments contributed to another record quarter and marked our 25th consecutive quarter of increased net sales year over year.

Retail sales, as a percentage of total omni-channel sales, continued to climb and grew 52% year over year. This growth correlated to the opening of two new retail stores and one outlet during 2015, as well as positive comps from existing stores.

Direct sales grew 18% year over year, which reflected strong growth in core products in men's and women's, and customers buying winter product well into the first half of the quarter. That said, our shipping revenues declined as a percent of overall net sales, and the momentum that we usually see in men's summer product lines, like Armachillo and Dry on the Fly, was impacted by cooler weather in April.

We know that our men's customer has always been a buy now, wear now type of guy, and the weather plays a factor in his buying patterns, especially in transitional times of the year. I am pleased to report that once we moved past the cool weather in April, we saw May sales begin to reflect more typical buying trends in our summer merchandise.

Our women's category, while still small relative to men's, grew substantially over the comparable quarter last year. We plan to build on this momentum in the second quarter with a national TV advertising campaign for women that launched at the beginning of May. With strong sales of our core product lines and advertising campaigns to support both men's and women's wear, we are feeling good about our second quarter.

Now turning to gross margin. We were up 30 basis points in the first quarter, primarily due to higher initial margins on our products and a higher margin sales mix. While we continue to deploy promotions throughout the quarter, particularly via email, we were able to do so at higher margins than in previous years. As you may recall, we utilize promotions for two primary reasons: to convert new customers into the brand during our national TV advertising and heavy marketing campaigns and to remain competitive in times of industry-wide promotion.

Relative to expenses, we continued to be sharply focused on controlling costs through greater efficiency across all categories. SG&A decreased 270 basis points to 50% versus the year-ago period of 52.7%. This was largely attributed to a decrease in advertising and marketing costs based on strategic decisions we made to defer some marketing campaigns into the second quarter.

As I mentioned earlier, we launched our national TV campaign for women's in May and have also planned a flight of men's advertising for the second quarter that promotes the message of wear-now goods. We continually analyze the results of advertising campaigns throughout the year to understand the effectiveness and productivity, and will actively make changes to produce the greatest ROI for our marketing spend. The change in women's advertising from the prior year is an example of this.

Mark will cover SG&A in greater detail, so now I will move on to our strategic initiatives, starting with retail store expansion. As we have previously discussed, our initial target for 2016 was to open four to five new stores, and we are on track to meet that goal with five stores planned for this fiscal year. We have scheduled the grand opening of our La Crosse, Wisconsin store on June 16, and we expect our Omaha, Nebraska store to open in July. Hoffman Estates and Downers Grove, our entries into the Chicago metro market, are scheduled to open mid-September.

I am also pleased to announce that our fifth store will be in King of Prussia, Pennsylvania, and this will be our first store to serve our large customer concentration in the east. As you may know, King of Prussia is a major shopping destination in the Philadelphia metro market that draws customers from a large geographic span. Like our location in Bloomington, Minnesota, we have chosen to locate our store near the mall, but not in it. This allows form more personalization of our store layout and merchandising, and gives our customers easier access directly into our store. We are targeting to have this store opened in the fall, shortly before the holiday shopping.

The King of Prussia store slightly accelerates our communicated strategy to start opening out East in 2017. Starting this eastern expansion now gives us the advantage of having all of 2017 to learn and to grow this important region where we have a large and loyal customer base.

I am also excited to announce that we have just finalized a lease for a store in Independence, Missouri, which is a suburb of Kansas City. Based on customer feedback on where the store should be located, we have decided that this will be our second build-to-suit Duluth store. We have secured a great location that has visibility off I-70, and we will use the same prototype as the store being constructed in Hoffman Estates. We expect the Independence, Missouri store to open in early FY17.

One final comment on our retail expansion. Our team scouts potential store locations as far out as two years, and this can create some local buzz. While we are thrilled that communities get excited about the potential for a Duluth store, we will only officially announced a new store location once permitting is completed and the lease is signed.

Turning to our infrastructure initiatives, all projects are going as planned. Our Belleville distribution center, which we are expanding by 75,000 square feet, is progressing on schedule, and we expect it to be completed and operating by the third quarter. Our leased facility near Madison is already up and running and handling all returns from the direct business across the nation. I am pleased to add that there has been no business disruption to date as a result of these distribution center projects.

Regarding our technology investments, we have engaged demandware to implement our e-commerce solution. Once the system goes live, our customers will enjoy an enhanced website experience, including a more robust mobile site, and the ability to see if the merchandise they want is available at a nearby store. This will give our customers the option of reserving their purchases in store and picking them up within hours of ordering online.

From a Company perspective, the e-commerce system will also improve our ability to more effectively personalize the shopping experience for our customers and segment our marketing efforts, improving the overall efficiency and effectiveness of our digital marketing campaign. We expect our previously announced order management system to be online by the first quarter of 2017 and our e-commerce platform to be up and running in late second quarter of 2017.

Before I hand the call over to Mark, I want to reinforce that we feel very confident about achieving our guidance for the year. Clearly, we have a long way to go before our critical holiday quarter. And while no retail business is bulletproof, we have built a Company with many advantages.

We have a unique brand and a highly desirable customer base. Our direct business is strong and proven, and our retail business is successfully growing in a disciplined way. We have total control over our distribution and plenty of room to grow. While we may be a new public Company, we have a long history of being innovative merchants who are driven to delight our customers. We know that this is the key to delivering strong, sustainable results and returns to our shareholders.

Now Mark will take you through more details on the financials.

Thank you, Stephanie. We reported first-quarter net sales of $68.6 million, up 20.8% compared to $56.8 million in the first quarter of last year. Net sales growth was driven by a 17.5% increase in direct net sales and a 52.4% increase in the retail segment, with growth achieved across virtually all product categories.

Customer acquisition continued to be a key driver of our net sales growth in the direct business. Customers responded positively to our marketing efforts, which drove an increase of 14.7% in website visits year over year and more sales through our call center. Our retail net sales growth was driven primarily by the opening of two new retail stores and one outlet store in 2015, as well as growth in comparable-store sales.

In the first quarter, our direct business, which includes catalog and online sales, accounted for 87.9% of total sales. As we continue to execute on our retail store growth strategy, we expect retail sales to increase as a percentage of total net sales over time. Total store sales accounted for $2.9 million increase in net sales compared to the first quarter a year ago. We are very pleased with the performance of our new retail locations. The average payback on our stores continues to be less than 24 months, and we are refining our store opening process with each new location.

Q1 gross profit increased 21.5% to $39.7 million, or 57.8% of net sales, compared to $32.7 million or 57.5% of net sales last year. The 30-basis-point increase in gross margin rate reflected a strong product mix and improved product costing.

Turning to SG&A. Selling, general, and administrative expenses increased 14.8% to $34.4 million, compared to $29.9 million in the same period a year ago. This included an increase of $900,000 in advertising and marketing expenses, $1.7 million in selling expenses and $1.8 million in general and administrative expenses. As a percentage of net sales, SG&A was 50% for the first quarter of 2016 compared to 52.7% in the prior-year period. This improvement was primarily due to a 310-basis-point decrease in advertising and marketing costs to 22% compared to 25.1% in the first quarter of 2015. This was largely attributable to less spending on women's television advertising in the first quarter in comparison to last year.

As a percentage of net sales, selling expense increased 10 basis points to 13.8%, compared to 13.7% in the corresponding prior-year period, primarily due to an increase in distribution labor driven by higher 3PL utilization, which was partially offset by a decrease in shipping expense as a result of favorable shipping rates and closer proximity to our customers through our regional 3PLs. The $1.8 million increase in general and administrative expenses was principally due to increases in consulting and professional fees, which were primarily related to our infrastructure projects and public company expenses.

I wanted to take a few minutes to walk through how we expect SG&A to flow throughout the remainder of 2016. In our upcoming second and third quarters, we expect our SG&A expenses to increase as a percent of net sales on a year-over-year basis. This is due primarily to new store pre-opening expenses, such as pre-opening rent expense, store inventory preparation costs, and wages and training expenses for newly hired personnel. It is also due to having two fully deployed 3PL providers in 2016 compared to one in 2015. As we have previously reported, our 3PL providers carry a higher variable expense than our internal distribution center.

In addition, depreciation expense will increase due to the warehouse management system, which was implemented late in the second quarter of last year, and our Belleville warehouse expansion, which will be completed in July this year.

In our fourth quarter, we expect SG&A expense to decrease as a percent of net sales year over year, since we will have an apples-to-apples comparison for our 3PL providers, and we will start to gain some cost savings from our expanded Belleville distribution center. For the full year, we expect SG&A expense to be up modestly as a percent of sales. Our SG&A expense levels are as planned and reflect the healthy growth of our business.

Adjusted EBITDA was $6.6 million, or 9.6% of net sales, compared to $4.7 million, or 8.2% of net sales in the prior-year period. This represented a 41% increase in adjusted EBITDA.

We reported GAAP net income of $3.2 million, or $ 0.10 per diluted share, compared to $2.7 million, or $0.11 per diluted share in the prior-year period. Our pro-forma net income in the prior-year period, which includes an adjustment for income tax expense at an assumed, combined federal, state, and local effective tax rate of 40%, was $1.6 million, or $0.07 per diluted share.

Turning now to the balance sheet and liquidity. We ended the first quarter with a cash balance of approximately $30.3 million and working capital of $70.4 million. We had no borrowings on our $40 million revolving line of credit.

Inventory increased 37.7% to $58.2 million, compared to $42.3 million at the end of the first quarter of FY15. The composition of our inventory is very good, with the majority in high-quality, core, and go-forward product. Our goal is to maintain sufficient stock to fulfill orders complete at least 97% of the time, and we exceeded this goal in the first quarter.

Turning now to our financial guidance, we are reaffirming our outlook for 2016. We expect to report net sales in the range of $370 million to $380 million, reflecting a 23.3% growth rate at the midpoint. We expect adjusted EBITDA to be in the range of $40 million to $42.5 million, or a 21.3% growth rate at the midpoint.

We are forecasting GAAP EPS in the range of $0.66 to $0.70 per diluted share. This assumes a fully diluted share count of approximately 32.2 million shares and a tax rate of 39% and reflects an increase in net income 26.8% at the midpoint compared to 2015 pro-forma net income. We are also reaffirming our long-term growth targets of roughly 20% net sales growth, 25% adjusted EBITDA growth and 25% net income growth.

As Stephanie mentioned, we plan to open five new retail stores in 2016, adding 55,000 to 65,000 additional selling square feet. In addition, we are expanding our Belleville warehouse operations and are making steady progress on the design and implementation of a new order-management system and e-commerce system, both of which we expect to fully implement in the first half of FY17.

As a result of these important investments in future growth, we expect capital expenditures of $24 million to $25 million in FY16. This includes approximately $10 million for the warehouse expansion, $10 million to $11 million for new retail store expansion and $4 million for software infrastructure investments. Our retail store forecast reflects our plans to spend $2 million to $2.6 million in capital expenditures and starting inventories on each new store.

In closing, we delivered strong top-line growth and gross margin expansion this quarter. We are on track to achieve our growth objectives in 2016, and we are investing in infrastructure and new retail stores that will support our growth over the long term.

With that, I will open the call for questions. Operator?

(Operator Instructions)

Dan Wewer, Raymond James.

Stephanie, in the past, you talked about the Minneapolis market as an example of how e-commerce revenues can actually benefit from the addition of retail stores. Now that there's a number of stores open in other markets, can you make any comments about whether or not there has been cannibalization on your direct business from the retail rollout?

Sure. So the stores that we opened just in the past 12 months are still in that early phase, particularly when you look at Ankeny and Sioux Falls. They're still in the early phase where we've seen that direct business in those areas still growing, not growing at quite the same rate as the rest of the country. But if they react like the Minneapolis-St. Paul market reacted, or quite frankly, like the other markets where our stores have been longer standing, we expect that we will soon start to see those direct -- the direct part of those markets grow at the same rate as the Company.

So in short, Dan, while we have new stores opening that we're still reading, the stores that have been open for more than 12 months, including the Twin Cities example, have shown very similar results to the Twin Cities.

And then also related to the retail expansion, you noted that King of Prussia and Hoffman Estates will be build-to-suits. Can you talk about how that template compares to the other acquired locations? What differences we may see in sales volumes, operating margins, CapEx, et cetera.

Sure. Just to clarify, Hoffman Estates is a build-to-suit. The Independence, Missouri site will be a build-to-suit store. King of Prussia is a renovation of a current building.

Okay.

And to give you a sense of the build-to-suit in Hoffman Estates and in Independence are the same footprint, the same prototype. They will be about a little over 11,000 selling square feet. That sits right in the sweet spot of the 10,000 to 12,000 that we've talked about before, in terms of it allows us to fully express the brand, fully express the current assortment, and create the experience that we know our customers have come to love from us.

The King of Prussia store, while a renovation, actually still sits in that larger format footprint. So we expect that in that store as well, we'll be able to fully render the assortment, similar to what you would see at Bloomington or Fridley, or of course, as I just mentioned, these build-to-suits.

The renovated stores in general do range in square footage, as we have talked about that 7,000 to 12,000 square feet, and some of that depends on the building that we can find in markets that we think are important to us. So we will continue to have a range of square footage as we go forward, but the build-to-suits will be pretty consistent in that 11,000 or so selling square feet.

And then to state the last question that I have, there is a lot of volatility with the expense rate from quarter to quarter. Mark, I just wanted to see if you could tighten up a bit the SG&A expectations. I know you said it would increase as a percent of revenues. Are you thinking that the increase in the second quarter would be offsetting the leverage that you achieved in the first quarter? Is that the type of magnitude we should be thinking about? You should definitely think about that degree of magnitude, Dan, as you say, offsetting the improvement you saw in Q1. But in fact, I would expect the magnitude to exceed the Q1 impact, particularly in the second quarter. Okay. Great.

John Morris, BMO Capital Markets

Congratulations on great results to the team. Obviously, it was a tough environment and really congratulations on a good results. A couple parts to the question. Mark, first of all, with respect -- you gave us the guidance for revenues for the full year, so that's very helpful, reaffirm that. Can you give us a feel for the -- what you expect in that assumption around the growth-rate expectations for the direct business?

John, relative to what we've seen so far?

Yes, I'm just thinking we have got the growth in Q1 of 18%, but Stephanie, then you talk about the pickup or the rebound that you've seen in May. And so I'm thinking on the full year, would you -- what's baked into your forecast guidance for the $370 million to $380 million as far as the growth rate for direct outlook is? Is that -- what kind of a growth-rate level would you be assuming there?

I would say, John, overall in direct, our growth rate for the balance of the year is going to look fairly similar to what we saw first quarter. The one thing that I would say is, as I mentioned just a little bit earlier on here in the call, we did see some impact of cooler April, and even a little bit cooler into the first part of May, where we saw an impact on our summer goods, particularly on the men's direct side of the business.

Now as we've gotten a little further into May and the weather has improved, we have definitely seen some momentum building. But that's one part of first quarter that suppressed a little bit, the direct side of the business, particularly in men's, that -- and again, none of us has the weather crystal ball. I think every retailer in the world would pay high premiums for that. But assuming that we have some normalization of that, we would expect that the direct growth is going to be sitting right around that range.

Okay, so I assume that's up 18%, or 18% to 20% or so for the year.

Yes.

And then secondly, just talking about the advertising campaign, particularly on the women's side, I don't know if I'm reading this correctly. It sounds like you made a strategic decision to move some of the women's advertising -- or I should say advertising from Q1 and do it in Q2. I'm wondering if that was revolving around women's. Why you were thinking about the spend in -- coming in Q2 timing strategically.

And Stephanie, any input that you can give us what you are seeing in terms of the results of women's? Clearly, this sounds like you're stepping it up. You're moving out of test. You must like what you see. What measures were you seeing from the testing of women's? It is a multi-part question, but if you can try and field that, thanks.

Sure. Let me talk first about the decision to move the advertising a little bit later in the year by that -- really it's by a month. It crosses the quarters, but it's a month. That was primarily driven by the decision to, number one, do live-action advertising in women's. We saw some nice results in fall when we started that type of advertising in women's that focused in on flannel. And so, we made the decision to continue with the live action.

And particularly, as you probably know with the current advertising, we focused in on our Dry on the Fly product, which is a customer favorite. It's an outdoor wicking, water-repelling type of fabric, which you can do a lot of great things outside. We felt that from a timing perspective, focusing in on that product, it was smarter for us to be a little bit later in the season. Because it's a little bit more wear-now in most of the country at that point. That was one of the primary reasons of shifting the timing.

In terms of what we are seeing from women's advertising, I really think about it along two fronts. Number one is qualitatively, we're getting phenomenal feedback on social media, from our customers writing into us via email, calling in through our stores, that our women's customers -- the advertising is very much resonating with them and with their lifestyle.

And on a quantitative basis, obviously we're looking at things like web visits, light conversion, like the sales of that particular product. And on all of those fronts, we're very pleased with the results of the decision that we made for the advertising.

Great, again congratulations and good luck. Thanks.

Thank you.

Thanks, John.

The next question will come from Jonathan Komp of Robert W Baird.

Thank you, maybe just starting with a follow-up question on the direct business. I don't know that you previously have given granularity on the sales growth for the year, but has your outlook for the year changed meaningfully for year that business at all? Or it sounds like you've had a few tougher weeks of weather and the business is rebounding. Do you expect to make up some of those sales as you progress through the summer or how should we think about that?

We don't see the outlook meaningfully changing for the direct business, so we're holding very close to what we had expected at the very beginning of the year. One of the things that I think is important to note on the quarter that we just finished is that when we look at the overall business, but the direct business specifically, and even more specifically, the men's direct business, our perennial core products, so taking out the spring/summer product factor for the moment. If you look at the base of our business, things like Ballroom Jeans, Longtail t's, et cetera, the growth in those products was exactly at the same rate as the growth we saw last fourth quarter.

So when you're talking about what our business is founded on and what we are basing our growth strategies on go forward, that segment of the business is just a strong as it was in fourth quarter and just as strong as it was -- as it ever has been. We feel pretty good about the outlook go forward.

And then maybe a follow-up question, Stephanie, just more conceptually, how do you think about balancing your cadence of promotions in a period where you want to drive short-term traffic to help overcome things like weather? On the same front, you don't have retail partners, so maybe there is less pressure to discount product that otherwise would be in different selling channels. Maybe just talk about how you'd think about managing that dynamic.

Sure. Again, we feel that it gives us great benefit and power to fully control those channels of distribution and be able to control the messaging, the promotional cadence. And so when we look at a promotional cadence, as I mentioned just a few minutes ago, certainly we are aware, cognizant of the competitive environment. And we want to make sure that we are competitive within an overall retail industry, if you will.

That said, the most important thing for us as we are building a promotional cadence is how are we continuing to convert and bring new customers into the brand, break down barriers, and particularly in times where weather might not be in our favor. And you know what? There are a lot of times that it's just going to be that way. While we are highly protected around certain things, we're certainly not bulletproof, and so we do react and respond and give future customers, existing customers some additional reasons to buy.

But generally speaking, what I'd say is our promotional cadence is certainly not driven by -- obviously by pressure from retailers. And the other thing that it's not driven by is any fear of having to relieve massive amounts of perishable inventory. Because our business model of continuing to flow goods or having perennial favorites, if you will, allows us to be smart about our promotion and not have to panic, if you will.

Great, then maybe one more on the direct business. It looked like the year ago, the second-quarter growth rate for the direct revenue was up in the high 30% range. I'm just wondering if there's anything specific to point to in terms of the cadence of what that comparison looks like or any tough overlap, if you will, within that full-quarter growth rate being so strong last year?

I'm sorry, John, could you repeat that?

Yes. It looked like the second quarter of FY15, the direct business, the growth rate was up 38% and quite a bit above the other quarters. So I'm just wondering if there is anything within the second quarter of last year, or any month or any specific product that looks like a particularly tough comparison within the full quarter last year?

A big part of second-quarter growth last year had to do with advertising cadence and adding additional television advertising into that quarter. And that drove -- where we didn't have it the year prior, that drove a lot of the incremental growth that we saw.

That said, from a product perspective, our summer products last year were very well received. And things like Armachillo, Dry on the Fly were very important to us. As we enter into second quarter this year, we have expanded on areas of that business things like Armachillo knits. We have added silhouettes and additional pieces to that, Dry on the Fly knits, things that have taken those concentric circles of core products and built them out that we feel is going to set us up for a good second quarter again this year.

Okay. That is helpful. Thank you very much.

Amy Noblin, William Blair.

It's actually Dylan Carden on for Amy. Going back to the promotional bit, I take your bit about the retail and the pressures there, but over holiday where you did a pretty good job of managing your promotional cadence, there was that inventory hangover that still persists in the industry. Is that something that still is influencing you or is still an issue or are you able to just move past that?

And then in line with that, the 30 basis points you got on gross margin seems to have been more a product mix, if I heard you guys correctly. But then you also said you had higher margin on promotional activity. I am trying to square that circle and what the benefit or drag might have been from promotional activity in the quarter, if you can speak to that? Thanks.

Sure. To start with the hangover of fall goods, again, the good news is that with our business model of carrying product forward and focusing in on core, we have much less risk in that area than other retailers might. That said, we actually, in the beginning of first quarter, continued to sell that fall and winter product very nicely. That was a benefit in continuing to own some of that product and be able to offer it to our customers while the weather stayed cold.

On the question around margin, so just to clarify, we -- the team did a great job, and our partners that we have had -- long-standing partners on the manufacturing base, continue to work closely with us to create efficiencies. And we did see an increase in our initial margins this year. Some of that not only has to do with the partnerships I just mentioned, but also with the fact that as our women's business grows, we see improvement -- we have continued to see improvement year over year on margins in that part of the business.

So we started out with higher initial margins this year than prior year, and so when -- just mathematically, when we're discounting off of that, we tend to have higher margins in even our promotional pricing buckets, if you will. The other thing that we found is that the mix of product that our customer is going for, core product is an example of this, tend to be higher-margin products. So as we continue to focus on that core and bring that to life season over season, we're seeing margin benefit from that, as well.

Okay. Great. Thank you.

(Operator Instructions)

Jim Duffy, Stifel.

Stephanie, the marketing return on investment improved nicely during the first quarter. It seems the core product continued to perform. Is it fair to presume that some of the colder weather product and core product performed without dedicated marketing support in the quarter?

Yes. Absolutely. Especially, Jim, if you're referring -- if you're thinking about dedicated marketing support as television advertising, because that certainly is very visible to a lot of our audience. When we're running, as an example, when we're running national TV advertising for men, we may run two or three products at any given time. And what we find -- what we found is that even those products that might not have been in that rotation were doing quite well in the quarter.

We certainly support all of our core products across all of our channels. So while it might not be on TV, a lot of them are in very prominent places in our retail stores, or they might be on covers of catalogs. But overall, what we found is that our entire core product assortment continued to sell very, very well.

Great. That is good to hear. And then just so I better understand the operating philosophy and inter-quarter strategies, can I ask you to speak a bit more about the dynamic adjustments to marketing spend that you made during the quarter? Did you specifically back off of some investments that you had planned in some of those non-core and seasonal product offerings?

No. We didn't back off any advertising. If anything, we had originally -- in the plan for the year, we had already anticipated the shift in the women's advertising, which is the biggest chunk of that dollar shift. We did and will continue to in the quarter make more real-time adjustments, if you will, within things like digital marketing, or what we're featuring in our stores, or what we're putting on our website. Those types of things are more reacting to the business in, as I said, real time. But in terms of overall spend, we didn't contract any spending that we had planned to.

Okay, so you may react with different treatments, but spend within a fairly tight planned budget?

Correct. Particularly, Jim, when you're looking at on an annual basis the advertising we have been very good at holding to our plan to spend. Now that said, there are quarters where we may make decisions that it's more appropriate to spend in one quarter versus another, and we make shifts during the year at that time.

As you can imagine, we have different trigger points for different types of marketing to spend or to shift. And we are constantly evaluating the ROI of the advertising spend, because as you know, that is the biggest part of our SG&A spend. And we want to make sure we're being the most effective that we can be.

Very good, thanks. Then shifting gears to the retail business, you mentioned positive comps. Can you speak to the relative productivity you saw during the first quarter from the class of 2015 stores?

The stores that we've just opened in 2015, or the ones that were -- you're talking about comps?

Not comps, the ones -- new stores, so those which wouldn't be in the comp base, how did that look relative to the comp base some of the stores that had a longer operating history?

Sure. The new stores that we opened in the past 12 months have performed very nicely. They are all performing in payback period, as we've seen in the balance of the stores so that two-year or less payback. They are profitable for us and they're hitting our sales per square foot that we have modeled to, at least that amount. So we feel really good about the new stores we just opened.

Very good. I will leave it at that. Thanks.

Ladies and gentleman, that will conclude our question-and-answer session. I would like to turn the conference back over to Stephanie Pugliese for any closing remarks.

We look forward to seeing many of you at the upcoming Robert W Baird and William Blair conferences. Again thank you for joining today's call and have a good evening, everyone.

Ladies and gentlemen, the conference has concluded. Thank you for attending today's presentation. You may now disconnect your lines.