Franchise Group Inc (FRG) 2021 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to Franchise Group's Fiscal 2021 Second Quarter Conference call.

(Operator Instructions)

I would now like to hand the conference over to your host, Andrew Kaminsky, Executive Vice President and Chief Administrative Officer of Franchise Group.

Please go ahead.

Thank you.

Good afternoon, and thank you for joining our conference call.

I'm on the call with Brian Kahn, Franchise Group's President and CEO and Eric Seeton, Franchise Group's CFO.

Before getting started, I would like to mention that certain matters discussed on this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other provisions of the federal securities laws.

These forward-looking statements are based on management's current expectations and are not guarantees of future performance.

Actual results could differ materially from those expressed in or implied by the forward-looking statements.

The forward-looking statements are made as of the date of this call, and except as required by law, Franchise Group assumes no obligation to update or revise them.

Investors are cautioned not to place undue reliance on these forward-looking statements.

For more detailed discussion of these and other risks and uncertainties that could cause Franchise Group's actual results to differ materially from those indicated in the forward-looking statements, please see our Form 10-K for the fiscal year ended December 26, 2020 and other filings we make with the SEC.

The financial measures discussed today include non-GAAP measures that we believe investors focus on in comparing results between periods and among peer companies.

Please see our earnings release in the News and Events section of our website at franchisegrp.com for a reconciliation of non-GAAP financial measures to GAAP measures.

Non-GAAP financial information should not be considered in isolation from, as a substitute for, or superior to GAAP financial information, but included because management believes it provides meaningful supplemental information regarding our operating results when assessing our business and is useful to investors for informational and comparative purposes.

The non-GAAP financial measures that company uses have limitations and may differ from those used by other companies.

Now I'd like to turn the call over to Brian.

Brian?

Thanks, Andrew.

And good afternoon to our listeners, and thank you for joining us.

I'll briefly discuss the highlights of Franchise Group's second quarter, provide an update on recent corporate activities and discuss current trends in our markets and businesses before turning the call over to Eric to provide financial details.

We will then be happy to answer questions.

In the second quarter of 2021, Franchise Group continued to execute operationally and capitalize on the momentum in our businesses.

Pet Supplies Plus and its associates have seamlessly become part of Franchise Group, and they continue their robust growth trajectory.

We demonstrated our commitment to a conservative financial policy after a large acquisition by paying down approximately $182 million of debt since closing on the PSP acquisition in March.

All of our brands continue to grow and generate progressively healthy levels of cash flow, and all of our brands have had positive 2-year stacked same-store sales.

Our management team will continue to allocate discretionary cash flow to the highest and best uses to increase Franchise Group's long-term shareholder value.

New store openings from increasing franchise momentum are providing unit count growth and expanding footprints for our brands.

In the second quarter, we increased store count by 29 units, consisting of 23 franchise locations and 6 corporate locations.

For the first half of fiscal 2021, we opened 111 new locations, signed area development agreements for 96 new franchise locations and have grown our total backlog of new stores across all brands to 284 units.

One of the franchising highlights of the quarter was the recent announcement of our first Vitamin Shoppe area development agreement for 3 stores in the Rio Grande Valley of Texas.

In just the first quarter of being franchise ready, Vitamin Shoppe already hosted 25 prospective franchise entities during 3 discovery days and Vitamin Shoppe currently has 16 candidates who have completed or in the process of completing a franchise application for Vitamin Shoppe approval.

We are thrilled about the initial popularity of the Vitamin Shoppe franchising opportunity, and we believe this high level of interest is a testament to Vitamin Shoppe's overall brand awareness and an acknowledgment of the trust consumers put in that brand.

American Freight, Buddy's and Pet Supplies Plus have continued to see robust demand from both existing and potential franchisees due to the strength of their operating models and their economic resiliency.

In the second quarter, Pet Supplies also advanced a variety of internal growth and improvement initiatives.

Management rolled out its online subscription business, introduced a new private label for fish under the brand Fins First and grew its franchise backlog of store openings to over 200 units.

PSP's same-store sales for the second quarter were up over 23%.

And at the end of the quarter, PSP operated 573 stores, with 333 of those being franchise locations and 240 corporate stores.

Total revenue at American Freight grew more than 14% year-over-year during the second quarter due to new store openings and the acquisition and conversion of the FFO stores.

Same-store sales were down only about 4%.

In the quarter, American Freight completed 4 area development agreements with a total commitment of 16 stores in multiple markets.

We continue to see significant interest in A Freight franchising opportunities, and we anticipate more development agreements will materialize over the balance of 2021.

American Freight operated 364 units at the end of the second quarter, including 6 franchise locations.

Supply constraints and elevated freight costs have continued at American Freight throughout the second quarter.

While supply constraints have eased a bit lately, we still do not believe that American Freight's inventory levels will normalize until next year.

But despite these current inventory constraints, we will continue to aggressively pursue new store openings when real estate opportunities arise for A Freight.

Buddy's Home Furnishings' supply constraints have improved, although inventory levels of upholstery, case goods and mattresses are still not at optimal levels.

Due to the recurring nature of Buddy's revenue stream from inventory out on lease, Buddy's same-store sales were up 0.4% in the second quarter.

Buddy's has carried its franchising momentum into the second quarter as well by signing area development agreements for 23 new stores.

The Buddy's footprint now stands at 306 units, including 261 franchise locations.

Vitamin Shoppe has continued to benefit from the consumers' focus on their health and wellness and growing demand for Vitamin Shoppe products.

As gyms and fitness studios have reopened, we have seen a significant increase in demand for sports nutrition, weight management and fitness supplements layered on to the sustained higher level of vitamin and general supplement demand.

Store traffic has increased as consumers gain comfort, leaving their homes to shop on-premise.

These trends are clearly seen in Vitamin Shoppe's second quarter same-store sales growth of more than 28%, consisting of positive 44.8% in-store and negative 14.8% for direct-to-consumer.

Vitamin Shoppe ended the second quarter with 716 stores overall in their system.

Regarding M&A, we continue to evaluate several M&A opportunities that will either further diversify Franchise Group's revenue and cash flow streams, accelerate our growth or both.

Each acquisition candidate that we are pursuing has robust unit level economics that we believe are or will be attractive to franchise partners, and each acquisition candidate provides a clear path to enhancing Franchise Group's discretionary cash flow.

Our current candidates include a full range of opportunities from nascent brands that we believe we can grow rapidly to larger established franchise businesses, and our goal is to execute on both ends of this spectrum.

We continue to cement our track record of de-levering rapidly, after we lever up for a diversifying and scale building transaction, so we are confident that our lenders will support us again for the next opportunity.

Before turning the call over to Eric, I would once again like to thank all of our dedicated associates for their hard work, their support of each other and their support of our franchisees.

Eric?

Thank you, Brian.

Before I address the results of operations, I would like to remind you that we will be making many references to pro forma items throughout this call.

Our press releases and filings may refer to historical financial results for the acquired businesses prior to their acquisition by Franchise Groups.

These items have been adjusted to align with our recently changed fiscal calendar and accounting policies to the extent reasonable.

Comparison to pro forma results will allow us to discuss and evaluate performance of the acquired companies when a comparable period is not available due to the timing of the acquisition.

As a reminder, in order to conform with SEC rules consistent with concepts in Article 11 of Regulation S-X for a non-GAAP reporting, Franchise Group will not be reporting synergies and other acquisition costs.

The company will continue to report adjusted EBITDA in the same format as it has in the past.

At this time, we do not anticipate reporting any supplemental information for 2021.

The specific amounts included in each disclosure are fully discussed in detail in the non-GAAP Financial Measures and Metrics section of our earnings release.

For the second quarter of 2021, total reported revenue for Franchise Group was $862.88 million.

GAAP net income from continuing operations was $32.5 million or $0.74 per fully diluted share.

Adjusted EBITDA was $91.8 million, and non-GAAP EPS was $1.16 per share.

We currently have 4 reportable segments: American Freight, Vitamin Shoppe, Pet Supplies Plus and Buddy's.

And now, report Liberty Tax as a discontinued operation.

For the quarter ended June 26, 2021, American Freight had revenue and adjusted EBITDA of 268.8 and $28.9 million, respectively.

Vitamin Shoppe had revenue and adjusted EBITDA of 302.6 and $37.5 million, respectively.

Buddy's had revenue and adjusted EBITDA of 15.6 and $4.3 million, respectively.

And Pet Supplies Plus had revenue and adjusted EBITDA of 275.8 and $22.9 million, respectively, for our ownership period.

For the quarter, consolidated cash flow from operating activities for FRG was $29.9 million and capital expenditures of $13.1 million, netting to free cash flow of $16.8 million, defined as operating cash flow less capital expenditures.

Within these amounts, Liberty had cash flow from operating activities of $20.8 million and capital expenditures of $2.1 million.

Free cash flow attributed to FRG, our Franchise Group continuing operations was $9.1 million from operating activities, less $11 million of capital expenditures, netting to free cash flow of negative $1.9 million.

We ended the quarter with approximately $1.3 billion in outstanding term debt, a fully undrawn $150 million ABL revolver and cash of $165.4 million.

On July 2, we reduced the term debt by approximately $182 million from the cash proceeds from the closing of the Liberty transaction with NextPoint.

In conjunction with our balance sheet and business performance, we believe we have sufficient liquidity to continue to meet all of our obligations and support all of our businesses for the foreseeable future.

As of today, we are increasing our expectations for annual adjusted EBITDA for fiscal 2021 from at least $315 million to at least $320 million.

Non-GAAP EPS from at least $3.35 per share to at least $3.45 per share and revenue from $3 billion to $3.1 billion to at least $3.05 billion.

In calculating EPS, we are using approximately 41 million weighted average shares outstanding.

Our expectations for 2021 do not include any assumption for additional acquisitions, divestitures or additional refranchising activity.

I want to thank all of our shareholders and lenders for their support to date.

Operator, please open the line for questions.

Thank you.

(Operator Instructions) Our first question comes from the line of Larry Solow from CJS Securities.

Just perhaps a couple of questions on Vitamin Shoppe, which really had a phenomenal quarter.

It seems to be driving the majority of the beat here.

Same-store sales, 40-plus percent, difficult to look at because last year you had some closures and whatnot.

But what's your -- do you have a rough outlook?

I know you don't guide quarterly, but back half of the year, do you still see the -- it sounds like with the rise in sports drinks and whatnot, you would -- I would expect you still think same-store sales continues to grow.

And then maybe roughly what you think that might be?

And then longer term, do you think this category can be -- can you still see same-store sales growth as we look at it over the next couple of years?

Sure.

Thanks, Larry.

And you may have to remind me of some of those questions, and I'll probably work backwards to forwards.

But over the long term, we do think that growth in this category is sustainable.

And vitamins and supplements have grown religiously, year in, year out, you cannot move it out of the equation.

The issue that Vitamin Shoppe had previously was that it was really coming from a much smaller online business because most of the growth is online and brick-and-mortar wasn't performing.

COVID has changed that quite a bit in a couple of ways.

#1, the online business, direct-to-consumer is a larger base.

Certainly, what you see in this quarter is a result of COVID because you had stores that were closed last year and the stores that were open still weren't seeing the kind of traffic that they would see even in a normalized situation.

So this is just kind of getting back.

I don't think you are going to see -- I think it's easy for me to say, although I don't think we are going to forecast same-store sales for any particular business.

I'm pretty sure we won't see 40-plus percent same-store sales on a regular basis.

That's just not going to happen.

But the model doesn't require that either.

So as we look at the second half of this year, if you think about just generally what happened last year with COVID as the reopening occurs, you're now -- you're through the second quarter and most of the odd comparisons for all of the businesses are over.

The second half of the year showed continued strength for Vitamin Shoppe and all the stores were open.

So you are not going to be anniversarying store closures in the second half of the year.

You will be anniversarying some pretty decent strength, both online and in the stores.

So certainly, you're going to have a higher base that you are comping to.

But demand right now is strong.

Could that change tomorrow?

Absolutely.

But demand is strong.

Management is doing a great job of capturing that demand.

They're doing a good job winning.

And so we're very optimistic about the long-term outlook of Vitamin Shoppe and certainly very pleased that the franchising community seems to agree with that as they are showing up with significant interest in opening new stores for us.

And does the mix shift to more in-store sales versus online help or hurt you guys?

I think online is some more freight costs and whatnot, I assume, right?

Yes.

So speaking generally, the margin -- the flow-through of $1 of revenue in the store creates more free cash flow than a $1 of revenue through direct-to-consumer.

And it's not an insignificant gap.

I think that's an area that management is spending a lot of time focusing on.

I think that we can keep more of that cash flow off that dollar over time.

But -- so it's an opportunity for us.

And as that base grows, and it should grow fairly significantly over time, you're going to end up having the law of larger numbers helping you out there as well.

But you are right, with your additional hypothesis of the margin differential between retail, in-store and the direct-to-consumer channel, generally.

Right.

And then just last question, if I may, just sort of general.

And it sounds like I can probably answer this one, but just general interest level among prospective franchisees, not necessarily a Vitamin Shoppe, but you've obviously been around these kinds of businesses for a long time.

In this environment, do you think -- I would suppose interest level is probably as high as it's been in a while.

I know we are coming out of COVID, so maybe there's still some sluggishness for that.

So I am just trying to get a gauge of that on a general scale.

Yes.

So the interest level is high.

I think that the interest level really never waned.

I think that COVID helped these kinds of businesses relative to food service businesses from an interest level.

But the interest level, throughout our ownership period of any of these businesses has been there.

I think that we are, one, we're better equipped to handle the interest as we've been growing our franchising infrastructure, largely from scratch in some cases.

And then also, the real benefit, I think, is the availability of capital to franchisees, which if you remember several conference calls ago, that was a real question, will franchisees who have interest actually be able to find the capital to take advantage of the franchising opportunities?

I think that that has loosened up a bit.

And so I think we feel pretty good about our ability to execute.

And next up we have Mike Baker from D.A. Davidson.

I would like to start by focusing on the pet business, if I could.

I think you said trends for all your businesses really were up on a 2-year basis in terms of the comps.

Can you quantify that at all?

We don't really have Pet Supplies numbers from a year ago.

So I am wondering what this year's comp was on top of.

And then, I guess, related to that, can you talk about momentum in that business, recycling?

I think, again some big pet industry numbers a year ago during the pandemic, when everyone started adopting pets.

It sounds like you're still growing on top of that, but I love to sort of flesh it out.

How does that 2-year stack look in the second quarter versus the first quarter, for instance, any kind of indication of momentum even as we come up against the COVID related comparisons would be helpful.

Sure.

So -- and without being too specific on the percentages in any year, I am happy to say that last year -- so this number was comping a, I would say, a slightly a normal positive number.

I am sure -- and of course, we didn't own the business at that time, I am sure that the CSP management team would tell you that although the result in their Q2 of 2020 looked like a normal comp, the way they got there was I am sure a little scary and also very different than what they were used to.

But this comp is on top of a positive comp from last year.

From an ongoing basis, I think you were talking about, can it sustain?

I'd say we never expected this kind of comp for -- to -- we certainly don't expect this kind of comp to continue.

I think that we -- the strength continues.

I don't know that I would expect it to continue at the traffic and the average basket size that they've been running at.

But generally speaking, and I think this is the same for all of the businesses, the demand has been there.

That's not been an issue.

I can't tell you how much of the demand is generated by customers having extra dollars in their wallets that they want to flush out because they're used to getting a paycheck and spending their money.

But right now, demand remains strong.

Okay.

That's helpful.

2 more for me.

One, just switching gears to the American Freight business.

You said that the supply chain issues were getting better.

So I assume the issue you're still referring to is not having open-box appliances.

Can you -- you actually -- I think you quantified it last quarter, and I think you comped down 10% in that business.

A lot of that was because of the appliance business.

I think the -- I recall sales were down 30% in that or even 40% in that open-box appliance business.

Can you put some numbers to that this quarter relative to what you saw in the first quarter?

Yes.

So first -- well, the first one you say, it's not just as/is appliances where the supply chain has been disrupted.

I mean we struggle in really all categories, but they are able to manage better in some of the other categories.

But the supply chain is limited, and management is having to go add demand to different vendors, bring on new vendors, but they're managing through it.

And that's exciting to see, but it's a lot of additional hours for the team just to be able to make sure that there's sufficient product on the floor to meet the customers' demand.

On the as/is business specifically, without being too specific on the numbers, it's a similar situation this quarter left a lot of high-margin revenue on the table because of a lack of as/is product, that has not improved, offset some of that as/is loss with lower margin new-in-the-box sales.

But generally speaking, that's a net loser for us relative to what the normal business and bases would look like.

So I hope that helps.

Yes, it does.

So I have one more, just bigger picture on the guidance.

Sort of an obvious question, but you raised the EBITDA and EPS guidance.

You took the sales guidance up to the midpoint, above the midpoint, I guess, but not necessarily above.

So is this something that's not as good on the gross margin or SG&A or just trying to -- or was it just being conservative?

No.

It's nothing specific there.

It's -- our expectations have improved, and we certainly wanted to be able to relay that to the public, demonstrate that through an adjustment of the numbers.

But generally speaking, no, there's nothing -- I wouldn't read-through from revenue to incremental margin to earnings per share in any particular way.

So certainly feel very comfortable that we'll produce at least those numbers that we told you our expectations were at this point.

Thank you.

Moving on, we also have Ian Zaffino from Oppenheimer.

I guess the question would be just on the dividend side.

You kind of reiterated the dividend today.

And just trying to think about what we should be expecting going forward.

Is it at a level that you want to pay out?

Is it at a level that matches up with your cash flow and how you are thinking about your cash flow?

Yes.

It's a fair question and something we certainly think about a lot.

As you know, our stated long-term goal or expectation is to distribute 25% of our annual EBITDA out as a dividend.

And we're well below that distribution today.

And that's -- and the next dividend will continue to be well below that when you annualize it as well.

What I think we're trying to avoid is herky-jerky or having one quarter at one level and then increasing it at a -- just some kind of random rate and certainly also trying to avoid ever having to decrease it.

Things happen, and it's possible.

But certainly, we're trying to guard against that, and we think that that is, over the long term going to be an important part of the track record that we're trying to establish.

I believe this dividend that we just declared is the fourth, if I'm not mistaken at this rate.

Next quarter, we'll have another board meeting, and we'll have a better sense of how this year is finishing and what expectations are for next year, and it's probably a better time to address any kind of change in the dividend after we've paid a full year at a rate based on the expectations that we had at the start of the year.

Great if we are doing better than we had expected at the start of the year, but still have another, what, 5 months to go to get through this year, too.

Okay.

Good.

And on the same token, how are we thinking about debt now?

I guess, we made a pretty big debt repayment.

This next quarter was on the first season of Liberty.

Are we where we want to be?

Are we looking at bringing it lower?

How is just thoughts in general there?

Sure.

So look, I think that over time, we only want to be involved in businesses that -- that should be levered.

So if they are not consistent enough to have leverage, then that's a box that doesn't check for us because then they are not consistent enough for our shareholders either.

So I think over time, we expect to have leverage on the business under 3x, 2x to 3x to be specific is probably the sweet spot for us.

You can -- and the bigger we get, the larger the quantum will be as well.

So it's not -- we're not looking at a dollar amount.

We're really looking at a leverage ratio where we're comfortable.

We are willing to stretch up to 4 turns of leverage for a transaction when it makes sense, assuming we've got a clear plan to delever back under 3x very rapidly.

We just did that for PSP.

I think we took it to 3 and a half -- I don't think we got all the way to 4. But now we've delevered, and we're back in the sweet spot for us in terms of leverage.

If we're successful in further diversifying the business through M&A, I think that that's the right time to look at relevering, and then we will go delever again and remind everybody what we told them we were going to do and that we did it all over again.

And I think that the more that we demonstrate that rubber-band philosophy, the easier it is for us to execute, the lower our cost of capital over time.

And that means a higher percentage of our cash flow will become truly free cash flow that we can use for dividends as well.

So that's still the strategy.

And so far, knock on wood, it's working and just have to keep operating.

Next up we have Susan Anderson from B. Riley.

Nice job on the quarter.

I was wondering, so for Vitamin Shoppe and Pet Supplies Plus, it looks like the top-line there revenue performed maybe quite a bit above expectations.

Is that just a return to the stores?

And then for Vitamin Shoppe, should we -- it doesn't seem like that business is necessarily that seasonal.

So it looks very similar to first quarter.

Should we think about that as the new baseline, obviously, including any additional stores?

And for the margins there, they were up quite a bit in first than the second quarter.

So should we think about this low teens EBITDA margin as being a baseline or can it expand further from there?

So I'll take a first stab at some of that, and if Eric has anything to add to it, feel free.

We're not in the same room today.

So we don't -- we didn't provide any -- and we don't provide any quarterly expectations for any of the businesses.

So certainly understand how an analyst looking at it that doesn't have complete information, may have different expectations than we would have, and that makes complete sense, and everything works out at the end of the day.

Specifically, as it relates to Vitamin Shoppe, there is seasonality in that business.

And typically, the first quarter is actually the strongest quarter in terms of revenue as people kind of renew their vows after New Year's and for whatever reason, that's when they're spending their money on supplements.

And the fourth quarter is typically the lowest revenue.

Certainly, note -- as you know that the second quarter revenue at Vitamin Shoppe was pretty high, and it was certainly higher than I expected.

But it's -- I wouldn't look at it as a run rate that you build off of just because of the inherent seasonality of the business.

So hope that helps a little bit.

Yes.

And maybe just on the EBITDA margins, too.

Should we think of it as a low-teens EBITDA margin business?

Yes.

So the EBITDA margins at any particular period of time are driven more by the revenue than anything else.

It's the operating expenses or the operating expenses, by and large.

But when you think about pretty high incremental margins to revenue.

And they're high, whether it's super high product margins in the stores or not quite as high direct-to-consumer, although there are various channels of direct-to-consumer that each have different margin profiles as well.

It's all pretty high.

So if revenue is increasing, the margins at the EBITDA level, I think you can certainly expect will expand.

And if revenue is decreasing because you're losing an incremental dollar that just generates so much of an EBITDA margin that you're going to see that go down.

So for my money, I would think of the first quarter typically -- and it doesn't mean it's always going to be, as we just saw the second quarter had very high revenue, but because first quarter should have highest revenue, it should also have the highest EBITDA margins.

And then I'm sure we can help you, Andrew can help you as you're building your model, but that's how it should flow through and really determine what you -- and the EBITDA margin would just be a result, right?

Got it.

Yes.

No, that makes sense.

Then I'm wondering if maybe you can give some color on how you see, franchising of the businesses.

How that -- your goal is longer-term in terms -- if there is a goal for VS and American Freight and PSP, what percent of the business do you see being franchised longer term?

And is there a time line that you are thinking about to reach that goal?

Sure.

The time lines will absolutely vary by brand.

Certainly, if you're starting with a very heavily franchised business, you may already be there.

But our target, and I think we will say it consistently.

We would like to get involved in businesses where 90% of the units or more can be franchised.

Clearly, when you start 100% company-owned or 80% franchise that you're going to have a different rate of getting there.

And also, depending on where they are in their saturation of their -- whatever their geographic footprint will be will have an impact as well.

American Freight, let's just -- Buddy's is already about 90% franchised.

Liberty was well over when we transacted with that one.

PSP is 60% or so franchised.

So those are real franchise business.

American Freight and Vitamin Shoppe, being on the other end, really -- Vitamin Shoppe had no franchise business and American Freight -- American Freight didn't either.

Outlet had a couple, but it was really zero at American Freight.

So you are talking about 100% company-owned businesses and at what rate are you going to get there.

So if you look at a -- an American Freight business that had, call it, 300 stores when we started and a footprint that is just in the United States can easily exceed 1,000, your ability to get -- really have a higher penetration rate of franchise versus non franchise, you can get there at a pretty decent clip.

Whereas Vitamin Shoppe, coming in with 700, that we started with 750 stores all corporate.

You got to open a lot of stores and the footprint can't handle that many stores to get to 90% franchise just through a new store growth.

So just illustration of why you can certainly expect that the franchising activity will occur at different rates.

And we may never get there with some businesses, but we really have to believe that the business can be 90% franchise for us to be interested in it.

But we're also not going to give away that cash flow.

We're not going to refranchise stores just for the sake of refranchising stores.

We look at our company stores as assets that if we're going to refranchise the store, it's because we expect we're going to get a significant amount of growth and the footprint from that franchisee opening additional stores.

Otherwise, it's just -- just doesn't make sense.

The math doesn't work.

Got it.

Okay.

Yes, that makes sense.

And then I guess last one.

You talked about -- you continue to evaluate M&A opportunities.

It sounds like you feel good about the position you are at with your balance sheet now.

Maybe if you can talk about or give any color on thoughts around what you're looking for in terms of size.

Or does it vary pretty dramatically?

And then is there any industry or brand that you wish you had within your portfolio right now?

So the answer to the last question is there certainly is, but I'm not going to tell you because that hurts my negotiating leverage with the sellers, right?

So that -- but certainly, there are things that you covered and that would make a lot of sense to add when you're building a diversified business like we're building.

In terms of the sizes of what we're looking at -- we've looked at -- we look at a lot of businesses.

And we've looked at businesses ranging from literally a single concept, one unit, which is a concept to very large businesses that are maybe are already heavily franchised or not so much.

So we really are all over the map, and it's about what makes sense.

We actually had a board meeting today, and we were talking about -- we looked at over 100 businesses in the last year, we acquired one, and that was PSP.

So that is our job, and we'll continue to look at everything that comes our way, and we learn a lot about the businesses when we do the diligence.

We learned a lot about franchising.

We learn a lot about ourselves, what we are good at, what we're not good at and where we're comfortable with, what we're not comfortable with.

So we will continue to do that.

In terms of industries, I think that the acquisitions that we're looking at can be add-ons to existing brands that we have, and we've spent quite a bit of time looking at those, and there's certainly some that were -- that have made it through the funnel, and we're still interested in.

We also are looking at diversifying, and that's a key part of what we are doing.

As of right now, we have quite a bit of, perceived retail brands, and we know we want to be in services, and we want to be heavily in services.

And so I think you can expect that services are an area that we spend quite a bit of time in and would expect to transact in the not-too-distant future.

Moving on.

We also have Brian Hollenden from Aegis Capital.

So most of the questions have been answered, but are you having challenges in finding labor?

And are you seeing cost inflation within the businesses?

Yes.

And yes.

So I'd say across the board, labor is an issue, whether it's finding people to work for you or getting people who work for you to show up every day.

It's just -- it's been a challenge and the management teams have, I think, universally, they've all struggled through that.

Labor is also an area where we are seeing cost pressures, and that's real.

How long does it last?

I don't know.

But I think that just the environment that we're in, which is just not a normal environment in so many different ways, just something every -- our management teams are just having to deal with it and manage through it.

The demand is strong.

And so you don't really notice the cost pressures because of that.

But absolutely, we're seeing inflation in both labor costs with some wage rates and also product costs as well and passing those product costs increases on has not been an issue.

Okay.

And then last one for me for the Vitamin Shoppe.

What sort of revenue and margins are you expecting from the launch of the e-commerce site in South Korea?

Is that something that will become profitable within the first year?

Good question.

And I don't know the answer to it.

It's small at this point.

I wouldn't expect it to be a major contributor day 1, but certainly, looking outside of the United States for areas of untapped growth for Vitamin Shoppe and a way to expand their brand and looking for partners overseas is a long-term strategy of the Vitamin Shoppe management team that they are executing on.

I'm showing no further questions.

I would now like to turn the call back to Mr. Brian Kahn for any closing remarks.

Great.

Well, again, thank you all for joining us this afternoon.

And operator, please conclude the call.

Thank you, ladies and gentlemen.

This concludes today's conference call.

Thank you all for joining.

You may all disconnect.