Genesco Inc (GCO) 2015 Q4 法說會逐字稿

Good day, everyone, and welcome to the Genesco fourth-quarter FY15 conference call.

Just reminder, today's call is being recorded.

Participants on the call expect to make forward-looking statements.

These statements reflect the participants' expectations as of today but actual results could be different.

Genesco refers you to this morning's earnings release and to the Company's SEC filings, including the most recent 10-Q filing, for some of the factors that could cause differences from the expectations reflected in the forward-looking statements made during the call today.

Participants also expect to refer to certain adjusted financial measures during the call.

All non-GAAP financial measures referred to in the prepared remarks are reconciled to their GAAP counterparts in the attachments to this morning's press release and in schedules available on the Company's homepage under Investor Relations.

I will now turn the call over to Bob Dennis, Genesco's Chairman, President and Chief Executive Officer.

Please go ahead, sir.

Good morning and thank you for being with us.

I'm joined today by Mimi Vaughn in her debut earnings call as our new Financial Officer.

Fourth-quarter EPS came in at $2.30, an increase of 6% over the fourth quarter last year, but well below our expectations.

This brought full-year earnings per share to $4.74, which was below our guidance range.

This performance marked a disappointing end to a disappointing year for the Company.

Fourth-quarter sales exceeded our expectations, driven by a consolidated comparable sales increase of 10%.

This comp performance was highlighted by a double-digit increase at Journeys which led to a record sales and record profit for the division, and another strong quarter for our direct business, overall.

And the first quarter is off to a solid start with consolidated comps up 5% through last Saturday.

However, the revenue upside in the quarter did not flow through to the bottom line, largely due to three key factors.

First, we experienced substantial gross margin pressure in the Lids Sports Group due to higher promotional activity as we work to right-size inventories and to compete in an increasingly promotional competitive environment.

Second, we experienced lower than planned profit contribution from new stores and acquisitions.

While total comp was strong, total sales for the Company only slightly exceeded our expectations.

The lower non-comp sales were concentrated primarily in Locker Room by Lids and Locker Room by Lids at Macy's.

Finally, the strengthening of the US dollar versus the British pound and the Canadian dollar negatively impacted the reported results of our non-US businesses.

Looking ahead, we see a number of themes from the fourth quarter, both positive and negative, continuing into the new fiscal year.

However, foremost in our minds is the turnaround and improvement of our Lids business and the pace and timing of that improvement.

Given this and other external factors, including challenges from the West Coast port situation, upward pressure on operating expenses due to wage increases partly tied to minimum-wage and the continued negative effects of the strong dollar for both our UK and Canadian operations, we have adopted a considerably more conservative outlook for earnings growth in FY16.

We expect earnings of $5.09 to $5.19 per share for the current fiscal year.

Now, I'm going to ask Mimi to review the financial results for the quarter and to take you through our guidance in more detail, after which I will come back with more color on the performance and outlook for each of our business segments.

Thank you, Bob, and good morning, everyone.

As a reminder, we have posted more detailed information online in the CFO commentary.

So, I will highlight a few important points from the reported results.

In the fourth quarter, we had strong sales across all of our businesses, with total sales up 13% over last year to $893 million.

This was driven by a 10% increase in consolidated comp sales, an increase in non-comp sales of approximately $25 million, including the opening of 13 new stores and an increase of 4% in wholesale sales.

By division, total comps were up 16% at Journeys, 3% at Schuh, 7% at Lids, and 2% at Johnston & Murphy.

Consolidated store comps were up 9% and direct comps were up 25%, which pushed direct as a percent of total retail sales to 10% for the quarter compared to 9% a year ago.

These solid sales trends have continued into this fiscal year.

Consolidated comp sales for the first quarter to date through last Saturday, March 7, are up 5%.

February got off to a strong start but the winter weather that has blanketed much of the US in the more recent weeks has negatively effected sales.

By division, for the first quarter to date, total comps are up 7% at Journeys, 4% at Schuh, 2% at Lids and down 1% at Johnston & Murphy.

J&M has been hit particularly hard by the weather given its concentration of stores in the Northeast.

Consolidated store comps for first quarter to date are up 3% and direct comps are up 36%, continuing the strong trend in direct.

Direct comps were boosted by Lids turning on in February its system access inventory in the stores from online, which enabled visibility to almost 70,000 more SKUs.

As a result of this, plus increased promotions, Lids direct comps quarter to date are up 86%.

Gross margin for the quarter decreased 120 basis points over last year to 47.5%.

This was caused by increased mark downs and promotional activity primarily at Lids, but also at Schuh and Johnston & Murphy.

Gross margins were down in all of Lids businesses as we worked to freshen inventory and retain share in the promotional environment we faced.

But particularly down at Locker Room by Lids, where strong full-priced selling for the college football playoff and NFL playoff team merchandise was more than offset by this promotional activity.

Higher shipping and warehouse expense put pressure on gross margin in the fourth quarter due to more e-commerce shipments in all of our retail businesses.

Nonetheless, Journeys gross margin improved in the quarter on the strength of full-priced selling.

Total adjusted SG&A expense decreased 70 basis points to 37.6%, due to better leverage as a result of strong comps and a reduction in the Schuh earn-out expense quarter over quarter, despite heavier spending in technology and distribution center investments and higher e-commerce marketing spend.

Adjusted operating income for the quarter increased 8% to $89 million.

Operating margins decreased by 50 basis points, versus last year, to 9.9% due to the lower gross margin.

Fourth-quarter adjusted EPS was $2.30.

The strengthening of the US dollar versus the British pound and the Canadian dollar reduced earnings by $0.06 per share in the fourth quarter, compared to last year.

And a higher tax rate than was reflected in our guidance due to a lower weighting of overseas earnings reduced earnings per share by another $0.03 in the quarter.

Both of these factors contributed to results being lower than guidance.

Our FY15 adjusted tax rate was 37.3%.

Turning now to the balance sheet, inventory at year-end was up 5% year over year, with retail square footage up 8% for the year and sales up 13% for the quarter.

Journeys inventory was down and Lids retail inventory increased 17% on a square footage increase of 18%.

Finally, we ended the year with $113 million in cash with no borrowings under our domestic credit facility and $29 million of UK debt.

During the quarter, we repurchased $3.7 million of stock.

Now looking ahead to FY16, as Bob previewed, we have adopted a more conservative outlook than previously discussed, with expectations for adjusted earnings per share in the range of $5.10 to $5.20, which represents growth of 8% to 10% over this year's EPS.

As a reminder, we will benefit from the conclusion of the Schuh acquisition earn-out which we have been expensing for the past 3.5 years.

We will pay the total earn-out in full early this year given Schuh's outperformance to expectations since the acquisition.

But, there will be no P&L expense related to it in the current year.

On the other hand, the strong dollar remains a headwind and we anticipate earnings will be weighed down by $0.08 per share this year, assuming exchange rates stay where they are.

We also expect increased expense from a legacy pension plan to reduce earnings by another $0.05 per share.

We typically earn 70%-plus of operating income in the back half of the year and expect it to be even more heavily weighted to the back this year, as a earnings are affected by the promotional activity we will be conducting early in the year and, potentially, from the West Coast port backlog.

We expect that the impact will be particularly acute in the first quarter.

We anticipate total sales for the year will increase 4% to 6% with consolidated comp, including direct, increasing 3% to 4%.

We are planning on opening 116 new stores, concentrated in concepts other than Lids.

Next, we expect gross margins to be down slightly for the year overall.

This includes a gross margin decline at Lids from an already low base, offset somewhat by improvements in other businesses, particularly Schuh.

For at least the first half, overall margins will take a hit as we promote to right-size inventory at Lids and then will improve somewhat later in the year.

We anticipate SG&A expense will be down in the range of 20 to 40 basis points compared with last year.

We will leverage rent and benefit from the end of the Schuh earn-out but will have difficulty leveraging store labor due to minimum wage increases and a co-manager initiative at Journeys that Bob will describe later.

This all results in an operating margin that is flat to slightly up for the year.

Our FY16 tax rate is expected to be 36.4% and is lower than last year because of a higher proportion of overseas earnings.

Looking at the balance sheet, we expect inventories for the year to be flat to up just a little, including a 10% to 15% reduction at Lids.

We are planning capital expenditures in the $115 million to $130 million range, up from last year's level since we will be building a few more new stores and renovating a larger number of existing stores.

We anticipate spending on e-commerce, omni-channel distribution center and other non-store capital to be a sizable portion of these amounts, but in line with last year's level.

Depreciation and amortization is estimated at approximately $83 million.

We are assuming average shares outstanding of 23.8 million for the year.

We have not included any stock buyback in this guidance, however we have $61 million remaining on our stock repurchase authorization of $75 million.

Now, I will turn the call back over to Bob.

Thanks, Mimi.

Before I start with the color on the businesses, I misstated our guidance by $0.01.

It is what Mimi said, which is $5.10 to $5.20 for this coming year.

So let's talk about the key factors in the performance of our individual business units in the fourth quarter and our current outlook for them, starting with Journeys.

The fantastic quarter at Journeys underscores the buying team's prowess at identifying and committing to key trends and maintaining a fresh and relevant product assortment for a teen customer.

Outstanding comparable sales reflected a favorable fashion cycle with the combination of casual footwear, and in particular, boots, plus newness on the fashion athletic side driving performance.

The Journeys merchant team was squarely on the trends and we bought a focused selection in sufficient depth to meet the strong demand.

We also believe lower gas prices at the pump contributed to some of this demand.

Journeys has implemented a number of strategic initiatives over the past several months, aimed at driving traffic to the brand and increasing conversion.

These also contributed to the outperformance in the quarter and should continue to pay dividends for Journeys in the current fiscal year.

These initiatives included adjusting the store staffing model to better capitalize on peak shopping hours, which was particularly beneficial during the busy holiday season.

And increasing investment in catalogs and digital marketing, where we continue to see a high ROI from driving traffic to both the website and the stores.

Journeys' investment in omni-channel is paying off as well.

It's first holiday season using its new order management system, coupled with a significant increase in online marketing and catalog distribution, fueled a 40% direct comp on top of a double-digit gain a year ago.

Looking ahead, we expect that Journeys product advantages as well as improvements in operations, marketing and omni-channel will continue to have a positive effect throughout the current year.

One countervailing force at Journeys is the minimum wage pressure that effects all our retail businesses, in addition to which, Journeys is rolling out a specific initiative to address turnover with a bump in co-manager pay.

We expect that reduced turnover will eventually increase productivity, but in the near-term, the move will make it more difficult for Journeys to leverage SG&A.

And one wild card for Journeys' strong prospects this year, as mentioned by Mimi, as the potential impact of the West Coast port situation.

Journeys, for the most part, was unaffected in the fourth quarter but has experienced some disruption of receipts in the first quarter.

As a branded retailer, Journeys is relying on its vendors, and as such, lacks the complete supply chain visibility that we have in our vertical businesses.

Thus, we see the possibility for more potential disruption in the first half that we can't see as of yet.

Of course, this same situation could affect Lids as well.

Now to Schuh.

Fourth-quarter comps got off to a strong start, driven by the group's first ever Black Friday promotion, joining what has recently become a broad practice amongst UK retailers.

As was expected, this changed the pattern of sales for the quarter, boosting November at the expense of December, but not clearly producing incremental sales in the quarter.

But, we feel it also kicked a more promotional holiday season, and then retailers battled over lower traffic in the weeks leading up to Christmas.

Despite the fact that Journeys and Schuh sell many of the same brands, the UK market has experienced a bit of a decoupling from some of the fashion trends that are driving the Journeys business.

This, together with the more promotional environment in the UK, challenged Schuh's performance.

We are pleased that sales trends reaccelerated in January have remained solid so far in the first quarter.

Schuh's direct business, which has long been a strength of theirs thanks to early investments in building this channel, had a strong performance in the quarter.

Recent results have been buoyed by the roll-out of a new e-commerce platform which incorporates responsive design technology and has significantly improved conversion.

So, despite gross margin pressure from increased promotional activity in the UK, Schuh was able to achieve planned operating income, once again thanks to solid expense management.

Without the exchange rate headwinds, Schuh would have exceeded our expectations for the quarter.

Finally, we are very pleased to announce that Schuh will be opening a store at a mall just outside of Dusseldorf, Germany later this month.

As you know, we have been eyeing Europe where the brands Schuh carries do not have concentrated distribution in a large chain with a full-service model.

This store test will help determine if there is an opportunity with the German consumer, and it will shape our next steps for potential continental expansion.

Now, turning to the Lids Sports Group.

The quarter's performance reflected all the issues we outlined on last quarter's call, producing very disappointing results.

Despite strong comps, weakness in non-comp stores held us back.

The Seahawks-Patriots Super Bowl matchup was a little more favorable than the Seahawks-Broncos a year ago.

And then Ohio State winning the college football playoffs was a real boost for the business in the fourth quarter.

Overall, the more favorable playoff lineup this year contributed one of the 7 points of comp gain in the quarter.

However in Q1, we are facing headwinds from the Patriots winning the Super Bowl versus the Seahawks win a year ago.

Lids had planned to be promotional over the holidays across all the retail business units and particularly in the Locker Room and e-commerce businesses, to begin the process of right-sizing inventory to allow improved merchandise freshness and to respond to a highly promotional environment in the licensed sports category.

We ended up being even more promotional than we anticipated.

These actions drove sales higher than our expectations, but lowered gross margin significantly and drove operating income below last year's levels for Lids in total.

Starting with the hat business, comps were ahead of plan but operating income fell short, reflecting lower gross margins as we increased our promotional cadence.

Snapback sales and inventory are steady and they are in good shape.

While a few minor silhouettes have gained interest from customers, there are, unfortunately, no dominant trends driving the hat business at this time.

The Lids direct business posted another strong comp performance, up double-digits on top of a double-digit gain a year ago, but gross margins were lower year over year as we used this channel to also clear some inventory.

Looking at Locker Room by Lids, the theme was again the same.

Comps were better than expected, up high single-digits on top of a mid teens gain a year ago, led by our Ohio State stores.

But the business beyond championship-driven product was highly promotional, as well.

And our new store performance in Locker Room also fell short of expectations.

Locker Room by Lids is still a work in progress, however, our long-term vision for this business has not changed.

We continue to view the opportunity to create the first omni-channel retailer of licensed sports apparel and merchandise, serving both the local and the displaced fan from the same inventory pool.

And we see that as very compelling.

So, next, an update on Locker Room by Lids at Macy's.

The handful of stores that were in the Q4 comp base had strong comparable sales, but the business overall performed below our expectations.

We've identified some operational challenges that impeded performance early on and some other opportunities for improvement that we are working with Macy's to address.

Having learned how much location within the Macy's store matters, we are also working with Macy's to get the ideal positioning for our departments within their stores.

Finally, we are adjusting the staffing model as we are able, in order to improve store labor expense.

So while it's in its early days, we still believe that Locker Room by Lids at Macy's represents a valuable growth opportunity for the future, serving a customer who would not otherwise frequent our Locker Room stores.

Finally, the Lids team sports sales for the quarter were ahead of expectations, but gross margins were below both plan and last year.

We realize we have to do a better job on the fundamentals and on execution, including taking a hard look at expenses.

As we have told you previously, we have brought in one of Lids' founders is leading the efforts to improve day-to-day operations and performance.

So we have in place a full-court press to improve the Lids Sports Group's financial performance and to unlock the strategic potential of these businesses.

Let me mention three key parts of this effort and the effect we expect each of them to have on this year's outlook.

First, we will continue the work of the all-important effort to right-size the inventory to allow more freshness, freshness that the customer expects.

We also recognize the extra challenge that the promotional environment, that is currently prevalent in the category, poses.

To this end we and expect to continue the intensified promotion cadence we began in the fourth quarter through the first half of this year, and after if necessary, and have planned gross margin accordingly.

Second, we will continue in the next year to focus on execution rather than growth.

We expect that simply by eliminating some operational issues that effected various parts of the business last year, and by gaining efficiencies, we will achieve stability in operating performance.

We also see some opportunities to beef up the leadership team.

And as a key early step, have recently brought in a new Chief Financial Officer for Lids Sports Group with a strong, strong operational background.

He has hit the ground running, and is playing a key role in our efforts to improve the business.

Finally, we have three significant systems initiative in Lids that have been in progress and that should make a difference in the current year.

Mimi has already mentioned the new Locate system, designed to increase consumer access to total inventory, the vast majority of which is in stores.

We tested the system in the fourth quarter and went live with this capability in February.

We are very pleased with the incremental demand it has generated, translating into tens of thousands of incremental orders and driving significant comp gains.

Early results show that Locate is driving full-price selling in addition to sales for markdown and clearance products.

Locate will play an especially important role in Locker Room.

We are tremendously excited about the chances to serve the displaced fan with a deep assortment of merchandise from our local stores.

Next, AutoStore is a robotics system that facilitates single-order picking to expedite both store and e-commerce shipments and save significantly on warehouse labor expense.

The system is already being constructed in the warehouse; it's undergoing further testing.

But we expect AutoStore to become fully operational in the next few months, but have not built labor savings into our plan until the back half.

Finally, we are working on a new front-end system for the e-commerce business.

Implementation of this platform has taken longer than we anticipated due to its complexity, but we expect to go live some time in the second half of this year.

While we believe there is real upside from higher conversion of web traffic that this system will enable, we have not built this into our plan and will do so only when we have a date certain for going live.

Now, turning briefly to Johnston & Murphy.

Comp sales improved as the quarter progressed and finished up on top of a strong comp a year ago and versus flat performance in the third quarter.

J&M's holiday selling was highlighted by ongoing strength in the brand's non-core offering led by dress casual shoes, women's footwear and apparel.

Helping drive these results where recent investments in the brand's omni-channel infrastructure, including new warehouse and order management systems and a new front-end platform incorporating responsive design technology.

However, expenses associated with these investments also weighed on results for the quarter versus last year.

Sales in our licensed brands group were down for the quarter but operating margin was essentially flat on stronger gross margins.

So, before I close, I would like to extend special congratulations to the Journeys team for a spectacular and record-breaking quarter.

After almost 30 years of operations, Journeys is at the top of its game as the destination of choice for branded teen footwear.

Congratulation to the Journeys team.

I would also recognize our entire Genesco team for their strong efforts during the important holiday season.

Their contributions reinforce the powerful strategic position of our businesses, and even more clearly, the value of the many years of experience and commitment to excellence in our operating teams.

We are committed to stronger performance in the year ahead and are excited about the longer-term potential.

So thank you for joining us on the call today and we are now ready to open it up for questions.

(Operator Instructions)

Erin Murphy, Piper Jaffray.

Just a couple of questions.

First, on the West Coast port issue, it sounds like it's been a little more challenging for you guys and a number of others.

Can you provide some context of what you're seeing now, how the goods are flowing post the labor contract resolution?

How much product is still backed up?

You've talked about a Q1 impact, but how bad could it be potentially in Q2 if you're still not seeing all of those goods come to market in a timely fashion?

Erin, we obviously have much more visibility with our vertical businesses.

When you talk to the Johnston & Murphy and licensed brands team, they're looking at three-, four-week delays, which on wholesale shipments, is particularly critical for us.

We think that the timeline on this is pretty extended, because it not simply involves unloading the ships that are at dock and then sitting out in harbor, but you've got products sitting in China that is waiting to be loaded.

All of the capacity is behind, and so it's a little unclear on how long it takes for all the catching up to occur.

When you get to the branded businesses, you have to almost go by vendor.

With certain key vendors, for a variety of reasons, at Journeys we brought in some product early with some other key vendors.

We're already seeing that we're a little bit tight.

So it varies by vendor.

Then of course with vendors, it's a little more challenging to get really good shipment dates.

They're trying to figure out their own allocation.

So we're on pins and needles.

All of our teams are obviously pressing for most-favored-nation status in terms of getting to the head of the line.

The headwear business is a little different because it is the easiest of all the categories to fly goods in.

Some of our top vendors are stepping up and flying some goods in, which would alleviate a little bit of the port situation.

It's all over the board.

It is the reason, one of the reasons, that our guidance got taken down.

That guidance is taken down weighted heavily to the first half.

And so it's a little bit of a stay tuned and we will keep updating you as we learn more.

Can you quantify, of the guide down, in terms of 18% to the 8% to 10% growth, how much of that was related specifically to the West Coast issue?

And then air freight or other things related to that particular issue?

No, we've got a bunch of things going on in our business that have caused us to bring down the guidance.

I don't think we're going to parse it down into the pieces.

It's very uncertain.

All these things are working off of ranges.

So again, we'll figure it out as we go along.

Okay.

Secondly, on the Lids business.

You talked about some of the strategies to help improve there.

Can you just help us think about, on some of the new store performance, it's been lagging over the last couple of quarters.

Talk about what you're seeing there now.

How are you thinking about, in particular, Mimi, for you, on the gross margin, for the first half, versus the second half?

I know you said it would be worse in the first half.

What's your level of confidence that it does actually inflect in the second half when we typically head into a more retail promotional season in the second half as it is?

Yes, you've got to go by business.

Unfortunately, this was across every one of our businesses.

The only business that escaped all of this was our business up in Canada, was actually quite strong.

In hats it's three things.

It's the lack of a meaningful trend.

As we said, we don't see anything at the moment that is a move-the-needle kind of event, so that remains a wild card.

The freshness in our inventory is something that we're working on.

We have, really, too much markdown product as we try to get fresher.

You'll remember in the hat business, at one point, we tried a couple of fully-fitted programs to try and drive our customers back into fitted with freshness.

That program didn't perform up to expectations, and so those are some of the corrective measures that we need to make, and then when we do that, we think we can be fresher.

And as we said, we think by the back half we are in a position to start taking advantage of that freshness.

We've stepped up our promotional activity to try and get that done.

We've given up in the headwear business, about 100 basis points over the last year or two as we've tried to compete a little more aggressively.

In Lids and Locker Room, it's also a lack of freshness.

But then, there we have a bunch of underperforming new stores.

We have probably underestimated the maturity cycle.

The benchmarking that we did when we opened new stores was against existing stores, many of which we acquired.

And some of those have been through the maturity cycle.

So, we're doing a lot of analysis right now to figure out what pattern of maturity to expect and whether things like grand opening activities might accelerate a maturity cycle.

Then, finally, at Macy's, we opened 165 stores, mostly in Q3.

So, it's very, very early days and this is a work in progress.

We had some glitches, you have to call them glitches, in terms of working with Macy's to get our product on the POS.

It's natural start-up kind of stuff; it's been fixed.

So, Macy's has been a great partner in getting us to work through that.

But once you miss sales, then you're heavy on inventory and then you're having to mark down to play catch-up.

We have discovered, and this was part of the plan, that location matters a lot more than we expected.

So we have the ability to work with Macy's to figure out how to get out of locations that aren't ideal, to get to the locations where we think we are ideal.

That will take a little bit of time; that's a store-by-store thing.

Then, we have some flexibility, again, with Macy's being a great partner, on adjusting our staffing model, which we are doing right now for a select number of stores, to see how sales are affected.

So, that's another part of the economic model that we're working on.

If you look at it overall, we've halted the growth.

We have almost no new stores, except for lease commitments in some hat stores that are, we think, slam dunks.

Across the board, we really need to be working on reducing the inventories and we think it takes three quarters to get there.

We need to work on the inventory with our vendor partners to reverse some of the promotional creep that we think has occurred in the industry.

And that's both in headwear and in the broader Locker Room assortment.

These are very important brands.

So we are a little surprised at the level of promotional activity that has appeared lately, and we're hopeful that they will rein it in.

If not, will have to compete more aggressively.

But we know that some brands are revisiting their approach, particularly to online.

So, we have some work to do.

The online has become a little bit of a wild, wild west for a lot of vendors and they have to construct some policies that does that.

To be clear, we recognize that we're not going to do anything to improperly influence our competitors' pricing.

What we can do is work closely with our vendors to make sure that their pricing to us reflects the reality of the marketplace, and that it's consistent with our gross margin expectations.

So that's where we have a lot of work to do.

So, that was a very long-winded answer to your question.

I hope it helped you understand where we are.

That's helpful.

Mimi, yes, on the gross margins, help us think first half, second half, a little bit more granular.

Right, you had asked that question.

If you think about the upcoming year, it really will be the reverse of what occurred this year.

What happened in this year, is that we promoted pretty heavily in the fourth quarter.

Next year, what our plan is, is to promote in the first quarter with the intent to be clean in the second quarter and get back to more full priced selling.

If you think about, we are in the branded business of selling branded products.

We're not really able to cut back on receipts quickly because we place our order six months in advance.

We are bringing in product now.

We are clearing product that we think needs to be clear.

We've been addressing this, but we continue to bring in some product.

So we intend to have promotional activity in the first half and then plan to manage receipts down in the back half of the year to be able to get our inventory down 10% to 15%.

So when you think about margins for the overall Lids business, we expect to be slightly down year-over-year, being more down in the first half, with margins then picking back up in comparison in the second half of the year.

Erin, just to talk a little bit about upside as opposed to all the problems, we think that Locate on Lids.com is a big deal for us this year.

Year-to-date, Lids.com is up 80%, just a little bit shy of 80%.

Some of that is coming from promotion.

We're more promotional year over year, but actually our promotional margins are better.

We know that we've got a very, very strong comp on the full-price selling that we're doing year-over-year.

Our ability to show our customers online all of the merchandise that we have is really starting to pay off.

We're in the early days of tweaking how we make that work.

We're in the early days of our stores learning how to quickly fulfill and to be reactive to what comes in.

Our personnel are still used to people coming in there with a lease line rather than over the Internet.

But, we're very, very excited by that.

The other thing I'll emphasize to you is we're building a business here and we're the only one that's doing it.

That is an omni-channel business that, in this category in particular, makes great sense.

Because, the local stores are locally merchandised.

So, in Tennessee, we've got these stores loaded up with Tennessee.

And if you live in Kansas City and you are a Tennessee Titans fan, I don't know why you would be, (laughter).

I don't know why anyone in Tennessee would be a Tennessee Titans fan right now.

But if you're a Tennessee Titans fan, there's nowhere to get it in Kansas City.

We're going to have the best assortment sitting here, and it's a good assortment because we know we can produce a lot of volume for the Nashvillians on Tennessee.

And then that is available for everyone else nationwide.

That's a hugely efficient model for most parts of the year.

We expect that the picking of the Internet orders will be by store personnel who are there anyway and taking lulls in their day in order to fulfill the order.

We will probably need to staff up with dedicated pickers during the busiest times of the year, but the large portion of what we do will add no picking labor.

So, it's a pretty good model; we're the only one doing it.

And we're committed to say that this is going to succeed.

It just isn't a smooth path and so we've had a little bit of a rocky run at the moment.

Got it.

Thank you for your time and I'll let someone else ask a question.

Best of luck.

Jay Sole, Morgan Stanley.

Bob, can we talk more about the Lids omni-channel strategy?

But can we talk about it in terms of what has it allowed you to do in terms of breadth of product offering compared to what you have now?

How is it going to help you clear goods?

And third, will you be able to take the product that might be in Lids Locker Room and sell it through a regular hat store in the mall?

Or allow people to pick up a product they buy online from a Lids store, even if they don't have that product in the store, and that type of thing?

Jay, first on the breadth and depth, part of the work we're doing looking at the assortment is examining the breadth and depth relationship.

The hypothesis is that we might be a little too broad.

When you look at the internet selling, there have been some that have pushed forward the proposition that you need to basically have everything and be extraordinarily broad.

We don't believe that's the case.

This is not a category that doesn't need good merchants who are making good choices on breadth and depth.

We think that this is just like most of retail, when you lean in and if you have the opportunity to get narrower and deeper, you have the opportunity for more success.

So a lot of analysis going on, and that might be part of the solution.

In terms of using the headwear stores for local stores, that's an opportunity for us.

Now obviously, we are ambitious to have, ultimately, a Locker Room store in every market.

But, in terms of returns, we can set it up that way.

In terms of pickup, if you wanted to order it and have it delivered to the store, we have that capability already.

So we would be able to structure our business that way.

Got it.

Thanks so much.

Pam Quintiliano, SunTrust.

I have a few questions.

One, just a point of clarification.

I thought that Mimi had said we should expect promotions in 1Q, trying to be clean by the end of 2Q.

But, Bob, I thought you had said that it would take three quarters to reduce inventories.

So if you could just help me understand that.

And then the second question surrounding Lids is, it sounds like you are working with your vendors on the pricing and buys.

Where are you in those discussions, how far along?

I know it's sensitive, but anything you could divulge to help us understand from a timeline.

Should I be thinking about that just in terms of the impact on the full price product?

Or also any changes in types of planned promotions to potentially attract the customer in?

Lastly, on Macy's, when you said not in ideal locations.

Where would you prefer to be in terms of adjacencies with departments?

Thanks.

On your first question, how about this?

It'll take between two and three quarters to clear the inventory.

It's a process.

What we expect to do is be a little cleaner every quarter.

I'm not sure that we'll ever consider ourselves to be completely clean.

We're retailers, we're always trying to get cleaner.

But, the merchandise plan that -- and let me talk about how we are getting there -- we think we need to do more promoting in the first half to reduce the inventories at the pace we want.

We think in the back half, we have the opportunity to do it more with receipts.

So, when you're thinking about it as a CFO, you're thinking gross margin and the plan is the harder hits are in the first two quarters.

As an operator looking at inventory numbers and looking for freshness, I think we have one more quarter afterwards on which we're doing that more with receipts.

Then, with markdowns more in the ordinary course of things.

So, that kind of explains the difference.

In terms of working with the vendors, we have ongoing conversations with the vendors.

We have just picked up visibility of what we perceive to be a step-up in promotional activity and we are actually doing analysis to put in front of some of our key vendors that says this is what we see in the marketplace.

What do you see in the marketplace?

Where are you going with this?

And how can we work on a go-forward basis to try and make sure that we hit our margin targets?

Because, as store operators, we have certain margin requirements.

There's more than one way to skin a cat and we're going to work with our vendors to do it.

So, it's an ongoing conversation.

That conversation will intensify a little bit because we think the promotional activity has intensified a little bit.

In Macy's, the adjacency is obviously -- this is pretty common sense.

First of all, main floor works better for us.

The adjacency that has been most common has been somewhere in the area of active, but it varies with every store.

Because, as you may know, the My Macy's initiative has given the store-level people a fair degree of discretion.

The layout of the stores very and then we have to figure out how to work within whatever layout that they have put together.

Some of the older stores and the non-legacy Macy's stores have different three-level stores, two-level stores, entrances at different places.

So, it varies a lot.

It's really a store-by-store situation, where we'll look at where we are.

We'll look at the results we've got and then we'll have some conversations with our partners on what the options are for improving it.

And would we expect by the end of this year, potentially, that you would have most of that figured out and moved?

Or is that a multi-year process?

It'll be a continuous process.

I don't think we put a percentage on how many of those we have the ability to fix.

There's a lot going on with Macy's.

We've got to get the assortment right.

Some of these stores opened with the wrong assortment, so we got to give them time to see what the real run rate is.

As I said, we're working with Macy's with some flexibility on the labor model.

So, all of these things add up in different ways to, do we want to live with the store where it is and make it work?

Or do we want to move it and get hopefully to a place with more volume and make it work on that basis?

We can live with a lot of these situations.

We can live with the lower volume if we move to a different labor model.

So, again, there's a couple of different ways to skin a cat, and it will be a store-by-store thing.

Great, best of luck.

Mitch Kummetz, Robert Baird.

A couple of questions.

Let me start with Journeys.

Bob, you talked about obviously great comp in the quarter.

Pretty strong comp guidance there.

You talked about a few initiatives helping drive comp in the quarter and you talked about those continuing to benefit the business into this fiscal year.

Is there any way you can quantify the impact from those initiatives in the quarter?

Just to give us a sense how much of a tailwind that that might provide in FY16?

Let me do it this way, by telling you what the initiatives are and the way in which they improve the business.

Then I'll ask if Mimi has any more specifics on it.

I'm not sure we can get too specific.

One huge initiative involves having put counters in the large majority of our stores, traffic counters.

When we did that, we got visibility that the power hours for shopping our stores is spikier than we had expected.

In the old days you try to judge your volume based on your sales.

The flaw in that is that you don't know what you're walking.

It came to our attention that the spikes were higher than our sales curve, which suggested we are possibly walking customers.

If you think about it, of the categories in the mall, getting that staffing model right is relatively more important in footwear, because you can't sell a pair of shoes without getting waited on.

Right?

Our hat stores have a large component of self-service.

People will just wander the store and find the hat that works for them.

There is no big fit issue; people can figure that out.

Footwear is a whole different story.

So with that, the power of those counters, what Jim Estepa and Mike [Sipert] and his sales team have done, is they are starting to rewrite the script.

And what that takes us to is to more part-time, because, these are extremely spiky.

Part-time, obviously, works well for our economics, as well, at the moment.

And that kicked in, in full gear, in the fourth quarter.

So we have three quarters where we largely have an opportunity, we believe, to get better on how we staff that.

And then there's probably learning on top of that.

Because, the other benefit from that, in the eyes of the Journeys team, is then you start to get absolute conversion rates.

That tells you how well a store is being managed.

Traffic rates in stores can vary for a bunch of reasons and we know that's even caused by the stores.

You can look at conversion and say this store is doing great and that store looks like it has a fundamental issue based on its lower conversion, let's go do something about that.

What we think is going to be really powerful, is when we anniversary the conversion.

Because, then what you're trying to drive is increase in conversion.

We've got your baseline set.

We've learned a lot from our partners at Schuh.

They have been big advocates of tracking, customer tracking, and they've made great use of it.

So we're able to learn a lot from what they have achieved by using it well.

So, that just becomes a big opportunity.

The second one that was big is catalog.

What has happened over time is we've gotten better at understanding the attribution of the catalog.

In the old days it was thought you drop a catalog and you get direct sales and that's its purpose and that's how you measure it.

But, the attribution that we've been able to track points really squarely that catalogs are equally effective at driving traffic to the stores.

We've actually known that for quite a while at Johnston & Murphy.

We weren't sure if it applied to the teen customer as much as it does to the older guy.

But, it does.

Our research confirmed that when we did our big research piece last year.

We learned -- I won't even call it a catalog -- that dates me.

It called, for anybody who's young, it's a lookbook.

They dog-ear the pages and either they go or they give it to their parents and say this is what I want, right here.

It is a very effective tool.

As we measure what we're getting as we drop the catalog, we're not done yet.

We weren't brave enough to drop 3-X or 4-X the catalogs we've dropped, both in breadth and frequency.

So we're going on an incremental basis.

But every incremental gain that we've made, increase we've made, in the catalog has translated into a nice boost.

And so we don't think we're done there yet.

We're not sure when we're done.

So, we're just going to keep taking it up until we see it tail off.

I'll ask Mimi if there's any more you'd want to add to that.

Yes, couple things.

On our store counters, interestingly, there were 40 stores that went comp.

And as Bob said, the real magic in this is to figure out whether conversion is increasing.

In these 40 stores, over the holiday period, traffic was flat to a little bit down.

But conversion, due to the sales efforts within the Journeys stores, was up and also dollars per transaction were up, as well.

So we think that this initiative is going to pay good dividends.

Another thing that is in its early stages and we are in the process of testing this, but we talked on a previous call about the research that Journeys had done.

And Journeys heard back from their customer that their customers really love their store environment, and that they like the shopping environment.

But they ask that there be some modifications made to the store, for brighter lighting and for back-lit shelf lighting.

So that is another initiative that we are in the process of testing that we think will motivate customers to come in our stores and have a better shopping experience.

So I think we have a lot of good things in the hopper.

We haven't specifically quantified what comps come from product and which comps come from the initiatives.

But all together, I think that we continue to see very good trends in Journeys comp for the coming year.

Okay, maybe a quick follow-up on Journeys.

Bob, I know for a while now, the casual side of the Journeys business has been the bigger driver, but I think for the last couple of quarters you've talked about improving trends in athletic.

I'm guessing the largest contribution on the 2016 comp was probably boots in Q4.

How do you think -- maybe you could just say, was athletic good in the quarter?

How do you think about casual versus athletic as we go through this year?

There was a huge comp for Journeys.

So, almost needless to say, everything was working.

Boots were working, athletic was working.

Non-boot casual was working.

It was a great run by Journeys.

Obviously, we had an unbelievable winter in the US, so that helped things.

I'll bridge your question to Schuh.

They had a mild winter in the UK on a relative basis.

So that partly accounts for the differences.

But Journeys was strong across the board.

Okay, thanks, guys.

Good luck.

Sam Poser, Sterne Agee.

I have a couple -- just a few things, here.

Actually, more than a few things.

Can you talk about the traffic and ticket at Journeys since you've been doing the counting in the fourth quarter, first of all?

We have hardly anniversaried any stores, Sam.

So in terms of up or down, we can't wait until we can tell you whether traffic was up and down.

We only have absolute numbers, which aren't very meaningful.

Okay.

Then, can you give us some direction in the first -- are you looking at the first quarter gross margin to be down in the range, or even more than it was in Q4?

Just to help us out, to try to -- so we understand where we're going here.

You mean gross margin relative to the last year?

Overall gross margin year over year.

I mean, are you looking at down another 100-plus basis points because of the promotional activity that's going on?

Sam, the gross margin in the first quarter of the year was stronger than it was in the fourth quarter of the year, last year.

So we're expecting it to be down a little bit versus the first quarter of last year.

But not as far down as the fourth quarter.

Even though the volume in Q1 is less?

And I would think to get as clean as you need to be in Lids, you'd have to get extremely aggressive.

We were pretty aggressive in the fourth quarter.

We took a pretty big hit to margin and the fourth-quarter numbers that we ended up with were pretty unprecedented.

So we think we will continue our promotional activity.

We'll spread it out over the course of the quarter; we'll continue it into the second quarter.

And don't expect the intensity that we had in the fourth quarter.

So, down 100 -- I'm sorry.

We also took some reserves in Lids in the fourth quarter.

So that also is a factor when you think about relative gross margin.

So are we looking at gross margin down 75 to 80 bps in the quarter you think, versus almost 120 in Q4?

Am I in the ballpark there?

It's going to be down less than it was in the fourth quarter, but it will be down a little bit because it was strong last year.

Okay, thank you.

Can you give us some details on how long your Macy's deal is?

How long that agreement goes for, for the Locker Room stores there?

We have a deal.

First of all, we've signed an NDA, so there's a lot of things we're not allowed to say about Macy's, nor are they.

It runs for seven years and it has lots of you can do this and you can do that, if it's working well or not working well.

So, even within the seven years, there are relief valves, but I'm actually not allowed to get into them with you.

We feel comfortable that we have many knobs we can turn to manage the Macy's situation appropriately.

Then you continue to talk about how confident you are about Lids Locker Room and so on.

It just seems to be -- it's almost like Roseanne Roseannadanna, if it isn't one thing it's another.

How long do you stay confident in something that is giving you a lot of agita as of yet?

Would this not be better?

At what point do you potentially reconsider the strategy?

Sam, at the moment, we've halted the growth, as you know.

So what we're trying to do right now is to assess a lot of things that we think need to be assessed to get it right.

That includes the assortment.

That includes the new store model.

We were surprised at how our most recent wave of stores opened.

They were well short of where we thought they needed to be, so we've got to get back into that model.

We know we've acquired stores that do really well and so we've got to get in and say what's the difference?

Then we just launched Locate five weeks ago, and we think that is actually a very critical component.

So, in fact, we don't even think that you look at the performance of Lids Locker Room alone.

You look at the performance of Lids Locker Room plus Lids.com, which includes all the business generated by locate to understand the full economics.

So we are going to continue to do the work it takes to figure out how to get this right.

At the same time, we're going to be very prudent with the use of capital.

Hence, we've slowed things down, not to be running foolishly ahead until we feel like we've got it right.

Does that mean, however that could this theoretically be a situation where your store count actually goes down and you build off the strength of the dot-com business?

Given that, unlike footwear where you got to really try it on, if you know you wear an extra large in a jersey, you can just buy that extra large online and do it that way.

So, you might not need as many stores.

The same might be true with the Lids stores, as well, given how everything has evolved over the last five years with the internet and so on.

Sam, I'm not going to eliminate any possibility.

But the one thing that we do know, is that the local fan has a huge component of need-it-now.

We know how high sales spiked on game day.

We still believe that a store in a marketplace, positioned correctly, functioning for both that need-it-now local fan and for the person who is a displaced fan who can draw off that strategy, is a winning model.

We think that's how people will buy.

We're going to continue to explore that.

When we get Locate really up and roaring we're going to have more visibility on that.

And what is the timing and that?

Where it roars?

Locate is up and running and we need to get the front end of it, which is Hybris, which is also going to be an important piece of maximizing our how front-end works.

And we expect to have that up sometime in the second half.

We're learning a lot as we go right now, because Locate is in action.

Thank you very much.

Good luck.

Scott Krasik, Buckingham Research.

A follow-up on that last question and then one on Journeys.

Bob, aren't you in a Catch-22, because the lesson you learned from the hat business?

Was that 300-store chains might not make money but a 1,000-store chain can do a double-digit margin?

You have these issues with comparisons and teams aren't repeating, and this and that.

So you really need to get national, but at the same time you're shutting down the store growth?

No, I don't think so.

Because the flaw in your Catch-22 argument is that when we had 250 stores, back in the day when I joined the founders of Hat World and we put Lids together, we had visibility at that point, based on metrics that we had a winning chain at 250.

We could predict off of that, that at 800 it was going to be a killer economic model.

We think the same thing applies here.

Right.

But, you choose not to open stores.

Well, no.

What I'm saying, what we need to do right now, is get to proof-of-concept, which is what we did at Lids at 250 stores.

Once we knew that the Lids model worked and we were at 250 stores, we did 100 stores a year.

What we haven't done, is we haven't nailed the Locker Room Locate Lids.com model to the level where we think we've figured out how all the pieces work.

How big is that store?

How many do we need in a market?

Then, once we figure out what that is, then we would have visibility to go aggressive in the growth.

I don't want us to go aggressive on the growth until we have that visibility.

In the hat business, we got that visibility very quickly.

We don't have that visibility yet, and so that's what we're working towards.

Okay.

And then is being on Macys.com, will that allow you to become profitable with this whole business?

Or not yet?

Well, the Macys.com business on its own, we're in it for it to be profitable.

It's a similar model, in the sense that Macys.com ties to the Macy's stores.

So, just as I would look at the Lids Locker Room stores together with Lids.com, I'd look at the performance of the Macy's stores, together with Macys.com.

Right, that's what it meant.

So will you be profitable this year?

Will we be profitable this year?

No, not this year.

Okay.

Last, on Journeys, you made a comment that you thought it would be a little bit tricky to leverage SG&A, given some of the wage changes.

You're obviously going to comp very strongly at Journeys this year.

How do you think about the leverage point for comps, given some of this stuff?

Or are you just posturing, you will leverage SG&A?

We're not posturing.

One of the things that the team has really worked hard, is the assistant manager position, we've had turnover that we think hurts our ability to perform at our max.

So Jim and the team have made a decision to make an investment in that group of people.

And if we reduce turnover as we expect that we'll do, then we think it translates into sales.

But, we're going to first make the investment in the people.

And then we think the sales are following and we haven't really written the sales into this year.

To be clear, we're going to leverage rent expense in this formula.

But between minimum wage and the actions we're taking to address co-manager pay, we don't believe initially we're going to leverage selling expense.

You also have to recall that we have increased expense in e-commerce advertising and marketing, and increased shipping expense, and increased depreciation from some of the systems investments that we have made in e-commerce.

So as those role in, that puts some pressure on SG&A, but we believe the payback will be well worth it over time.

What would be the comp leverage point then?

The comp leverage point for Journeys is in the 2% to 3% range.

Ordinarily.

Ordinarily.

I think that now because of these extra investments, that it's a little higher than that -- .

For this year.

For this year.

Again, we are leveraging rent expense.

All right, thanks very much.

Taposh Bari, Goldman Sachs.

It's Chad on for Taposh.

I wanted to ask another question on Lids.

You guys provided good color on the promotional environment and the competitive environment.

But I was hoping to get your thoughts on the source of that.

What's driving the promotion in the category?

Obviously, there are some self-inflicted issues that you guys are working on.

When you look more broadly, what do you think is creating such a promotional environment?

That's a good question.

At the moment we're a little puzzled that it got so promotional in the way it did.

So our step one is to sit down with our vendors and think through how to approach it.

There are some competitors, obviously, that are either clearing -- they could be in a situation like us, where they've got inventory clearance issues.

We don't have visibility on that.

So, that's one possible explanation.

What we want to do is find a timeline and a model to get it a little cleaner.

Right now, it's at an extraordinary level.

That's helpful.

Thanks.

Jill Nelson, Johnson Rice.

Take a look at your revised 2015 earnings growth of 8% to 10%.

If you strip out that 8% lift you're getting from the elimination of the Schuh benefit, you're looking for flat to 2% on a core basis.

Could you, broadly speaking, talk about the divisions that you feel will be a drag versus, I assume, Journeys would be a lift.

Just in terms of that metric would be appreciated.

This is Bob.

I'll start with it and then ask Mimi if she wants to get more specific.

We're being very cautious on Lids, obviously.

We're going to have a full year of the Macy's stores that we opened in the third quarter.

And we think it's going to take time to build them to the profitable position that we think they represent as an opportunity for us.

Likewise, we've got the most recent wave of the Locker Room stores that we opened.

So we have those as a drag on earnings for this year.

And based on that, we have assumed that Lids is a little less profitable.

On the flip side of that, we expect Journeys' momentum, that they've had this year, to continue into the current year.

Again, with the big wild card caveat of the impact of the port.

Without the port situation, we would have probably gotten more aggressive on our assumptions on Journeys.

Then we're expecting a modest level of improvement at Schuh and those are the big movers.

So think of a decent improvement at Journeys, a little improvement at Schuh and a little more downside at Lids.

And that's what it all adds up to.

I'll just say, we have not performed against guidance for three quarters now.

And we're very cognizant of the fact that we need to make sure that we're guiding to what we believe at the moment is hopefully a conservative number.

Yes, I think Bob got it there.

Schuh is where we get some improvement, and also Journeys is where the majority of the improvement comes from.

Jill, you do have it right when you talk about the 8% improvement coming from the end of the Schuh earn-out, then 2% for the rest of the business.

One other thing that has caused us to be cautious, is the foreign exchange rates.

With the strength of the dollar, we really have suffered in the earnings that we bring back from Canada and from the UK.

We said that even if you just look at the rates where they are, that we use for our plan versus FY15, the year before, that we gave up $0.08 just on the foreign exchange change over the course of last year.

Even since we've written our plan, we have seen the exchange go down from there.

The dollar strength is pretty incredible.

The euro is at, I think, $1.05 on it's way to parity with the dollar.

So between the amount of business we have in the UK and our growing business in Canada, that also causes us to be cautious that while those businesses are growing and contributing, they are offset by pressure from foreign exchange.

I appreciate it.

Just a quick clarification.

The heavy inventory that you need to promote at Lids, is that at the core division or is that primarily at Locker Room?

It's a little bit of both.

Probably on a percentage basis it's weighted more heavily to Locker Room.

But obviously we still have more of a headwear business, so on an absolute basis we've got some extra inventory across the board.

All right, appreciate it, thank you.

Chris Svezia, Susquehanna Financial Group.

Just to go back on the -- and beat this to death -- on the inventory piece for Lids, could you remind us what the growth rate -- where you stood at the end of the year?

What you'd like to see?

Where do you want to get it down to, relative to the comp performance?

Can you discern between what is the promotional environment, overall, which is just a question mark, and versus your ability to reposition that inventory so you are turning it a lot faster relative to how teens are performing?

Right.

The inventory reduction that we're looking for is in the 10% to 15% range for this year.

Then we think beyond that, even a little more reduction to be faster would matter.

A big piece of this, Chris, is what you just touched on, which we began this year, which is a recognition that unlike the headwear business, where this was less pronounced, we are in the fashion business, in the sense that teams go out of fashion at different speeds.

For example, what we've done this year, and this is a little bit of promotional margin pressure that you've seen on a year-over-year basis, is we have learned that it is prudent to exit an NFL team pretty aggressively the day they miss the playoffs.

It is a fact that, essentially, when they are out of the playoffs, the demand for everything, gear, seats and hotdogs in the stadium all take a hit.

So, what we're doing is reacting to that more aggressively.

We're going to have less of a carryover mentality.

Even though a lot of the product is carryover, if we can close out a bunch of it at a positive margin, that's a better economic model for the business than just relying on carryover.

Because you're free up -- you know retailing, you free up space in the store for what is in season and free up room in the buy plan for what is in season.

So, we're going to be doing that much more aggressively and that is the model.

When I talk about the fact that we'll be more promotional the first half, we need to do that in some of the sports categories that are in the first half.

When we get to the second half, we already did that this year on football.

We've already started the process of getting cleaner in season, so then receipts start to kick in.

The way you asked the question nailed what we're trying to do.

Does that make sense?

Yes, it does.

Are, also, your competition trying to do the same exact thing, thus the overall industry is just promotional, overall?

Are they mutually exclusive, what you're doing versus what the overall industry in general, suddenly taking a step down and being overall promotional?

I think we're the ones that are doing this.

We're doing it less aggressively and are going to get into doing it more aggressively.

Okay.

If I could just switch gears for one second.

On Schuh, when you had mentioned certain categories and/or brands aren't resonating as well versus Journeys versus Schuh, is that just a function of whether it was more mild for Schuh?

And, maybe any reference to a particular category is more athletic versus casual?

Just what the difference is that you're seeing at Schuh?

Well, you know us and brands, Chris.

I know.

It was a couple of very key brands and it was not just weather.

There are brands that are weather-dependent that surprised us by having strength here and weakness there.

Okay.

Sorry to leave it such a mystery for you.

Okay.

I guess I had to try.

All right, thank you, all the best.

Good luck, Mimi.

Thank you.

We have no further questions at this time.

Thank you all for joining us.

We look forward to talking to again on how this is all working, in three months.

Cheers.

That does conclude today's conference.

We appreciate your participation.

You may now disconnect.