雷夫·羅倫馬球 (RL) 2016 Q4 法說會逐字稿

Welcome to the Ralph Lauren fourth-quarter and full-year fiscal year 2016 earnings call.

At this time, all participants are in a listen-only mode.

Later, we will conduct a question-and-answer session.

(Operator Instructions).

As a reminder, this conference is being recorded.

I would now like to turn the conference over to our host, Mrs.

Evren Kopelman.

Please go ahead.

Good morning and thank you for joining Ralph Lauren's fourth-quarter and full-year fiscal 2016 conference call.

With me today are Stefan Larsson, the Company's President and Chief Executive Officer and Bob Madore, Senior Vice president and Chief Financial Officer.

After prepared remarks, we will open up the call for your questions, which we ask that you limit to one per caller.

During today's call, we will be making some forward-looking statements within the meaning of the federal securities laws, which may include our financial outlook.

Forward-looking statements are not guarantees and our actual results may differ materially from those expressed or implied in the forward-looking statements.

Our expectations contain many risks and uncertainties.

The principal risks and uncertainties that could cause our results to differ materially from our current expectations are detailed in our SEC filings.

And now I will turn the call over to Stefan.

Thank you, Evren and good morning, everyone.

Let me start by saying we are making progress in setting and beginning to execute our strategy to return Ralph Lauren Corporation to profitable growth.

In doing that, we will balance driving near-term performance with our long-term [mission].

I look forward to doing a deep dive on our plan and providing a Q1 fiscal 2017 outlook, as well as discussing how our plan will translate into long-term financial performance at our Investor Day on June 7.

When we last spoke, I shared with you how I spent my first three months in the role, my initial observations and a rough outline of my approach to building the growth plan for this great company.

Today, I will provide an overview of our main priorities and recent performance before turning the call over to Bob to discuss the Q4 and fiscal year financial results in more detail.

In recent months, while I've been working hard to drive the business here and now, I've also worked closely with our teams to complete the comprehensive review of the business and develop the strategic plan.

Through that work, we have gained a very clear understanding of the underlying drivers of the current performance and we now have a detailed view of what's driving the downward trend.

In short, we have not focused enough on nor evolved enough the core of what made us great in product, marketing and the shopping experience.

In addition, our underlying business engines are not running at full speed.

We also have an inefficient cost structure and an organization that's not nimble enough in the marketplace.

What made us great was the crystal-clear focus on owning classic, iconic style and putting an effortless twist to it to make it current and desirable.

We will become more true to our core focused assortment on creating the best iconic style in the market and evolve the way we twist it so it becomes more desirable for today.

Iconic style made current has never been more relevant.

While staying true to our DNA, we will also evolve our marketing and the shopping experience to better reflect the aspirational life and style people dream of today.

We have many unique strengths to build on.

These include our brand strength, being the original for aspirational authentic American and iconic style, a very strong share position, a talented team and a solid infrastructure.

In our diagnosis of the business, I've been deeply embedded with our global teams who create the customer offering.

These are the teams that create our products, marketing and shopping experience, as well as run the inventory management, sourcing and supply chain, the core value-creating drivers in our business.

They must provide our regions and channels with a consumer offering we need to win versus our best competitors.

I've done this deep dive to understand how we create our offering and what drives the underperformance of today.

What I learned is encouraging because we now know what we need to do differently, and we have a clear line of sight to improving the way we connect with consumers and operate the business.

For most of my 18-year career in this industry, I've led teams through the process of turning creative energy and talent into high-performance businesses.

I know the value-driving components of the creative processes from my time with H&M and then in turning around Old Navy.

I'm excited to see so much untapped potential at Ralph Lauren, and we will leverage our brand vision into a much stronger consumer offering.

This offering will be built by evolving our brand voice, our products, our marketing and our shopping experience, in parallel with developing stronger underlying business engines, rightsizing our cost structure and strengthening our leadership team.

Getting these elements right will help us connect more with our existing consumers, expand our reach to new consumers and return the business to strong growth over time.

An important part of getting back to high performance is strengthening our leadership team on both the design and operation side of the business.

I'm pleased with how we are starting to come together here.

We are recruiting new talent and challenging our top performers with expanded roles.

A few examples are Valerie Hermann, [Frederick Chalmers] and [Holiday Aligos].

Valerie has been with Ralph Lauren for a little over two years and has started to build a foundation that will strengthen our luxury business.

She has decades of experience in luxury, including CEO of Yves Saint Laurent and head of women's ready to wear for Dior.

She has built a track record of strengthening brands and driving high performance in luxury.

She has unique experience in working to commercialize design and drive profitable growth.

We have therefore recently expanded Valerie's role as Brand President to now also include Lauren, Polo Women's, Chaps and Denim & Supply.

Frederick Chalmers joined us in April in the newly created role of Senior Vice President, Global Expansion and Business Development.

He has seven years of experience leading high-performance global expansion to new markets within the H&M group.

Frederick will be responsible for globally leading the work to create and execute the strongest possible multi-brand and multi-channel distribution and expansion strategy for the Company, which is one of the core components in our growth plan.

Holiday Aligos is joining our team in June as Head of Global Sourcing.

She has 18 years of experience driving high-performance within production and sourcing for H&M, and her track record is stellar.

Holiday has been a key driver for H&M's ability to make sourcing a competitive advantage and she created a tremendous amount of value for them.

We are looking forward to Holiday coming onboard as we develop a best-in-class sourcing strategy.

We will continue to strengthen our team in the months and years ahead and I'm happy to say that our teams are aligned and excited about where we are going and how we are going to get there.

We will move this Company into the future in a way that excites our consumers, beats our competitors and drives value for the Company and shareholders.

One way Ralph made this Company great was by being an entrepreneur, and that's what we are going back to.

We are going to move fast to begin executing our growth strategy, continuously learn and improve, get closer to the consumer and get back to high performance.

Now let me turn to a few key takeaways from our fourth-quarter results.

As you saw in the press release, net revenues were in line with our expectations for the fourth quarter, down 1% on a reported basis and flat in constant currency.

The key driver for the top-line performance in the fourth quarter was, as expected, pressure in North America, which was offset by growth in international markets.

Following challenging fall and holiday seasons, we were focused on clearing end-of-season inventories across our channels of distribution in the US.

I've been focusing much of my time on our US business.

I've been working closely with our key customers in the market.

As we look to fiscal 2017, we are planning our inventory receipts very carefully in the US for both the wholesale and retail channels.

Our strategic plan will address the issues in our core US market.

Moving onto our profitability, Q4 gross margin was pressured by the inventory clearance activity in the US and continued foreign currency impact.

Our operating margin was down significantly, but better than our guidance driven by strong expense management.

While I'm feeling relatively good about how we managed expenses, I want to make it clear that I see this kind of operating income decline as unacceptable.

We have significant opportunity to further reduce costs and reinvest some of those savings in engines that will drive brand strength and profitable sales growth.

Before I turn it over to Bob for the details of our financial performance in the quarter and fiscal 2016, I want to reiterate that we are looking forward to sharing our strategic growth plan in detail with you at our upcoming Investor Day.

With that, I would like to turn the call over to Bob.

Thank you, Stefan and good morning, everyone.

Fourth-quarter net revenues were flat with the prior-year period on a constant currency basis and declined 1% on a reported basis to $1.9 billion.

This is in line with the guidance we provided in February of a flat to 2% decline on a reported basis.

The negative FX impact to revenue growth was approximately 110 basis points, slightly better than our expectation of 150 basis points of negative impact as foreign currencies moved favorably during the quarter.

The Company's fourth quarter and fiscal 2016 included a 53rd week that contributed approximately $70 million in sales and was primarily generated within the retail segment.

For the full-year fiscal 2016 period, net revenues grew 1% in constant currency and declined 3% on a reported basis to $7.4 billion.

Gross profit margin was 54.4% in the fourth quarter, excluding restructuring charges.

This was 90 basis points below the prior-year period reflecting proactive measures taken in the US to clear end-of-season inventories related to the fall season in addition to unfavorable foreign currency effects.

For the full-year fiscal 2016 period, gross margin declined 70 basis points to 56.8%, excluding restructuring charges due to negative foreign currency impacts, which was partially offset by a favorable sales mix shift to the retail segment.

Operating margin in the fourth quarter was 6.4%, excluding restructuring and other charges.

This was 370 basis points below the prior year due to gross margin pressure, unfavorable foreign currency effects and incremental investments in infrastructure and marketing.

However, operating margin was better than the outlook we provided in February of a 400 to 450 basis point decline.

This was due to disciplined expense management throughout the organization.

For the full-year fiscal 2016 period, operating margin declined 290 basis points to 10.7%, excluding restructuring and other charges, due to gross margin pressure, fixed expense deleverage, unfavorable foreign currency effects and incremental investments in infrastructure and new stores.

Net income for the fourth quarter was $74 million or $0.88 per diluted, share excluding restructuring and other charges.

On a reported basis, net income in the fourth quarter was $41 million, or $0.49 per diluted share.

For the full-year period, net income was $546 million, or $6.36 per diluted share, excluding restructuring and other charges.

The effective tax rate of 34% in the fourth quarter on an adjusted basis was higher than the guidance of 32% due to one-time discrete items and compared to an effective tax rate of 28% in the prior-year period.

Moving onto segment performance, wholesale revenues decreased 5% in constant currency in the fourth quarter and 6% on a reported basis to $942 million.

This was primarily due to a decline in North America as business trends remain challenging.

We are refining our product assortments and deliveries for fiscal 2017 to improve trends in this channel in what is a very challenging environment.

Wholesale operating margin in the fourth quarter was 27.2%, excluding restructuring and other charges.

This was 350 basis points below the prior-year period due to proactive measures taken in the US to clear end-of-season inventories related to the fall season and negative foreign currency effects.

Retail segment sales rose 7% in constant currency and 6% on a reported basis to $889 million.

Growth was driven by the benefit of a 53rd week of sales, new store expansion and e-commerce growth.

On a 13-to-13 week basis, consolidated comparable store sales decreased 5% in constant currency and 6% as reported during the fourth quarter.

Brick-and-mortar traffic trends remained negative in the US.

Sales to foreign tourists were down approximately 25% year-over-year in the fourth quarter and for the full year.

E-commerce revenue was up mid-single digits on a global basis in the fourth quarter supported by the 53rd week while comps were up slightly on a 13-to-13 week basis.

We continue to expect to move to our new e-commerce platform later this fiscal year.

The new platform will not only improve the functionality of our site, but it will allow us to improve how we engage with our customers digitally and across our retail channels.

We believe this will dramatically improve the customer's experience on mobile devices.

We look forward to delivering a best-in-class site experience.

At year-end, we had 493 directly operated standalone stores and 583 concessions globally.

That represents an increase of 27 net new directly operated stores and 47 concession shops when compared to the end of fiscal 2015.

In addition, our international licensing partners operated 93 Ralph Lauren stores and 42 dedicated shops, as well as 58 Club Monaco stores and 75 Club Monaco concession shops at the end of fiscal 2016.

Retail operating margin in the fourth quarter, excluding restructuring and other charges, was 2.4%, which was 100 basis points below the prior-year period, reflecting proactive measures taken to clear end-of-season inventories in the US in addition to negative foreign currency affects.

Licensing revenues increased 8% and operating income was up 9% in the fourth quarter reflecting higher royalties from increased sales of Ralph Lauren, Polo Ralph Lauren and Lauren products worldwide.

Now let me provide some color on performance by geography in the quarter.

In the Americas, net revenue declined 1% in constant currency driven by pressure in our North American business that we spoke about previously.

Same-store sales were down mid-single digits in the fourth quarter.

In Europe, net revenues were up 4% in constant currency.

We continue to experience strong sellthrough rates at our retail partners across most of our brands and same-store sales were positive in our own retail stores.

In Asia, net revenue growth of 3% in constant currency was muted by a decline in same-store sales, which was negatively impacted by our strategy to reduce markdowns in Japan and Korea, our two key markets in Asia.

We experienced gross margin improvement and our average unit retails were up strong double digits in Japan and Korea and our markdown rates were down significantly.

We believe that these actions will continue to help us elevate the brand and drive profitable sales growth in this region.

Now let me provide you with an update on our restructuring activities related to the Global Brand Management Initiative.

The total restructuring charge for fiscal 2016 was $142 million.

In addition, we incurred another $22 million of impairment related to underperforming stores subject to potential future closure.

We now expect to deliver approximately $125 million of annual cost savings from the fiscal 2016 Global Reorganization Plan, $15 million higher than the $110 million that we communicated previously.

This is driven by additional restructuring activities we identified and executed late in the fiscal year.

We had a part-year benefit in fiscal 2016 from our restructuring activities and we'll have a full-year benefit in fiscal 2017.

Moving on to the balance sheet, consolidated inventory was $1.1 billion at the end of the fiscal year, up 8% year-over-year.

This growth reflects investments to support new stores and concession shops and a change in the timing of receipt plans.

At the end of the fourth quarter, we had 27 more directly operated stores and 47 more concession shops than a year ago, which is contributing to the growth.

Moving to capital expenditures, we spent $418 million in fiscal 2016 compared to $391 million in fiscal 2015, mostly to support new retail stores, concession shops and infrastructure projects.

The Company repurchased 1.2 million shares of its common stock during the fourth quarter at a cost of $100 million.

This brought our total buyback activity to 4.2 million shares for a total cost of $480 million for the full year.

In addition, we returned $170 million to shareholders via dividend payments.

Yesterday, the Company's Board of Directors authorized an additional $200 million stock repurchase program.

This amount is in addition to the $100 million available at the end of the fourth quarter of fiscal 2016 as part of a previously authorized stock repurchase program bringing the Company's total current authorization to $300 million.

We ended the year with approximately $1.3 billion in cash and investments on the balance sheet and $713 million of total debt.

Looking out to fiscal 2017, as Stefan mentioned, we plan to provide financial guidance at our Investors Day on June 7 for the new fiscal year, as well as the first quarter of fiscal 2017.

With that, we will open the call for your questions.

(Operator Instructions).

Omar Saad, Evercore ISI.

Good morning.

Thanks for all the updates and information.

Stefan, I know you probably don't want to steal your own thunder for the investor meeting next month, but I'd love to hear if you have any updated thoughts and views as you've had another 90 days to be immersed in the business regarding the complexity of the business structure and the brand structure across channels, price points, sub brands, categories globally.

It's obviously a very unique aspect to the Company and I'm just wondering how you are thinking about it and what you've learned on that front and does this excess complexity internally and externally, the consumer, is it something that you can address over time, or does it need to be addressed?

Thanks.

Thanks, Omar.

Yes, you covered basically the agenda for the Investor Day.

So I'm sorry to disappoint you to refer the detailed answer to your question will have to wait until the Investor Day on June 7. What I can say is that we have made progress in assessing and knowing exactly where we stand as a business, and we feel really confident in that we have the strategy to build the Company back to high performance.

And part of that will be simplicity because simplicity and focus is, as I shared last quarterly call, something that I believe in, and I also believe in building on the core of what made us great and that's what the strategy is going to be built on.

Lindsay Drucker Mann, Goldman Sachs.

Thanks.

Good morning, guys.

I wanted to ask, Stefan, you talked a little bit about the focus on the product iconic styles with an updated twist.

As you think about the Company's lead times and the work that you've already done, when should we think about the timing for new product to hit?

And then, separately, if you guys could just give an update on how effective the price increases you took overseas were.

I know we heard that in Japan and I think Australia that consumers accepted it and it worked, but we were still waiting to hear on Europe for the early part of this year.

Thanks.

Thanks, Lindsay, I go first.

So yes, so the work to evolve the products will be tightly connected with the work of underlying -- of strengthening our underlying business, one being the supply chain.

So your question is very relevant.

We will address it in detail on June 7, but we have a clear path to how we are going to evolve the products and how we are going to connect that with the improvement in supply chain.

I can give high-level thoughts on supply chain, which is that I see big opportunities to start there in two areas, both the inventory management part and the lead time part.

So in essence, I see opportunities to sell more with less inventory.

And I also see an opportunity to drastically increase our speed and our flexibility.

So that will help us when we evolve the consumer-facing offering.

I will take the question around the price increases.

We are very pleased with the price increases that we've taken in the major markets where we experienced FX headwinds, mainly Japan, Australia, Canada and Europe.

And as an example of that, for instance, our European business revenues grew mid-single digits in the fourth quarter and we plan to maintain the price increases that we've implemented across all those countries.

As another example of the acceptance by the consumer, within our Asian business, we've seen a significant improvement in our quality-of-sale metrics.

Our gross profit percentage has increased.

Our average unit retails have gone up.

We've seen an improvement in our comp gross margin dollars.

So overall, as I said, we are very pleased and we're going to maintain those increases going forward.

Michael Binetti, UBS Investment Research.

Thanks a lot.

Congrats on a nice quarter, guys.

No doubt it's tough out there.

So one question and a follow-up I guess.

It sounds like we are going to get a lot of detail in June and the look ahead at the plan, but if we could just reference your prior comment that revenues will be negative next year as you rebase but that operating margins could still be up.

I know we talked about this during the quarter, but the math on that reality seems pretty hard to envision, and the market is deteriorating as we've seen earnings reports here this week.

Are those guideposts still on the table and if so, Stefan, now that you've had a look under the hood for a while, where do you see the most opportunity to manage costs to get to that reality?

Yes, Michael, I will take that one, actually.

I think that general guidance still holds, but -- and I apologize for this -- but we will be able to give much more specific guidance at our Investor Day on June 7. We think it's really important to provide a complete view of our strategic plan and the financial targets that are tied to the plan together.

So I'm going to have to ask you to be patient and wait till the June 7 Investor Day.

Yes, just to complement on what Bob just said, when it comes to rightsizing the cost structure is something that we have spent a lot of time on over the last few months and we see big opportunities there.

So we are looking at every component of the cost structure.

We will go through it and share with you on the Investor Day.

And I will add one other thing too.

Just as a reminder, and we mentioned it in our opening remarks, that we did take restructuring actions within fiscal 2016, and as we've noted, that's going to drive approximately $125 million of savings.

That $125 million savings number is in excess of the previously communicated $110 million really because towards the end of the fourth quarter, we did take additional restructuring actions and activities that drove the increased savings number.

Matthew Boss, JPMorgan Chase.

Good morning.

So on the distribution front, Stefan, how do you view your wholesale positioning and off-price exposure out of the quarter?

Who do you see as your primary competition today, and then as it relates to e-commerce, what's the best way to think about Amazon as a potential channel of distribution?

Thanks, Matt.

Good questions.

So when it comes to the US market, where it's clear that we have been under the most pressure, my focus is to get back to high performance in the US wholesale channel.

So that to start with is our main focus, working very closely with our big customers and feel confident that we have a plan to get back to strength.

In parallel with that, we are expanding our direct-to-consumer channels, and out of those channels, the e-commerce is by far the most important to get back to strength and high performance.

And overall, when it comes to the channels in the US, we are working to make sure that we secure the high-quality distribution, right balance in the distribution between the different channels, and we will come back and give you more details in June.

Kate McShane, Citigroup.

Good morning.

Thanks for taking my question.

I think you had highlighted that in the calendar year fourth quarter that you have made changes to retail, which I think is part of that $125 million in savings where were closed some doors, but then I think you also rebannered some of the retail doors as well.

Can you update us on how those changes have impacted the retail base and how you think about that going forward?

I'll take that question.

So for the fiscal year, we actually closed approximately 43 stores.

Part of that was incorporated within the restructuring charge activities, and some of it was just natural lease expirations and stores that just didn't fit our strategic portfolio or plan.

We -- from a rebalancing perspective, our ROS, or Ralph Lauren portfolio, between full-price stores and Polo stores, we had identified roughly 40% of the fleet that was essentially positioned more towards Polo.

We've started to undertake conversion of some of those stores, two standalone Polo stores versus a hybrid of Ralph Lauren and Polo, and that will be done over a period of time.

These aren't going to incorporate major remodel activities.

These are signage changes, an element of minor remodel activity, etc., and we've probably touched about 15% of that portfolio thus far with the remainder to be done over the next year, 18 months.

Chris Svezia, Susquehanna.

Thank you for taking my question.

I guess, Stefan, for you, just when you think about the major US accounts, the wholesale accounts and all the work you've been having conversations with them of late, when you sit down and have a conversation with them, what do they say about the brand opportunity to grow or return to growth beyond 2017, assuming that you've already enlightened them or shared some of the strategic opportunities and brand positioning as we move forward?

What are they telling you that Ralph needs to do or needs to be?

Maybe that would be helpful.

Yes, so thanks, Chris.

Good questions.

So when I sit down and spend time with our wholesale partners, they start with how much they respect the Ralph Lauren brand and how important that brand is to them and their consumers.

So that's where we start, and then given the nature of how I lead, I ask a lot of questions on how we can build on that strength and how we can evolve our offering and how we can make sure that we start to drive high-performance again, which we have done for many, many years.

And they are very confident in evolving our products, evolving our marketing, evolving our shopping experience and combining that when I share how we are planning to high-level strengthen our underlying business engines, they get really excited and they want to be a part of that journey.

And I see them as an intricate part in evolving the business engines, and I'm excited to do this journey together with them.

David Glick, Buckingham Research Group.

Thank you.

Just a follow-up on the US wholesale business.

I'm just curious when you look at and you've talked about needing more innovation in the product, but when you look at the positioning of the brand from an initial price point perspective and you look at how key item intensive the business has become and reliant on some of those key selling period promotions to drive key items, how do you see that evolving from a price-point perspective and key item versus fashion perspective going forward?

Thanks.

Thanks, David.

So when it comes to pricing, I believe that we are in a world where the consumer decides today.

So [sourcing] at premium pricing comes back to having the best products and that's what our strategy is focused on, to go back to the core of who we are and where we come from and evolve that and make it current for today and have better authentic style, better quality and be more relevant.

And that connects to the pricing.

And when it comes to the actual product strategy, I look forward to sharing that more in detail when we see each other in June.

Laurent Vasilescu, Macquarie Capital.

Good morning and thanks for taking my question.

I wanted to follow up on Valerie Hermann's appointment to President of the Luxury Collection.

Last May, you announced six group brand -- global brand groups.

Are these six groups still in place, and if so, now that these groups anniversary full year, can you parse out how big they are in terms of revenues?

Can you rank them in order of performance and then any color around which division you are most excited about would be great?

Yes, thanks, Laurent.

So starting with the brand groups and the global brand teams.

I spent many, many hours over the last three months together with the global brand teams and they are more important than ever before because the teams there, they create global consumer offerings.

They create the design, the products, do the overall inventory management and the planning and connects to the supply chain team.

So they drive the core value-creating engine.

When it comes to Valerie's expanded role, I'm expanding her role because I want to leverage her experience of commercializing design and driving high performance out of creativity.

So the brand teams are doing great.

I look forward to again sharing the details in June in how the different brand teams relate to each other.

John Kernan, Cowen and Company.

Good morning, everybody.

Thanks for taking my question.

Stefan, can you talk about how you are going to bring some of the best practices of the supply chain from H&M and Old Navy and obviously the execution there was fantastic while you were there, and does it translate well to a wholesale-dominated business?

Can you take a lot of those best practices in terms of the speed of design and the speed in the supply chain and translate that into a wholesale business?

Yes, John.

Again, sorry to disappoint you.

The in-depth sharing of this will have to wait until June, but higher level I'm very excited when it comes to unlocking supply chain capabilities and getting to know the business the way I've done over the last months and getting to know how our customers work, I see big opportunities in implementing a lot of the same best practice.

And also excited by seeing that our wholesale partners are very excited and willing to dive into improving the supply chain together with us.

Rick Patel, Stephens Inc.

Thank you.

Good morning, everyone.

Stefan, before you got here, the Company invested quite heavily in SAP and e-commerce and I know a lot of that is still going on today.

As we sit here today, are you satisfied with the capabilities you have from a technology perspective, or should we expect a stepup in terms of new investments that might be needed to get the Company to where it needs to be?

Rick, thanks for the question.

Having had the chance to dive deeper into the Company, I'm impressed by the capability when it comes to the infrastructure.

So far, it's the strongest I've seen.

So I feel from a business strategy and execution of the strategy we have set up, the capabilities are going to enable us to do that in a way that I haven't seen before in any of the companies I've been working at.

So I'm excited that we have that foundation of infrastructure in place, and that will just speed up our implementation of the strategy because the core elements of the strategy are not necessarily capital intensive.

It's about a methodology; it's about how we approach the business, how we evolve the consumer offering, how we get the business engines, the underlying engines to go, how we get the cost structure to be rightsized and how we strengthen the leadership team continuously.

So very pleased.

We will take one final question.

Dana Telsey, Telsey Advisory Group.

Good morning, everyone.

As you think about the levers underneath the gross margin and especially as you are bringing in the new sourcing person, what are the opportunities in those gross margin levers underneath and what do you see as the opportunity to increase speed to market with sourcing?

Thank you.

Hi, Dana and thanks for the question.

A couple of thoughts on that high level and then again June 7 in detail I'd love to share that with you.

But high level, we see opportunities when it comes to evolving the strength of the products.

One area is developing a systematic repeatable way of how we create assortment.

And we will go through that in detail in June, but I see definitely value unlocked there in terms of gross margin expansion.

Also when it comes to the demand-driven supply chain.

So when it comes to being more balanced in making sure that the inventory we plan and buy that that matches with the consumer demand.

And then, thirdly, I'm excited to bring Holiday in with her sourcing expertise and her sourcing experience because I know firsthand that she brings best-in-class, best-in-industry sourcing capabilities and she will have to have a few months of learning the business and then she will start to unlock gross margin dollars there as well.

And that was the final question, Rea.

Any closing?

Ladies and gentlemen, that does conclude your conference for today.

Thank you for your participation.

You may now disconnect.