Brand House Collective Inc (TBHC) 2016 Q3 法說會逐字稿

Welcome to the Kirkland's third-quarter 2016 earnings conference call. All participants will be in listen-only mode.

(Operator Instructions)

After today's presentation there will be an opportunity to ask questions.

(Operator Instructions)

Please note, this conference is being recorded. I'd now like to turn the conference over to Jeff Black of SCR Partners. Please go ahead.

Thank you, good morning, and welcome to Kirkland's Conference Call to review results for the third quarter of FY16. On the call this morning are Mike Madden, President and Chief Executive Officer; and Adam Holland, Vice President and Chief Financial Officer. The results, as well as notice of the accessibility of this conference call on a listen-only basis over the internet were announced earlier this morning in a press release that's been covered by the financial media.

Except for historical information discussed during this conference call, the statements made by Company Management are forward-looking and made pursuant to the Safe Harbor Provisions in the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks and uncertainties, which may cause Kirkland's actual results and future periods to differ materially from forecasted results.

Those risks and uncertainties are more fully described in the Kirkland's filings with the Securities and Exchange Commission, including the Company's annual report on form 10-K, filed on April 8, 2016. I'll now turn the call over to Mike Madden.

Okay, thanks, Jeff, and good morning to everyone. As we expected, the third quarter was challenging as sluggish traffic trends continued across much of the sector, and drove higher-than-expected promotional activity.

Total sales increased 7% to $138 million, driven by new store openings and a double-digit increase in eCommerce sales. Comparable store sales decreased 2.3% reflecting softness on the brick and mortar side. While comp trends remained under pressure, the quarter benefited from some improvements in our operation that we have been building toward during the year.

Our ongoing work in the supply chain has yielded savings on inbound freight costs versus a year ago, and is creating efficiencies in our distribution center operations. We also have improved our overall expense management, showing leverage on our operating expenses for the second quarter in a row, despite negative comps.

Our inventory position has improved dramatically. After several quarters of inventory increasing at a rate greater than sales, we are now on the right side of that comparison, which bodes well for margins as we enter 2017. Our balance sheet ended the quarter in good shape with $28 million in cash and no debt outstanding as we head into the heavy cash generating fourth quarter.

It's important to point out that our sales were a bit weaker in October than in August and September. We tend to have a larger Christmas assortment penetration versus our competitors at that time, and the transition to this year's holiday set occurred against the election run-up and unusually warmer weather.

November trends, while starting slowly in the first week, have improved post the election in our seasonal categories, which performed well in the third quarter, have an even more prominent role in the fourth quarter. So, we believe we're well positioned as we move into the holiday period.

In addition to our seasonal assortment, our mirrors, fragrance, and furniture categories provided nice gains in the third quarter. We've seen an elevated level of promotional activity leading up to Thanksgiving. We expect the promotional environment to be more pronounced this year, and that conservatism is incorporated into our guidance. Having said that, our inventory is in excellent shape, and that should allow us to compete effectively and press for share where we see opportunities.

We outlined some targeted initiatives to address our traffic trends in the last call, and I'm very pleased with the progress we're making. During the quarter, we launched our new brand campaign, Your Doorway To Home. The campaign spans all Kirkland's marketing activities and rebalances the message to emphasize inspiration, as well as value.

From a media perspective, we completed a shift from print marketing to digital, and it's enabling us to expand our reach and frequency, as well as more effectively target our marketing dollars. We're executing on a range of programs to inspire shoppers to visit Kirkland's for the holidays, and will convey Kirkland's clear edge on price where appropriate. Kirkland's compares favorably in price across many items, and we want to make sure we get due credit for that.

We're also making progress to rejuvenate our loyalty program with a full refresh set for 2017. The program was launched in late 2013 and now has over 8 million members.

We've begun implementing initiatives to increase frequency by offering special rewards for key segments of the program, and we're evaluating new reactivation initiatives to reengage with customers that have not transacted with Kirkland's for a period of time. We're excited about the program's potential to drive sales with new, existing and previous customers.

Turning to Real Estate, we completed our 2016 class of new store openings this month, on time and on budget. The 42 stores opened this year benefited from improvements to the site selection process, and they are performing well thus far, ahead of our internal estimates.

We also closed 14 stores this year. We're doing a lot of work to analyze our penetration by market. While the 2017 plan is not final yet, we are aiming to open fewer stores than in 2016, and will likely close a few more stores still netting a gain in store count.

We will increase the focus on relocations, which are generating a favorable ROI. We are seeing growth opportunities in outlet centers, having opened some very successful stores during 2016. We will outline more of our thinking there when we provide our 2017 outlook in March, but longer term we remain committed to our goal of 500 stores as we evaluate our opportunities market by market.

As you know, eCommerce remains one of our top areas of focus. In addition to our fulfillment center in Jackson, which opened during Q1 of this year, we've made several improvements to support more profitable growth.

These include some upgrades to our supply chain technical systems to improve speed and performance, and provide our fulfillment operators with enhanced efficiency for the peak season. We've also increased our third-party drop ship business, alleviating some pressure during peak periods, and we'll continue to improve our labor management in the facility the longer we operate in it.

Sales in the channel increased 13% against a very strong 38% rise last year. Although this rate of growth is down from prior quarters, we are comfortable with our ability to better control and manage the business at this level. We're encouraged by the results we are beginning to see and improving the profitability of eCommerce, and not just driving the top line at all costs.

We've worked hard to absorb a rapid increase in eCommerce penetration and believe we're well equipped with the plan in front of us to profitably expand the channel. Our priorities here are to increase our capabilities to buy online and pick up in store, expand our vendor drop ship business, and optimize our online merchandise assortment.

As we evolve our Marketing, Real Estate, and eCommerce initiatives, we're making strides to infuse our product assortment with more excitement and newness. We've reduced the penetration of our core product to below 20% in support of that effort. The benefit will be more evident in spring 2017, given the large percentage of our second half assortment devoted to seasonal merchandise.

Our team continues to focus on the art and textiles categories, and we expect improvements as we enter next year. Over time, we believe there's an opportunity to improve inventory turn and reduce our working capital requirements.

As you know, we've talked a lot about continuous improvement in prior calls. Along those lines, we're investing in the business by making some key additions to our leadership team.

Mike Cairnes will join Kirkland's next week as EVP and Chief Operating Officer; and Sarah Hussey joins Kirkland's in the third quarter of this year as VP of planning and allocations, both are newly-created positions that bring an abundance of retail experience to the table. Mike has a long and distinguished career and comes to us after a number of years at Michaels' stores, and Sarah has an exemplary track record as well and joins us from Sports Authority.

Our business has become more complex, now including a growing eCommerce channel and new supply chain dynamics, as well as recent investments in technology, processes and people across many of our key functions. Mike and Sarah will support our long-term goal to drive continuous improvement, and the new structure should create better alignment in the organization. We need to lift our operational execution across the board.

My goal is to get us to the point where we can take that for granted. We're on the right track, and these hires will help us make faster progress. It's a great time to bolster the team for further success as we head into a new year.

Our team has been working relentlessly to improve our business from both the short and long terms. We're starting to see some signs of stability, and some of our key initiatives are beginning to bear some fruit.

We look forward to updating you on the progress over the coming quarters. Now I'll let Adam discuss the financials.

Thank you, Mike. Net sales for the third quarter increased 7% with total comparable store sales decreasing 2.3%. A 5% decline in brick and mortar traffic was the primary reason for the overall comparable store sales decline.

Geographically, store traffic was down in most of our states, with meaningful traffic declines occurring in Florida, North Carolina, and Virginia. Hurricane Matthew hit these and other Eastern states during Q3, negatively affecting our total comparable store sales by approximately 40 basis points. Thankfully, all of our employees are safe and no Kirkland's stores incurred meaningful damage during the storm.

Texas and Louisiana, while not influenced by Hurricane Matthew, continued to show negative traffic trends, although they trended closer to the Company average. Our conversion rate in stores showed some sequential improvement from Q2 to Q3, edging up close to 2%.

Our average ticket was relatively flat during Q3. We opened 11 new stores during the quarter and we closed one, ending with 401 stores, representing 31 more units or 8% more than the end of Q3 last year.

Moving on to eCommerce sales. eCommerce generated $10.8 billion in total revenue during the quarter, and accounted for approximately 7.8% of total revenue during Q3, a 13% increase over last year. This increase was driven by continued growth in both website traffic and conversion rate.

Moving on to gross profit. Third-quarter gross profit margin decreased approximately 70 basis points to 36.5%. Merchandise margin increased approximately 28 basis points to 55.5%.

Our promotional activity was somewhat higher during the quarter, but benefits from our new West Coast bypass operation and favorable market conditions drove inbound rates lower, allowing us to achieve the increase in merchandise margin over last year. Store occupancy costs increased 72 basis points as a percentage of net sales during the third quarter. Store occupancy expense was as we expected from a dollar perspective.

Outbound freight costs, which include eCommerce shipping, were down approximately 15 basis points as a percentage of net sales, as we have consolidated and improved our outbound-to-store routes. Finally, central distribution costs increased approximately 41 basis points, the addition of the new eCommerce fulfillment center and the associated increase in labor costs accounted for most of the increase as a percentage of sales over last year.

Moving on to operating expenses. Operating expenses for the third quarter were 33% of sales, which was down approximately 61 basis points to last year. Store-related operating expenses leveraged 31 basis points during the quarter, primarily due to tightly-managed store payroll.

Additionally, store supplies and marketing costs were lower in dollars and as a percentage of sales, compared to the prior-year period. Corporate related expenses leveraged 39 basis points over the prior year, lower professional legal fees, along with lower travel costs, helped drive much of the improvement over the prior year. ECommerce related operating expenses increased 9 basis points compared to the prior-year period.

Depreciation and amortization increased approximately 36 basis points as a percentage of net sales. The tax benefit for the quarter was $767,000 or 47.6% of pretax loss. We recorded a discrete item in the quarter relating to an adjustment to our deferred tax assets after filing our prior-year income tax return, which benefited diluted earnings per share by about $0.01. The net loss for the quarter was $0.05 per diluted share.

Moving to the balance sheet and cash flow statement. At the end of the quarter, we had $28.3 million of cash on hand. Inventories at the end of Q3 were $99.9 million, an increase of 4.7% over Q3 last year.

As previously discussed on our last conference call, the Q3 2016 ending inventory amount includes the incorporation of our new West Coast bypass operation, which we successfully implemented in August. This new bypass allows us to gain ownership and control of our product earlier in the pipeline, without having a negative impact on working capital.

The new in-transit inventory bucket totaled approximately $6.6 million, and is included within the Q3 2016 ending inventory balance. As you'll recall, we ended Q3 of 2015 with elevated inventory levels.

At quarter end, we had no long-term debt and no borrowings were outstanding under our revolving line of credit. Year to date, through Q3 2016, cash provided by operations was $12.1 million, reflecting our operating performance and changes in working capital.

Year-to-date capital expenditures were $28 million, with approximately 78% of CapEx relating to new stores and existing store improvements, followed by 13% related to IT systems improvements, and finally, 9% related to supply chain. The implementation of the West Coast bypass during Q3 required a minimal capital investment.

Turning to our guidance. As mentioned in our Press Release earlier today, we have adjusted some of the components of our FY16 annual guidance previously provided in our August 23, 2016, Earnings Release. We plan to end the year with 404 stores, representing total unit growth of 7% over the end of FY15, with square-footage growth approximating 9%.

Total fiscal 2016 sales are now projected to increase approximately 7% over FY15, implying a fourth-quarter comparable store sales decrease in the range of 1% to 2%. For the year, gross profit margin is expected to be down compared to the prior year, given an increase in supply chain and store occupancy costs, partially offset by a higher merchandise margin. Operating expenses are expected to increase slightly as a percentage of net sales for the year, and we are cycling against a reversal of a bonus accrual, as well as a favorable true up relating to our workers compensation insurance reserves from the fourth-quarter of FY15.

Absent these factors, we would expect to continue to leverage operating expenses. As a result, earnings per share is expected to be in the range of $0.70 to $0.75 per diluted share.

Capital Expenditures should approximate $31 million compared to a $35 million in FY15. Operator, we are now ready to take questions.

(Operator Instructions)

Our first question comes from Brad Thomas of KeyBanc.

Hi, this is actually Sumit Desai on for Brad. I'd like to start with a question on pricing and brand awareness.

We recently conducted a pricing analysis that showed your products were at a pretty compelling discount to certain line competitors, and it seems to imply that there may be an opportunity to drive more awareness of this. Do you have any initiatives currently in place to drive more pricing awareness, and does that tie into the new brand campaign?

Thanks for the question. Yes, we certainly saw the analysis you guys did, and we're really not surprised by some of the results there. We feel our pricing is very compelling.

We can do a better job of calling that out inside the store, and that is definitely part of our campaign, I think we're trying to introduce a number of things with this campaign. One is to add a little more in the way of inspiration to our messaging. We feel our brand is unique in that regard.

It's a different experience than what you get in some of the other competitors, but that is coupled with this value proposition. And we feel good about that angle of our branding as well, we just need to execute better on that and the campaign gives us a chance to do that, both through our social interaction, through our E-blasts, through our in-store collateral, and any other messages that we deploy to customers. So, we see that as a big opportunity, and it was good to see that research that validated that against the competitors you did in your survey.

Thank you. If you achieve your full-year guidance, what do you think your cash balance could be at year end, and how should we think about your capital allocation priorities with that cash balance?

I'm going to let Adam comment on the cash balance itself. In terms of priorities, we, obviously, investing in the business is number one.

We ended the quarter in a nice position, no debt on the balance sheet, nothing drawn on our line of credit, that gives us a lot of flexibility to invest in the business and maintain a conservative capital structure. We have a history of returning cash to shareholders through repurchases, and we paid out a dividend even last year, so we'll continue to look at those opportunities as well to enhance returns with any excess cash that we have, but investing in the business is the priority, but we are certainly considering those other alternatives as they come up.

Yes, in regards to the range, between $50 million and $55 million is where we would approximate the year-end cash balance.

Okay, thank you. And on quarter-to-date trends, if I heard you correctly, I think you mentioned that November started slowly but has improved since then, following an October that was a little bit softer up against the election, and with warmer weather. Is there anything you're seeing in November by product category or geography that would further suggest trends are improving sequentially as you'd like heading into holiday?

I think the note in the script that I made, you know, October was a little weaker. We attribute that to the prominence of our Christmas product, which really dominant on the floor, and the macro factors that we were up against in that month given that penetration level, so, as we moved into November, that first week was tough. I mean, I think it was tough for a lot of people, but once we got beyond that, we stabilized a bit, and our Christmas assortment, our seasonal product is starting to take hold I think more with the customer, their mind set is shifting toward the holidays a little later this year. So we feel good about that assortment, and it's the chance for success over the next several weeks as customers are really even more in the holiday mode, so we still guided to a negative 1 to negative 2, but we see the business stabilizing a bit.

Okay, great, thank you. And last question on store growth.

As you mentioned, you accelerated your store growth this year and noted they are performing well. Could you comment on any implications that may have for next year's growth rate, as well as the cadence?

Sure. We are pleased with our class this year. I think one thing I did say, is we do and we signaled this last couple of quarters. We do see the growth rate dropping a bit next year.

We've got some things we want to get fully into place on the supply chain and eCommerce side, and taking a little pressure off that growth rate, I think, is the right thing to do. We're doing some relocations, we're repositioning some stores in select markets, but we will still be a very active player out there next year in terms of real estate. We've gained a lot of confidence, I think, in our site selection model, these relocations are really important to us to get the chain up to a standard that we feel it needs to show. So a little bit less in terms of growth rate, but still a lot of activity and repositioning going on within the fleet of stores.

Okay, thank you.

Our next question comes from Jeff Van Sinderen of B. Riley.

Good morning, and let me say congratulations on the improvement in some of your metrics. Just wondering on the oil patch trend versus the chain average, I think you said it was pretty close to the chain average, just wondering if there's anything to read into that, and then if there's anything we can look at as far as, I guess what Mike Cairnes will be focused on in his first six months or so.

This is Adam. We are starting to cycle up against some of the softness we saw last year in Texas and the other oil-producing regions, and we're just we aren't seeing that turn back around yet. Although the level of decline has moderated. And another thing about Texas, it is also impacted by border activity being down, we've got 10 really good stores on the border, and we've got some really high volume stores down there that, and that's also weighing on some of that traffic pressure with Texas, specifically.

And Jeff, I'll take the Mike Cairnes question. We, first thing I'd say there, is I'm proud of our existing team and what we're accomplishing as a group, it's a solid group. As I was evaluating the needs I felt we had some gaps, particularly in the type of leadership that has deep experience in managing some of these retail cross-functional groups that, you know, and doing it on a day-to-day basis, I mean, I've cited in our script we really need to lift our operational execution here.

We really need to get away from having to fight the fires every day and be focused on the longer term and looking ahead, and so I feel like we needed the position to position us to do that. And I think he's a good fit. I think it's going to take him, certainly take a little time for him to get up to speed, but I think he's a good mix into our culture. I think he's got a good history of managing large operations on a day-to-day basis, and he also brings some strategic capabilities to help us shape vision going forward, so, I'm excited about that.

And while I'm talking about new additions, I'll throw in the P&A hire as well, which we really see unique opportunities inside that function, ensuring full utilization of our technology investments we've made, partnering with our supply chain to really work through the merchandise flow, building good partnership between planning and merchandising, and then just understanding space in the stores to a level that we currently haven't been up to, so I see a lot of opportunity in all those areas as we move forward.

Okay, that's great. Seem like great hires. And then if I could throw in another one, I notice you guys are running some early Black Friday weekend deals, and I think you spoke to kind of a relatively promotional environment out there.

Any thoughts on how you think that kind of the early Black Friday deals will impact the, I guess, the timing of consumer spending behavior? And then also, are you going to do incremental deals when Black Friday arrives?

Yes, we are, as we mentioned, it's certainly a promotional period. I think it's more promotional than what we've seen. I get a lot of the E-blasts from all of the different retailers, and I'm pretty amazed by what I'm seeing hit my inbox, and there's a lot of deals to be had out there.

We've got our share as well. We're building up to Black Friday. We will have some unique and aggressive things going on for that day.

It is, you need people in your doors on that weekend. That's our, that's a big day for us and everybody else, so I think you'll see us go hard at it. But we're trying to space in a lot of this other messaging through our marketing initiatives and we kind of hit that periodically as well.

It's not all about price. It's about trying to create some enthusiasm and excitement about the type of product we sell and what you can do with it, so we'll mix that in as well, but we're going to be, we'll be out there and fighting a good fight on Black Friday. I think we're primed and ready.

Okay, very good. Appreciate that detail, and best of luck to the rest of holiday.

Thanks, Jeff.

Our next question comes from Anthony Lebiedzinski of Sidoti & Company.

Good morning, and thank you for taking the questions. First, on eCommerce, so, I think Mike or Adam, you admitted that the eCommerce sales growth has slowed.

So, how should we think about kind of a more normalized rate of growth for eCommerce sales? And also you did mention the increased use of drop ship, so what's the differential for drop ship merchandise for you guys?

Okay, well yes, we did show a little bit a lower growth rate in Q3 sequentially. Some of that was expected. The ramp up in the business and the way it progressed there the last couple of years suggested that back half was a tougher comparison, and a lot of that came through with the timing of our marketing push online and the availability we gave the customer for ship to store.

And ship to store is a great thing, and its been a great way for us to beef up the channel and grow, but it's also getting to a point where it's passing the organization a bit, and its technology and our technology around it and our capabilities. So, we are controlling it a little bit, Anthony, and I feel more comfortable with the way we're running that right now, even at a lower growth rate, because we're a little more profitable. And so, I would expect this kind of range maybe a little better, but, you know, double-digit, but not up in that range where you saw us the last several quarters.

And as we turn on more capabilities with our supply chain and our fulfillment, and inside the store, really, our priorities being buy online pick up in store, using that inventory instead of shipping it all the time, we've got to get those things in and that will really further help the profitability and enable more growth as we go forward, so I feel good about that. What was the last part of your question, I'm sorry?

About the drop ship merchandise, what's the difference in margins, generally speaking?

Well, there's a gap in margin. I'm going off the top of my head here. Our normal merchandise margin is in the 50%s. The drop ship margin is below, you know, kind of 30%, 35%-ish, but you've got to remember, you don't have any of the labor, any of the touching, that's the margin, so, we are not having to put all of our resources in to the last leg of the fulfillment there, and it really helps the equation.

And Anthony, I'd just add the drop ship is still a small piece of the business.

But growing.

Okay, got it. So, turning over to the two new executives that you just hired. So, are you looking to perhaps further expand your Management team or do you think, Mike, are you happy with the current team that you have now?

Right now I feel good about where we are. I think those were the moves that I really identified and wanted to make at this stage. Anything we do in the future is going to be based on what we experience from here and how the business evolves.

Got it, okay. And as far as CapEx, so just looking at the different buckets, new stores versus omni channel versus supply chain, I know for next year you said that new store growth will moderate a bit. Looking forward toward next year, how are you thinking about the other components of CapEx, as far as omni channel and supply chain, I know you opened a new 3PL facility, so how should we just think about broadly CapEx for next year?

Anthony, this is Adam. Next year's CapEx, and of course, we'll have more details on this when we have our call in March. It's going to be less than 2016.

It will still be heavily weighted towards new store openings. We don't anticipate there will be a large CapEx outlay related to the West Coast bypass, a lot of that infrastructure is systems based and has already been put into place over the last few years, it's just a matter of turning on the functionality.

Anthony, I'll add to that, just the way to think about non-store-related CapEx is really, it's a very, they are targeted investments. We're going, like Adam said, the West Coast, adding functions here and there that have a nice payback, and we're kind of apart from the large sweeping investments we've made in the past years, like Oracle and turning on eCommerce and the multi-million style investments. So, very targeted and hopefully will help us improve margin going forward.

Okay, thank you.

Our next question comes from David Magee of SunTrust.

Yes, hi, good morning, and congrats on the stability, and as well as your new hires, too.

Thank you, David.

Mike, how are you all evaluating the success of the new brand campaign, or how will you evaluate the success of that as you go forward?

Well, it's ultimately about traffic. And as we look at the messaging that we're deploying, you look at the markets that you're hitting, and over time, you're measuring how's the traffic looking in those markets relative to the rest of the chain? What are the open rates on some of the E-blasts that we're deploying? How are people really engaging with the content that we're putting out there?

We've done things like launch a brand video and we posted that on the site. We've got inspirational things going on in the stores that tie to the campaign and its message. We'll continue to kind of roll that out. It's definitely early to call the impact on that in financial terms as we'll know more as we work through the fourth quarter and into early part of next year, but this has some legs and we'll continue to kind of use that message to create content that engages the customer.

And so far so good, although it is early?

Yes. So far so good. I like what we are doing in terms of the creative on the E-blast.

It's much cleaner if you track this every week and look at what we do, hopefully you'll take note of it. The site has kind of been not completely redone on the user interface, but we've tweaked some things, and I think it looks a lot, I use the word clean, it looks a lot cleaner and up to standard, so we'll continue to do that, and hopefully see some benefits from it. But it is early, and we'll continue to talk about it, though, and report what we're seeing and how we view it.

Thank you, Mike. And then secondly, can you talk a little bit about the importance of Black Friday versus how it's been historically? And when will you hit peak volumes this season, given the fact that you have so many decorations, I assume it's earlier than a lot of retailers?

Yes, I've been here 16 years, Black Friday has been the biggest day every year I've been here, and that is the case here. I think that's the prime territory for when customers are shopping for Christmas decor, a lot of people that weekend are kind of retooling the home to show the decorations, and then even that period subsequent to that as well.

But then our merchandising is not one-dimensional in that it's all decor this time of year. We will have a lot of gift statements that cover that territory between Black Friday and Christmas, but Black Friday continues to be the biggest day. It's not a make or break. I've seen us have a soft Black Friday in a good year, and I've seen us have a good Black Friday in a poor year. But it's a big day and it's one where I think the customer is really engaged in the season, and our merchandise really speaks to that.

So, it's important, but it's not a make or break, and we've got several weekends between, we've got a couple extra days this year, actually, between Thanksgiving and Christmas, and we'll have a lot going on in the stores from a decorating standpoint early, and then entertaining and gifting as you work your way through the season.

Great, thank you, guys, and good luck.

Thanks, David.

Our next question comes from Neely Tamminga of Piper Jaffray.

Great, thank you. So, two questions.

Really specific, typical sell side analyst question up front. The November sales trend that you guys were citing on the other side of the election, is that comping positive or is the Q4 guidance, implied guidance comp [as a] minus 1, minus 2, implied more in that trend line that's occurring post election?

Well, it's kind of not a clear answer. The first week was really tough, and we've kind of improved since then, and we're having some positive days, but it's more in line with that guidance, I would say.

Have you gone back -- I know that your business is crazily different actually back in, like, 2004, but have you compared any of your trends that you've seen so far to prior election cycles, just giving you confidence towards the trend line of improvement?

We have, Neely, if you look back at 2012, the Presidential election year, you had a few more days between Thanksgiving and Christmas, similar to this year. Even things -- the shift in the daylight savings time was similar in 2012, in terms of the retail week.

So, we've gone back the last four years, looked at those and looked at the improvements and there's been a lot of things published in the retail world about the effective election, and it seems like no one can really quantify the effect, but it seems overall to have had a negative effect. With folks thinking it's going to improve as the season goes on, and that's what our guidance implies.

Okay, cool, we agree. So, question then, bigger picture on your human capital. Really great additions, but could you just remind us a little more on the organization structure?

So, as I sit back and I see these titles, it would seem to me that Adam for you, you've really helped amp up some of your team by adding that P&A. Am I right in thinking putting allocation reports in directly through you or do I have that wrong on the org chart?

And then, for Mike, you've obviously found a partner in Mike, Mike-Mike, Mike squared. So, did I just name it, Mike squared?

Yes.

So, I guess we're just trying to figure that out a little bit more. And instead of asking about how they are going to be focusing their time, I guess what I'm asking each of you who are here, and you've obviously been in the process of hiring these people, how are you looking forward to spending your time slightly differently in 2017 versus where you have in the past couple of years. Thank you.

Yes, well, I'll give you a little color on the org structure. So, P&A will report to Mike when he joins, and Mike would have merchandise, I think we spelled it out in the release, Mike would have merchandising, operations, supply chain, P&A and marketing, and I think that's where the biggest need is. It's that day-to-day management of the linkage between a lot of those functions.

I mean, we aren't the newest, or we haven't been doing a lot of marketing over our history. I mean, we're integrating a lot into the organization that previously wasn't there. There's a lot of process improvement that we need to put into place, the linkage between marketing and merchandising in stores.

So, in making that, I mean, in putting him over those things, that's what I'm trying to hit on is that that core nation level that a retailer needs, and it gets me a little bit more out of that day-to-day stuff and allows me to really devote more time to looking ahead and thinking about where we need to be. What do we want to test, what do we want to try to continue to evolve this brand into bigger and better things? You know, Adam will maintain, certainly the finance side and as well as IT.

And then we have HR, legal, also out there. Michelle who had done a lot for us in the past in terms of Human Resources, merchandising, stores, will be really focused on the store side and real estate rolls up under stores now, because there's a big component, and also Michelle would have merchandise presentation. All those things really work together in a way that can drive our productivity going forward.

Understanding that space, what the store design looks like and how we're presenting the product and what the vision for the merchants and bringing that alive in the stores, that's why they connect those things together in the org structure. Hopefully, that gives you a little more clarity about how we're set up and where we're going.

Just if I'm hearing you correctly, it really just helps the human capital hours and skills, right, [scar tissue] that you've just hired, right, that just is really taking your ideas into action and compressing the time in between--

Yes.

Okay, cool, that's awesome. Congratulations to you guys on those hires, and have a wonderful Thanksgiving.

Thank you, you too, Neely.

This concludes our question-and-answer session. I would like to turn the conference back over to Mike Madden for any closing remarks.

Well, thank you, everybody, for your attention and your questions today. We're looking forward to the season, we commend all of our store teams out there that are working really hard right now and wish them the best for the holiday season, and wish you all the best for the holiday season. So, talk to you next time.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.