Vince Holding Corp (VNCE) 2015 Q2 法說會逐字稿

Good afternoon. My name is Mike and I will be your conference operator today. At this time I would like to welcome everyone to the 2Q FY15 earnings call for Vince LLC.

(Operator Instructions)

I'll now turn the call over to Jennifer Poland, Vice President of Finance and Planning. You may begin your conference.

Thank you, Mike, and good morning, everyone.

Welcome to our second-quarter 2015 earnings conference call. I'm Jennifer Poland, Vice President of Finance and Planning. Joining me today is Mark Brody, our Interim Chief Executive Officer, and David Stefko, our Interim Chief Financial Officer and Treasurer who will be your speakers for today's call.

Before we begin, let me remind you that certain statements made on this call may constitute forward-looking statements which are subject to risks and uncertainties that could cause actual results to differ from those that we expect. Those risks and uncertainties are described in today's press release and in the Company's SEC filings, which are available on the Company's website. Investors should not assume that statements made during the call will remain operative at a later time and the Company undertakes no obligation to update any information discussed on the call.

In addition in today's discussion, we are presenting our finance results in conformity with GAAP and on an adjusted basis. The adjusted results that we present today are non-GAAP measures.

Discussions of these non-GAAP measures and reconciliations of them to their most comparable GAAP measures are included in today's press release and the related schedules which are available in the investor section of our website at investors.vince.com. After our prepared comments, we will be available to take your questions for as long as time permits.

Now, I'll turn the call over to Mark.

Thank you, Jennifer, and thank you everyone for joining us today to discuss our second-quarter 2015 results.

I'll begin with an update on the quarter and our revised outlook, followed by some comments on our near-term and long-term growth initiatives. Then I'll turn it over to Dave for a more detailed review of the financials and outlook.

First off, I am delighted to be serving as interim CEO for Vince during this transition period. As many of you know, I've served on the Board of Vince since Sun Capital's original acquisition of Kellwood in 2008 and continue to believe that Vince is a powerful brand with tremendous long-term growth potential.

I would also like to thank Jill Granoff, who's been very helpful in transitioning her responsibilities to me following her resignation in July and we wish her well in her future endeavors. I'm also pleased that Dave Stefko has agreed to take on the role of Interim CFO and Treasurer as we search for a new CEO and CFO. I've worked with Dave for four years at Sun Capital and we are both extremely focused on improving the business, while also ensuring a smooth transition.

Since I took on an Interim Executive Management role at Vince in June, I've spent considerable time working with the teams to gain a deeper understanding of their issues and strategies. Based on this work, I continue to believe that the overall strategy is the right one for the Company. Specifically, enhancing our women's assortment, further developing our men's business, selectively opening new retail stores, leveraging e-commerce to drive awareness and sales and broadening our international reach.

However, to achieve these strategic goals, we do need to focus more than ever on improving the product and our operational performance, as well as take corrective actions to protect and enhance the strength of the Vince brand. Vince has a strong team in place who is passionate about the brand and we're working closely with these individuals to take aggressive steps that will put us on the path to improved performance.

In the area of product, which is paramount at Vince, while we continue to evolve and improve our lines, we are intently focused on creating exceptional products that are properly aligned with the styles most desired by our Vince customers. We also want to provide them with a beautiful fit and an improved balance of good, better and best products in our assortment.

As mentioned in our release in July, we are very excited about the addition of Livia Lee as Senior Vice President of Merchandising. Livia brings a strong track record to Vince and is off to a great start in the brief time she has been with the brand.

In regards to improving our operational performance, our top priority is to focus on improving our inventory management. During the second quarter, we saw further weakness in our wholesale business due to lower than expected sell-throughs and customer reorders, which significantly increased our inventory position. As a result, we wrote down current year product estimated net realizable value.

In addition, our off-price customers reported high levels of inventory. Given our efforts to reduce sales to the off-price channel, we decided to dispose of the vast majority of the prior year product that was being allocated to this channel, which, we believe, has been the best long-term interest of our brand.

Combined, these actions lead to a $14.4 million write-down on excess inventory in each product. This measure should better position us to provide a consistent flow of newness to our department and specialty store partners, while enabling us to reduce our penetration in the off-price channel.

We also took steps to ensure that sales, planning and sourcing teams are fully aligned on all aspects of our inventory buys with the goals of optimizing our full price selling opportunities and delivering stronger gross margins. This will help us to facilitate improved inventory management by buying tighter upfront and create a more consistent flow of newness to our customers. In addition, we are exploring ways to shorten our product development cycle and improve efficiencies in the supply chain.

As it relates to our outlook for the remainder of the year, given our recent performance, as well as additional insights we have gained on our customer sell-throughs and inventory positions, we have reevaluated our second-half outlook. We now expect further weakness in our wholesale channel above what was factored into our previous guidance.

In our DTC channel we are reducing our comp outlook to reflect softer selling trends. We also expect gross margin to be negatively impacted by increased discounting that we believe will be required. As a result, we are lowering our FY15 sales and earnings guidance. Dave will provide details on our updated guidance in his remarks.

As I said earlier, we remain committed to executing the long-term growth strategy that has been laid out for the business. Let me now walk you through some of the progress we are making on our key growth initiatives.

We are working to further develop our handbag business. As mentioned in our prior call, we took feedback from our customers from our initial launch and improved product functionality and adjusted price points to be more competitive with our offerings.

These changes were introduced with our fall collection, and while we are encouraged by the improved sell-throughs, we still see opportunity to improve our handbag offering and drive incremental sales in the category. We also continue to grow our handbag distribution and our fall 2015 handbag collection will be presented in 180 doors, as compared to 45 doors for the initial launch.

Our licensed footwear business continues to perform well. With our fall 2015 collection we are on track to expand our women's footwear into over 500 doors and our men's footwear into nearly 150 doors. As a result of this strong consumer demand, we are dedicating more space in our new retail stores to showcase the expanded footwear assortment. We are also highlighting this expanded assortment digitally on our website to drive further growth.

In addition, we recently made the decision mutually with our licensing partner, to exit the kids line as this is not a core business for Vince and we felt it was productive to focus on other areas where we see bigger growth opportunities. We are also focused on continuing to grow the direct-to-consumer business through both store openings and expansion of the e-commerce channel.

We've opened seven stores year to date and plan to open an additional four stores by the end of FY15. Overall, we continue to be pleased with the performance of our new stores.

International expansion also remains a significant part of our growth strategy. We are focused on increasing penetration in key markets and growing our international business, which is approximately 10% of total sales. This past quarter, we hired a highly experienced Vice President of International to help us drive this growth. At the end of the quarter, we opened new shop locations in Printemps, Selfridges, Liberty and Harvey Nichols to showcase the women's product line.

In conclusion, there is a lot of work to be done to get business back on track and we are diligently working to find a new CEO and CFO for the business. While we are undertaking numerous steps to drive improved performance, we expect the pressures we are facing in the wholesale channel will take time to correct and expect these pressures to continue as we head into FY16.

That said, we are committed to taking additional aggressive measures to get the Company on the right path to deliver consistent, long-term growth, while we continue to move forward with our multiple strategic growth opportunities.

With that, I will turn it over to Dave to review our financial performance. Dave?

Thank you, Mark.

For the second quarter, net sales decreased 10.4% to $80 million versus $89.3 million in the prior year period. Our wholesale channel sales were down 21.6% to $58.3 million due to a decline in our US wholesale segment.

Our direct-to-consumer segment sales increased 44.7% to $21.7 million in the second quarter, as we added 11 new stores since the second quarter of last year and grew our comparable store sales, including e-commerce, by 13.4%. Our comparable store sales increase was driven by growth in both our bricks and mortar stores and our e-commerce business. While our direct-to-consumer business showed growth during the period, margins were pressured by increased promotional activity.

Moving onto profitability. Gross profit in the second quarter was $20.8 million or 26% of sales, which includes a $14.4 million charge associated with the write-down of excess inventory and age product. Excluding the inventory write-down, gross profit was $35.2 million or 44% of net sales. This compares to gross profit of $44 million or 49.3% of sales in the second quarter of FY14. The adjusted gross margin decline was due to the deleverage on lower wholesale sales and increased returns and allowances.

Selling, general and administrative expenses in the quarter were $27.3 million or 34.2% of sales, compared to $24.1 million or 27% of sales for the second quarter of last year. SG&A also included net management transition costs inclusive of severance and related cost of $2.9 million. Excluding these costs, SG&A would have been 30.6% of net sales in the quarter.

Excluding the secondary offering cost, SG&A as a percent of sales was 26.3% in the second quarter of FY14. The increase in SG&A was largely driven by store labor and occupancy costs associated with 11 new store openings since the end of the second quarter of FY14. The increase in SG&A as a percent of sales was attributable to lower wholesale sales.

The resulting operating loss for the quarter was $6.5 million. This compares to operating income of $19.9 million for the second quarter of last year. Excluding the inventory write-down and management transition costs, operating income was $10.8 million or 13.5% of net sales. Excluding the secondary offering cost, operating income for the second quarter of FY14 was $20.5 million or 23% of net sales.

Net loss for the second quarter was $5 million compared to net income of $10.5 million in the second quarter of last year. Diluted loss per share was $0.14 compared to diluted earnings per share for the prior year second quarter of $0.27. Excluding the inventory write-down and net management transition costs, net income for the second quarter was $5.2 million or $0.14 per diluted share. Excluding the secondary offering cost, net income for the second quarter of FY14 was $10.8 million or $0.28 per diluted share.

Now moving on to the balance sheet. Our debt increased by $1.8 million to $84.8 million during the quarter and, year to date, we have made $12.5 million of voluntary payments under our term loan facility, which were financed from borrowings on our revolving credit facility.

Our debt leverage ratio at the end of the second quarter of FY15 was 1.6 times on a reported basis and 1.2 times on an adjusted basis. Our debt to leverage ratio at the end of the second quarter of FY14 was 2.1 times on both a reported and an adjusted basis. At the end of the second quarter, we had $27.9 million of availability remaining under our revolving credit facility.

I also want to note, we had expected to make a payment to an affiliate of Sun Capital under our tax receivable agreement of $22.8 million plus accrued interest in the fourth quarter. As a result of lower than expected cash from operations due to weaker than projected performance and the level of projected availability under the Company's revolving credit facility, we have entered into an amendment to the agreement to postpone this payment to September 15, 2016. With this change to the TRA, we believe that we will have sufficient liquidity for the next 12 months.

Inventory at the end of the quarter was $45.6 million compared to $58.6 million at last year's second quarter. The year-over-year decrease was primarily driven by the increase in inventory reserves partially offset by the addition of 11 new retail stores since the second quarter of last year and incremental handbag inventory.

Capital expenditures for the quarter totaled $4.8 million of which $2.4 million was attributable to new stores and shop-in-shop build-outs. And $2.4 million was related to infrastructure costs associated with our IT migration project and e-commerce platform migration. We signed seven leases for stores that we expect to open in the remainder of FY15 and early 2016 with several other leases in various stages of negotiation. As of today, September 3, the Company has 44 stores in the US, including 32 full priced stores and 12 outlet stores.

In addition, we are continuing to invest in the business to build a foundation to support the Company's long-term growth. One of the larger initiatives discussed in prior calls was the implementation of our new IT systems as we migrate away from Kellwood's support structure.

The IT conversion was planned for the latter half of 2015. However, we deferred this project due to competing priorities within the business. This delay will also defer the implementation of our new e-commerce platform. However, we feel confident that our current platform will continue to support the growth until the new platform is implemented.

I also wanted to note that, as we announced in today's press release, the Board of Directors and majority stockholders have approved a one-time stock option exchange program to permit the Company to cancel certain stock options held by some of its employees and executive officers in exchange for new or replacement options. If all options are exchanged, this option exchange program will impact roughly 445,000 shares. Also approved was an amendment to the Company's 2013 employee stock purchase plan to allow the issuance of shares of common stock under the plan at a discount of 10% to the market price of such shares at the end of the offer period.

Now turning to our updated outlook for FY15. The outlook we provided in the first quarter assumed a decrease in our domestic wholesale business and high single-digit comps, including e-commerce, in our DTC channel. In addition, we assume that all distribution channels will achieve double-digit growth rates, with the exception of domestic wholesale. We also expect to see gross margin expansion for the year.

Note that our updated guidance for 2015 is adjusted to exclude charges associated with the write-down of excess inventory and aged product to expect a realizable value and the net management transition costs related to executive severance and related costs reported in the second quarter of FY15. The guidance also excludes potential additional costs related to the ongoing management transition.

We are now forecasting total sales for the year of $285 million to $295 million. The reduced sales expectation is primarily a result of the aforementioned issues in the domestic wholesale segment, largely in the off-price channel, as well as the recent softer selling trends expected in our direct-to-consumer channel.

Additionally, this incorporates sales from the opening of 11 new retail stores and comparable sales growth inclusive of e-commerce sales in the mid single-digit range. This is below our previous guidance of high single-digit comp growth.

Also note that, due to the recent softer selling trends in our direct-to-consumer channel and the shift in the timing of certain promotions from the third quarter to the fourth quarter, we expect our third-quarter comp to be in the low to mid single-digit negative range. Additionally we now expect gross margin to decrease by 140 to 190 basis points as compared to last year, due primarily to increased markdowns across segments and expected assistance to wholesale partners. This excludes the $14.4 million inventory write-down in the second quarter of 2015.

Adjusted selling, general and administrative expenses are expected to increase by $13 million to $15 million as compared to last year or by 945 to 990 basis points as a percent of sales over the adjusted FY14 rate of 28.2%, driven primarily by growth in our retail channel from new store openings. This excludes the impact of ongoing net executive transition costs of approximately $3.9 million in 2015, including the $2.9 million incurred in the second quarter and $600,000 for secondary offering costs incurred in 2014. As a result of these revised expectations, we now expect diluted earnings per share for the year to be between $0.31 and $0.37 per share, excluding the aforementioned adjustments.

Finally, we continue to expect our capital expenditures to be in the $18 million to $20 million range for FY15. Capital expenditure investments will be driven by new store openings and incremental shop-in-shops, as well as our new Paris showroom, LA Design Studio and IT investments.

This concludes my comments regarding our second-quarter financial performance and outlook for the remainder of FY15. We will now open the call to questions. Operator?

(Operator Instructions)

Matthew Boss from JPMorgan.

Hi, it is Christina Brathwaite on for Matt. Thanks for taking the question. With the refit of the wholesale channel distribution channel behind us, what do you see as a normalized wholesale growth rate and what do you see is the target level of wholesale mix versus retail longer-term?

This is Mark Brody and thanks for calling in Christina. First off, the mix that we have right now between our men's and women's business is about 84/13. And over time we look to see that to grow about: 80/20, 75/25. And as we are looking to longer-term growth rates, that is getting a bit into our 2016 guidance and we are really not there to -- at this point in time to put forth guidance for 2016. That's something we will really going to be looking a lot at the rest of the year and when we are ready to do that at the end of the year, we will give guidance on that.

Okay. Additionally, what is the best way to think about store growth going forward? You had seven more stores this year. Any thoughts slowing the growth and any concern with the store productivity just given the environment right now?

We have been opening in general about eight to ten stores a year, and we have talked previously about having 100 stores as our target. Ultimately the number of stores we are going to open is going to be dependent on how many good stores we can open because we're going to look for stores that have good financial returns. If it ultimately turns out there is 120 stores, we're going to look to do that. If it's 80, it's 80. But we're going to look at it very economically.

The stores we have opened are in general are performing to our expectations so we are pleased with that. We have had a little bit of issue in our outlets. And we've talked some about some of the issues in our outlet channel and we are working to address our outlets. So we will be evaluating that outlet and full price retail store ratio going forward.

Okay, thanks. Best of luck guys.

Mark Altschwager with Robert W. Baird.

Good afternoon. Thanks for taking the question. Following up again on the lower wholesale orders, could you just talk about the trends that your retail partners are seeing at POS for the Vince brand? I think last quarter, Management talked about some of the missteps in the tops business specifically. Is the softness now more broad-based than that or the magnitude of the pullback maybe increasing those categories? And then additionally, I think you said you expect the pressures to continue into FY16. Is there a way to back out the impact of all the inventory build in that channel over the last couple of years, and ascertain a base level of revenue for the wholesale channel?

First off, when you think about how things have happened at sell -- basically sell-through at POS at our customers. It is a story of women's versus men's. We have said how we see men's is big area of growth. Men's in the first half of the year has been up mid-double digits and has been a nice area of growth for us. It's women's that has been hurting us. And they have been down at POS about mid-single digits.

As we -- really looking to get growth from some smaller categories that are working, which is we talked about in previous calls our mixture of good, better and best product. And that has a lot of that entry-level product is in the good category and that has been some areas that have been missing, which is really what we're looking to fix going forward and improve that distortion of product. Probably not going to be until the latter half of next year and we can get that good, better best allocation back more inline to where we historically have been. But beyond that, and what we have said about being tough in the first half of the year of 2016, don't have much guidance behind that. Did that answer your question?

That is helpful, yes. And just secondly, is there a way to think about a base revenue level for the wholesale channel?

That would be getting into what we foresee as guidance for 2016, and so we are not really there at this point now to start talking about that.

Okay, fair enough. And maybe switching gears real quick on the DTC side. Comps accelerated in the quarter. It sounds like you are expecting that to reverse quite a bit in Q3. Could you elaborate a little bit more on what you're seeing there and what is driving that? Thanks.

So one of the things that is impacting our comps, or at least how we're projecting our comps to be in the second half of the year, is a real focus on reducing our promotional cadence. For example, last year, we had a two-tiered promo that we ran for 25 days through our DTC channel. We've significantly knocked that down for this year and that is going to have a negative impact on our comps here in Q3. But we also think it's the right thing for the brand to become less promotional. It's what our wholesale full price customer counts want from us as well and we think it is great for the brand and will enhance more full price selling of our product.

Great, thanks again.

Jeff Van Sinderen with B. Riley.

Good afternoon.

I wonder if you could share the a little more detail on the retail metrics for your own stores? Wondering, I know you said both brick-and-mortar and e-comm were positive, and I'm just wondering if you could break that out for us for the quarter? Maybe give us metrics like AUR, or EPTATV? I'm trying to get a sense of that transactions, traffic, that sort of thing.

Then maybe also I know you talked about the recent softening in the direct channel. Are you seeing that more in your brick-and-mortar stores? Are you seeing that in e-comm, as well? Maybe we can start there. Thanks.

So you got me with a few questions on the whole thing there, so I will try to address them all. First off, we don't separate all our metrics between our e-commerce and our brick-and-mortar stores. We basically consolidate them.

I will say, US for example, how are some statistics like AURs? I would say AURs overall, were pretty flat. They were a little stronger actually in our e-commerce than our brick-and-mortar. And brick-and-mortar was more impacted because our AURs in our outlets were actually a little lower. Because we have been increasing some of our MFO product, which has some lower price points and those have actually been selling pretty well.

Okay, yes. And then as far as -- I can't, since you're not going to break that out. Let me ask you this. As far as the wholesale segment, if we can shift to that for a minute. Maybe you can just give us a sense of what you are seeing in spring order book trends, not asking you to give guidance for next year, but in terms of order magnitude what you're seeing there?

Spring, that'll be somewhat an easy question to answer because we haven't gone to market yet. That is going to be happening over the next few weeks. And we will certainly we're watching that closely and working with our customers on it.

In some of my earlier remarks that I had, we talked about 2016 where we expect the start of the year to still be challenged. And that is really us looking at how our products have been selling through and really working on the assumption that our wholesale accounts are going to be buying us into how we have been selling that we would expect to see some decreases year-over-year as we head into the beginning of 2016. But we are going to really know that a lot better here after we get through market in the next few weeks.

Got it. Thanks for taking my questions.

Richard Jaffe with Stifel.

Thanks very much. If we could go back to the beginning, and talk about Livia's contribution, the timing for her contribution, and maybe a sense of what she's thinking. She is been there a bit. She's had chance to presumably meet everybody, get a look at what is in the pipeline and reflect a little bit on what needs to be done and the timing. If you could take us from her perspective and the timing for the impact as well?

Okay. First up, we're, as I said my remarks and we've even issued a press release when Livia started, we are really excited to have Livia on board. She's got a great track record as a merchant, and this really I think going to be a great addition to the team and really develop great working relationships with everybody here so far.

As far as starting to feel the impact of what she can do on the merchant front, given the product development cycle that we have, it is probably going to be more to the latter half of next year. Like fall of 2016 product that we can really start seeing some of the impact of her contributions.

Just to be clear. So the team is intact? The big change is just Livia and she's comfortable with her soldiers, the team beneath her? Is that correct?

Yes, she has the same team. She's just now leading the merchant function, which is really a position we needed and are glad to have her there for.

And the design counterpart, is there any changes anticipated for that side of the equation?

No, not at this time. They are working in collaboration together on all their -- we've a designer for men's and a designer for women's and handbags. And they all work in collaboration with Livia.

I understand the need for Livia, and I share your excitement about what she can bring to the table here. But I am concerned that if the product had been uninspiring for several quarters, that the design team which is responsible for that product, now has a far greater responsibility, but they got it wrong once. What is going to change to get them inspired in a new direction? I'm just trying to understand that.

Really, as far as what we're talking about, Livia, I think she is really going to help them hone in on the right product assortments and make sure we stay in the guard rails of who our target customer is. I've talked to Livia about moving out of the good, better best range, probably got a bit too aspirational, got a bit too much better and best product and not enough good. And I think that is an area where Livia will be able to contribute with that.

Okay, thank you.

Erinn Murphy with Piper Jaffray.

Good afternoon. This is Christof Fischer on for Erinn. I was wondering if you could talk a little bit more broadly about category trends that you have seen over the past couple months and how you think about that going forward? In particular, I'd be interested to hear your thoughts on the handbag and the footwear category?

Okay.

First, you asked about handbag and footwear. As it relates to handbags, we mentioned that we launched it last year. We had to make some adjustments in some of the functionality of the handbags and that is in place. But frankly, we continue to evolve that and look to keep improving it. We also adjusted the price points of the bags. That's happened this past season, as well. You put those together, we start to see some improve sell-throughs on those handbags, but it's still not where we want it to be. Frankly, we are not even a full year into it yet. So we are still hopeful but it's frankly, still a small part of our business, so it's still got a lot of potential.

Footwear, that performs very strong. Our women's continues to grow quite well. We launched men's in the latter part of last year so that is been helping our comps this year and it's been a good category for us. Also, men's continues to grow and really bottoms and outerwear, both in men's and women's, is really an area of growth for us.

Okay great. That's very helpful. Maybe as a follow-up, I was wondering if you could give any more granularity on the outlet performance versus full price. I know outlets was a little bit softer but any kind of thoughts how you think about that going forward or how you -- what kind of strategies you have in place to (technical difficulty) and the softness?

We haven't broken out separately full price or outlets. Our whole DTC is put together as one, including e-commerce. I did mention a little bit ago about the softness in outlets and we attribute that to a couple of things. Traffic is certainly one. We have seen some traffic challenges in our outlets. Some of it is things you hear about declines in international travel and visitors and things like that.

How we are combatting it is, we're looking to put in some selective marketing campaigns. Not big money, but enough to start driving some more traffic hopefully to our outlets. We are also working on improving our promotional cadence within the outlets, as well to make sure we are price competitive. But really have good sharp prices for our product and move out the excess product when we need to.

Okay, great. Thank you very much.

Joan Payson from Barclays.

Hi, good afternoon. Thanks for taking my question. Could you talk a little bit about your long-term operating margin target, if that's changed at all and at what point you would expect margins to begin expanding again?

Okay. Right now as we sit here today, we still feel like the long-term strategies of Vince are still intact. We are not looking to change any of our strategies. We are looking to, hopefully, execute on them better. And with all of that, we're at the point where we are saying we are looking out to long-term guidance or even directionally saying our operating margin should be a different number. We are not really to that point yet. Our operating margin still we think could be quite strong.

Okay. And as you are beginning to focus on right-sizing parts of the North American business, does that postpone any of the international expansion strategy?

Not at all. We actually just recently hired an individual here in July to be our Vice President of International, Craig Samuelson. He's got a wealth of experience in the international area, particularly in Asia, and he has been traveling all over the world in his first month and a half. I think he is going to bring a nice contribution to us in that area.

Great, thank you.

Lindsay Drucker Mann from Goldman Sachs.

Thanks. Good afternoon, everyone. I wanted to follow-up on as the team has come in and tried to get a better handle on how business shifted as dramatically as it did going back from a year ago to today, you talked about perhaps pursuing and the higher price points too aggressively and neglecting some of the entry product. I was curious if there was anything else that you could identify as missteps that could have been avoided to have maintained business momentum or if some of this is just broader category weakness that came home to roost? Maybe just some perspective on how things deteriorated.

Ultimately, it's being true to the core of what the Vince customer is and the fabrics, the hand feels that our Vince customers are looking for. We got a little broad in that and I think we need to focus a little more on that. Having more of our everyday essential type products available to them. And once again, having a high penetration of great price product in the good category.

Great, and then maybe just following up on Joan's question, as we think about your margin structure versus peers, you still do have businesses operated at very high margins. And it's typically been a function of OpEx as a percent of sales rather than gross margins. I am wondering if you feel like there's areas you have under invested in where we need to beef up some of the investment and could see some deleverage there? Thanks.

When we look at the Business, obviously, we have some challenges in sales right now. A lot of it coming from the off-price channel frankly. That's probably about half of our drop that we are seeing in our reduced sales guidance. That isn't an area where frankly we have much investment or a need to have a lot of investment: our investment is really in the other areas of the business; our wholesale sales team, our operations team, our design technical teams. And it's a great group of people we have there today and we're always looking to strengthen that team. We are frankly right now looking at adding regional sales specialists in our wholesale team around the country to better serve our wholesale accounts. So we are going to continue to invest in that because it's frankly a great return.

Great, thanks so much.

There are no further questions at this time. I will turn the call back over to the presenters.

Okay, thanks everybody for joining the call today and look forward to talking to you again next quarter.

This concludes today's conference call. You may now disconnect.