Earnings Call: Q1 2021

Jun 10, 2020

Greetings, and welcome to Oxford Industries First Quarter Fiscal 2020 Earnings Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. Please note this conference is being recorded. I would now like to turn the conference over to your host, Anne Shoemaker, Treasurer. Thank you. You may begin. Thank you, and good are not guarantees and actual results may differ materially from those expressed or implied in the forward looking statements. Important factors that could cause actual results of operations or our financial condition to differ are discussed in our press release issued earlier today and in documents filed by us with the SEC, including the risk factors contained in our Form 10 ks. We undertake no duty to update any forward looking statements. During this call, we will be discussing certain non GAAP financial measures. You can find a reconciliation of non GAAP to GAAP financial measures in our press release issued earlier today, which is posted under the Investor Relations tab of our website at oxfordinc.com. And now I'd like to introduce today's call participants. With me today are Tom Chubb, Chairman and CEO and Scott Grassmeier, CFO. Thank you for your attention. And now I'd like to turn the call over to Tom Chubb. Good afternoon, and thank you for joining us. Before providing you with an update on our response to COVID-nineteen and our Q1 financial and operating results, I'm going to spend a few minutes on recent events. What has happened across the country over the last few weeks has brought into sharp focus that we, as a country, are still falling well short of our national aspiration of racial equality and equal economic opportunity for all. It is time for us all to listen, learn and act. We can feel heartbroken, fearful or uncomfortable, but we must get busy and take action to change things for the future. With this in mind, Oxford is making a $1,000,000 commitment of additional support over the next 4 years to help our local communities address economic and racial inequality through education. Every child regardless of race or economic circumstance deserves the chance to learn and be successful. The likelihood of success increases exponentially when a child has access to a quality education. All too frequently, particularly in economically disadvantaged communities and communities of color, that access does not exist. Our commitment builds long history of supporting education programs that improve access to quality education for economically disadvantaged youth in predominantly African American communities. Now let's talk about what's going on in our business. It goes without saying that this year is a very unusual year. In any other year, our key objective is always delivering the sustained profitable growth that drives long term shareholder value. With the shutdown of the economy in response to the COVID pandemic, this is a year that, given the nature of our business, makes it almost impossible for us to achieve this objective. That said, we believe this situation is temporary and that by focusing on our people, our brands and our liquidity head, We believe this situation is temporary and that by focusing on our people, our brands and our liquidity, we will emerge from this year positioned well to thrive in the new and very different post COVID marketplace. With respect to these three objectives, people, brands and liquidity, I am very pleased with what we have accomplished since March and the track we are on for the rest of the year. With respect to people, the COVID pandemic and the resulting shutdown have been incredibly disruptive for people at both personal and professional level. To navigate through this difficult situation, we have had to take a number of painful but necessary actions that have added to the disruption in people's lives. These have included layoffs, furloughs, pay reductions and other actions, including work from home that have added to the challenges that people face. We do not take these actions lightly at all, and I am deeply appreciative of how our teams have rallied. Their commitment, resourcefulness and focus has far exceeded what I could have possibly hoped for. As we are beginning to emerge from the shutdown or in the early stages of recovery, I believe our team is stronger than ever and better suited to take on the new challenges facing our industry. Secondly, with our bricks and mortar operations substantially shut down for several months and only now slowly beginning to reopen, we have done a terrific job of protecting and preserving the integrity of our brands and our relationship with our customers to ensure we remain in a strong position for the post COVID consumer marketplace. We took actions to help us mitigate an over inventory position, which would undoubtedly require us to engage in the heavy discounting and promotional activity that could damage the integrity of our brands. We reduced and canceled existing orders, we reduced the amount of our previously planned forward orders and we delayed and remerchandised inventory that was already in the pipeline. Through our digital marketing and e commerce capabilities, we have also done a great job of keeping our customers engaged with our brands in ways that are relevant during this unusual time. The key takeaway is that some of the most effective messages were those where we really leaned into our brands and their messages of optimism and happiness. Customers really look to our brands as an escape from some of the realities of living in a quarantined work from home, homeschooled world. Reemergence from the shutdown has also accelerated our efforts to become truly omnichannel. We believe that all of these actions put our brands in great shape for the future that lies ahead. Finally, and very importantly, we have managed our cash outflows very carefully and as a result have preserved the strong liquidity we had going into the shutdown. We are confident that we will finish the year with more than adequate liquidity to grow and thrive going forward. Some of the key steps that we've taken have included painful but necessary reductions in employment expense, including the elimination of cash bonuses and reductions in executive and other employee salaries, reducing the forward inventory commitments, slowing down capital expenditures, negotiating equitable rent arrangements with our landlords and a reduction to our dividend and the Board of Directors' cash compensation. Many of these actions are ongoing, including our discussions with landlords as we work to resolve the current situation. To reiterate, our key focus this year is making sure our people, brands and liquidity are in an excellent position for the post shutdown consumer marketplace. I'm very proud of what we've accomplished and believe we are on the right track towards achieving these critical objectives over the remainder of the year. I'll now turn the call over to Scott for more details. Thank you, Tom. Our Q1 of 2020 began strongly. In February, we were very excited to open 2 new Tommy Bahama Moreland Bars, both in the Fort Lauderdale area. Our retail and e commerce businesses were posting positive comps and we were on track to add to our multiyear positive comp trend. As we approach mid March, the spread of COVID-nineteen started to celebrate and began impacting the retail marketplace. On March 17, to protect the health of our employees and customers, we temporarily closed all of our North American stores and restaurants. Our corporate offices successfully adopted work from home strategies and with appropriate safety measures in place, we have been able to keep all of our distribution centers open. The impact to Offshore from the COVID-nineteen crisis is exacerbated by the seasonality of our business. Our Tommy Bahama, Lilly Pulitzer and Southern Tide brands are oriented primarily to springsummer with March through June being 4 of our strongest months of the year. Our stores and restaurants, which make up 47% of our overall sales in 20 19 just began to reopen in early May and we expect to have almost all of our locations open by the end of June. As our stores open, however, they are operating with many restrictions in place and consumer traffic that is rebuilding slowly. The stores that are open are operating in about half prior year levels on average with significant regional variations. But we don't expect revenue from stores to reach prior year levels at any time during 2020. We do anticipate steady improvement as restrictions ease and consumers comfort level increases around travel and shopping. Turning to our wholesale channel, appears that the pandemic is likely to accelerate the closure of a number of department specialty stores. Over the last several years, we have very carefully managed our exposure to these accounts as it become increasingly difficult to find partners with whom we can maintain a mutually beneficial business. In 2019, wholesale sales at Tommy Bahama decreased to 20% of revenue and at Lilly Pulitzer 21% of revenue. Most of our wholesale partners have excess inventory and we believe it will take them a while to work through what they have on hand. But we believe the demand for new product will be soft in 2020 and therefore we expect wholesale revenue to be significantly lower than 2019. Throughout this challenging period, we were able to successfully use our digital platforms to stay connected with our customers. E commerce, which was 23% of our revenue in 2019, grew by 12% in the Q1. And the positive momentum has continued into the Q2 as we reap the benefits of the long term investments we have made in digital and e commerce, such as upgrades and redesigns of websites, enhanced search engine optimization and new enterprise order management systems. In the Q1, adjusted gross margins declined 220 basis points due to higher inventory markdowns and a modest increase in promotional activities. We expect to continue to experience pressure on gross margin as we expect to be modestly more promotional throughout the rest of the year. We have made significant strides in reducing expenses in the Q1, with reductions across most spending categories, reducing SG and A by $17,000,000 compared to last year. Employment costs were reduced by $11,000,000 in the Q1 as we made the difficult decisions affected our employees. We furlough substantially all of our retail and restaurant employees, eliminate positions throughout the organization, reduce salaries for certain employees and we suspended our bonus and 401 match programs. We expect SG and A to be lower year over year with the largest percentage decrease in the Q2. Then as we expect all locations to be open for the full 3rd and 4th quarters, the year over year percentage decreases in SG and A are expected to narrow. Managing inventory is a critical component of ensuring the health of our brands, and we have taken meaningful actions to reduce and defer inventory orders, with approximately a 25% reduction in forward orders. By repurposing some of Tommy Bahama springsummer collection, we've taken about $25,000,000 of inventory, moved it out to Tommy Bahama's resort line in December. And we have been working with our vendors to extend payment terms. We are pleased with our efforts and inventory at quarter end increased only 8% despite the significant sales decline. While it's incredibly difficult to project results in this uncertain environment, I want to add some color on how we currently view the remainder of the year. The timing of the COVID-nineteen pandemic created significant headwinds to our top line. And similar to the Q1, we expect a significant year over year decrease in 2nd quarter sales. However, in the second quarter, we expect a larger percentage year over year decrease in SG and A, resulting in a smaller loss than in the first quarter. The Q3 is always a difficult quarter due to seasonality and we expect it to be even more difficult this year. Right now, we are projecting the Q4 to be modestly profitable with some recovery in our direct consumer channel, but sales will still be below last year. As Tom mentioned, preserving a high level liquidity is essential during these uncertain times. We have ample liquidity to meet our ongoing cash requirements, reflecting the strength of our balance sheet entering the pandemic as well as the recent actions we have taken to mitigate the COVID-nineteen impact. During March 2020, as a proactive measure to bolster cash and we drew down $200,000,000 of our $325,000,000 asset base revolving credit facility. At the end of the Q1, we had $208,000,000 of borrowings outstanding, an additional $114,000,000 of unused availability and $182,000,000 of cash and cash equivalents. Our cash flow from operations used $46,000,000 in the Q1 compared to a use of $6,000,000 in the prior year period. As we ended the Q2, our cash burn rate has decreased and we expect it to continue at lower levels throughout the remainder of fiscal 2020. The Q1 of fiscal 2020 net sales in each of our operating groups decreased from prior periods resulting in significantly lower operating results, including operating losses in each group other than Lilly Pulitzer. As a result, this triggered 1st quarter goodwill and indefinite lot intangible asset impairment assessments in accordance with our accounting policies. Our assessments included at the fair values of the Southern Tide goodwill and definite lot intangible assets as of May 2, 2020 did not exceed their respective carrying values, resulting in a $60,000,000 non cash impairment charge. Last quarter, the Board of Directors reduced our quarterly dividend from $0.37 per share to $0.25 per share. The Board has determined that is appropriate to keep the dividend payable on July 31 at $0.25 per share. The Board has also elected to reduce its cash compensation by 50% for the remainder of the fiscal year. Thanks everyone for your time today. We appreciate your support. Please stay safe during these challenging times. Devin, we are now ready for questions. Thank you. At this time, we will be conducting a question and answer session. Our first question comes from the line of Rick Patel with Needham and Company. Please proceed with your question. Thank you. Good afternoon and hope everyone is well. Thank you, Rick. You touched on stores not reaching the same level of productivity as last year during 2020. Can you provide some additional color by channel? I'm assuming you still expect e comm sales to be higher, but love to get any color you may have on store level sales versus wholesale as we think about the next few quarters? Yes. So I think with respect to e comm, it's been strong. It was strong in the Q1. Q2 actually is going really, really well so far and we expect it to frankly remain strong throughout the year. I don't really see that taking a turn for the worse at all. On stores, what we're seeing is that as we reopen, our guests' emotional connection with our brands is stronger than ever. But you're still acting in a very restricted environment. You've got kind of a couple of considerations going on. 1st and foremost, we want to make sure that we're doing all the things that we should be to protect the health and safety of our employees and our customers. Secondly, you've got sort of governmental restrictions and guidelines that you're trying to comply with and are complying with. And third, you just have consumer sentiment about getting out and about. And what we're seeing is sort of what tracks what you're seeing on the news in the places that are more receptive to reopening in Florida and Texas and maybe Arizona, places like that. We're seeing really we're in many cases approaching the level that we did last year. And on specific days, we're actually even comping up in some places, not every day, but some days. And then in other places, it's much slower. And our general experience is we've been bringing stores back is that they start back and 1st couple of days back, you're doing 10% or 15% of what you did the previous year and then it tends to build up from there. On the wholesale, they face a lot of the same challenges. On top of that, A lot of them are in really tough inventory positions where they've got a lot more inventory than they need at the moment and they need to work through that. So we expect demand there to be suppressed for the balance of the year. I just don't think they'll be taking in goods at the same level or close to what they did last year really. So e comm really good, retail, our own direct channels, I think will build sequentially through the year. And the wholesale, I think will be continue to probably be challenged through most of the year. Scott, can you Tom, on the last point on wholesale, we've heard from some other brands that they're planning their fault order books down 30% or even more just given the inventory issue that you're touching on. Are you approaching it the same way from a planning perspective or do you not expect it to be that severe? We certainly are not we're not planning to try to force goods on people where they're not ready for them. In our forward order buys, we approached it with something where we're buying 25% less on a forward order basis with the idea that wholesale will be down and our own channels won't be all the way back up. But we have seen it has been a very slow start back up to wholesale. So and I think it will take some time for the inventory to correct itself. Got it. And then I'm sorry. Go ahead. No, go ahead. I was going to ask about the gross margin. So down 220 basis points, it's yes, it's down, but like it's not nearly as severe as what we've seen from a lot of other companies where it's down north of 1,000 basis points. So just curious, your thoughts on the ability to kind of limit gross margin deterioration? And is it safe to assume that 1Q is the most severe in terms of the gross margin decline and we should see it getting less bad going forward? Yes. As we get into season clearance periods, it'll probably be more goods clearing. So I think those quarters could have a little bit more pressure. Hopefully, when we get into the Q4, it'll maybe be a little bit less pressure. But we did by deferring some of the inventory, canceling inventory, our groups got on it early and we're able to go in there with current buyers, reduce them, we're able to remerchandise and delay some goods that were scheduled for summer, push them out to the resort season. That has taken a little bit of pressure off. And I think right now being only 8% up with over 40% of sales reduction, we're really pleased with actions our groups have taken. I appreciate it. Thanks very much. Thank you, Rick. Our next question comes from the line of Edward Yrumov with KeyBanc. Please proceed with your question. Hey, good afternoon. Thanks for taking the questions. I guess first on the store footprint, given some of the changes that may occur, any thoughts around the current size of the footprint? And are you taking the opportunity to close stores permanently? And then as a housekeeping question, I know you've mentioned you're in kind of negotiations for rent. Have you expensed the full amount of rent in the Q1? Or do you catch some of that up in later quarters? Thanks. Yes. So Ed, thank you very much for being on the call today. And I'll answer the first or the last one first because it's got the most straightforward answer and that's that we are fully account expensing the rent during the Q1. So unless we had a signed deal with the landlord giving us some kind of break, we ran the full rent expense through the income statement. So there's no surprise coming later on rent. Secondly, on the store footprint, I think we are thinking a lot about what the store looks like in the future. And I don't know that we got all the conclusions less. I think that we probably over time are going to see less people in stores. But when they get there, they're going to be more committed to buying. They're going to have done their research in advance. They're going to be looking for the expertise in the service of our great staff the stores. And it may end up physically changing the way that we want to lay out those stores and the size of them, but I don't know that we've drawn any hard conclusions about that. And then in terms of store count, one of the things that I think was a strength going into this shutdown is that we were not overstored. We didn't have a lot of stores that were marginal. So while this situation has definitely put pressure on things, I don't expect to close down a lot of stores as a result of this. I can't say that there won't be a small handful that won't reopen, but I don't think we'll close down a lot of stores in the short term. Just one other follow-up, if I may. You guys in the field have been a very disciplined buyer. I know it's probably tough to talk about during such time of pressured macro, but you bought Lilly at a fantastic opportunity at this time. Are you starting to see potential targets get more reasonable valuation? Is this something you'd entertain at this point? Thank you. Thank you, Ed. And I think that's right. We did buy Lilly at the end of 2010 and that was kind of when the recovery was underway after the financial crisis. And we think there might be an opportunity like that again. What we're seeing right now is a little bit more of sort of distressed situations where the businesses were probably not in the best shape going into the crisis and just have had further strain on them. But I think, hopefully, and we're our eyes are open to it over the coming months as things start to rebound, there could be some good opportunities and we will definitely be looking for them. Thank you. Our next question comes from the line of Susan Anderson with B. Riley FBR. Please proceed with your question. Thank you for taking my question. Hope everyone is well. I guess maybe to start out, can you talk about, I guess, the differences that you're seeing? I think you said that some stores were opening or maybe it was the average down 15% and then improving. I guess one is that the average across the base and maybe just talk about the differences that you're seeing in the regions that are performing better versus the regions that are maybe opening up a little bit slower. And then if you could comment on just how Hawaii and California is doing? Thanks. Yes, sure. So Susan, thanks for being on the call and thanks for the question. The stores that are doing best are really the ones that are in locations that people are driving to, to kind of get away from it all and that are in a sunny place that has something to do with the beach. So for example, we've got stores in Destin, the Sand Destin Resort area in Florida that are doing very, very well. We've got a couple of outlet stores in Myrtle Beach, South Carolina and Hilton Head that are doing very well right now. And we think that's all about people driving down to those places from a variety of locations around the country to get away from things and have a little break and a little vacation. We've got one on Kiawah, a couple on Kiawah that are doing quite well. So those are the types of locations that are our Naples stores are doing well. Palm Beach is doing well. Those are the types of places that are doing well. Where it's harder is the stores that are in enclosed malls in sort of more the interior of the country. Those are a little slower coming back. And frankly, those are the ones that we're tending to open a little bit later too. Then with respect to Hawaii, as you know, Hawaii is still completely shut down. If you were to fly there today, you would have to go into quarantine for 14 days. So there's fundamentally no tourist business at this point. We're doing a little bit of business in Hawaii, but it's going to be hard for us to get back to our normal levels without the tourist business. We're looking forward to when it reopens. We think it will. The COVID case level is very low at this point. So we're hoping that, that will come reasonably soon. And then Hawaii has a little bit of an echo effect on California because a good bit of our California business is people who are West Coast based that are headed to Hawaii on vacation and they stock up before they leave. On the other hand, we have some California locations that I think as things begin to open up out there are going to do really well. Palm Desert and Palm Springs, even though they're very hot during the summer, I still think a lot of people during from Southern California want to drive over there on the weekend just to have a break, and that should benefit us in those markets. So definitely a mixed bag by location. Warm, sunny, outdoor and drivable are all big pluses right now. Great. That's very helpful. Thanks for all the details. And then I don't know not sure if I missed it, but can you talk about maybe the online business by brand in the Q1? And then I think you said, in general, online accelerate in Q2. Did you see that across all of the brands also? So in Lilly, across the board, we were up 12 for the quarter, which was good. We had a good start to the quarter than the earlier parts of the quarantine. It was a lot choppier. And then as we got later into it and even up till now, it's picked up a lot. I would say that Lilly has been the strongest, but I think we've been pleased really with what we've seen across the board. And in terms of Q2 to date, I think it looks really good so far. Again, Lilly's leading the pack. But I would say that I would point out that for Tommy, you've got a big calendar shift going on in that Father's Day this year is the latest it can be versus the earliest it can be last year. So you're really not quite comp yet because that's such a big event for us. We anticipate we're going to have a big next couple of weeks in Tommy Bahama with Father's Day coming and that'll be good. We're actually pleased with how we're tracking there month to date, and it sets up for good Father's Day there, which should lead to a pretty good quarter there in e comm. Great. And I guess one last question. I think you had said that you're planning orders down 25 in the back half. I'm assuming that because I think you saved maybe some product that you were originally going to launch in first half or back half that offsets that a little bit. And then I guess, if demand is stronger than that, I guess, what would is there any ability at all to chase? Well, I think what we're doing you're doing a couple of things, Susan, with the inventory. You're planning for a business that for the year is going to be significantly smaller. So you just need less inventory. That's one thing you're trying to adjust for. And the second is you have all this inventory that's kind of been in quarantine too that you need to still use at some point. So you reduce forward orders, you cancel forward orders, you buy less forward and then you take what's already in the pipeline and you delay it and remerchandise it for later quarters. But there again, there are a couple of things that you're trying to do, but we've effectively planned into a smaller business for the year. I think it would be a high class problem if we ended up short of inventory in the Q4. There's some ability to chase if things really start to take off in the Q3. And even with everything we've done in the on the inventory front, I'm still not really worried about being short of product. Great. That's helpful. Thanks so much. Good luck in the Q2 and hope everyone stays safe and healthy. Thanks. Yes. Thank you. You too. Our next question comes from the line of Steve Marotta with CLK Associates. Please proceed with your question. Good afternoon, Tom, Scott and Ann. Could you mention if any Marlin bars have reopened and if there's any material variance in the performance of those locations versus the average store opening? Yes. We've got a couple of Marlin bars open and they're doing really well. We I'm glad you asked that question because we actually think the Marlin bar is perfect for the situation that we're in. People are a lot more comfortable outside for good reason. The all the health experts will tell you that the risk of spread is a lot lower outdoors, especially in hot humid climates. So that sets up really well for our Marlin bars. And then the second thing, and this is a great sort of byproduct of the quarantine is that we build a much, much more robust takeout business than we ever had before. We really didn't fundamentally weren't really in that business before. And right now, I think the last we heard, it's running about 15% to 20% of the total in those places. And the Marlin Bars and their menu items are very, very well suited to take out. So that's been kind of a people talk about how crisis creates innovation and results in new business models that live on forever. I don't think we'll go backwards on takeout. I think we'll keep doing takeout. And I think we've in a short amount of time, our team has been very focused on doing that in a very Tommy Bahama way, very proud of what they've accomplished there. And that's going to be a nice little legacy of the situation. That's very helpful. And also, Tom, in your opening remarks, you mentioned that there's some accelerated efforts to become truly omnichannel. Can you talk a little bit about any of those mile markers that you may have reached in the Q1 or since the quarter is closed? Yes. So I think a couple of things that we've done or as we've reopened, we had done buy online, pickup in store is sort of the first step in the reopening it, not everywhere, but in a lot of cases. So that's been a step in that direction. We have also been doing a lot of shipping from store even as the stores were not really open to the public. We've done in some cases where we weren't really fully open yet, we've done by appointment only. And that's a scenario where people are maybe booking the appointment and communicating with the store associates digitally and then they're coming in for their appointment. That is also something that I think will live on beyond this. So there are a lot of different things like that, that I think have made it such that the digital and e commerce presence is becoming even more and more important and then the store is part of supporting that overall effort. That's great. Helpful. Thank you very much. Yes. Our final question comes from the line of Dana Telsey with Telsey Advisory Group. Please proceed with your question. Good afternoon, everyone. Glad to hear everyone is safe and healthy. Thank you, Dana. As you think about inventory levels, did you take any reserves? Where do you see inventory winding up as move forward? And how much did it impact the gross margin? And are you packing and holding any for next year? We took about $4,000,000 of additional inventory markdown reserves in the Q1. So it did weigh on our margin some. Depending on where the sales land, we probably end the year with higher year over year inventories, hopefully not a whole lot higher than Q1. However, the marketplace accelerates better than we've kind of baked in that could be different. We did really work with vendors on delaying inventory and a lot of the goods were held in Asia by the vendors and not billed to us or shipped to us. So not only from a brand protection standpoint, not having way too much springsummer inventory, but from a cash standpoint deferring a lot of those inventory payments, both of those things happen. So overall, we're pleased where we are now and we're just really happy the way our groups got on this immediately. As soon as this situation was arising, it was really priority safety was priority 1, priority 2 was inventory. What can we do? Because the quicker we acted, the more opportunity we had. Got it. And Scott, you talked about more SG and A reduction coming. Where is that coming from? Where does marketing fit in this? And how do you look at that? Yes. A lot of the actions are tapping during Q1, so we'll get the full benefit in Q2 of a lot of actions that happened sometime during Q1. And marketing, we are reshuffling some marketing dollars. We'll probably spend a little less, but we are spending more in digital, maybe a little less than some catalogs right now. So there is some shifting. We've left a majority of the marketing in the budget, but are being very thoughtful before it spent. So it's an opportunity that it's not working, we might spend less than we have planned. And if it's working, we might spend those dollars, but rechannel them. And how do you think about CapEx for the year? We should be around $30,000,000 and I believe originally we're planning $50,000,000 ish or maybe a little more. This was going to be a pretty high CapEx year. We've deferred some things, but we still have Marlin bars. We have the one in Fashion Valley in San Diego. We're still going forward. We had Jacksonville was well under work. So we've got that Marlin bar about finished up Lahaina in Hawaii. That one's under construction. So those are the ones that we just had to move forward with. Systems project wise, there's some things we are deferring to next year, but there's some things that we really believe we can get a good revenue boost for it's worth going forward with. So we're not being we tightened up on and we deferred what we could, but at the same time, we're trying to be smart about and things that can really help drive revenue in the near term we've gone forward with. When you think of the complexion of the second quarter, could the sales decline in the Q2 be as great as the first and then the SG and A reduction help to make up for it? And my last question is, what permanent changes in how you run the business is coming out of this? Well, I'll take on the SG and A, that's correct. One thing, remember, Q1, we shipped in most of a lot of wholesale in Q1 early. Now wholesales really, we don't expect a whole lot of life in Q2 in wholesale. So the sales decline, it could be as big as Q1. I mean, it's obviously very difficult to project, and but we do see a significant decrease in sales. And as you said, the SG and A helping offset that. Yes. In terms of the way that the business will permanently change, Dana, I think it's really that wholesale probably is going to continue to decline in its importance to us. E com is going to continue its rise to sort of the center of our world. And stores will be a very important our own stores will be a very important part of that. I think we are making great progress towards being truly omni channel with sort of a single view of the customer and single view of inventory, the ability to fulfill demand from anywhere with inventory from anywhere. We're making great progress on those things. Most of that was in works already. It's just that the quarantine, the shutdown had really just accelerated trends that were already happening. Got it. Thank you. Thank you, Dana. Stay well. We have reached the end of our question and answer session. And I would like to turn the call back over to Mr. Tom Truk for any closing remarks. Okay. Devin, thank you very much to all of you for being on the call today. We very much appreciate your interest. We wish you a safe and enjoyable summer, and we'll look forward to talking to you again in a couple of months. This concludes today's teleconference. You may now disconnect your lines at this time. Thank you for your participation, and have a wonderful day.