Earnings Call: Q2 2021

Jul 20, 2021

Welcome to Sleep Number's Q2, 2021 Earnings Conference Call. All lines have been placed in a listen only mode until the question and answer session. Today's call is being recorded. If anyone has any objections, you may disconnect at this time. I would now like to introduce David Schwantes, Vice President of Finance and Investor Relations. Thank you. You may begin. Good afternoon, and welcome to the Sleep Number Corporation Second Quarter 2021 Earnings Conference Call. Thank you for joining us. I am Dave Schwantes, Vice President of Finance and Investor Relations. With me today are Shelly Eibach, our President and CEO and David Callan, our Chief Financial Officer. This telephone conference is being recorded and will be available on our website at sleepnumber.com. Please refer to the details in our news release to access the replay. Please also refer to our news release for a reconciliation of certain non GAAP financial call. The The primary purpose of this call is to discuss the results of the fiscal period just ended. However, our commentary and response outlined in our earnings news release and discussed in some detail in our annual report on Form 10 ks and other periodic filings with the SEC. The company's actual future results may vary materially. I will now turn the call over to Shelly for her comments. Good afternoon, and welcome to our 2021 Second Quarter Earnings Call. My SleepIQ score was 84 last night. As a company with purpose, Sleep Number is keenly focused on innovations and long term investments that improve the health and well-being through higher quality sleep. Every night, our life changing 360 smart beds with SleepIQ technology Deliver an effortless individualized sleep solution that benefits millions of smart sleepers. As As consumers continue to prioritize their health, we are driving exceptional demand for our Sleep And even as consumers increase their travel and entertainment activities, We are deepening and broadening our brand relevance. Our unprecedented demand growth combined with global focus on our customers' experience has led to the acceleration of key initiatives that scale Our capabilities, increase our efficiency and contribute to superior stakeholder value creation. As a result of exceeding our internal expectations, we are again raising our full year 2021 EPS guidance. Our new outlook of at least $7.25 compares with EPS of $4.60 full year 2020 excluding the 53rd week and is nearly 3x our 2019 EPS of 2 point changes and benefits of our vertically integrated business model. Specifically, consumer demand For our smart beds in the first half of twenty twenty one was up more than 40% versus 2019, reflecting an acceleration in the Q2. In fact, since transitioning to all smart beds 12 quarters ago, Our average quarterly demand growth accelerated to 18%, significantly first half grew 39% to more than $1,000,000,000 and were up 35% over the first half of twenty nineteen. Net operating profit grew to a rate of more than 10% of net sales, up 161% from 20 20 1st first half in 166 percent from 2019. EBITDA was $148,000,000 up 80 Ashram operations of $161,000,000 up 86% and our trailing 12 month return on invested capital was a record 33% as we continue to realize tremendous value from our disciplined capital deployment. We delivered these exceptional results while absorbing the inflationary impacts of a global supply chain that remains challenged by labor and material shortages. Our ability to effectively manage the related challenges is a key benefit of our vertically integrated business model. To better align inventory availability with Our accelerated demand, we extended customer delivery windows in late May to 4 to 6 weeks. Working closely with partners across our supply and fulfillment chain, we have made significant progress in addressing temporary component shortages. First available delivery dates are now 3 weeks, and we expect robust delivery volumes for the balance of the year. The benefit of synergies across our purpose, culture, strategy and business model in our brand relevance and reach, consumer demand and engagement, development of new sleep health innovations, our smart sleep digital ecosystem end investment in key strategic initiatives. Together, these synergies are perpetuating sustainable, profitable growth and creating substantial value for stakeholders. It starts with emotional digital storytelling, which is amplified by in house digital capabilities that tailor our message by media type, audience and platform in real time. This strategy is driving double digit increases in high quality digital traffic and engagement, and we are converting this strong consumer interest at record levels across All are touch points. Trailing 12 months online and phone sales are now 13% of total sales, up from 7% 2 years ago, while sales per store now average over 3 $500,000 on a trailing 12 month basis, up 27% from 2 years ago. Our SleepIQ health and wellness features, which link quality sleep to daytime well-being, increased engagement with our customers. Our 360 smart bed monthly active usage rate is over 90%, up from 84% a year ago. Here are two examples in our customers' voice of the sleep health benefits provided by our innovation. Martha from Columbus, Ohio shared, as an allergy sufferer, I can share this data with My doctor to show the effects of recent treatments on my sleep. Without having this technology and sleep data, I would not have noticed important trends or been able to get at the root cause of my issues. And Bill from Denver, Colorado said, My favorite SleepIQ feature is the circadian rhythm tracker. It helps me adjust my bedtime and awake time routines for better sleep and daytime energy. This is also my favorite feature. This passionate engagement drives brand advocacy bolstered by our loyalty program known as Inner Circle Rewards, Which is resulting in referral and repeat sales approaching 50% of net sales. This level of loyalty is a clear indicator of the relevance of our brand and sustainability of our growth. It has been exciting to see the ongoing impact of this growth flywheel. We continuously invest in, test and refine incremental initiatives to drive Here are some highlights for the back half of twenty twenty one. We are extending digital capabilities across our operations, including our supply chain. The advancements strengthen fulfillment, responsiveness, Reliability and data analytics. We are already seeing customer experience and efficiency gains. We're on track to benefit from approximately 50 net new Suite Number stores, which will contribute about 5 points of growth in the back half. We just introduced a 360 innovation limited edition smart bed with temperature balancing technology. We're capturing the benefit of additional price increases across our entire line, which took effect last week. And we're advancing our brand campaign and launching a new ad featuring Dallas Cowboys quarterback, Dak Prescott, during the NFL season opener against Tom Brady and the Tampa Bay Buccaneers. The campaign will be supported by our most robust NFL media package to date. On a final note, we are paving the way into the future of Sleep Health as we extend Sleep Number's leadership in sleep science and research. In the coming months, we'll introduce a sleep health feature to more easily link sleep quality to an individual's overall health. We continue to build our sleep database, which now includes nearly 11,000,000,000 hours of sleep data. This longitudinal data strengthens our partnership with the world's leading sleep health researchers, physicians and institutions. The outcome is a long term data driven revolution in sleep science and health. The insights we are garnering are not only improving lives, they also have the potential meaningful positive impact and health at the population level. Last month, we presented the results of 2 new studies based on real world suite number data that shows a potential model for identifying respiratory illness. Research like this demonstrates the value of our data progresses our understanding of sleep on health and informs the development Innovative new sleep solutions to further increase brand relevance, customer loyalty and stakeholder value. The highlights I've shared demonstrate the power and the cumulative benefits Extremely well positioned for superior long term growth. The driver behind all of this is our team's dedication to our mission end of the year. Now David will provide additional financial details on our Q2 performance and outlook for the remainder of 2021. Thanks, Shelly. Our teams and suppliers have been working tirelessly to manage 4 consecutive quarters of accelerating unit demand, Including escalated velocity in Q2. They are expanding output and capacity While navigating temporary component and labor constraints, inflation and expedited logistics pressures. Despite this, Q2 performance broke top and bottom line second quarter records. Our teams have driven 3 consecutive years of double digit average demand growth by continually progressing our differentiated innovations, digital marketing and experiential retail operations. This momentum is carrying forward into the back half of twenty twenty one. We now expect to deliver at least $7.25 in 20.20 EPS on at least 35% 2 year net sales growth. Demand has temporarily exceeded supply. Component shortages limited output from 2 third tier suppliers affecting our deliveries in June July. COVID driven labor shortages at a Tier 1 supplier, which have now been resolved, delayed their installation of additional production lines and will constrain our delivery upside through Q3. Our teams and suppliers are working rapidly to more than double production output and deliver capacity to support continued market share gains. Already in 2021, we expanded our home delivery workforce 50% and invested significantly in skilled training, Our delivery fleet and digital capabilities. We have also advanced resilient supply partnerships, including increased support We source from geographically distributed plants and multiple suppliers Wherever possible. This modular strategy offers flexibility for greater support capacity to get ahead of the extraordinary demand growth we are driving. In addition to flexible sourcing, our fulfillment approach prioritizes proximity to customers. Sustained double digit demand growth has led us to accelerate the execution of our outbound logistics network. We have evolved plans to increase flexibility with a total of 8 to 10 assembly distribution centers by next year, up from 6 We are opening larger footprint facilities in key markets and investing in higher output assembly equipment, Technology and data analytics. These actions narrow the use of less than truckload carriers to reduce waste, damage and costs while improving customer experience. Longer term, we envision growing this network to as many as 16 ADCs and 30 to 35 DDCs. Now I'll provide a brief review of our Q2 financial results And expectations for 2021. First, remember that Q2 is normally our seasonally smallest quarter with lower sales and profits. That was not the case this year. Demand growth and operational performance have accelerated each of the last four quarters, Resulting in record breaking Q2 results, while we absorbed supply and labor constraints, inbound logistics expediting costs and inflation on labor, materials and components. Q2 net sales of $484,000,000 were up 36% versus 2019 and up 70% versus COVID affected 2020. First half net sales of more than $1,000,000,000 grew 35% over the first half of twenty nineteen, including 28 2 year unit growth and 4 percent ARU growth and growth from both comps and new stores. We continue to expect full year net sales growth versus 2019 of at least 35%. Operating profits of nearly $30,000,000 in Q2 and $106,000,000 in the first half are both records. First half operating margin of 10.1 percent was up 500 basis points versus the first half of twenty nineteen. Accelerated demand and digital based operating efficiencies across the vertical business more than offset $13,000,000 of incremental Q2 input cost pressures. We are activating nearly $100,000,000 in annualized price increases across our products, While continuing to deliver value packed innovative sleep solutions for customers. We continue to prioritize operating profits and EPS growth as we employ the benefits of our vertically integrated operating structure to overcome significant inflation pressures. Despite the pressures on 2021 gross margin, our stronger than expected growth and operating operational efficiencies in sales and marketing drove 4 70 basis points of 2 year leverage in the first half, While we continue to lean into our near term growth drivers, including 20 basis points of deleverage in demand driving media, Our innovation, sales and marketing teams operate in lockstep to drive demand, leveraging technology The outcome is illustrated by the 3,500,000 TTM sales per comp store reached in Q2, up 27% in 2 years with 47% of stores exceeding $3,000,000 We also leveraged our G and A costs, which includes increased investments in IT infrastructure and growth enablers, R and D spend is up 78% since the first half of twenty nineteen and we continue to expect 2021 R and D investments of $65,000,000 Gross margin was 60 to the 61.3 percent gross margin in the first half of twenty nineteen while absorbing incremental cost headwinds. We now expect more than $50,000,000 of incremental cost pressures in 2021. We have taken pricing actions and our teams are delivering digital and volume based efficiencies, while tenaciously acting on behalf customers to ensure service levels. First half twenty twenty one EPS of $3.44 was more than 3.5 times the $0.95 earned in the first half of twenty nineteen. These record earnings were achieved execution of our efficient capital strategy, which lowered our weighted average share count by nearly 17% versus the first half of twenty nineteen. Deploying capital efficiently over the long term and across all our earnings drivers is delivering superior shareholder value creation, including at least $7.25 of EPS in 2021. While we continue to expect to deliver top and bottom line growth each quarter of 2021 versus 2019, Q3 deliveries will be limited by supply availability. We expect supplier capacity gains to catch up with our robust demand to support high volume of deliveries in Q4. For modeling purposes, we anticipate about 50 2 year EPS growth in Q3 and exceptional net sales and earnings in the Q4 and full year. Turning to our balance sheet and cash flows. Customer prepayments of $119,000,000 reflects accelerated demand growth and larger backlogs. In the first half, we generated record cash from operations of $161,000,000 Investing $32,000,000 in capital projects and $267,000,000 in Sleep Number stock. We continue to expect approximately 6.50 stores by year end and greater sales growth contribution from new stores in the back half. Our Q2 ending debt leverage was 2.2 times EBITDAR compared with our longer term target Investing in Sleep Number continues to be attractive for shareholder value creation. With the above expected performance And further guidance increase, we expect to generate more than $300,000,000 of cash from operations in 2021. Our liquidity, balance sheet and team's passion have us well positioned to deliver superior value creation Our first question comes from the line of Peter Keith of Piper Sandler. Hi, good afternoon, everyone. Thanks for taking my questions. I guess I'll just kick it off with some of the commentary you made around pricing and inflation pressure. So, David, I believe you said $100,000,000 of pricing, which is about 4% to 5% on my math, And then $50,000,000 of inflation pressure in the back half of the year. So is that effectively a wash When we're thinking about a half year basis or is that $50,000,000 of inflation pressure incremental to the price increases that you're taking. Hi, Peter. Thanks for the question. The $50,000,000 incremental cost pressures I highlighted started in Q2 and progressed through the balance of the year relative to previous expectations. And the $100,000,000 is an annualized number, including the price increases we just took last week. So If I could follow-up on it, it's a couple of moving pieces. Are the prices going up a little bit more than the input costs or about equal? There's a timing difference, Peter. So the as we deliver out some of the backlog in Q3, we're going to be absorbing some of that incremental cost before some of the pricing benefit comes through the P and L. So we expect some cost pressure in Q3. That's included in the assumption for 50 2 year EPS growth that I highlighted for Q3. But then those pricing increases will then kick in more as And then get delivered later in Q3 and the balance of the year. Okay, that makes sense. All in on an annualized basis, the pricing would more than offset. Okay, got you. Very good. And another just a financial modeling question, but you talked about the 500 basis points of EBIT margin Since 2019, in the first half of the year, you've guided now for 300 basis points for the full year Going back to 2019, so that implies a pretty notable drop off in the 2 year improvement for the back half. Is it inflation pressures or What's causing that sequential step down? It seems to look bigger than I would have expected. Right. And if you look at the sequential improvement in Q or in the 1st half of twenty nineteen versus second half of twenty nineteen, Peter, therein lies your There's just a higher hurdle in the back half that we're lapping as we continue to drive operational efficiencies this and deliver a full year's worth of operating leverage. We're also expecting more sales in the back half than we do in the first half. Your next question comes from the line of Bradley Tom with KeyBanc. Hi, good afternoon, Shelly and David. This is Andrew on for Brad. Thanks again for taking our questions. I wanted to start by talking about demand. I know that your average quarterly demand growth over the last 12 months grew about 18%. But I was hoping you could give us a little more color on the quarter specifically and perhaps on a month by month basis on how things have played out And if there are any nuances around Memorial Day or more recently around the July 4th weekend? Thank you. Sure. Hi, Andrew. Well, for clarification, the 18% average demand growth is Over 12 quarters, so 3 years, ever since we transitioned to our 3 60 smart beds. So we felt it was important to Sustainability and our ability to lap strong performance from the prior year. And that's exactly what happened in the second quarter. So we had accelerated demand in the quarter overall. And then we also demonstrated Our ability to lap double digit growth as we got deeper into the Q2. And we're Therefore, really pleased and excited about our opportunity here in the back half with very strong initiatives To be able to drive year over year performance. Again, this will be our 4th year of lapping the double digit demand here in the back half and we're very excited about doing so with the initiatives that I outlined. Got it. Understood. And I wanted to shift back to near term supply chain issues That you've been facing. Could you give us a sense for the size of the backlog right now? And given the extended delivery times, have you seen any evidence of higher than usual cancellations of orders from customers? Well, the easy answer to that last part is absolutely not. All of our metrics, we're very metric driven organization, Are very stable and steady. We've been very pleased with the demand creation and consumers are Demonstrating their willingness to wait for life changing benefits of our 360 smart beds. As far as the backlog, we're going to Defer or avoid talking about specific amounts. We've been providing a lot of color as to the The carryover of demand from 1 quarter to the next, what you need to know is that we are committed to delivering At least $7.25 of EPS this year in 2021, and that's based on the assumption that we will deliver at least 35% 2 year growth in net sales. And strong deliveries for we talked about strong deliveries in August and The balance of the year. Understood. That's great to hear. And my last question would be Are these supply chain challenges, are they impacting a particular product line more than others? And if so, how is that impacting your product mix? No. There were 2 specific challenges that we had in Q2 with 2 third tier suppliers. Those issues have been resolved and they impacted our deliveries in June July. And then I provided additional color about how we're thinking about the shape of the year and that our deliveries In Q3 overall, we'll be somewhat limited by the delay of some additional production equipment that went in place to one of our Tier 1 suppliers. So we're excited about all of our suppliers and our teams. I have to give them a huge shout out because they've been working tirelessly the to work through what is extraordinary demand growth and having to deal with COVID issues, supply chain challenges, logistics problems. So shout out, congratulations, you guys are killing it. And I am thrilled at the The progress that we're making that gives us confidence that supports our upsized guidance for the balance end of the year. Your next question comes from the line of Alessandra Jimenez from Raymond James. Good afternoon. This is Alejandra Mendez on for Bobby Griffin. Thank you for taking our questions. First, I wanted to follow-up on the backlog. Could you give us any color on how much the supply chain impacted the quarter in terms of sales in 2Q? Well, as Shelly highlighted, we were at one point at 4 to 6 weeks in terms of the first available date for our customer deliveries, and now that's down to 3 weeks as we stand here today. Those kinds of fluctuations are going to be normal as we go through the balance of the year. We're expecting to continue to drive Very strong demand growth through the balance of the year, and that's going to continue to inflate our backlogs. And we expect, Even with our guidance to have strong backlogs all the way through the end of the year. Okay, that's helpful. And then a follow-up for me is in the Q2, e commerce represented about 12% of sales versus 14% in 1Q. Did the step down in e commerce penetration have any impact on profitability? That's a great thing about our touch points is it's really we're happy Support our customers however they want to shop and wherever they want to transact with us. There's the The percentage the proportion of our business through one touch point or another can change and it will fluctuate on a quarterly basis as you the We're very pleased. It's substantially higher than what it's historically been. Shelly highlighted in her prepared remarks that it is now 13% year to date versus 2 years ago, 7%. Yes, 13% on a trailing 12 month Compared to 7 from 2 years ago. So that gives you A good sustainable number, looking at the trailing 12 months. And as I also highlighted, We generated on average more than $3,500,000 per store. We're so excited about the level productivity that we're driving in our stores and online, and we look at that in total. It's one of the benefits of exclusive direct to consumer distribution. And we Are on track with nearly 30 stores are now averaging over $6,000,000 So yes, this is very profitable for us as we continue to put this level of revenue or volume through our assets. Okay, perfect. That is very helpful. Thank you and best of luck on the second half. Thank you. Your next question comes from the line of Atul Maslari with UBS. Good evening. Thanks a lot for taking my questions. Can you provide a little bit more color on the component shortfalls? Like When did the problem start or what components were impacted? And essentially what's been done to get the lead times back from 4 to 6 weeks to 3 weeks. And then on the go forward, are you expecting things to progressively improve Further from here or is it going to be more volatile in the near term? Thanks for the question, Atul. We had 2 specific supplier challenges that happened late in the quarter, and that's why the shortages impacted our deliveries in June July. Those have been resolved. And then I highlighted some challenges with some COVID related labor availability For one of our suppliers that's going to constrain some of our deliveries in Q3. When you're driving the kinds of accelerated demand growth that we have been driving, it's bound to strain your supply chain and that's what we've been managing through. As I said earlier, we're excited about the progress that we've been making to radically expand capacities in our delivery fulfillment capabilities. So as I said, we're going to be on track starting in August with very Okay. And then as my follow-up question, Shelly, you quoted some very strong demand numbers in the release and some of your competitors are also reporting very strong growth over in the double digit range. This is all against a backdrop of 1% or even less populations growth. So, are you worried that This level of unit expansion for the overall industry and for yourself might be pulling forward some demand from future periods such that trends could drop off In a meaningful way, once the environment normalizes, so is that, A, a risk that you worry about? And B, if that is a risk, where do you think That plays out. Well, Atul, I'm going to start with pointing to the demand creation We at Sleep Number have created by moving to all smart beds. So we've delivered an average demand, quarterly demand growth of 18% over the last 12 quarters, 3 years of that growth. So that was before you saw these industry trends. And absolutely, the last four quarters, we've accelerated our performance. The We sell a very differentiated product that is improving people's lives with proven quality sleep. And this is why we are and And this is why we are and have been focused on being the innovation leader and creating a product It truly improves one's sleep and their overall health and wellness. We see the consumer trends that we anticipated years ago and those trends include the consumer caring more about their health and well-being and understanding how sleep is impacting their health And also adopting products and services that are digital like ours And third, gravitating to brands that have a purpose. And our purpose of improving the Health and well-being of society through higher quality sleep is a really important one at this time in making a difference And contributing in a meaningful way to society. So those trends are sustainable. We see them continuing to work In suite number's favor as we move forward. And then all the initiatives that I talked about in This digital flywheel that we created, this ecosystem that we've created continuously higher levels of engagement of our existing customers and that drives referral and repeat sales. That's for suite number. Yes, we have now nearly 50% of our sales and referral and repeat and that leads to sustainability overall. Your next question comes from the line of Seth Basham with Wedbush. Thanks a lot and good afternoon. My question is around your quarterly production and delivery capacity, Assuming no component shortages, what is that number these days? Seth, we're not going to get into providing a specific number surrounding our production What we will say is that we were impacted somewhat here in Q2 in the month of June, just by a couple of weeks, and we expect to catch that up In the back half, primarily in Q4. And I think the other add That we highlighted is the work that we've been doing and the acceleration of our initiatives to expand our capacity and And output and we're on track, we're ahead of pace in that regard and feel really Well positioned to be able to support our accelerating demand in the months quarters and in years Just I guess at the root of the question, Seth, though, if you're worried about our ability to keep up with extraordinary demand that we've got, that's not really the challenge. These are temporary constraints that we have overcome and We're doing things all the right things that you would expect us to be doing. We have multiple suppliers on key components and we've been doubling capacity Both sides so that we have plenty of capacity to support extraordinary demand creation as we go forward. As it relates to that demand creation, for the second half of twenty twenty one, are you expecting more or less year over year demand growth than 15% trend that you've commented on for the last 3 years. Well, we expect to continue to drive strong performance. There are a lot of Elements that Shelly highlighted in her prepared remarks talking about the incremental activities here in the We're just up against now the 4th year of double digit growth. And so whether the rate grows at the Same pace is what we've been talking about. The Q1 or excuse me, Q4, That trend had been up 12%, then it went to 14% in Q1. You can see the acceleration When we talk about all the way back to the back half of twenty eighteen, it's now up 18%. That was pretty significant acceleration on a rate basis. But Q2 is one of the smaller dollar quarters. And so on a percentage basis, it's different. So now Q3 is going to be one of our largest quarters in terms of dollars. So of course, on a rate basis, it's going to be less. And my last question is regarding the price increases of $100,000,000 First of all, have they been fully implemented at this point in time? Yes, we did you remember that we did some last quarter, about $20,000,000 worth. And then the incremental to get to the $100,000,000 annualized we put in last week. Got it. And do you expect any elasticity of demand to weigh on your demand growth because of the price increases? Yes, we don't. This is one of those unique advantages of Our model between our selling process and discounts and financing and price increases, We can navigate between all those points and this is where our innovation and marketing And sales teams work so closely together to be able to optimize performance. So we do expect our price increases To contribute a good three points of growth in ARU in the back half. If that's the case, Shao, you're not expecting demand destruction from price increases and you've been facing inflation in certain areas of the business for a number of Months now. Why did you wait so long to take these price increases? Yes. Seth, with our business model, we're focused John, obviously focused on growing operating profit and have been doing so with about 500 point of operating profit growth here in the first half over the last two years. And so we had some pricing here in the first half, And this was the right time for us to take it as we head into the back half, dollars 100 per model. And we still have pricing elasticity and power beyond and we also like to Attach that to the value adds that we introduce to our lines overall For the customer. Understood. Thank you. And I'll just add, let me hey, Seth, I'll just Add on to that one. We are focused on EPS growth and operating profit expansion and market share gains. And Trying to drive pig pricing just to cover our gross margin rate is not the game that we're trying to execute. We're trying to create superior shareholder value for our shareholders and our stakeholders. And we think the best path to do that is continue to take share and drive Operating profits and EPS growth. Understood. It's a combination of everything, Seth. We're going after all of it. And your next question is I do apologize. Your next question comes from the line of Chris Nagel with Bank of America. Good evening. Thanks very much. Just wanted to refocus on the 2Q margins. We totally get supply chain issues dampening in sales Continuing from 1Q, but I don't know, margins looked a little light around 6%. We had supply chain issues In 1Q, they were much higher. I realize there is a differential between the two quarters in terms of overall volumes. But you still had Sales level is well above sort of historic levels. So I guess what are the real puts and takes here? Is it just the added cost and Not having all the pricing and how should we think about S and M for the whole year in terms of latest sales? Yes, I think you highlighted it, Curtis. The sales are lighter in Q2, and that's seasonally normal. However, these were exceptionally high. You remember, keep in mind, we usually don't make much money at all in Q2 and we had Very strong performance in the quarter. Part of what You're not seeing is we continue to drive demand and it's somewhat tied up in our backlog at the end of the quarter. As we service that, we've paid for some of that Here in Q2 and it gets delivered later in the year. So, that's an element of our model. So looking at it on a quarterly basis, Looking at the rate on 1 quarter, that's it's a little bit of a that can be very misleading. Looking at a longer period of time, it makes a lot more It's 10.1 percent operating profit margin in the first half. That's a 500 basis point improvement over 2 years ago in the first half, and it gets us well on our way toward at least 300 basis points operating profit expansion versus 2019 for the full year. So we're continuing to carry forward the Digitally led operating efficiencies that we've been carrying ever since the back half of last year. And then on the sales and marketing line for the year, percentage of sales? I'm sorry, Curtis, could you? Yes, the sales and marketing lines for the full year in terms of percentage of sales, how should we think about that? Yes, we're going to use all of our levers. We're going to continue to lean into our growth drivers, our near end growth drivers. As I highlighted, Our media actually delevered while delivering significant leverage in our sales and marketing. But For the back half, as we layer in more stores, there's going to be some additional costs that come through in the retail line the overall by having those stores. So at the end of the day, the focus really needs to be on a longer term basis, At least 300 basis points of operating profit margin while absorbing a ton of incremental headwinds and costs here in 2021. So we're really pleased with the teams and how they're performing and excited that we're on pace to deliver at least 7.2 Okay. And just as a quick follow-up, I may have misheard things, but Did you say that the price increases that you're just kind of putting through are not going to slow through 4Q or is that just due to the slow orders or did that This year, thanks. Yes. Thanks for clarifying, Curtis. That's not what I meant. I was just As those price increases that we just took last week, it takes 2 or 3 weeks or 4 weeks, 5 weeks sometimes to get those products delivered, that's when that revenue will be recognized at the higher price. Okay. That makes a lot more sense. I appreciate you answering my questions. Thank you. Okay. You got it. This concludes today's conference call. Thank you for participating. You may now disconnect.