Earnings Call: Q2 2022

Sep 9, 2021

Quarterly report

Good afternoon, ladies and gentlemen, and welcome to Zumiez Inc. 2nd Quarter Fiscal 2021 Earnings Conference Call. At this time, all participants are in a listen only mode. We will conduct a question and answer session towards the end of this conference. Before we begin, I'd like to remind everyone of the company's safe harbor language. Today's conference call includes comments concerning Zumiez Inc. Business outlook contains forward looking statements. These forward looking statements and all other statements that may be made on this call that are not based on historical facts are subject to risks and uncertainties. Actual results may differ materially. Additional information concerning a number of factors that could cause actual results to differ materially from the information that will be discussed is available in Zumiez's filings with the SEC. At this time, I would like to turn the call over to Mr. Ricks Brooks, Chief Executive Officer, Mr. Brooks, you may begin. Hello, and thank you, everyone, for joining us on the call. With me today is Chris Work, our Chief Financial Officer. I'll begin today's call with a few remarks about the Q2, Then I'll share some thoughts on sales for the Q3 to date before handing the call over to Chris, who will take you through our financial results in more detail. After that, we'll open up the call to your questions. Our second quarter results reflect the strength of our business model as we posted solid top line growth and better than expected profitability in the face of tougher comparisons. Reflecting back upon the Q2 of 2020, Our stores are open for roughly 73% of potential operating days as a result of the pandemic. Despite those closures, our total sales in Q2 of 2020 increased 10% over 2019 due to our ability to capitalize on strong sales trends and pent up demand for more significant closures in the Q1 of 2020. Therefore, we were pleased that our Q2 2021 total sales grew 7% year over year and increased 18% on a 2 year basis, all while driving strong full price selling. On the expense side, spending returned to more normalized levels following last year's temporary cost saving actions and government subsidies, resulting in diluted earnings per share of $0.94 just $0.07 shy of last year's record $1.01 and up over 160% from the Q2 of 2019. Our teams once again did a terrific job adapting to the current environment to fulfill demand for our distinct merchandise offering. This year's results reflect the shift back to a more historical mix between our store and digital channels as our customers increasingly return to physical shopping. This is a very positive development given the enriched brand experience that can be achieved through human to human connections. Looking ahead, We feel good about our ability to continue to exceed 2020 sales levels over the second half of the year, even as we face tougher comparisons And more competition for discretionary spend. With majority of school districts around the country resuming in person learning, We've seen a more normalized start to the back to school season, which provide the business with good momentum to begin the Q3. Q3 to date through Labor Day, Total sales were up 23% year over year and up 7% compared with the same period of 2019. These results are despite continued challenges related to the pandemic across the business. With the recent uptick in COVID cases Caused by the Delta variant has created some additional uncertainties about operating conditions and consumer behaviors in the near term. We are confident in the agility that our teams have shown throughout the pandemic and the financial strength of our business to weather any potential risk that lies ahead. The agility is based on our strong culture, brand and best in class sales teams that help us drive incremental market share gains across the business. Key to our success has been and will continue to be our 1 channel mentality and our proven ability to adapt to changing consumer needs. This includes ideas like our in store fulfillment capabilities, including Zumiez delivery, which takes our best in class sales teams directly to our customers' stores. While elements of our model have and will continue to evolve in the years ahead, our overarching consumer centric strategy rooted in strong brand and culture will remain constant. We build a business in which we partner with great brands to bring the diversity and uniqueness to our customers that allows them to individuate. We build a footprint that informs us of global trends and works with brands to emerge locally and grow globally to better serve our customer. We build an infrastructure in which the customer can shop with us to get what they want, when they want, how they want and as fast as they want. We've morphed our business into a channel less organization with inventory visibility from all touch points and back end capabilities that allow us to effectively leverage expenses regardless of the channel in which sales originate. The work together has been significant and the path ahead will require further focus to move even faster to serve the customer. Therefore, we remain steadfast in our commitment to investing in our future. We continue to believe that such that time such as these create great opportunities, the right people, strategies and resources in place, we are well positioned to emerge from this crisis a stronger brand than ever before and clear winner in the ongoing consolidation of retail. With that, I'll turn the call over to Chris to discuss the financials. Chris? Thanks, Rick. Good afternoon, everyone. Given that our stores were closed for approximately 27% of the quarter last year due to the pandemic. I'll provide comparisons to both the prior year and the Q2 of fiscal 2019 where appropriate. Following my review of our Q2 results, I'll provide an update on 3rd quarter to date sales trends and our current perspective on the full year. 2nd quarter net sales were $268,700,000 up 7.3 percent from $250,400,000 in the Q2 of 2020 And up 17.6 percent from $228,400,000 in the Q2 of 2019. The year over year The Q2 of 2019, we saw comparable sales growth of 16.6 percent and the net addition of 15 stores. Our stores were open for approximately 96% of the potential Operating days during the Q2 of 2021 compared to 73% in the Q2 of 2020 and 100% in the Q2 of 2019. From a regional perspective, North America net sales were $237,500,000 an increase of 6.3% over 2020 and up 14.8% compared to the same period in 2019. Other international net sales, which consists of Europe and Australia, were $31,100,000 up $15,700,000 from last year and up 45.1% from 2 years ago. Excluding the impact of foreign currency translation, North America net sales increased 5.8% and other international net sales increased 7.6% compared with 2020. We experienced significant COVID related store closures during the Q2 in Canada, Australia and Europe, noting they were open for approximately 68%, 77% and 88% of the available operating days respectively. During the quarter, the men's category was our largest growth category, followed by accessories and footwear. Hard goods was the largest negative category, followed by women's. 2nd quarter gross profit was $105,000,000 compared to $90,900,000 in the Q2 of last year and seventy in the Q2 of 2020 and 33.8 in the Q2 of 2019. The 280 basis point improvement from the Q2 2020 was largely due to 170 basis point decrease in web shipping costs related to a decrease in web sales from the Q2 last year when we had a higher rate of store closures driving customers online, a 100 basis point increase in product margin and a 70 basis point improvement in inventory shrinkage, partially offset by 60 basis point increase in distribution and inbound shipping costs. Gross margin improved 5.30 basis points from 2019 driven largely by product margin improvement of 2 70 basis points, Occupancy leverage of 170 basis points and a shrink improvement of 90 basis points. SG and A expense was $73,000,000 or 27 point Net sales 2 years ago. Compared to 2020, the 4 10 basis point increase in SG and A expense as a percent of sales primarily reflects The benefit from temporary cost savings tied to the pandemic last year. The most significant changes include 150 basis points of deleverage in our store wages, 60 basis points of deleverage in corporate costs, 50 basis points of deleverage in annual incentive And 40 basis points due to a decrease in governmental subsidies. During the quarter, we also accrued a legal settlement resulting in 110 basis points Negative impact. Operating income in the Q2 of 2021 was $32,000,000 or 11.9 percent of net sales compared with $33,100,000 or 13.2 percent of net sales last year. In the Q2 of 2019, we had an profit of $11,700,000 or 5.1 percent of net sales. Net income for the 2nd quarter was $24,000,000 or $0.94 per diluted share. This compares to net income of $25,400,000 or $1.01 per diluted share for the Q2 of 2020. A net income of $9,000,000 or $0.36 per diluted share for the Q2 of 2019. Our effective tax rate for the Q2 of 2021 was 26.8% compared with 26% a year ago period and 30.7% 2 years ago. Turning to the balance sheet, the business ended the quarter in a very strong financial position. Cash and current marketable securities increased 37.7 percent to $412,000,000 as of July 31, 2021, compared to $299,100,000 as of August 1, 2020. The increase in cash and current marketable securities was driven by cash generated through operations, partially offset by capital expenditure. The company repurchased 200,000 shares during the quarter at an average cost of 44.21 per share and a total cost of $10,900,000 Year to date, as of September 7, 2021, the company has repurchased 700,000 shares at an average cost of $42.49 and a total cost of $31,400,000 As of July 31, 2021, we have no debt on the balance sheet and continue to maintain our full unused credit line of $35,000,000 We ended the quarter with $149,400,000 in inventory, up 17.9% from the Q2 of 2020 and down 1.1% compared to the Q2 of 2019. On a constant currency basis, our inventory levels were up 17.3% from last year. Overall, the inventory on hand is healthy and selling at a favorable margin. Now to our 3rd quarter to date results. Net sales for the 37 day period ended September 6, 2021 increased 23.2% compared to the 37 day period ended September 7, 2020. As we saw our customers go back to in person learning in the majority of the regions in which we operate. Compared to the 37 day period ended September 9, 2019, Total net sales increased 6.7%. Our stores were opened 98% of the available days during the period in 2021 compared to 91% in the same period last year. Total comparable sales for the 37 day period ended September 6, 2021 increased 10 point 5% on a 1 year basis and increased 5.4% compared with 2 years ago. From a regional perspective, net sales for our North America business For the 37 day period ended September 6, 2021, increased 25.5% over the comparable period last year And we're up 5.1% compared to the 37 day period ended September 9, 2019. Meanwhile, the international business increased 2.3% versus last year and increased 28.8% compared with the same period of 2019. From a category perspective, men's was our most positive category, followed by accessories, footwear and women's. Hard goods was our only negative category. Due to limited visibility in the business, we'll not be providing specific guidance for the Q3 of 2021 or the fiscal year, but do want to provide directional update on our expectations for the year. Concerning revenue, For the full fiscal 2021, we are projecting net sales to grow in the low to mid teens from fiscal 2019. This translates to net sales growth from 2020 between the high teens to just over 20%. For the back half of the year, we continue topline growth on 2020 results that were above 2019 results. For the 3rd and 4th quarters of fiscal 2021, We'll grow sales in the mid to high single digits from fiscal 2020, absent significant COVID restrictions and lockdowns. For the Q3 specifically, this is a slowdown from what we have just reported quarter to date. However, we believe it is warranted as we had a slow start to back to school season in 2020 And saw continued strength through late September October last year. This year, we've seen a more normalized cadence to back to And do not anticipate that September October will be as strong as they were in 2020. Moving on to gross margin, 2021 gross margin is currently planned to grow year over year driven by leverage of occupancy costs on increased sales, a reduction in shipping costs as web revenue normalizes with Stores being opened and improved product margins. While we anticipate improvements in gross margin in our 3rd and 4th quarter, The year over year growth will be much more modest than our first two quarters. Fiscal 2021 SG and A costs are expected to increase in line with our sales growth from 2020 for several reasons, many related to the pandemic. The drivers of the increase include Store wages and benefits reductions in 2020 due to store closures and reduced mall hours that are not anticipated to repeat in 2021. Governmental subsidies received in 2020 not anticipated to repeat in fiscal 2021 an increase in incentive compensation and other discretionary accruals related to improved The legal settlement accrued during the Q2, an increase in costs related to training and recognition events that were Reduced significantly in 2020 due to the pandemic, an increase in marketing events and other related spending that were not possible with the restrictions in 2020, And an increase in travel costs in the back half of twenty twenty one with very little travel included in our fiscal 2020 results. In summary, we expect to see expansion in gross margin, while SG and A expenses grow much closer with overall sales. On a net basis, however, we now anticipate operating margins will be up year over year in fiscal 2021 reaching double digits as a percent of sales. We are currently planning our business assuming an annual effective tax rate of approximately 26% in fiscal 2021 compared to 25.6 percent in 2020. We are planning diluted earnings per share to increase meaningfully in fiscal 2021 compared with fiscal 2020, primarily driven by a significant increase we achieved in the Q1. As we saw in the Q2, more expenses are coming back into the model as COVID restrictions are reduced such as store payroll related to capacity and hours, travel, training and other costs discussed above. We are currently planning diluted EPS in the back half of the year to be flat to down modestly from the last 6 months of 2020. In the event our top line estimates exceed those outlined today, we would expect a strong flow through on incremental sales. We are planning to open 25 new stores in fiscal 2021, including approximately 8 stores in North America, 12 stores in Europe and 5 stores in Australia. We are planning to close approximately 5 to 6 Capital expenditures are planned to be between $22,000,000 $24,000,000 in fiscal 2021 compared with $9,100,000 in fiscal 2020. The majority of the capital spending will be dedicated to new store openings and planned remodels. We expect that depreciation and amortization excluding non cash lease expense will be approximately $22,000,000 in fiscal 2021 Compared with $23,500,000 in fiscal 2020, we are currently projecting our diluted share count For the full year to be approximately 25,300,000 shares. Any share repurchases made after those disclosed today We'll reduce our share count from this estimate. And with that, operator, we'd like to open the call up for questions. Thank you. Our first question comes from the line of Jeanine Stitcher with Jefferies. Your line is open. Hi, good afternoon. Thanks for taking my question. You acknowledge the The challenging supply chain environment, I was just hoping you could elaborate more on what you're seeing, maybe break it up between your private brands and then what you're seeing from Your 3rd party brands that you work with, just speak to any areas where you feel like there's challenges in getting product in and help us understand what you're currently seeing in the business? Thank you. Sure. Thanks, Janine. I'll take a crack at this and let Rick add anything if you'd like. I'll try to address it maybe high level And then maybe just a few comments about the different lines. I think from a supply chain challenge perspective, I guess I'd just start with this is really not something new. We've been dealing with this really throughout the pandemic into early parts of 2020. It's required us to work extremely close with our brands and our logistics vendors to navigate the different challenges that are out there, including How we think about raw material and commodity pricing, factory capacity, transportation capacity, transportation costs, Labor shortages, country by country challenges, how this affects our timelines And then obviously the general inflation challenges that are kind of tied to this. So I think from an overall perspective, we feel like our teams have navigated this really well. Clearly, it has resulted in some delays in product, but I think because we've been dealing with this for the amount of time we have, we've been planning And as we just talked about, we're really happy with the inventory levels. I mean, a year ago, our inventory was much lower than we wanted it to be as Q2 of 2020 was very strong demand, and we're really happy we've built those inventories back up. We think they're in a good spot. So yes, it has impacted what we wanted to receive, but our teams have done a good job working around that with our vendors. And I think That's how we kind of plan to address this moving forward. I think we continue to work with our brands on how we get through these challenges and really try to provide the best Customer experience at the end of the day. I think as we look at the supply chain moving forward, we continue to expect there's going to be issues through the back half of this year. I think Kind of moving out of back to school, we expect there to continue to be some challenges on the inbound side, like I've laid out here. And I think we'll also start to see some of the challenges we saw in Q4 last year on the business to consumer side in getting product to our Customers. But all that said, I think we've got really good strategies to mitigate that. Rick talked about our ability to deliver and We're working already with our shipping carriers on how to navigate that. And I think we've got a pretty good plan in place. We're not forecasting a material impact on the business at this point in the result in the estimates that we kind of laid out for the year for you guys. But I think we're able to manage through it to date and we'll keep kind of keep tackling as we go. The last thing I'd just add to this as we think about supply chain, it wasn't too long ago we were talking about where all our product was coming from. And I think We've done a really good job. I'm really proud of the teams on how we diversified. We have a much more diversified country of origin Layout today within our business than we had 2 or 3 years ago. So I think that's a really good thing. And that helps, with how we think about kind of your question of branded versus private label, right? We have obviously more say in how we run our private label goods. We've tried To really diversify in that category and work with our brands and our brands are very smart and they've built their own logistics to try to diversify their So it's a challenge. It's a challenge. I think we've got good strategies around and we'll see how it plays out as we move through the year. Great. And then maybe just on the hardgoods side of the business, can you speak to what you're seeing there and just your views on what inning of The escape cycle we're in, I'm guessing that the negative trend is more just a function of comparisons from what you saw last year during the start of COVID, but just any thoughts on where we are and maybe what you saw post Olympics? Thank you. Sure, Jeanine. I think as we look at it Here relative to the skate hardgoods cycle, what we're really we're seeing I think skate hardgoods is a good example where because of the nature of the pandemic and the Shutdowns and the closures of stores and remote schooling and everyone being home and in the lockdowns, SCADA, I think is one of those categories much like camping that everything got a lot of volume got pulled forward. And so I think that's partly what we're seeing. It is a tough comparisons coming across in skate hardgoods of having so much of that Volume forward because of the pandemic. So we'll have to see how this plays out next year. But again, I think the great thing I always like to remind everyone is that our business And despite the downtrend in skate hard goods, which I think we could all expect at some point, Because it has been 3 years, 3 plus years on this cycle that our business responded well and we were running still running gains by just selling more apparel in Okay. So the predominant driver of our business. So it's been really good to see how the business responded. We're maintaining our wallet share of our customers' business. So I I think that's where our head is, Janine, is that we're thinking we just saw this big pull forward. We'll see how this responds next year, to where we're at. But SCADA is one of those great Categories of business from an inventory perspective that I think we can manage relatively quickly in terms of our inventory position. So I feel good about We're around that side too. Great. Thanks very much. Thank you. Our next question comes from the line of Jeff Van Sinderen with B. Riley. Your line is open. Yes. Hello. This is Richard Magnuson in for Jeff Van Sinderen. Thank you for taking our question. We know that the business is omni channel, but what more can you tell us about the recent trends in in store traffic, e commerce And delivery. And then are you seeing any significant changes in consumer behavior that could last longer as this COVID impacted environment plays out? All right. Richard, let me start and then I'll ask Chris to share some data with you. But again, just remind you that our job is to really is about empowering our customers with Choice on how they want to shop with us and they get to choose their own journey in the Zumiez world. So our one channel business model is really designed to Meet our customers' needs locally and then to leverage the cost structure, no matter whether sales is digital or physical. But That said, I have to tell you how thrilled I am, as I said in the script, that our customers have chosen to return to our stores In a very, very strong way for their shopping. And I say that because I really believe we can get a richer brand experience when that's the case that All the Gen Z research work you see actually shows they prefer to shop in stores. So when we get them in our stores and that we get that human to human connection And the deeper, deep brand experience that they makes shopping at Zumiez a really powerful experience when our customers get to connect with our employees. So with that, I'll let Chris share some data. Yes. Richard, I think this is something obviously we put a lot of thought into heading into the year, just given the increase in Online demand in 2020 when we had our stores closed. And we kind of looked at it and said, In 2020, we saw our web penetration for the year go from about 16% to 26%. And we kind of said, okay, we think it's going to be somewhere in between there. And to Rick's point, we're just ecstatic that we're just so much Closer to 2019 levels. And as it relates to even the Q2 here, we were about 15% digitally Originated and compared to the 27% last year. And so I think you see some things in the model that are really favorable here. One of the things I talked about in gross margin was that we had leveraged web shipping by 170 basis points. What's interesting is If you go back to last Q2, you see it's almost completely offsetting last year. So, I think it's a richer experience for our customer. It's Financially a good experience for our for us, as our customers really there in store and gets the immediacy of the product. So Really excited to see those levels go back to 2019 and obviously we'll see how that plays out here on the back half of the year. And lastly, Richard, just So I'm clear in the response on this is, this isn't just a U. S. Issue. We've seen this across the broad Swast of our businesses, including Europe, where we've seen a return more our mix returning more to our 2019 levels across our businesses. So it is, As your question intimated, a global trend relative to how we're seeing and what we're seeing in our consumers' behavior. Again, I think it's probably unique relatively to our brand And then, this is regarding the supply chain situation again. Are you seeing anything in terms of like effective alternatives such as ships being routed to other ports? And then has the supply situation been causing you Pull forward some sales, you referenced that a little bit, but I thought maybe there was more detail there. Yes. I think from a supply chain perspective, we've tried to be as creative as Possible to navigate lots of the different issues. There are situations where we have pulled products forward, where we've tried to get it sooner To navigate this and it really becomes a vendor by vendor discussion depending on kind of the demand we have for the product and what our expectations of So I don't have a specific call out for you other than I think the teams have really tried to navigate this in lots of different ways from Moving forward to potentially air freighting things, all depending on the need for the product. All right. Well, thank you. And I'll get back in the queue. Thank you. Our next question comes from the line of Jonathan Komp with Baird. Your line is open. Yes. Hi, thank you. Maybe first just a follow-up on the hardgoods question. If I look at the last 3 or 4 years and then 2020, I believe hardgoods accounted for more than all of the growth The company over that period. So I want to just follow-up and ask, do you think there's risk that you go all the way back for hard goods? I don't know if you have a view there. And related to that, are you seeing trends in other categories that you think could offset it if you do? I'll go ahead and take a crack and we'll let Rick add anything if he'd like. From an overall perspective, I guess, John, This really falls back to our model of hard goods has been a huge growth driver. We've been super happy to have it. It's been a core part of our offering. And like all of the trends we see over long periods of time, categories ebb and flow. And so To the second part of your question of like how far do we think it's going to go? I'm not really sure. I think that The best part of what we've got going is that we do have things offsetting it and we are running overall gains. So yes, we've seen hard goods decrease a little bit. We mentioned that men's has been our strongest category. We continue to have really strong results there. We've seen increases in footwear. We've seen increases in accessories. So I think all of those are really good signs. As we kind of flip to the back to school, we see Growth across all three of those areas I just mentioned as well as our women's business. So for me, the hard goods results are still pretty phenomenal Over a multiyear stack. And now that we've seen a little bit of a pullback here in Q2 and into Q3, We're running big gains in the other areas. And that's great because that's the model and that's the diversification we hope to offer with What we're doing so that as things trend up or trend down, we have other things to offset them. Yes, that's really helpful. And just as a follow-up, this may be theoretical, as you mentioned, predicting where the categories We'll trend towards, but could you just maybe comment on the relative product margin across your major categories? And if you do see hard goods fall back In favor of other categories, what that might mean for product margin? Yes, sure. I'm happy to speak to that. And I think From a product margin perspective, we just could not be happier with kind of where we stand. I think this is now year 6 Of us running product margin gains and if you look at the offering that we have, the apparel categories and accessories are typically our highest Product margin and the snow or the hard goods business and the footwear are lower margin For us. Now the beauty of this is as we look at the last 6 years, we've been able to grow margin both within departments As well as across the company with these changes happening, right? So hard goods has grown in nature over the last few years. We continue to grow product margin. Another interesting piece to this is we've seen our private label penetration Over the last 5 years decline as we've been in such a strong branded cycle, we've continued to grow product margin. I'm really proud of our U. S. Teams as well as our international teams because we've seen product margin growth internationally as well as those businesses have scaled. So I think we have a lot of different mixed things, maybe almost similar to my sales commentary. It's about how we drive the whole pool. So There are challenges from time to time as we transition to say hard goods or footwear, which are typically not as high from a product margin perspective. But when our teams are really doing everything they can, which is our focus at all times, we can drive product margin both within categories, across countries and still see an overall result even if mix is trending the wrong way. Yes, great. And Just last one for me. As we think beyond 2021, any framework to think about the puts and takes for operating margin and your ability to hold on to A double digit margin? Thank you. Yes. Thanks, John. And I will be very high level here because we're not I talked too much about 2022, but we script this even in our Q1 call that anniversarying What we saw in the Q1 of 2021 will be challenging as we move to 2022. Fortunately, we do view ourselves and We view ourselves as a growth retailer and we have a lot of things we're trying to do to offset some of the stimulus related benefits we saw in the first Quarter. So I'm not going to talk specifically other than we are expecting a step backwards in the Q1 of 2022, But we're working hard to build a model and a plan for 2022 that to try to offset that to the greatest extent possible. Now over the long term, Getting to double digits operating profit, this is where I think the business has been driving. If we go back and rewound to these same calls 4 or 5 years ago, we were in the mid single digits talking about getting to the high single digits. And I'm really proud of what the teams have done. I think we've driven a lot of value for our And we've really built a strong model that can drive now into double digits. And so I think we're on track for that here in 2021, and I think we can build models that continue that focus into 2022 and beyond. Okay. Thanks again. Thank you. Our next question comes from the line of Mitch Kummetz with Pivotal Research. Your line is open. Yes. Thanks for taking my questions. Let me ask the hardgoods question a little bit differently. If I look at your sales growth through the first half and even into Your early Q3. If I look on a 2 year basis, we've seen the sequential deceleration of the growth. Is it fair to say That all of that is due to the softening of the hard goods category? I mean, I'm not sure I fully understand your question, Mitch. Well, so Q1 sales were up Q1 sales were up 31% over 2 years ago. Q2 was up 18%. I think Q3, you said you're trending something in the high single digits. So There's been this deceleration of the growth rate on a 2 year basis. I'd be curious to know what those numbers were if you stripped out hardgoods. I'm guessing you won't tell me that, but I don't know if you could sort of qualitatively say that most of that deceleration Has been due to a softening of hard goods skate hard goods? Yes. I think it's probably more complicated than that too because you got to look at where we were The years before. And I think this is something like let's just take Q3 as an example where We've now run up for absent 2020, this would be our 5th year of pretty major growth on back to school. I mean, if I go back to August of 2017, We were up 7.4 percent. In August of 2018, we were up 9.5%. August 2019, we were up 7.1%. So It's pretty significant multiyear stacks and I think you have to balance that across where you are in the year. And as you know, I mean, you've been following this for a long time, our peaks Have been our biggest growth cycles really since 2016. And so we haven't had all those same peaks in the 1st couple of quarters. And what we've seen now In the last couple of years or at least in 2021 is pretty outsized growth in the 1st and second quarter. So I I think we have to see how that plays out. For me, Mitch, again, it's kind of how we drive that total growth. And yes, hard Hardgoods is declining, but it's still on a multiyear perspective, I think we're very happy with it. No, I understand. I mean, probably part of why I asked the question is just to get a sense As to how the rest of the business is doing over the course of the last two and a half quarters, if it's been holding pretty steady or if it's also been declining based on that trend. But We can maybe take that offline. Snow, if I recall correctly, that was challenging in Europe last year due to some resort closures, COVID, a bunch of stuff. If we have a more normal snow season in Europe this year, I mean, Rick, you've been doing this longer than I have. So do you anticipate some pent up demand there for both snow hard and soft goods? I think, Mitch that our I think the answer to your question is yes, we do. If we have a more normal Snow season in Europe. Now the flip side of that is we had an outstanding snow season here in the U. S. So I think there's always a balancing of the aspects So the 2 businesses, not the 2 geographies. So I think there'll be some it depends upon the overall result depend upon how what kind of associates we have here in the U. S. Too. But For Europe, yes, I think that would our thinking is it can't be much worse than it was a year ago. Not only to be clear, not only was there not a lot of snow, People couldn't get there, but our stores are closed. Right. At the same time, including some stores that are that really cater to that Like in Innsbruck and Schwabbing that really cater to that snow customer. So, it couldn't have gotten much worse, Mitch. So I do think a decent snow year is going to be Good be beneficial for us in Europe. Okay. And then lastly, just on the gross margins. Again, if I look at your gross margins Versus 2 years ago, you're running up over 500 basis points for both Q1 and Q2. It sounds like and I would guess that a lot of that has to do with full price selling given all the lean channel inventory. It doesn't sound like you expect the same sort of 2 year margin expansion in the back half. And I'm curious, is that because you're not expecting the full price selling to continue to be as strong? Or is there some other dynamics that you're sort of factoring into your outlook? A mix that you're sort of factoring into your outlook. Yes. We talked about Q2 specifically, but the same plays out in Q1. We had 5.30 basis points of increase in gross margin in the Q2. If I break that down, 2 70 basis points is product margin itself. We had occupancy leverage of 170 basis points and then an improvement in shrink. So As we move to the back half of the year, I think the reason why we're not forecasting the same level of growth is really a factor of a couple of areas. 1, That product margin growth that we're talking about that we've seen in Q1 and now into Q2, actually really started in the back half of last And maybe even Q2 of last year. So we saw really strong product margin growth in Q3 and Q4 last year. So We're not forecasting that to be as significant and we've also run extremely strong shrink numbers throughout The pandemic and what we're really excited about is now in our Q1 really being primarily open. So we've run good shrink numbers here through the Q2. And so we don't have the benefit in Q3 and Q4 on the shrink side either. So That's probably why you're seeing a little bit less aggressive in the back half of the year on gross margin, but again, on a multiyear basis, really excited about the result. Okay. Thanks guys. Good luck. Thanks Mitch. Thank you. I'm showing no further questions in the queue. I would now like to turn the call back over to Mr. Rick Brooks for closing remarks. All right. Thank you. And again, thank you all for joining us on call. We're always happy to engage with you. So really appreciate it and we'll look forward to talking to you in December for our Q3 results. Thank you everybody. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.