Lands' End Q4 Earnings Conference Call: Full Transcript

Operator: Good morning ladies and gentlemen and welcome to the Lands' End Fourth Quarter and Fiscal 2015 Conference Call. At this time all participants are in a listen-only mode. Later we will have question-and-answer session and instruction will be given at that time. If anyone should require assistance during the conference please press star than zero on your touch tone telephone operator will be happy to assist to you. I would now like to turn the call over to your host for today's conference Mr. Bernie McCracken, Chief Accounting Officer. Sir you may begin. Bernard McCracken: Chief Accounting Officer: Good morning and thank you for attending the Lands' End earnings call for our fourth quarter fiscal 2015 results. On the call today you will hear from Federica Marchionni, our President and Chief Executive Officer and Jim Gooch, our Chief Operating Officer and Chief Financial Officer. To begin our prepared remarks Federica will discuss our progress on key initiatives and then Jim will provide details on our fourth quarter and full year performance. After the Company's prepared remarks we will conduct a question and answer session with our covering analyst. Please note that this morning we released our fourth quarter and fiscal 2015 earnings results which are now available on landsend.com. I would like to remind that today's discussion will contain forward-looking statements related to future events and expectations. These statements are based on current expectations and the current economic environment or are based on potential opportunities. Actual results may differ materially from those expressed or implied in the forward-looking statements. Factors that could cause the company's actual results to differ materially from those discussed are posted in the Investor Relations section of landsend.com and in our most recent SEC filings. Our discussion will also include certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures also can be found in the Investor Information section of landsend.com. Any reference in our discussions today to EBITDA means adjusted EBITDA as defined in the earnings release. Lastly, we assume no obligation to update the information presented on this call except as required by law. I will now turn the call over to our Chief Executive Officer, Federica Marchionni. Federica Marchionni: Chief Executive Officer: Thank you, Bernie. Good morning, everyone and thank you for joining us today. 2015 was a year of completion for Lands' End, as we work to create a solid foundation from which to execute our long-term vision for the brand. This begin with assembling and highly talented and experienced management team in the areas of merchandising, design, supply chain and most recently operations and finance. With the addition of Jim Gooch who join us as EVP, COO and CFO about a month ago. I want to take a moment to welcome Jim to the Lands' End family. He have hit the ground running and I look forward to leveraging his knowledge as we move our business forward. I am pleased with the -- the other new member of the Senior Management Team I have integrated with our extraordinarily talented and passionate team as we continue work towards our unified mission to deliver a timeless side high quality on its volume and work less quality service to our customers. With the senior management team now in place we are working together to invigorate and innovate Lands' End. We are focused on continuing our strong engagement with our core customers while taking steps to broaden our customer CEO and to extend global awareness for the Lands' End grand. Well I believe that we made meaningful progress in 2015. It is not reflected in our financial performance for the year. Address whether and foreign exchange headwinds combined with the difficult highly promotional retail environment continue to negatively impact our --. Adjusted EPS was $1.26 as compared to the $2.39 in fiscal 2014. Jim will provide a detailed review of our financial. While we were disappointed with the financial results we believe that the set that we took through how to 2015 were important building blocks for our future positioning us to deliver sequential improvement beginning in the second quarter. I have said from start everything begins with the product and this was and is my number one priority. Over the last year we spend time evaluating the front line analyzing customer data and developing an assortment that embedded timeless yes update styling link improving feet and how your quality and maintain the strong value preposition that is true to Lands' End. In order to accomplish this we needed to make announcement throughout our operation to ensure that we have the partners and the processing in place that will enable us to execute on our strategy. We tested some items that reflects new styles over the holiday season and we were pleased with the response. A great example of this is our sweater category, where we had product ranging from our opening price point under $50 for our classic sweaters to higher end products, including our new customer offering at over $300. We were pleased to see strong sales through across the price spectrum, which was a far and better than our Company average. This illustrates to us that our customer have an appetite for a broader product assortment that is relevant to their lifestyle. Importantly this highlights our believe to deliver quality value to the customer at a wide range of price point. As part of this we work during 2015 to develop a strategic marketing plan to communicate a Lands' End message and build brand awareness. This include engaging campaigns, center on great image rate and storytelling that reflects the Lands' End value of timeless, high quality and honest value. We launched two pop-up stores one on Peeks Avenue in New York city and another in Boston. We were pleasantly surprised by the significant media exposure from these pop-ups specially New York city and delighted with the positive customer reception on our product offerings and service in both locations. In addition, we received excellent feedbacks from multimedia holiday campaign. Unfortunately, these initially were muted by the difficult retail environment and the record warm temperatures. We have support that this marketing investment of which slightly lower marketing expends. During the year, we also took steps to improve our catalog productivity by focusing mailing on active productive customers and imitated mailing to non-active customers. As I have spoken in to the past, we have been making enhancement to the overall look and quality of our catalogs in an effort to drive higher productivity to increase conversations and sales per book. Increasing circulation only when we can drive incremental profitability. Overall we look at the catalogs as our store base and consistent with any brick and market retailers we costly analyze the productivity of this store base making necessary adjustment to maximize our return of investments. We have also been testing value spending strategies and balancing this against level of promotion we offer, making adjustments in an effort to increase the productivity of our marketing investments. While our long term goal is to drive greater food price sale through as you are aware we are operating in a highly competitive environment and consumers has become increasingly value conscious. Therefore, we need to remain flexible and adoptable in our promotional strategies. Before I turning the call over to Jim, I would like to outline our priorities for 2016. We will continue to focus on increasing product relevance and invigorated the assortments. Our loyal fact from our customer is always been our first priority and we believe that our names swim collection will greatly appeal to this customer. Both -- vibrant use and -- strive are features through how the collection. The spring assortment is builds around strong colors and pattern story that have historically resonated with our customer. Our timeless appeal and effortless strikes from day a greater sense of ease and comfort to our customers than ever before. We're also excited to introduce a new swim separate collection with the season best color, design and innovation to complement our already strong offering in --. Overall, we struck a balance between offering new product that excited consumers and -- and fabrication that we knew -- from the past to create a compelling crazy collection. It is important to note that we are all on a journey to constantly deliver strong collection and we feel have much to accomplish. Our dedicated design team has been putting place to develop the full winter collection and I am confident, that they will bring even more significant enhancement than we offer in our swig summer collection to the likes our customers. In order to strengthen our resilience to future better -- we seek to broaden our offering of non-seasonal products to balance our seasonal offering of outerwear and swim wear. We believe that there is a big opportunity with non-seasonal categories, such as dresses and sweaters and we have an opportunity to become a go to destination to outfit customers here around. That said outerwear and swimwear remain important categories to our brands and we will continue to offer a well-designed high quality selection of products at great value. Ultimately we are looking to offer a well-balanced assortment of timeless design for our core customers in a way that updated for the time and relevant to their current lifestyles while maintaining a strong value proposition. In addition to the product offering in our core collection, in just few weeks we will be unveiling a brand new collection as part of our spring offerings which is not only a modern interpenetration of the vastly reach heritage of Lands' End but also marks an important foray into our acquisition of new consumers. With freshly updated styles and fits the collection futures need top dresses and light weight outerwear with an elevated -- that we believe will be compiling to both loyal and new customers. On top of improving the relevance of our core collection this is a great example on how Lands' End in simultaneously delighted its loyal customers with the complimentary offerings while attracting a new customers and still remain through to its core DNA storage history. We believe that the -- tailoring modern sensibility and polished presentation will have an halo effect and draw more customers into the brands. Once hear we've been able to experience all -- to offer and this spring collections reflect just a portion of the progress that we are making with our product assortment. On the marketing front while marketing spend in 2015 will be relatively flat to last year we will be more efficient in our overall spend enabling us to invest in initiative that we believe will yield benefits over the long-term. The majority of our marketing spend will be allocated to our catalogs and digital marketing where we can generate new attempt arrive. We are also investing in branding initially design to communicate the enhancements we are making to our product offering and to evaluate the Lands' End image while not stepping away from our core DNA. We will also continue to communicate the Lands' End value proposition we strategically planned promotion throughout the year. We will also further enhance our distribution channel in 2016. Our catalog key area our focus for us. As you know we have work to reduce circulation to maximize catalog productivity and during the first quarter these reduction will continue. As we move into second and third quarter when our new more compelling probable feature we will begin to slowly and strategically rebuild our catalog distribution. This will enable us not only for target our core at this catalog consumer but also win back less customers and create connection with new consumers. On the ecommerce front in an effort to drive higher conversion rate UPTs and growth our Lands' End customer base we are focused on multiple improvements these include new and adopted story telling content and a names for the page for a better overall selling experience including stronger crops category functionalities. Some of these you would experience in conjunction with the launch of the new collection. These enhancements are in addition to that upgrades that we made to decide earlier in the year to improve our merchandise assortments, streamlined check outs and simplifying the online shopping experience. Overall, we've -- great free beck that's far on upgrade that we've made to our digital experience and are encouraged by the progress that we're making on this front. We'll also continue to be build our international business, while foreign exchange rate had a negative impact on the business in 2015, we're generally seeing favorable response to our product offering from the international consumers and are happy with the progress that we've made outside the United States. We're also pleased with the work we've done with our corporate's account as well as the steps we've taken on developing new partnerships. We expect the corporate uniform business to see inhale effects from the improvements we're making as part of our strategic initiative. Finally, we've talk in the past of volume investing in our infrastructure and that will be a top priority in 2016. We're making significant improvements in technology to upgrade our system across different function, that will enable us to operate effectively and efficiently in the future. Jim will provide the detail from the timing and cost of these investments. In summary, we've worked hard to build the strong foundation from which to execute our strategic plan, but we still has a lot to do. We look forward to continue driving improvements in this initiative in 2016 and our excited to keep you update updated on our progress as we move throughout the year. Now I will turn the call over to Jim. James F. Gooch: Chief Financial Officer: Thank you, Federica and good morning everyone. First before I get started I would like to say a few words about how excited I am to have join company. This is truly a great company. It's an iconic brand with a strong and passionate team and certainly I am working forward with working with all of them to partner with all of them as we look to capitalize and the many opportunities that we have in front of us. With that I would like to get started by walking through our financial results for the quarter. Revenue for the fourth quarter was $473.5 million that's down 6.1% compared to $504.6 million last year and down 5.3% on a constant currency basis. The sales decline was comprised of a 5.2% decrease in the direct segment were sales are $409 million.1 and 11.5% decrease in the retail segment was sales of $64.4 million. The decrease in the direct segment was due to decline in both the U.S. region and the negative impact of foreign currency on the international business. The U.S. business continue realize negative comparable sales in product care categories and Federica noted the decrease is attributable to combination of both internal and external factors. During the quarter we saw the continuation of highly promotional retail environment with record warm weather both of which negatively impacted our business. Especially in some of our seasonal categories. In addition, the decline in U.S. revenue reflected a plan reduction in our catalog circulation as we continue to optimize all of our marketing expending. Looking at our international business our revenue was negatively impacted by approximately $5 million from foreign exchange fluctuation primarily in Europe. On a constant currency basis our international revenue was essentially flat. The declined in the retail segment reflected an 8.7% decrease in same store sales combined with 9 fewer locations at the end of the quarter compared to the same period last year. The decline in same store sales was primarily driven by many of the same factors which impacted our direct business. In addition to an overall drive and traffic at our serious locations. We ended the quarter with 227 shops of series and that compared to 236 at the end of the fourth quarter last year. Moving on the gross profit, gross profit was $199.1 million a decrease of 10.4% which compared to $222.2 million for the quarter last year. Gross margin for the quarter decreased 200 basis points to 42% if we exclude the impact of foreign currency exchange rates gross margin was down approximately 150 basis points year-over-year. The direct segment gross profit decrease 9.9% and gross margin than in the direct segment decreased 220 basis points to 43.1%. The retail segment gross profit decreased 14.1% and gross margin in the retail segment decreased by 110 basis points to 35.3%. The decrease in both segments was attributable to a highly competitive retail environment resulting in increased promotional activity, deeper product discounts and an unfavorable sales mix during the quarter. Looking at total selling and administrative or S&A expenses, for the quarter decreased 1.6% to $151 million that compared to a $153.5 million in the fourth quarter of last year. Total S&A expenses as a percentage of revenue increased by 150 basis points to 31.9%. The S&A expense de-leverage was primarily due to the decreased sales volume partially offset by lower cost. The drives of year-over-year decrease and expense include lower personal cost, a reduction in professional fees as well as a decrease in catalog cost as we continue to optimize our circulation. All of these savings where combined with credibility from currency exchange rates. Other operating expense was $39,000 in the fourth quarter of 2015, compared to $3.2 million in the same period last year. Other expense for the fourth quarter of 2014 included $3 million of expense that related to product recall reverse which was recorded in the fourth quarter of last year. Operating loss was $54.8 million that compares to operating income of $60.5 million in the fourth quarter of 2014. The decrease was primarily due to $98.3 million of a non-cash impairment charge related to the right down of intangible assets that combine with lower volume all partially offset by expense savings. The income tax benefit for the fourth quarter of 2015 was $21.1 million and that compares to an income tax expense of $21.7 million for the same period last year. Net loss in the fourth quarter was $39.5 million or $1.23 per share as compared to net income of $33.1 million or $1.3 per share in the fourth quarter last year. Again excluding the $98.3 million or $62 million after tax non-cash impairment charge, net income for the fourth quarter of 2015 was $22.6 million or $0.71 per share. Excluding the impact of the product recall, net income in the fourth quarter of 2014 was $35.9 million, or $1.12 per share. In addition to the GAAP measures outline above Adjusted EBITDA is an important profitability measure that we used to manage our business internally. For the fourth quarter of 2015 Adjusted EBITDA was $48.1 million or 10.2% of revenue. This Adjusted EBITDA excludes the $98.3 million of the non-cash impairment charge. This compares to Adjusted EBITDA of $70.4 million in the fourth quarter of 2014 which excludes the impact of the product recall and last year's fourth quarter of $4.7 million. For the year net revenue was $1.42 billion and that compares to $1.56 billion in 2014. Fiscal 2015 net loss was $19.5 million or $0.61 per share compared to net income of $73.8 million or $2.31 per share for fiscal 2014. Excluding the after tax $62 million non- cash impairment charge and the impact of the reversal of the product recall accrual net income was $40.4 million or $1.26 per share in fiscal 2015. Excluding the impact of the product recall, net income in fiscal 2014 was $76.6 million or $2.39 per share. Now, let's take a look at the balance sheet. Total cash and cash equivalents at the end of the quarter were $228.4 million and that compares to $221.5 million at the end of 2014. Inventory for the quarter increased to $329.2 million which compares to $301.4 million, mainly due to the software sales and increase receipts during the quarter. We are taking the necessary steps to move through the access product and we're adjusting future receipts and our plan would be the normalized our inventory levels throughout 2016. Long-term debt increase to $500.8 million as compared to $506 million at the end of last year with the reduction due to the quarterly principal payments. Looking at operating cash flow for the year, it was $35.9 million compared to $211.1 million in fiscal 2014. The decrease in operating cash was meanly the result of lower operating earnings and increase in inventory receipts and the onetime favorable impact of approximately $25 million that related to the separation from our formal current that was in prior year's cash flow. Before I open up the call for questions I want to make couple of comments on our cash flow and investments. First we'll to remain prudent in our cash management in 2016 while making strategic investments where we believe we can yield a positive return. As we look at our marketing spend for 2016 we are expected to see catalog circulation decline in the first quarter and build sequentially year-over-year in the remaining quarters. As we continue to optimize our circulation spend we'll focus on our active customer base and we've recognized that it takes some time to build back or relapse customers and to capture new ones. However we remain confident that we can do both overtime and believe that we are well positioned to see sequential improvements in performance beginning in the second quarter. And finally for 2016, we plan invest the total of approximately $40 million to $45 million in capital expenditures the entire year-over-year increasing CapEx is attribute to our investment in our ERP system implementation. We feel this investment is critical to ensure that we have a sufficient infrastructure in place to deliver our initiatives and to drive improvement in our business. Our investment during 2016 will focused on our finance functions, merchandising operations and our inventory planning systems. After our 2016 investment, will be approximately 75% complete with our multiyear ERP plan with our largest remaining investments coming in our order management systems and our warehouse management systems, and now with that we'll open up the call for questions. Operator? Question & Answer Operator: Thank you. Ladies and gentleman, if you have a question at this time please press star and then number one on your touch tone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Our first question is going to be from Mark Rosenkranz with Craig-Hallum Capital Group. Your line is open. Mark Rosenkranz: Craig Hallum Capital: Hey Greg, thanks for taking my questions and congrats on a good fourth quarter. You know I was just wondering if you could may be expand a little more, you talk about delivering sequential improvements in the second quarter, could you give us little bit more on, kind of what areas you expect to see then improvement and kind of what catalyst you think will have in the second quarter that will kind to drive that for rest of the year? Bernard McCracken: Oh good morning, I guess I will start with that may be Federica in China and then we were probably I am not going to give any specific guidance this to the drivers but as I said and as I think Federica walk through with all the initiatives, many of the initiatives that we have in place start to see them on take hold later in the year, we're going to continue to optimize that marketing and advertising spend and then I think as we go through the quarters, we're going to get more efficient there and I think you'll see as driver productively and also from the product prospective, we've limited amounts of new product in the first quarter you are going to see that build a little bit in the second quarter and then you'll see that be more impact in the back half. Mark Rosenkranz: Okay, great --. Could you may be talk a little bit more about the improve marketing kind of what areas you can see some room for improvement there and how you are going to and make out this more efficient as you go through the year.? Federica Marchionni: On the marketing first of all good morning, everyone. We already had an improvements in the last year on the efficiency and the -- to continuously improve on the productivity of our catalogs. We can say that we conclude ever to the full traits and because of that we can also adjust today the circulations in the next quarter to make sure that we really target the active customer and we are seeing and higher profitability from each, each catalog, because as you know on the marketing spend the catalogs are the biggest stand. Of course as we said we also trying to improve efficiency also in our digit of spend this year I think in particular we want to make sure that every dollar that goes into the digital market will be target to derive consumer on the core, core as I said before is the number one priority for us and we will do that while also acquiring new customers and these new customers definitely even more responding to digital marketing. So part of the best spend we will also targeting the new customer and as we said we are improving the brand awareness and not just nationally but also internationally. So it is important to note how our advertising campaign on toady much more relevant and focused again there are moments so where we focused on the core and that is for example in the Q4 we will see holiday campaigns we spoke to the families to the multi-generational families, and through the '16 we will have a balance between the core the initially for the core customers and the initially for the new customer. As I said in two weeks we will launch a new collection dedicated to the new generation which we consider in expansion of our current customers. Bernard McCracken: And I think Mark as what Federica noted is absolutely true of that we are obviously trying to drive productivity across all of our different marketing vehicles. You see us talking more certainly about the catalogs, just because that's a biggest piece. The goal is there to continue to refine our model there continue to drive productivity we made some changes last year we gave you a little bit insight is to how we see the spending flowing this year of the first quarter this year will be our first pass and making some changes there. I think as we get into the second and third and fourth quarter we will be making changes over prior year changes, and I think we will get smarter as we go. Mark Rosenkranz: Okay. Thank you, that's very helpful, and then last question for me. Could you you've talked a little bit about how the non-seasonal items you could see some opportunities there. You just kind talk about how you are going to handle kind of balance between the seasonal and the non-seasonal items in the story and what kind of province needed the nice the right touch to emphasize those products as available but not overshadowed the strong seasonal trends in the given time in the quarter. Federica Marchionni: Of course what we saw last year was a very bad weather both for the spring and for the full. We had no summer and we have very warm winter and for a company like us that is not expose on trends session but it is exposed on seasonality. Because our two biggest categories are the swim and the outerwear I want to make sure that we have always a something that is consider core also for different categories. So the first things and this one of the reason why even in this spring summer you'll see more collect more products on the new sale on the full and then -- sorry on the -- on the closing for in e rebound users that is very key to succeed in the clothing business. This part should grow and to do that what we did what I consider streamlining the merchandising offer. That means that we eliminated this SQs that we are unproductive again efficiency is for me the key element and the key criteria to define the strategy for both in the marketing and also in the merchandising offer. By eliminating that I could include new net both on the core and as you will see in the new collection. There are various way of introducing non-seasonality swim product and one of this and you will see through the year that my focus will be also to be active because the -- is also in an area where we can grow and this is a non-seasonality product and will help us to stay strong in moment where either we are in transition between the swing and the summer and summer and the winter and in fact this is the moment where we think to put our focus this year and also to grow the business in this area where the weather will not influence the buying. Operator: Thank you. Our next question is from Steve Marotta with C.L. King & Associates. Your line is open. Steve Marotta: C.L. King & Associates: Good morning everybody. Bernard McCracken: Good morning, Steve. Steve Marotta: Following up just following up on that question is pretends to the split between seasonal and non-seasonal in fiscal '15 roughly what was that split and roughly what would you expect that split to be in fiscal '16? Federica Marchionni: We don't give exact number on the split, but what I can say to you is that of course as I mentioned these seasonal products are the pillars of our business. But we saw a great response to also product that can be era round and because of that, and because of the fact that we didn't the bell of the collection thinking about that in the past. That will be of course a journey as ever seen. So, we're not change dramatically but we will be introduced and you can have a sense of that by just walking through our current spring summer collection that is on the website or is in the catalog so you'll see that there are more product that can be used again for eve around and I've always -- for thinking about how U.S. which is the biggest market for us how the weather is there and 50% of the country is exposed to the warm weather year around so we need to consider that when we create a collection. So, but again that will be made by always the review saying the product excuse that are non-productive and introducing more productive and opportunities so we'll again a journey so that percentage don't expects a dramatic change but an increase season after season and of course we will be flexible in understanding read the data and see that customer reflecting acceptance. Steve Marotta: Okay. Thank you. Jim as a pretends to the inventory can you dive a little deeper into the competition or to percent of say aged inventory is within the particular pool of inventory currently how you would expect the promotional cadence to look over the course of say the next 6 to 12 months. Would you the concerned of course is that considering that inventory is up and some of it appears age of that margins will remain under pressure due to the high promotions in order -- the older inventory for what is now filing through some of the nearest stuff if you could just if you could just imitated a little clear that will be great. Bernard McCracken: Yes, absolutely that will be great. Bernard McCracken: Yes absolutely. As I mentioned in prepared remarks we're certainly sitting on a little bit more inventory than where we plan to be where we want to be and I also said that I think from adjusting future receipts we're going to able to move back to a normalized level of inventory. What I would tell that was I'm pretty happy actually with the quality of inventory if you look at it both from an age perspective we are in a better positioned today than what we were a year ago and also as Federica mentioned talk a little about the season and basis mix we have a greater percentage of basic product than where we were as year ago. So as you think about how we're going to move through I don't anticipate its needing a significant amount of markdowns in order to move through this inventory it will be more a matter of time and being able to adjust future receipts and based on our inventory commitments that we have out there it's certainly going to take as quarter or two to move through this. But I wouldn't anticipate significant margin pressure as result of the inventory I think from a margin pressure of anything you are still talking a very competitive retail environment you are still talking very promotional retail environment and if there is any margin pressure I see a coming more from back and I do from our current inventory position. Steve Marotta: Okay. That's great. Can you disclose what the plan was their was slightly about what you have like to have ended the year with and an increase can you talk a little bit about what that arrangement - James F. Gooch: We're not going to specifics on the plan but the year-over-year inventory is slightly higher and I would say that the prior inventory if you go back and look at that was probably believe we will also little bit artificially lower than what the normalized inventory level would be, but really because of if you look at our performance and our top line sales but that's really what drove the little bit the access inventory at the end of the year. Steve Marotta: Okay. I have two other question as it pretends to the promotional cadence for 2016 can you comment but Federica you have mentioned in the past that you in Denver to make the brand and messaging less promotional to the customer and to dial back hiding to promotions as what has say occurred over 2014 and some of 2015, are the 2016 promotional plans right now just the plans are the fewer or similar or more than 2015? Federica Marchionni: First of all Steven the most important thing is always to be in line with market and that's what our lesson and I said last year. So every time we were not in line with the what is loss out there in the markets, we actually needed to -- change because dialing back when everyone else is doing a very strong promotion then you simply just to lose the top line. But we did some tests to verify what is the way, the best way to drive more high margin within the promotions and so this is the first thing, we've more data and more knowledge on how to drive and a higher margin in the promotion and how to do it, when to do it. So I think that it was really the year where everyone of us was eating daily, especially in Q4, to define the best promotion to drive top line and margin. This year we wish not to be that promotional, no one likes that, I think no company would like to be in that situation and definitely it's not in the strategy to become more and more a brand with higher value and we would like that the consumer shop to at Lands' End not because of the promotions but because they like what we give to them that as we said the consumer are becoming more and more size conscious. So again we want to be very flexible what I am doing, with the launch of the new collection is also to see and to test product that cannot be and will not be promoted as we use to or so far with the product offering that we have. So that will be another learning for us, you will witness this year so the intention is definitely to improve the margins not be as promotional but again as I said stay flexible and very diligent in driving top line tool. Steve Marotta: That's helpful, and -- one other question you mentioned that there were some sweaters that were tested in a holiday season and you thought that you've got some pretty good read on and can make better inventory decisions regarding those successful tests, and I would assume the following season in the fall winter. Is it possible that the test and react model can represent a larger portion of Lands' End sales in future years than it has is this a tactic that you think you can use more aggressively in across categories. Federica Marchionni: For sure. As I am always saying one of my pillars from the three pillars that is grow profitability as far as the adaptability and the more you can adopt to the market needs the factor you can do it the bigger are the results. It's important to read the data and to react immediately on the data. Of course as you know our product lead time is long so we have to be able to read the data way before but I think this is one of my skills and I am working with the team to make sure that we understand more the trends and the insight we can get from our first suite and but I am not very deep spend as my team also is on the on the test or not just the product but on whole the activities that we do so. Bernard McCracken: Steve I have to add to that to in my comments on our incremental CapEx that we're spending this year that's the big reason why we are investing there too. We have data available at this company but it's significant amount of home growing systems and I think our investment in that infrastructure is not only going to allow us seems to get data more accurate data but I think data that comes quicker and it's more actionable so we can do more this read and react test and be more timeline in the market. Steve Marotta: That's helpful. All the best. Bernard McCracken: Thank you. Operator: I am not showing any further questions. This concludes the Q&A portion of today's call. Ladies and gentlemen thank you for participating in today's conference. This does conclude the program. You may all disconnect. Everyone have a great day.