DAVIDsTEA Inc.
Q4 2016 Earnings Call Transcript

Published: 12 Apr 2017

[Operator:]

Good day and welcome to the DAVIDsTEA Fourth Quarter 2016 Earnings Conference Call. Today’s conference is being recorded. At this time, I’d like to turn the conference over to Rachel Schacter of ICR. Please go ahead, ma’am.

[Rachel Schacter:]

Thank you. Good afternoon, everyone. With me on the call is Joel Silver, President and Chief Executive Officer; Christine Bullen, Chief Operating Officer and President, DAVIDsTEA USA; and Luis Borgen, Chief Financial Officer. Before we get started, I would like to remind you of the Company’s Safe Harbor language which I’m sure you’re all familiar with. This presentation includes forward-looking statements about our expectations for the performance of our business in the coming quarter and years. Each forward-looking statement contained in this presentation is subject to risks and uncertainties that could cause actual results to differ materially from those projected in such statement. Additional information regarding these factors appears under the heading Risk Factors in our 10-K that will be filed with the Securities and Exchange Commission subsequent to this call and will be available at www.sec.gov and on our website. The forward-looking statements in this discussion speak only as of today’s date and we undertake no obligation to update or revise any of these statements. If any non-IFRS financial measure is used on this call, a presentation of the most directly comparable IFRS financial measure to this non-IFRS measure will be provided as supplemental financial information in our press release. Now I’d like to turn the call over to Joel Silver, President and Chief Executive Officer of DAVIDsTEA.

[Joel Silver:]

Thank you, Rachel. Good afternoon everyone and thank you for joining us today. I will begin with some brief opening remarks to discuss my initial plans and priorities as CEO of DAVIDsTEA and then Christine will review the highlights of our fourth quarter and full year results followed by discussion of our growth strategy. Luis will then go over our financial results in detail, after which we will open the call up to your questions. Let me start by saying how excited I am to be here. I long admired the DAVIDsTEA brand and its positioning within the growing specialty tea industry. The brand has built an enviable and strong leadership position in the marketplace. I’ve only been on board since March 20th, but during these few weeks, I devoted my time engaging with the business, visiting our stores, understanding our ecommerce platform and learning about our customers and spending time with our passionate employees, and I will continue to do so in the coming weeks and months. My first impression about the DAVIDsTEA is a strong dynamic brand and a great business. However, over the last few quarters, the business has been challenged by several self-inflicted issues. The first is that we delivered a weaker product assortment that didn’t excite our customers to buy. Second, we’ve overwhelmed our customers in store with a high frequency turnover product, which distracted them from the core tea experience. And third, while our ecommerce platform remains a bright spot, it has not kept up with the strong growing demand of the digital channel. Going forward, we’ll refocus our efforts on the assortment, digital merchandising and technology to overcome these issues and turn them into opportunities to grow the business. I am confident that I can leverage my experience with consumer brands, as well as my background in retail, ecommerce and merchandising to drive improved performance in our stores and the overall business. I am fortunate to be at the helm of a company with such an incredible brand, as well as the team of talented people. There are roles that we need to fill to provide us with complete and strong leadership team, and we have already begun that process. Christine is a great asset to the Company and has demonstrated her strong leadership skill, especially during the transition period, and I am very pleased that she is assuming expanded role as Chief Operating Officer and President of DAVIDsTEA USA effective immediately. Her experience being the Company’s interim President and CEO will be of great help in addressing the challenges I just discussed. Fiscal 2017 will be a reset year for DAVIDsTEA. My priorities as President and CEO will be centered around improving the product assortment, in-store experience and raising the bar on our ecommerce platform, allowing us to get back to the core of the DAVIDsTEA brand. Through these changes, combined with the new leadership team, we will revitalize the DAVIDsTEA culture, so our brand and talented team can drive us to regain customer excitement and our leadership position, as well as superior operational and financial results. Overall, I think there is a great potential for DAVIDsTEA, and I am confident we can drive improved results. While we have work ahead for us, we have begun putting plans in place I believe should help reinvigorate the DAVIDsTEA experience. I’ve been working very closely with Christine, Luis and the entire management team, as well as the Board to ensure a seamless transfer of responsibilities, and I look forward to speaking with you all again after our first quarter call. Given fiscal 2017 will be a reset year as we develop the go forward strategic plan to drive improved results, we are not providing quarterly and annual guidance at this time. With that, I will turn the call over to Christine to review the highlights of our fourth quarter and full year results followed by a broader discussion of the business.

[Christine Bullen:]

Thank you and good afternoon everyone. I am happy to be speaking to you today in my role as Chief Operating Officer and President of DAVIDsTEA USA and look forward to working with Joel to help revitalize the DAVIDsTEA culture to our new leadership team and address the self-inflicted issues that he just discussed including weak product assortments and overwhelming our customers in-store with the high frequency turnover of products that distracted from the core tea experience. Looking at our fourth quarter financial performance, sales came in at $86.3 million and the comparable sales increase of 0.4%, while adjusted EPS was $0.41, weaker than expected primarily given -- driven by lower gross profit margin as a result of soft sales and traffic trends leading into the holiday that necessitated more discounting, combined with post-holiday promotions that were elevated to clear through holiday inventory. Unfortunately, the fourth quarter weakness has persisted into the first quarter and we have seen some deterioration. Luis will provide more detail around this trend shortly. For the full fiscal 2016, sales increased by 19.5% to $216 million, comparable sales increase of 2.2%, adjusted net income of $7.5 million and adjusted EPS was $0.29. Before discussing our new store performance and go forward store expansion plans, I will now review our key areas of focus for fiscal 2017 to address the operational issues we have discussed. First, we plan to renew and streamline our focus on tea. We believe there is still so much opportunity within the tea segment of our business. In fiscal 2017, we will refine our tea assortment, enhance our visual merchandising and implement a new merchandising strategy to provide a more cohesive product message around tea. An example of this increased focus combined with product innovation was a very popular holiday tea Candy Cane Crush that our customers loved this season. Second, we intend to make further investments in the digital space including our website, capability and digital marketing in effort to increase our digital presence. These investments should allow us to further reactivate our current customers and apply consumer behavior based digital marketing. We will begin to utilize this data more going forward in fiscal 2017 and have already seen some improvement with increased efforts from personalized and targeted emails. We believe that allocating capital towards the digital space is prudent given the strong returns that we’ve seen and the continued consumer shift to online. Our increased focus on digital should help fuel a capital efficient expansion of the brand and our customer reach. Third on the marketing front. We are conducting consumer research on which we will incorporate customers’ feedback and insight into our overall brand strategy and messaging. We are also in the process of analyzing the effectiveness of our various selling season and sub campaigns to improve returns on our marketing mix across those stores and online. A more focused and consumer centric approach toward campaign creation should allow for stronger brand consideration and maximized use of resources. Another priority for fiscal 2017 is continuing to invest in our people including our store teams and key guys training to maintain our passionate and knowledgeable guest experience to which we pride ourselves. We are developing new training programs to focus on the appropriate skills and competencies needed to be a successful DAVIDsTEA employee. Lastly, we remain encouraged by our ultimate sales channel which includes our hotel, restaurant and institution business, though still a very small segment of our business. We are continuing to expand our distribution partnership in this area and are currently in the process of sizing the potential opportunity across various segments as we believe that DAVIDsTEA brand can be monetized across several new channels. Specifically, we are exploring ultimate channels in retail, wholesale and online that should increase our brand visibility. We will keep you updated as we make progress on this. On the new store front, we opened six new stores during the fourth quarter, ending the year with 231 stores or an increase of approximately 20% versus the end of last fiscal year. This includes 181 stores or 80% of our store base in Canada and the remaining stores in the U.S. Our Q4 openings were balanced across a variety of formats in malls including lifestyle centers and outlets and street locations as well as in mix between urban locations and more regional markets. Our new store performance in Canada remained strong during the fourth quarter. However, our U.S. store performance, both comp and non-comp has been disappointing. As a result, we have taken a non-cash, asset impairment and onerous contract charge in fourth quarter related to underperforming stores, primarily in the U.S. Luis will provide more details around this. Looking at our new store plans in Canada, as we approach our total goal of 230 stores, we are naturally moderating the pace of our openings to approximately 10 to 15 stores for fiscal 2017. We will not be renewing two leases in Canada this year. In the U.S., given the weakness of our U.S. stores, we feel prudent to moderate the pace of our planned U.S. store opening, and our current plan is to open approximately five new stores this year. We will not be renewing three leases in the U.S. in fiscal 2017. We believe this moderation in the U.S. store growth will provide us with the opportunity to reenergize our existing store base, being more selective with new store openings, focusing more on locations that deliver higher returns, free up management focus to reinvest in our growing ecommerce business and focus on the key strategic initiatives to help reinvigorate the overall business that I just discussed. Despite our weaker than expected Q4 financial performances, there were some bright spots in fiscal 2016 that I would like to highlight. Number one, our new stores in Canada continued to perform well; in particular, we're pleased with the success in some of our new markets. We believe this is a testament to the brand loyalty that exists up in many Canadian markets. Number two, our ecommerce business saw solid growth, and our penetration continues to increase while we maintain strong profitability given our ecommerce business has a higher average transaction. In fiscal 2016, our ecommerce business as a percent of sales increased from 9.4% to 10.6% and is moving towards our medium-term target of approximately 15% penetration. The strength in our ecommerce business continues to illustrate the broad brand appeal that exists for DAVIDsTEA. Number three, we continued to maximize the potential of our loyalty program in fiscal 2016. At the end of the fiscal year, we had over 1.9 million members and increased greater than 8% prior year period and the transaction from our loyalty members continues to grow. Number four, we're very excited that DAVIDsTEA was recognized by Forbes in 2016 as part of Canada's best employers list with over 300 companies in Canada based on the willingness to recommend one's own player and the willingness to recommend other employers in varying sectors. We also placed first in the specialty retail category of Léger’s Marketing WOW Customer Experience Index for the fifth year in a row, brings on product offering, customer service and innovation. Number five, we executed several in-store tests in fiscal 2016, which have resulted in a number of learnings that we’ll utilize to drive sales, improve the customer experience and achieve operational efficiencies going forward. More specifically, we're pleased with results that we've seen from our refresh test, which we rolled out into 70 stores in 2016, including re-fixing, improved customer flow and digital merchandising. And we plan to roll this out for another 100 stores in 2017. We’re also pleased with the successful pilot of our in-store traffic counters that are in now 30 stores and we should have our 130 stores with this feature by fiscal year end 2017. This will be a useful tool in deploying labor more effectively while driving those sales and expense savings going forward. As we discussed on our third quarter call, we tested a new store format in our Natick store in Boston, which opened on November 4, 2016. This pre-packed tea store format was designed to address inefficiencies and customer pain points in our stores located in high traffic malls. We're gathering learnings and have seen early success from this new format and will be closely monitoring its performance going forward as we continue to test and learn both in-store and across many areas of our business. So overall, it was a tough fourth quarter with some bright spots in fiscal 2016 that we will continue to build on going forward. As Joel mentioned, fiscal 2017 will be a reset year as we continue to test and learn. We will keep you posted on progress and any new developments on our first quarter earnings call. And now for a more detailed review of our fourth quarter results, I will turn the call over to Luis Borgen, our Chief Financial Officer.

[Luis Borgen:]

Thank you and good afternoon everyone. I will begin my remarks with a review of our fourth quarter and full year results. As a reminder, the dollar amounts I refer to when reviewing our results are in Canadian dollars. Additionally, I will reference adjusted results in my comments today. We have provided these results as well as an explanation of each line item and a reconciliation to IFRS results in our earnings press release which was issued earlier today. Please see the IFRS to non-IFRS reconciliation tables in our press release for further detail. Turning to our results. Our sales in the fourth quarter of fiscal 2016 were $86.3 million, an increase of 13.9% from $75.8 million in the fourth quarter of fiscal 2015. We ended the quarter with 231 stores, an increase of 38 net new stores or 19.7% versus a 193 stores at the end of the fourth quarter of 2015. This includes 181 stores in Canada and 50 stores in the U.S. In Q4, we opened six new stores with a year over year increase in store operating lease of 20%. Comparable sales increased by 0.4% versus a 6.6 comp increase in the fourth quarter last year. Gross profit dollars increased 6.2% to %44.8 million from the $42.2 million in the fourth quarter of fiscal 2015. Gross profit as a percent of sales decreased 380 basis points to 51.9% from 55.7% in the prior year period, primarily due to soft sales and profit trends leading to the holidays combined with a heavy inventory position. This challenging macro backdrop necessitated more discounting as well as elevated post-holiday promotion to begin to clear it through holiday inventory. Before turning to SG&A, I would like to review the non-cash asset impairment charge and provision for onerous contract included in our fourth quarter 2016 IRFS results. Our annual assessment of assets resulted in the impairment of 21 U.S. stores and five Canadian stores in the fourth quarter due to reduced profitability of these combined 26 stores. The impairment of our U.S. stores is primarily driven by a challenging holiday season that required increased discounting combined with post-holiday promotion that were elevated to clear through excess inventory and we've seen these trends persist and deteriorate into the first quarter, which I will discuss further in a moment. The five impaired Canadian stores were primarily low volume stores that saw a changing traffic pattern including one store located in the Calgary oil and gas market. As a result of current and expected future operating results, we have concluded that the carrying value of these stores exceeded its fair value and have recorded an estimated non-cash asset impairment charge combined with the provision for onerous contract of $13.1 million or $0.31 per diluted share. Of the $13.1 million charge $1.2 million is related to the five Canadian stores with the remaining $11.9 million related to the 21 U.S. stores. Taking this into account, SG&A increased to $43.6 million from $26 million in the fourth quarter of fiscal 2015. As a percent of sales, SG&A increased to 50.5% from 34.3% in the fourth quarter of fiscal 2015. Excluding the one-time charges I just mentioned, in the fourth quarter of fiscal 2016, adjusted SG&A increased to $29.9 million from $26 million in the fourth quarter of fiscal 2015 due primarily to the hiring of additional staff to support company growth including new stores and higher store operating expenses to support the operation of 231 stores as of the end of the fourth quarter as compared to a 193 stores at the end of the prior year period. As a percentage of sales, adjusted SG&A increased to 34.6% compared to adjusted SG&A of 34.3% in the prior-year period. My comments will now refer to adjusted results. Adjusted results from operating activities for the fourth quarter of fiscal 2016 were $15 million as compared to last year’s adjusted results from operating activities of $16.2 million. Adjusted net income was $10.6 million or $0.41 per fully diluted share as compared to $11.8 million or $0.45 per fully diluted share in the prior year period. Adjusted EBITDA for the fourth quarter of fiscal 2016 was $18.1 million, compared to $18.9 million in the prior year period. Looking at our fiscal 2016 results, sales increased by 19.5% to $216 million and comparable sales increased by 2.2%. Adjusted results from operating activities were $10.9 million in fiscal 2016, compared to $15.5 million in fiscal 2015. Adjusted net income was $7.5 million or $0.29 per fully diluted share for fiscal 2016, compared to adjusted net income of $10.5 million or $0.40 per fully diluted share in fiscal 2015.Adjusted EBITDA for fiscal 2016 was $23 million, compared to $24.6 million in fiscal 2015. As of January 28, 2017, ending inventory was $31.3 million, as compared to $17.8 million as of the end of fiscal 2015. On a per store basis, inventory increased by 47%. In an effort to reduce inventory level, going forward, we will reduce our buys and have fewer selling seasons. However, this will take us several quarters to work through. In terms of liquidity, we ended the quarter with $64.4 million in cash or a net cash position of $2.54 on a per share basis, no debt, and availability of $20 million under our revolving credit facility. I will now share some details on our quarter-to-date trends. We have seen a meaningful deterioration in Q1 traffic trends across both the U.S. and Canada, resulting in a quarter-to-date comparable sales decline in the high-single-digit range. This in combination with our still heavy inventory position is resulting in increased pressure on our gross profit margins compared to the fourth quarter. Given the quarter-to-date sales trends, we expect to see meaningful SG&A deleverage in the first quarter. Taking these factors into account for the first quarter of fiscal 2017, we anticipate an operating loss. For the full year of fiscal 2017, our current intention is to open approximately 15 to 20 new stores with approximately 10 to 15 stores in Canada and approximately 5 stores in the U.S. We plan to open 4 stores during the first quarter including 3 in Canada and 1 in the U.S. With respect to CapEx, in 2017, we expect to spend a total of about $16 million to $20 million and we expect to be free cash flow positive for the year. For all other details related to our results, please refer to our earnings press release. And with that, I would like to turn the call back over to the operator to start the Q&A session.

[Operator:]

[Operator Instructions] And we will take our first question from Sharon Zackfia of William Blair.

[Sharon Zackfia:]

I guess maybe two bigger questions. What do you think is going on in the first quarter where trends are so much worse than the fourth quarter? And then secondarily, what do you think the problem is in the U.S.? And I guess I'm unclear as to what the remedy might be to fix that?

[Luis Borgen:]

So, in the Q1 trends we’ve seen so far, we’ve seen a market decline in our traffic early in the quarter. We’ve also seen continued gross margin pressure in Q4; we were down 380 bps year-over-year and we've seen that get little bit worse. We had a need to do additional promotions and discounts to clear through the inventory to make sure we manage our inventory to sales. And it's been both in the U.S. and Canada. Across Canada, it's been across markets and across formats. So, it's pretty broad based. I'll let Christine and Joel perhaps add some additional color to your first question around what's going on in the Q1 results to date.

[Christine Bullen:]

So, I think specifically and speaking about the U.S. what we're seeing is just the lack of awareness around the brand. What we've seen the improvement on is the consumers and the customers that are coming into our store, they are having a great experience and we're seeing the average ticket grow quite substantially. And in comparison to the Canada, average ticket is quite a bit higher. So, what we need to focus on in the U.S. is really creating that awareness of who DAVIDsTEA is and where you can find us.

[Sharon Zackfia:]

Can I just follow up and ask on the average ticket? Is that just because prepared beverages are much lower in the U.S. for you?

[Christine Bullen:]

No. Actually, they are almost the same. The prepared beverages both in Canada and the U.S. are almost to the exact percent of our business.

[Sharon Zackfia:]

Okay. And then, I guess one bigger picture question. It feels like your business might be a little bit more of an impulse purchase when people are already out and about, and clearly everybody is worried about overall retail traffic. How do you think about driving traffic into the stores and how might that manifest itself going forward?

[Christine Bullen:]

I think the biggest opportunity we have there is through our loyalty program. As we mentioned earlier, we will be investing in our CRM and our loyalty program and really maximizing and the messaging that we have to our loyal customers. Those are the customers who are frequent -- seeing us quite frequently. So that's one piece. And then, I think the other piece, as you are spot on, we are in impulse; nobody gets up in the morning and says hey, I'm going to get a cup of tea today at DAVIDsTEA. It really is -- they are in the center or they are in the area and they make their way over to see us. And so, we need to become more relevant; we need to become that everyday consumption item where people need that cup of tea each day to make it through the day.

[Sharon Zackfia:]

Thank you.

[Operator:]

And we will take our next question from Kelly Bania of BMO Capital.

[Kelly Bania:]

Hi. Thanks for taking my question and welcome, Joel. I guess I appreciate the early assessment. Obviously, you've only been there a couple weeks. I guess I was wondering if you could just elaborate on the comments, I think you've talked about some of the self inflicted issues, the weaker product assortment. What do you really mean by that? Is there not enough innovation; is there too much innovation; is it innovation into the wrong flavors? And I think you mentioned you are overwhelming your customers with too much product or frequency of product and maybe you are going to be reducing seasons. Just any more background of how you guys came to that conclusion and then, just some more comments on ecommerce and how that's performing. And I think you mentioned that's not keeping up with your expectations. So, just elaboration on those three points I think would be really helpful.

[Joel Silver:]

Yes. So, the first point, the product assortment we just -- we were overall delivering products that our customers didn’t react to as they have in the past. And I think that was self evident by what we did; that was around the tea selection; it was also in accessories as well too. And so, I think that’s just keeping -- just getting the right product in the right assortment, which we're learning from all the time. The second piece in terms of our frequencies, we're running turnovers to the store, almost weekly in terms of changing the assortment. And I think what was happening is the stores were so much paying attention to that that they truly were not really – couldn’t be focused on the customer because they had to keep resetting up the store with our latest product that we sent to stores. I think now what's happening is we really reduced that to much more of a monthly rhythm. Our best customers are in the stores every 32 days. Our average customers are in the store once a quarter, so really we're much more aligned to how their visits are aligned with us that we're still showing the impression. I think that Company has done a great job of innovation on some of the accessories side. On the tea side, we really will continue to drive some of those innovations as well too for the future. As far as ecommerce goes, we have -- ecommerce business is still doing good double-digit comps. We just now have a platform that really -- that needs to upgraded dramatically to handle the volume that we want the business to be. So, I think that’s an opportunity for us to really invest and really be able to serve with our customers better. And we see that as a huge opportunity both U.S. and Canada on ecommerce side.

[Kelly Bania:]

Okay. And in terms of the U.S., I mean, what do you think is the real issue in the U.S.? You talk about brand awareness but how -- should you be opening any stores at this point until you have a better sense of how to improve that brand awareness?

[Joel Silver:]

Yes. I think overall, we believe tremendously in the brand and we think there is huge potential. I think we have reduced our store count down to, as Christine mentioned, we're under five stores. And so, we slowed that down, so we really understand. I think the number one is, we were looking to continue to make operational improvements. Christine’s been on -- has a focus on the U.S. only still for a limited period of time nine, ten months. So we're making some great operational changes in the U.S. and Canada for that matter that will help drive the business. I think our ecommerce business we see also as a whole business with what's going in the U.S. So, we continue to see that customer react well to that and it’s a great opportunity for us to kind of drive that as well, as well as we kind slow down on the retail side. And lastly, I think we longer term -- we continue with innovation of the format in the U.S. that eventually will make its way to Canada as well. So, I think that’s where we see -- we're long-term bullish on the brand and we really see that we're going to resolve that just not in what we thought was the traditional way by trying to plant a store in every corner.

[Operator:]

And we will take our next question from Lorraine Hutchinson of Bank of America Merrill Lynch.

[Stephen Albert:]

Hi. This is Stephen Albert on for Lorraine. Just I guess on inventory and gross margins. As you look at your current inventory position, you called out a pretty significant increase year-over-year. How do you feel about the quality of your inventory right now, post some of the -- post holiday clearance? How much clearance of the product is left to go? And then, you talked about taking many quarters. Any more specificity on how many quarters you expect it to get to -- to get to that steady state of fewer selling seasons?

[Luis Borgen:]

So, the inventory is roughly three buckets. Bucket one is inventory support, new store growth and part of it is slightly higher due to our foreign exchange. The second piece is targeted investments in two areas. In our refresh remodel/format we've invested in tea sachets and also in prepacked teas. That’s a big chunk of the inventory investment that given initial signs, we've seen in some of the stores we've put it in, we put the inventory ahead of the sales and we think we’ll work through that as part of our investment. The third piece simply is excess inventory from Q4, and we do not expect to have negative high single digit comps in Q1, so, we're going to work through that. It's going to take at least two quarters from now to work through that inventory. We do expect continued gross profit margin pressure for the next quarter or so. In Q4, our GP rate was down 380 basis points year-on-year. We expect the Q1 to be at least at that level relative to the prior Q1. So, we are very cognizant; we are reducing our skews; we're sharpening our assortments; we're decreasing the seasons but it’s going to take at least a couple of quarters to work through that. I don’t know if Christine or Joel have any additional but I think that's basically. And obviously as we get more into the year, we'll have a better sense of our sales, and where these gross margins are going to land at.

[Stephen Albert:]

And then, I guess a little bit more color on how the new U.S. store prototype for the kind of A malls you tested in the Natick mall, how is that performing today? And are there plans for rolling that out further or is it still too early?

[Christine Bullen:]

So, I can speak about this. This is Christine. We are pleased with the results. And while they're not exactly where we would have liked, we definitely have seen improvement; it’s outperforming the region and it's performing over how the U.S. is performing. So, we're happy with that. What we're going to be doing is we'll be testing it in the next four locations, one in Canada -- no, three locations, one in Canada and two in the U.S. No, I was right the first time. Excuse me, four locations, three in the U.S. and one in Canada. So, stay tuned for that.

[Operator:]

And we will take our final question from Chris Krueger of Lake Street Capital Markets.

[Chris Krueger:]

Hi. Good afternoon. I just have a few questions. I believe you said there is going to be five leases that will not be renewed. Can you just help us on the timing of those; are they spread throughout the year or what?

[Joel Silver:]

They are spread throughout the year and they're greatly regular course of business, two are in Canada, and three are in the United States.

[Chris Krueger:]

And as far as your store base goes, what percent of your stores are in enclosed shopping malls and how are those stores performing relative to your other stores?

[Joel Silver:]

In Canada, we're about two-thirds mall and one-thirds non-mall which includes lifestyle outlet and the street, they both performed well overall. And the decline we've seen has been across both formats to varying degrees, of course given local competition and what's going on, but it hasn’t been isolated to any one format in particular, which is why we think it’s more a systematic issue that we are dealing with in terms of product, connecting with our customer that we think will alleviate some of those softer sales we’ve seen.

[Chris Krueger:]

Okay. And then on the competition front, do you see any differences in the level of competitive activity or just competitors in United States versus Canada or is it a pretty similar environment?

[Christine Bullen:]

No. We’ve seen no change in the competitor activity in the U.S. or Canada.

[Operator:]

And there are no further questions at this time.

[Joel Silver:]

Thank you for joining us. We’re going to be signing off the call now. Thanks, guys.

[Operator:]

And ladies and gentlemen, this does conclude today’s conference. We thank you for your participation. You may now disconnect.