Greetings and welcome to the Citi Trends 3Q 2022 Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded, Tuesday, November 29, 2022.

I would now like to turn the conference over to Nitza McKee, Senior Associate. Please go ahead..

Thanks, [Malika] (ph), and good morning, everyone. Thank you for joining us on Citi Trends third quarter 2022 earnings call. On our call today is our Chief Executive Officer, David Makuen; and Chief Financial Officer, Heather Plutino. Our earnings release was sent out this morning at 6:45 AM Eastern Time.

If you have not received a copy of the release, it's available on the company's website under the Investor Relations section at www.cititrends.com. You should be aware that prepared remarks today made during this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Management may make additional forward-looking statements in response to your questions. These statements do not guarantee future performance. Therefore, you should not place undue reliance on these statements.

We refer you to the company's most recent report on Form 10-K and other subsequent filings with the Securities and Exchange Commission for a more detailed discussion of the factors that can cause actual results to differ materially from those described in the forward-looking statements.

I will now turn the call over to our Chief Executive Officer, David Makuen.

David?.

number one, we shipped record amounts of packaway inventory, chock full of incredible values to excite our customers; Number two, we continue to roll out new zip codes in our product cities, including Q merchandise, missy size ranges and tween girls offerings; Number three, we infused hot price points in key categories to capture market share from value shopper.

And number four, we successfully lapped last year's macro supply chain issues to deliver an on time gift assortment for a strong start to the fourth quarter. It's important to recognize that the inflationary backdrop our core customers facing is truly unprecedented, particularly in the areas of rent, food, utilities and transportation.

Our core customer with an annual household income of about $40,000 and 50% of our customer base having an annual household income of $25,000 and below has been hardest hit from these extreme macro pressures. Having said that, the Citi Trends customer is doing an admirable job adjusting his and her shopping patterns.

What we saw in the third quarter is that our customer is shopping much closer to -- much closer to need, employing a buy now, wear now strategy for important events and end use needs in their lives. Slide back to school, which I'm pleased to report was a solid performance for Citi Trends this year.

Throughout the third quarter, our traffic and conversion rates remain steady and strong and our average dollar basket size continues to hold up very well against last year's results.

Through it all, I can assure you and consistent with my points in the past, the Citi Trends customer relies on -- in the heart of neighborhoods where we are the primary destination for their family apparel and accessories, home and essential needs. Before I turn the call over to Heather. I want to highlight a few remainder of your points.

First, we are set-up really nicely for the remainder of fourth quarter. We generally excel during need-based events and we are confident that our families will Gift Big and Spend Less at Citi Trends this year. As we exited strong Black Friday week, our stores are full of great values across gifts, stocking stuffers and wonderful self-purchase outfits.

Next, we are reiterating our second-half guidance provided at the end of the second quarter. And lastly, it's no secret that the marketplace is right for procurement of high quality, high value goods. Our flexible and agile operating model combined with our strong balance sheet allows us to be quite active for spring and fall of 2023.

With that, I'll turn it over to Heather to discuss our third quarter results in detail, as well as our outlook for the second half of the year.

Heather?.

Thanks, David and good morning, everyone. As David mentioned, our third quarter results were in-line with our expectations despite the challenging macro backdrop and the significant inflationary headwinds our customers facing.

We manage the business prudently and our teams continue to execute against our transformation strategy, delivering strong gross margins and a reduction in SG&A dollars for the quarter.

We ended the quarter with a strong balance sheet, including $77.8 million of cash, well-controlled inventory and our $75 million revolving line of credit remained unused. We also completed the sale-leaseback transaction on our Roland, Oklahoma distribution center for $36 million in proceeds.

The strength of our balance sheet positions us well to continue to navigate the current environment, while focusing on our strategic initiatives. Now let's turn to specifics of our Q3 financial results.

As mentioned in our earnings release, we are comparing select operating results for the third quarter and 39 weeks of 2022 relative to the same periods in 2019 in order to provide a more normalized comparison of performance.

Total sales for the third quarter were $192.3 million, a decrease of 15.6% versus Q3 2021, or an increase of 5.1% versus Q3 2019. Comparable sales decreased 18.3% compared to Q3 2021, lapping a 19.7% increase in Q3, 2021 versus Q3, 2019, representing a three year stack of 1.4%.

Comparable store transactions versus prior year sequentially improved 760 basis points from Q2 to Q3, an improvement of 1,270 basis points from Q1. Gross margin was 39.8% versus 40.3% in Q3, 2021 and 37.4% in Q3, 2019.

Our strong gross margin results are reflective of our disciplined inventory management and product assortments that continue to strongly resonate with our customers. While SG&A expense dollars declined 7.6% versus Q3 2021, we experienced SG&A expense deleverage of 310 basis points versus Q3 2021 to a rate of 35.9% of total sales.

We announced last quarter that we are streamlining our organization and our aligning SG&A expenses to our sales expectation as a result of a difficult macro backdrop. In the third quarter, we made terrific progress, rightsizing our expense structure and driving operating efficiencies across our business.

As a result, we remain on-track to deliver approximately $10 million in expense savings for the second half of 2022 or about 7% of total SG&A expense. We will continue to manage expenses with a heightened focus on building further operating efficiencies across the organization.

Operating income was $31.6 million in the quarter or $2.4 million as adjusted for the gain on the sale of our distribution center, compared to operating loss of $1.6 million in Q3, 2019. Third quarter adjusted EBITDA was $7.5 million compared to $2.9 million in Q3, 2019.

GAAP net income was $24.6 million in Q3, 2022, compared to net loss of $1.1 million in Q3, 2019. Earnings per diluted share was $3.02 or $0.24 as adjusted versus diluted loss per share of $0.09 in Q3, 2019. Turning to our 39 week results.

For the fourth -- for the first nine months of 2022, sales were $585.6 million, a decrease of 22% to prior year and 2.6% increase to 2019. Comparable store sales declined by 24.5% versus 2021 on-top of a 26.9% increase in 2021 sales versus 2019, a three year stack of 2.4%. Gross margin was 39% versus 41.3% in 2021 and 37.4% in 2019.

EBITDA in the 39 week period, adjusted for the gain on sale of our two distribution centers was $19.6 million versus $82.2 million in 2021 and versus $22.6 million in 2019 as adjusted.

Year-to-date earnings per diluted share was $6.34 or $0.35 as adjusted for the two sale leaseback transactions compared to $5.71 in the first nine months of 2021 and compared to $0.60 in 2019, $0.67 as adjusted. Now turning to our balance sheet.

As David mentioned, total inventory at quarter end increased only 1.3% to Q3, 2021 versus an increase of 25.5% at the end of the second quarter. Compared to Q3 2019 total inventory decreased 5.1%, while sales increased 5.1%.

Average in-store dollar inventory was down 19% compared to 2019 with units down 29%, reflecting our focus on turning goods fast and offering our customers fresh merchandise each and every time she shop. Our packaway goods decreased almost 40% from Q1 as planned as we released these exciting products to support fall and holiday sales.

We continue to leverage this important merchandising strategy packing away near to current season goods that represents a tremendous value for our customers, while supporting our high gross margin rate.

We are comfortable with our level of inventory and our super-proud of our team for their continued commitment to agile, disciplined inventory management. Turning to our fleet, during the quarter we opened two new stores, closed four locations and remodeled three. Year-to-date, we've added 12 new stores, closed six stores and remodeled 35 locations.

As it relates to our buyback program, year-to-date we repurchased approximately 331,000 shares at an aggregate cost of $10 million, leaving approximately $50 million remaining on our program.

Capital allocation remains a primary focus of our Board of Directors and in light of the dynamic macro-environment we are carefully evaluating our cash and investments to ensure we maintain adequate liquidity. Now turning to guidance. We are reiterating our second half 2022 guidance provided with our second quarter earnings.

That guidance, including the impact of the sale leaseback of the Roland distribution center included low-single digit increase in second half total sales compared with first half total sales.

Gross margin in the high-30s to low 40s range for the second-half, less SG&A deleverage versus prior year and the second-half compared to the first-half due to aggressive expense reductions, net of incremental lease expense from the sale-leaseback transactions.

Second half operating income approximately in line with results from the second half of 2019. And year end cash balance of approximately $85 million to $100 million. In summary, we are pleased with our third quarter results in light of the difficult inflationary environment.

While we expect these challenges to continue, our teams are focused on managing inventory and expenses, while continuing to execute against our transformation. Combined with our growth strategies, this gives us confidence in our ability to continue to delight our customers, especially during the upcoming holiday season.

With that, I will turn the call back to David for closing comments.

David?.

Thanks, Heather. With three quarters of 2022 on the books and with plenty of data patterns to study, we have work to do to be better. Most of our insights center on reacting faster to trends and keeping pace with our fashionable customer base. They really do live our purpose of live bold, live proud, respect all on the daily.

We've got the source faster, ship faster and react faster. The great thing is nothing structural in the way. Our foundation is strong and our start-up mindset is in-full year. I'm committing to you that our amazing people are becoming excellent operators so that we can dial into our customers' needs better than we do today.

Reimagined processes, revved up leadership and important new technology and infrastructure solutions we will drive our momentum on-top of a solid foundation. As we think about what's next. It's important to note that based on many external data sources, discretionary retail will likely be affected by inflationary pressures into a portion of 2023.

Let me assure you this will not slow us down from making continuous improvements to our operating model. You've seen us play offense, you’ve seen us course correct when needed and you've seen us involve the Citi Trends brand to be as relevant as can be. I will highlight what we'll spend our full days and probably some nights on.

Number one, driving comp sales and margin. Continuing to broaden the appeal of Citi Trends to new multicultural lower income households in search of trend right apparel, home and accessories at prices that don't break the bank.

Number two, upgrading our fleet, continuing to upgrade our customer experience via our CTX remodel program with 42 remodels to date and combined with new stores to date within the CTX format, 78 stores or 13% of the fleet in the CTX format with many more to come. Number three, maximizing our tech and DC investments.

Leveraging our recent DC upgrades along with our upcoming new ERP system that will be a game-changer for our Buy team. Number four, actively managing our balance sheet, longer strength of Citi Trends, Heather is focused on applying fresh and innovative thinking to managing operating expenses, working capital and cash usage.

And finally, number five, expanding our Citi Cares program, our platform for both CSR and ESG. Some exciting things are afoot here when it comes to giving back and focusing on our CSR initiatives, which we will share in early 2023. And of course, we will conduct our third annual Black History Makers event during February. As we speak.

We are knee deep in 2023 plan. I got to say, we're pretty excited about what's on the horizon. The off-price value space is ripe for evolution. As we improve our execution and take advantage of new long overdue tools, we are optimistic about delivering better efficiencies and productivity throughout many areas of the business.

As always, I want to thank the entire Citi Trends team, all the people that are the face of our brand, creators of our culture and drivers of our customer engagement. Their hard work and endless efforts in making a difference in the neighborhoods we serve never goes unnoticed.

Their passion to live our purpose is shining bright and will carry us into the future. We are now ready to take your questions. Malika, over to you..

Thank you. [Operator Instructions] Our first phone question is from the line of Jeremy Hamblin with Craig-Hallum. Please go-ahead, your line is open..

Thanks, and nice job in a tough environment. I wanted to see if I could get into the kind of the cadence of sales trends that you're seeing.

In terms of maybe using 2019 as the best baseline, but to get a sense for how things slowed August, September, October? And here as we get started in Q4, it sounds like you're encouraged by what you saw over kind of the past week, but wanted to see if you might be able to provide a little bit more detail around the cadence of sales trends?.

Sure. Hi, Jeremy. Thanks for joining us today. Good question. I'll take the first portion of that and Heather can enhance if needed. But at a high-level, couple of things. We had our first really normal back-to-school since ‘19.

And that proved to be a really strong selling period for us that started kicking in at the end of July and kind of peaked during the main weeks of August and a little bit in September. So we were very pleased with the performance of that time period, of course, driven by outsized performance in our kids business.

And that was driven by some excellent packaway goods, so all that panned out like we thought. As we creamed into the rest of the quarter, we had some puts and takes based mainly on weather, but overall, our traffic conversion and sales flow was relatively consistent throughout the rest of September and October.

The only thing that we really saw affected was the warm weather trends in late October into early November clipped some of our basket, because she and he bought less higher price outerwear and heavier weight clothing, that seems to have a higher retail. It wasn't for that, we would have been better than we thought honestly on that front.

So overall, nothing to be concerned about. The warm weather was certainly slower, if you will, but we bounced back right away when the cold snapped in November week two and strong ever since..

Great. Helpful color. And then, in terms of just the environment that we're seeing out there or that you're seeing, clearly, there has been a lot of shift in focus towards value messaging, which is a sweet-spot for Citi Trends.

Not everybody -- you did a remarkable job of managing your inventory levels, but not everybody in every apparel retailer has done quite as good a job. I wanted to get a sense for what you're seeing in terms of, either the promotional environment, the mark-down environment that you're seeing in Q4 as it relates to Q3 in your competitive set..

Hey, Jeremy, it's Heather. Thanks for the question. Really appreciate it. And thanks also for the comment about inventory. We are really proud of the team and the way that they managed inventory throughout the quarter and that they will continue to manage inventory in Q4.

So real focus, and it's really paying-off as you saw with our strong gross margin rates. There is no doubt that the fourth quarter is always a highly promotional season. So that will change, that won’t shock you. What I will remind you though is that, we serve and under-served customer in their community.

So our strategy of being in their neighborhood and being everyday low-price, we're not high-low, we're not promotional, we don't need to be, because we are value all day long and our customer knows that, entrust us for it.

So we're feeling good about the way we're positioned for the holiday season because of that plus the fact that we've got amazing product ready to go to really fuel their holiday needs. And our price points are to quote David Makuen, hot. And the assortment is really-really great.

So we're feeling really good about the way we're set-up for the holiday season..

I like that. I just wanted to clarify. Maybe if I put it in more context of -- is the environment more promotional in Q4 relative to a normal Q4 as compared to the traditional promotional environment in Q3 relative to a normal Q3.

I'm just trying to get a sense for whether versus historical context has gotten -- if it's unchanged, if it's a little bit more promotional or a little less promotional and what you're seeing out there?.

Yeah. Jeremy. I'll take that one. I think within our brand positioning and where we're located, we're not seeing that big a difference, quite frankly, in the promotional environment. It appears to be relatively consistent again within the neighborhoods that we didn't.

I think if we broaden the lens a little bit to go out to the outer rings, call it, the mall ring and the A&B centers that are kind of a little bit away from our neighborhoods. We're seeing, I would say, a heightened sense of from a promotional activity.

But again, what I've learned over the course of many years as Q4 tends to be promotional, no matter what year and no matter what backdrop herein. Black Friday sales have always started earlier for the last few years, Cyber Monday, et-cetera. And then I can get in the last 15 days, Super Saturday and so on [indiscernible] Christmas.

Yeah, it's going to be promotional, but again for us, we tend to find ourselves more insulated from that activity, because where we sit in the neighborhood given our primary destination nature to our customers we don't feel this much.

So I think we're watching it, we're looking at it, but it doesn't really change our behavior of that much, we got to stay focused on just making sure that the right gifts and stocking suffers are in-stock at the hot price points that we planned months ago to be in our stores and that's all unfolding nicely for us as we speak..

Got it. Last one from me and I'll hop out, but just in terms of store hours for Q4 typically in need of little bit more staffing and sometimes you have a little bit of extended hours, you did less of that maybe in some years, but I wanted to just get a sense for with the addition of the rent expense from the DCs into your SG&A.

Is it fair to assume that your Q4 SG&A, even despite the expense management and the savings that you're going to realize is a little bit higher than what you saw in Q3 on an absolute basis, is that a fair assumption?.

It’s a fair assumption, Jeremy. I mean, we've got -- Q4 is typically a higher sales month than Q3. And you're right, there is extended hours to support that, there is a lot of product flow to support the sales. So yes, on an absolute dollar basis, but we lever better in Q4 than in Q3 as well..

Got it. Thanks so much for the color and best wishes..

Thanks, Jeremy..

Thank you. Our next question is from the line of Chuck Grom with Gordon Haskett. Please go ahead, your line is now open..

Hey guys, good morning. Nice quarter. A question for you Heather, just follow up on Jeremy's question on the implied fourth quarter guide. It looks like it backs into around roughly a 4% or so operating margin, which would be below what you guys posted in the fourth quarter of 2019.

So I'm curious what the pressure points would be? In the third quarter you guys showed nice improvement relative to the third quarter of 2019, so maybe just dive into the expectations for the fourth quarter and I guess why relative to ‘19 you expect the compression to occur?.

Yeah. So just a further reminder that our guide is for the fall season, right? So, just wanted to make that point. Versus 2019, there are a couple of pressure points that we just want to keep in mind. One is, we think about the freight environment.

2019, we're told by our external sources is levels of freight rates that we might not see anytime in the near-future, even though we're starting to see some relief. That compare will always be tough for Q4 versus 2019. The other on the SG&A front, of course, we're carrying the lease expense from the two sale-leaseback transactions versus 2019.

So we'll have -- that will make for a harder compare as well. And then within SG&A -- continuing within SG&A, merit increases from 2019 to 2022 in stores, DCs, we're not immune to that. I want to make sure we keep our people -- keep them happy. So those compares are what I would ask you to keep in mind..

Thanks. And just a follow-up on that. Can you just remind us the impact to the fourth-quarter and I guess maybe on an annual basis the impact of rent expense from the two sale-leasebacks that you did this year..

Yeah, for sure. I will tell you, in the third quarter it was $1.6 million. So use that as a proxy for fourth quarter. $2.8 million on a year-to-date basis through the third-quarter. And then on an annualized basis, think $7.6 million for the two..

Okay, great. Thank you very much. And then, David, when you take a step-back, 2021 [indiscernible] square foot, it's close to 150 this year, back to 128, which was pretty consistent with 2019 and 2020 levels, when you look out over the next couple of years.

Can you share with us your thoughts on where you think you can grow that productivity? And then also [indiscernible] the initiatives that you have laid out for us in terms of CTX, the new ERP system Q lines, some of the assortment upgrades to women's and missy’s.

Just what has you most excited and where do you think you can grow that productivity level over the next couple of years. Thanks..

Thanks, Chuck. I appreciate the opening words and I'm happy to answer this question. Yeah.

I think, look, as we look over the next few years, there's no doubt that we have a number of initiatives that we intend to use to fuel productivity gains and obviously overall topline gains, while continuing to expand our gross margins from a kind of topline sales point-of-view, which I sort of went on.

The opportunity to grow productivity, we think is very, very bright and possible based on some serious initiatives that here to primarily haven't been part of our mix. And so, as you asked, we will sort of force rank them.

The first and foremost is product and it's what you hit on, it is the adding of key options to our guy and woman and kids that we haven't had prior. And so, I probably put it in kind of one bucket, which is, enhancing our juniors business, that's anchored really by offering missy sizing.

From a men’s standpoint, we're beginning to see incredible traction and appealing to more multicultural guy, where we were really zeroed in on the African-American guy [indiscernible] American guy. And we're seeing some excellent traction there. So that will grow sales per square-foot in the guys business. And then obviously contribute to the box.

And then on the kids front, I think where we have the biggest opportunity is growing our girls business.

And specifically, appealing to the tween girl just kind of in between the younger girl and first entry into juniors size range and we've been testing that throughout 2023 with -- excuse me in 2022 with some great results in a limited number of stores. But like you seen us do in the past two years, we will scale that pretty quickly across ‘23 and ’24.

So product, product, product for sure. The second thing would be the systems. There's no doubt that the system, the new ERP system that you picked-up on really is a game-changer for us.

It will give a new tool set to our Buy team, in particular, so that they can plan and allocate smarter baseline climate, based on trend, based on replenishment needs or not and so forth and so on. And so we really don't have those sophisticated tools that many other retailers have had for years. And so we're looking very much to that.

So that's the number two and it kind of sits in concert with the product initiatives as you can imagine, because we want to put all of those product initiatives in the right store and so on. And then third would be the remodel program. Third only, because the product and the system will drive us to a higher-level of sophistication.

And then the CTX should really kick in the gear even better than they are today, because we'll be smarter when it comes to nurturing those CTX remodels in the future. So that's a little bit of a force rank.

I think I'd add one more thing, which would be, our ability to utilize data in general across the business and just get smarter across all our functions.

And so part of our ERP rollout was a new data center of excellence and that'll be used by all functions in the business, which will make us more efficient and productive in our DCs and across our stores from a labor and other standpoint in-store.

So lots to come, but that's, a little over three four year, and I think that will all contribute to productivity..

That's a great answer. And just one more to follow-up.

And this might be a little premature, but when you think about the number of stores you could add in 2023, and the number of remodels, is there any metrics you can share with us at this point in time or are you want to wait until January? Just because 13% of the fleet in that nice new CTX format could be a big driver for you guys next year..

Yeah. No, I'm glad to hear your view on that. A little premature for us to share any specifics, like I mentioned in the call where we're knee-deep in planning, but I can assure you that all of what I ranked and then some are in kind of our sites to plan against them to develop a point-of-view for ’23, that we will share early next year..

Great, thanks and congrats..

Thanks, Chuck. Take care..

Thank you. Our next question is from the line of Dana Telsey with Telsey Advisory Group. Please go ahead, your line is open now..

Hi, good morning, everyone. The gross margin in the inventory levels definitely came in better than expected.

Can you unpack the puts and takes of the gross margin and how you're thinking about inventory levels go forward? And then when you think of your core customer base, David, anything that you're noticing different regionally or share gains that you may be making given the trade downs? Thank you..

Hi, Dana. Thanks for calling in. We'll take these. I'll actually start with the customers and I'll turn it over to Heather for inventory and gross margin, but from a customer standpoint, we are pleased with the patterns we are seeing.

And one of the biggest patterns that's exciting us is, we're attracting kind of more of that higher-end of our income range. So keeping in mind our average income is about $40,000. We are seeing folks more than we normally see above that number kind of up to that $50,000, $55,000 range.

And so, we're seeing some nice new customer capture their and they're responding to the portion of our mix that is the higher retail. So even though they're coming to us for what we're known for, meaning, everyday values, great churn rate products. They are scooping up some of the higher retails, which is just really incredible to see.

And remember, our higher retails are generally associated with better-quality and improved features and benefits on the garment or accessories. So that's really great to see.

And then on the sort of other end of the spectrum, whilst we certainly see the pressure on the $25,000 and below households, we are seeing, as I mentioned, a really interesting adjustment by those households. We've done a couple of informal focus groups across our fleet.

And what we're hearing is, their doing their best to adjust to mainly a rent landscape that's quite different than in the past, food with the assistance that they often get is manageable and then gas as you know, it's getting a little better. So if you put that all in the blender, they are adjusting better than we thought.

And it's our job to make sure our assortment on the other end of the AURs spectrum the extreme value price points, think 999 and below, it's our job to make sure we offer those in a consistent everyday basis, replenish them and keep them fresh and new. And that's exactly what the team is doing. So we've learned a lot across Q3.

Back to-school is a terrific learning opportunity because we saw higher velocities and we were able to trial out of new things this past back to school that are definitely bearing fruit, many of which continue on through the end-of-the year and into ‘23, meaning they just weren't back-to-school product. So that's all good on the customer front.

I'll turn it over to Heather for inventory and margin data that we're certainly very pleased with..

Yeah, good morning, Dana. Thanks for the questions, appreciate it. Let me start with margin. Really proud of where our margins came in for the quarter at 39.8%. I would say the strength is really across the components, right. There's IMU expansion, our team is very focused on that.

We had lower markdowns on inventory discipline and then we're continuing to focus on managing our freight expense as well. So really across-the-board good news from a margin perspective. I'll tie into between margin and inventory, obviously, the two are very intertwined. I’m going to talk about our packaway strategy, right.

I mean, we spoke about this last quarter. We put some really -- the way I describe it, we put some really great product in the raptors in the beginning part of the fiscal year, tail-end of the last fiscal year, and we're excited to move those goods to the stores.

It’s exciting product that is really intriguing to our customers and the margins are really good.

So it's a strategic investment that's working and we're seeing it play-out both in the margin and in our inventory levels, right? So the team has been very, very focused on managing inventory to make sure that we aren't going back to what I understand have been 2019 kind of the old retail.

If I could maybe pilot high [indiscernible] approach, we're not doing that and we can point to our average in-store dollar inventory down 19% to 2019 with units down 29%.

So we're really working on making sure that the velocity is right on the products that we bring into the stores, that the margin is right and that is exciting compelling product for our very important customers..

Thank you..

Thanks Dana..

Thanks, Dana..

Thank you. Next question is from the line of John Lawrence with Benchmark. Please go ahead, your line is open now..

Yes, thanks. Congrats, David, on the quarter and Heather. David, would you talk just a little bit about, I mean, the 13% of the fleet that we've talked about CTX.

Can you give any sense of still providing that lift you've talked about mid-single digits or something like that in terms of productivity of those new units?.

Hey, John, thanks for calling in. Yeah, simple answer, we're still seeing some healthy lifts in our CTX remodeled stores. We said that single-digit lifts mid to-high single-digit lifts, and we're learning a lot from them and we're getting better and better at operating them as we look-forward to doing many more in our futures.

And now we have a lot of cross -- a lot of geographies. So we're seeing a nice consistent performance across the Southeast, Southwest, Northeast, Midwest. So it's good to see. We're excited about it..

Yeah, and just to go one-step further there, as you put out and look for those locations are you seeing anything in this environment, real-estate was across the country that would change or make it easier facilitate getting at some of those units, maybe earlier?.

I think from a macro perspective, not too much of a change in the real-estate landscape from a remodeling perspective. What I can tell you though is, our real estate is doing a great job getting tenant allowance funding for as many remodels. As we can, which really brings down the cost of a remodel. So that's a good development.

We don't get it in every instance. But we've got a pretty high batting average on that front. So I would say that’s a new development. But overall, most landlords look-forward to it more-and-more now [indiscernible] nearby and we can [indiscernible] pitch them why TA is also great help and upgrade their center and so forth.

So -- otherwise, all systems go kind of like we've been doing for the last 18 months..

Yeah, thanks a lot for the color. Congrats and good luck..

Thank you, John. Take care..

Thank you. And at this moment, there are no further question on the phone lines..

Great, Malika, thanks so much. Thanks everybody for joining. Happy upcoming holidays. We'll see you next time. Bye-bye..

Thank you. Ladies and gentlemen, that does conclude today's call. We thank you for your participation and ask that you please disconnect your lines. Have a good day..