Good day, and welcome to the Duluth Holdings Fourth Quarter 2022 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation there will be an opportunity to ask questions. [Operator Instructions] Please note today's event is being recorded.

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

Thank you, and welcome to today's call to discuss Duluth Trading's fourth quarter and full-year financial results. Our earnings release, which was issued this morning is available on our Investor Relations website at ir.duluthtrading.com under Press Releases.

I am here today with Sam Sato, President and Chief Executive Officer and Dave Loretta, Senior Vice President and Chief Financial Officer. On today's call, management will provide prepared remarks and then we will open the call to your questions.

Before we begin, I would like to remind you that the comments on today's call will include forward-looking statements, which can be identified by the use of words such as estimate, anticipate, expect and similar phrases.

Forward-looking statements by their nature involve estimates, projections, goals, forecasts and assumptions and are subject to risk and uncertainties that could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements.

Such risks and uncertainties include but are not limited to those that are described in our most recent annual report on Form 10-K and other SEC filings as applicable. These forward-looking statements speak only as of the date of this conference call and should not be relied upon as predictions of future events.

And with that, I'll turn the call over to Sam Sato, President and Chief Executive Officer.

Sam?.

Season and live sports. Coordinating visibility across media channels that index extremely well with our target customer during these events creates deeper impressions and higher probability of success.

In addition, introducing video and audio retargeting of recent browsers that leverages familiar content concepts drawn from national awareness ads further reinforces reasons to buy. We also intend to build on our success utilizing investments in influencers for both our Duluth workwear and AKHG outdoor recreation brands.

And lastly, throughout our advertising placement activity, we will undertake media consumption surveys to ensure alignment of our spend to our target customer base and rigorous brand search and SEO optimization to maximize funnel conversion.

During the fourth quarter, our retail store channel made progress on several key initiatives with sales and productivity trends improving as the quarter move through the peak selling period. Heightened selling engagement and much better inventory positions in stores help drive an increase in the units per transaction and strong conversion.

We are also pleased with our fully operational mixed-cart capabilities, allowing store sales associates to add products to the customer's cart at the time of checkout for items or sizes that may not be available in the store that day.

Our stores also continue to support our customer's desire to buy online and pick up in-store, which generates incremental purchased items on roughly 25% of focus orders. Additionally, the stores serve an important and strategic role during the peak season as they fulfill a large portion of direct orders.

This past peak season, the stores fulfilled close to 20% of direct sales demand during the quarter.

This omnichannel functionality is critical for clearing through seasonal and clearance goods in the store's inventory, making room for the transition to the new season, and allows the customers who shop with us online to purchase items that may have been stranded in the store and otherwise unavailable to them.

During 2023, we plan to continue refining and building on our omnichannel capabilities, focused heavily on delivering a frictionless experience while generating more reasons to visit the stores through community outreach and special events that draw in traffic.

We recently made store layout changes in 20 of our stores to expand the women's assortment, and we completed a remodel of our St. Charles, Missouri store based on customer feedback. The learnings from these changes are being captured and will be used to inform future new stores and remodels.

At this stage, we do not expect to open any new stores in 2023, but are actively engaged in a new site selection process that we expect will give us good options to gradually expand the store base beginning in 2024. I'd like to take a moment to recognize the teams involved with our contact and fulfillment center operations.

We are pleased customers reaching out to our contact center were serviced at levels above our targets, and with the investments made to speed inbound, receiving improved sortation and cross stockings and keep our retail stores in stock, our teams did an outstanding job on all fronts.

We are also excited to see the progress on our new fulfillment center in Adairsville, Georgia. This center equipped with automation technology by auto store will enable high velocity fulfillment, improve productivity, and faster delivery to customer. With the plan go live date for Q3 of 2023, our project remains on time and on budget.

Once operational, we will have the ability to shift over half of our direct order fulfillment to Adairsville for the peak season in 2023 and realize cost per unit output, that is roughly half the rate of our current centers.

Dave will share more in our guidance for 2023, but we expect to realize significant cost savings and the reduction in peak hiring needs this year.

I'll also add that while the investment is as large as any single project we've undertaken, we are funding the roughly $50 million initiative entirely from cash from operations, leaving our balance sheet strong with no bank debt.

As I mentioned earlier, our strategic flexibility is intact and our ability to leverage the new infrastructure to grow our current business and for potential acquisitions is underway.

We are confident about the key investments we are making to strengthen our premier lifestyle platform of sub-brands, as well as with the merchandising and marketing plans we have set for 2023 to support our growth.

Our plans remain aligned with our Big Dam Blueprint, which is the foundation for our long-term success, and gives us the confidence that Duluth Trading Company can forge ahead. Now, I'll turn the call over to Dave to provide more details on our fourth quarter results and discussion of our outlook for fiscal 2023..

Thanks, Sam, and good morning. On today's call, I'll start with a brief overview of our fourth quarter and full-year results for 2022. Then I'll conclude with commentary on our outlook and guidance for 2023. For the fourth quarter, we reported net sales of $241.8 million, down 10.7% compared to $270.8 million last year.

For the full fiscal year 2022, net sales were $653.3 million and were within the range of our recent guidance. Direct channel sales were down 12% from last year in the quarter with slightly better trends for direct volume in-store markets versus non-store markets.

Our retail channel was down 8.2%, but turned to positive year-over-year growth in the month of January. Traffic conversion rate in our stores increased over 200 basis points based on our store's teams engaged selling efforts and better in-stock positions.

Our fourth quarter gross profit margin was 51.2% compared to 53.8% last year, and reflects the higher mix of promotional and clearance sales. Additionally, to keep seasonal goods moving and minimize clearance overhang heading into 2023, we proactively took action, ending the year in a healthy position.

Looking forward, we anticipate the mix of our full price versus promotional business in the first half of 2023 will be relatively similar to what we experienced in the fourth quarter with an improving trend as we progress throughout the year.

For the full-year of 2022, our gross profit margin decreased 140 basis points to 52.6% compared to 54% last year, and represents our balanced and disciplined approach to meeting customers pricing expectations while keeping inventory clean and protecting brand integrity. Turning to expenses.

SG&A for the fourth quarter decreased 7% to $113.2 million, or 46.8% of sales compared to $121.4 million last year, or 44.9%. This included a decrease of $4.3 million in selling expenses, $4.1 million in advertising and marketing expenses and an increase of $200,000 in general and administrative expenses.

Selling expenses as a percentage in net sales increased 10 basis points to 16.5% compared to 16.4% last year, and was the result of a slightly greater mix of store sales versus direct sales during the quarter. We controlled our variable expenses well during the quarter with our store and fulfillment center operations, delivering labor efficiencies.

Advertising and marketing costs were $29.8 million in the quarter compared to $33.9 million last year, and as a percent of sales decreased 20 basis points to 12.3% compared to 12.5% last year.

An increase in the paid digital media channels was offset by our reduction in national TV placements as we pulled portions of that awareness spend into the third quarter to align with more normalized inventory flow this year.

As Sam noted, the progress we are making on retaining and reactivating lapsed customers is being driven by our ability to personalize content and deliver targeted re-engagement offers. General and administrative expenses during the fourth quarter were $43.4 million or 18% of net sales compared to $43.2 million or 16% last year.

Increased depreciation related to the technology and logistics projects as well as fixed costs for the new Southeast fulfillment center scheduled to go live in the third quarter were largely offset by lower personnel costs. As of today, our store count stands at 65 with currently no planned store openings in 2023.

We continue to evaluate potential sites and leverage the learnings from our recent store remodel test, and expanded women's floor plan in roughly 20 stores to inform our store of the future format for new store openings and remodels.

Adjusted EBITDA for the fourth quarter was $20.6 million or 8.5% of sales and $43.5 million or 6.7% of net sales for the full-year in 2022. Our net income for the fourth quarter was $7.5 million or $0.23 per diluted share and $2.2 million or $0.07 per diluted share for the full-year, which is within our current range of guidance.

Moving on to the balance sheet. We ended the quarter with net working capital of $107.9 million, including $45.5 million in cash and zero outstanding on our $200 million line of credit.

Our cash balance is down $31.5 million from last year end due to our decision to receive inventory in earlier before the end of the year and avoid the gap in seasonal transition receipts from last year's supply chain disruptions, plus an increase in our capital outlay for the new Southeast fulfillment center.

I'll provide more shortly regarding our financial outlook for 2023. I do want to share our objective that we expect our cash from operations will fund the increase in our capital expenditures in 2023, and we expect to be flat to slightly up in our cash balance at the end of fiscal 2023.

Our inventory balance ended the year 26% up from last year and is in a healthier position with more timely receipt of both year round and seasonal goods. In fact, roughly 45% of our spring season goods were received by the end of January versus less than 10% last year.

Our current balance of clearance goods is also in a good spot for this time of year. Our capital expenditures for the year were $31.5 million, including the cost of software implementation and are reduced from our previous guidance of $35 million.

We reprioritized our technology investments to focus on the web platform upgrade, warehouse management systems and connection with the expansion of our fulfillment network and the go live of first phases of our merchandise planning system.

Our capital expenditure plan of $55 million in 2023 will largely be focused on the completion of the Southeast fulfillment center, which is progressing well and on schedule to be fully operational in the third quarter.

We expect that meaningful cost savings will be realized once the new automated facility is up and running from lower cost per unit processed, lower outbound freight expenses from more efficient packaging and lower parcel weights, and will be reaching a greater portion of our direct customer base in three days or less enhancing the service and speed of delivery.

Our multi-year technology roadmap to support strategic growth objectives will address critical foundational needs for scale. We are focused on re-platforming our data systems to drive foundational improvements across our technology investments and completing the WMS upgrades across our logistics network. Moving to our outlook for fiscal year 2023.

Our full-year net sales guidance is $645 million to $660 million with the first half of the year, slightly down to flat compared to prior year and the back half flat to slightly up.

We expect sales trends between our direct channel and retail channel to be similar, reflecting no change in the number of store locations and our omnichannel marketing approach designed to drive traffic in both channels. We expect gross profit margin for the full-year to be up 20 to 40 basis points with the gains beginning in the second quarter.

Advertising expenses are planned at roughly 10.5% of sales for 2023 and leverage being gained throughout the year with flexible adjustments between traditional linear TV, streaming, audio and digital media. In aggregate, these media channels comprise roughly 80% of our advertising and marketing expenses.

Selling expenses comprised of outbound shipping costs and hourly labor in the stores, customer service and the fulfillment operations are expected to leverage over 2022 in the range of 10 to 30 basis points as a percentage of total sales.

Our general and administrative expenses will increase in 2023, primarily from incremental depreciation on technology and logistics investments, plus the fixed cost related to the new Southeast fulfillment center and additional personnel costs.

As a percentage of sales, our general and administrative expenses are expected to increase and is reflected in the total SG&A expenses de-leveraging up to 50 basis points.

Our interest expense, which includes cost to borrowings on our line of credit, as well as imputed interest on finance lease liabilities are expected to increase 700,000 to 1.3 million year-over-year. Our depreciation and amortization expense, including software subscription and implementation costs are expected to be roughly $37 million.

Our full-year adjusted EBITDA guidance is $47 million to $49 million and EPS of $0.02 to $0.08. This includes estimated diluted shares of 33 million and the tax rate of 25%. In closing, we are confident that the investments we are making for the long-term and scale are balanced well, given the current backdrop of consumer uncertainty.

The steps taken last year to bolster our balance sheet liquidity and ongoing actions to prudently manage inventory and expenses will allow us to continue to achieve our customer focused strategy and brand positioning objectives. And with that, we'll open the call to questions..

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Today's first question comes from Jonathan Komp at Baird. Please go ahead..

Yes. Hi, good morning. Thank you. I want to ask just firstly that the recent sales trend you're seeing, could you comment on what your full price sales look like? I think last year you had low clearance inventory, so just want to understand the underlying trends you are seeing.

And then when you think about the back half revenue projection, could you just comment on what you need in terms of a volume or unit growth perspective, improvement just given any changes in pricing? And then last year you'll be cycling also some elevated discounting.

So just curious, what drivers you see supporting the back half guidance?.

Yes. Hi, Jon. This is Dave. Our sales trend that we articulated here improving, coming out of the fourth quarter still down to last year, but relative to our holiday sales not down nearly as much, so improving, and that's what's continued into the first part of the first quarter here.

So – but tied to that is really the mix of sales between full price and promotion, which continues to be in the same general direction as what we had before. We're not immune to deep discounting in this environment. And so we're going to be – the promotional environment is driving that.

But I think what we're pleased about is that inventory levels are in a good spot. Only a small portion of the increase in inventory at the end of the year relates to clearance goods.

Most of it is pull forward spring, a lion share of it is women's, and so that sets us up well for not having to take aggressive pricing action, but the environment is continuing..

Okay. That's helpful. Thank you. And then maybe one more just as you think about the performance of the core men's business for the Duluth brand, can you just comment on the trend you're seeing there and if you've been able to isolate any factors that have led to some of the weakness.

And then maybe just the broader strategy as you talk about adding new brands to the platform over time.

Why does that make sense when the core brand is not performing up to your expectations?.

Yes. Hi, Jonathan. It's Sam. So, yes men's apparel segment was challenged this last quarter.

But as I said in my prepared remarks, we saw some pretty good pockets of strength, specifically with products like our double flex denim, which was up high teens for the quarter, as well as the expansion into some new technologies within our big men's unders program was equally great.

Our big program around men's woven bottoms underperformed our expectations.

But what we're really doing is shifting, as trends and consumer demand shift, we're shifting our investments into some of these higher demand items like that Duluth Flex Denim pants, so that we start to ramp that up to meet the current demands and what we expect is going to be the future demands of the business.

As well as shifting our marketing initiatives to focus on some of these emerging hero products, I guess as I would put it.

And then in terms of our longer term strategy, we think that the infrastructure investments we've made and what we're making that enables our business a score – to scale is not just about growing the current Duluth business, but it is about continuing to evolve the Duluth Trading enterprise into a platform of sub-brands.

And so we'll focus on a multitude of initiatives that help us grow long-term. And so near-term focus is around the Duluth Trading Company business, it's around the AKHG business and holistically our women's growth. And then as we potentially see an acquisition as an opportunity for us to further our strategic roadmap, then we'll do that.

But make no mistake, our priorities are on growing the current business, but ensuring that we're keeping an eye on the long-term opportunities for us to scale the business..

Okay. And maybe last one just for me, if I could.

The gross margin and the move down to the low-50s the last couple of years, could you just comment, is there anything in the current view that's more temporary in nature from the gross margin? And then as you think about some benefits from the investments you've made and any other drivers over time, is there any path to get back to a meaningfully higher gross margin more in the mid to high-50s, as we think about the margin potential for the business over time?.

Yes. Jonathan, this is Sam, again. I'll address the kind of future viewpoint. So as we invest in different elements of our infrastructure as well as our organization, and I'll remind you of two specifically. So the investment in Adairsville into this fully automated fulfillment center, we believe will drive meaningful cost efficiencies.

In fact once operational, the fulfillment center in the Southeast on a CPU basis will be close to half of what it is in the current network. And so in addition to speed the market and accuracy, we're going to get much more cost efficient around the input cost to flow through merchandise both to our retail stores and our consumers.

So that leads to some improved flow through. And then at a higher level, we recently announced the hiring of a executive to oversee our sourcing and materials innovation. And we believe that that starts to open up the door for us to expand our IMUs as we move forward.

And so as we think about that group and what they'll be able to deliver, we really think that we'll start to see some of that improvement as we head into 2024..

Okay. That's helpful. And certainly would welcome any quantification as some of those benefits as you get more color over time, just given the level of gross margin that would be appropriate for a premium direct brand. So any color over time there would be helpful? But that's it for me today. Thank you..

Great. Thanks, Jonathan..

Thank you. And our next question today comes from Jim Duffy at Stifel. Please go ahead..

Thank you. Good morning. Two lines of questioning for me guys.

The first more strategic, so to return to growth, either need more customers or more velocities and dollar per customer, which of those two do you think is more important for Duluth to get back on a growth path, and how are you kind of managing the business accordingly?.

Yes. This is Sam. I don't know that I would say either is more important than the other. I think they're equally important and again, I would point you to some of my prepared remarks around our focus, certainly what it has been and where we're going to continue to drive focus through our marketing and advertising initiatives.

A big chunk of that is on opening up broader brand awareness and certainly I spoke a lot about our focus and success last year and what we'll continue to focus on this year in terms of re-engagement and retention. So the new and maintaining our current customers are really important for sure. And then your second point was on….

No, that was it. You've covered. No, you've covered it..

Yes. Okay, great..

Second question was more related to cost, but I do have a follow-up on just the multi-branded strategy as it relates to more customers or dollars per customer.

Sam, how do you ensure that with the media mix spread across multiple brands, that's not spreading the dollars too thin?.

Yes. So it's kind of a combination of things. What we're doing is we're being really, really strategic about where we place those dollars.

So at a high level, as we look at ensuring that we're investing against the growth of each of the brands in a increasingly fragmented marketplace more and more of our consumer insight research is telling us where we're getting the highest engagement from our target customer, and we're really going to place bets there.

And that means that there's going to be some channels that maybe important to our customer, but they're lower on the priority list in terms of how much they engage or how much content they consume there.

And so we're going to just – we're going to start from the top in terms of, where we get the biggest visibility and eyeballs, and we're going to place bigger bets there..

Okay. And then Dave, this one for you, it's on at Adairsville and the cost savings opportunity, $50 million investment to a big number. Can you talk about how you get to comfort on the ROI for that? You talked about the cost per unit at half the rate of what it is currently.

Can you help us isolate what that cost component translates to and benefit to margin?.

Yes. Sure, Jim. The cost savings on cost per unit, it's part of the pick, pack and ship process is going to be very compelling. And as we plan to get volume up to almost half of our volume of direct outbound orders in the back half of this year, that will translate into savings.

That's reflected in the 10 to 30 basis points of selling expense margin for the year. Now heading forward, we certainly expect that to continue and get the full-year benefit and it will continue to be refined.

But that 10 to 30 basis points easily would be slightly larger next year in 2024 and ongoing help offset cost increases in fulfillment operations from wage rates, et cetera.

So we're seeing this as our first test in automating the fulfillment outbound facilities and see that that's going to be a meaningful improvement in the P&L cost structure for us going forward..

Okay.

So we should think about that fulfillment expense just continuing to lever in 2024 and 2025 based on benefits from Adairsville?.

Certainly in 2024, we'll see incremental increase in 2025. We'll see.

That's a bit far out and we haven't given much more all around that period of time?.

Understood. Thank you..

Thank you. And our next question today comes from Janine Stichter with BTIG. Please go ahead..

Hi. Good morning. I was hoping you could comment in light of just taking a pause on opening new stores this year. Any updated thoughts on expanding wholesale. Just curious how those tests are going? And then was wondering if there's anything else you can share on the initial learnings from the 20 stores that you've reconfigured? Thank you..

Hi, Janine and welcome to the call. Thanks for the question. This is Sam. Yes. As we've said on previous calls, the physical stores really important piece of our omnichannel strategy for a number of different reasons.

And we want to make sure that we're doing the right level of deep dives around the consumer where importantly, our brand would resonate from a physical store perspective. And so we're in the middle of a pretty intense site selection process.

And we think we've got a few locations, potentially nailed down for 2024, but the pause was really just about us as we came out of COVID, making sure that we kind of reset ourselves in terms of our priorities and where we are going to invest in the business.

And while again, stores really, really important to our long-term omnichannel strategy, we had some other priorities like the automated fulfillment center that we thought, made more sense for us to tackle ahead of opening new stores. But our plan is to gradually expand the store base as we move into 2024 and beyond..

Great.

And any update on how wholesale is performing?.

Yes. Wholesale, we've got a small test with tractor supply and that that continues. As we learn more and they learn more and give us good insights. We're adjusting assortments and quantities and store base and whatnot. And so that's going well. Wholesale, we see as clearly an opportunity for us.

I think that that's a little bit down the line, as it requires some enablements. The DC in the southeast will be one of those things that allow us I think to potentially be in a better position to do that. And then there's a whole organizational investment that we've got to make.

And again, while we see that as an opportunity, it's a little bit lower on the priority list just as we're building other infrastructure capabilities to drive and scale the current business and any other potential business we might consider adding..

Great. And then maybe just a follow-up on marketing, I think you said leveraging to 10.5% of sales this year. I'm just curious on the thoughts of how you arrived at that level.

Is that kind of where you see it sitting sustainably for the business? Or is there a situation where perhaps you consider putting more into marketing, let's say the environment starts to improve and you want to make sure you're capturing market share?.

Yes. Hi, Janine. The 10.5% is a point in time that we feel is appropriate given the environment. And as we shared in the fourth quarter, we did reduce some of the spend as – just as soft business was playing out and not wanting to throw dollars away.

So it's a balance with the current environment, the marketing mix that Sam referred to and looking at where the most efficiency is. Longer term, we continue to see improvements in the efficiency in digital media and that longer term should allow us to potentially leverage further.

But on the other hand, in this environment where we're planning at 10.5%, if we see some opportunity to invest deeper, then we'll also consider that because we can see that it can drive profitable growth.

So it's – the beauty of the marketing mix right now is, is it's more flexible than it ever has been with less dependent on upfront buys on TV and catalog circulation. So we're a lot more nimbler on that investment.

And we're finding our ability to kind of reach the customer, whether it retained or new with those channels is being even more granular and precise. So that's how we're thinking about marketing spend going forward..

Hey, Janine. I wanted to get back to you. You also asked about the women's expansion and I didn't mean to overlook that question. So we had 20 stores where we expanded our women's assortment. And in those 20 stores, we're obviously pleased with the greater assortments in those stores.

And I had mentioned on our last earnings call that new customers coming to our brand now are split 50-50 between men and women. So we're really focused and dialed in on growing this women's part of the business.

So the women's expansion, those 20 stores over our measured period have all outperformed the rest of chain, the company average – the store-based company average that is. And yes, they're doing well and we continue to make tweaks and adjustments as we get greater and greater feedback from her.

But yes, we're pleased with that and we're going to continue to drive the women's business. We had about a 200 basis point increase in overall penetration of our business to now be about 28%. And our kind of longer term goal is we think it could be in the high-30s, even touching 40% of the business.

So as we look to 2023, our focus is to continue to improve that penetration percentage and make our way towards that high-30s potentially 40% penetration rate..

Perfect. Thanks so much for all the color and best of luck..

Thank you..

Thank you. And our next question today comes from Dylan Carden with William Blair. Please go ahead..

Thanks a lot. Yes. Just kind of curious on the guide, just topline I guess for now. Last year really I think a lot was predicated on sort of new inventory flow. This year it doesn't seem like you're talking as much about that.

So if you're sort of breaking down the components of your comfort level, there's still presumably some not insignificant acceleration here in the first quarter given kind of where trends feel like they are and where you kind of expect to land the front half.

Is that easier comparisons mixed with sort of a more targeted marketing and then maybe some efficiency borne from better retail online integration that's kind of hear – more what I hear you guys speaking of this year?.

Well, yes. Hi, Dylan. Certainly inventory positioning out of the gate here is a benefit for us relative to last year. But the headwind is still a soft consumer backdrop and softer trends that we're seeing in the consumer. So that's why we're cautious and how we're going to plan the business this year.

I think we've gotten through the thick of it coming out of last fourth quarter and the trends are now improved. But we simply as much as we've got the inventory in position, we've got great new products coming out for spring, they're already out there.

And we've got a marketing plan that's going to support product focused messaging, the consumer is still not where they were a year-ago. And so we're just planning around that, that aspect more than the other factors that'll help lift us when that backdrop kind of lifts itself. So that's how we're thinking about the sales plan..

Thank you. And as you're kind of thinking about margins, and I guess that a lot sort of isn't in your control as it relates to the consumer, but to the extent, you're sort of just perched above breakeven net income margin.

I mean, do you – if you – is there more downside risk? Should sales sort of not come in where you expect or you have confidence you can kind of maintain certain aspects of the model to make sure that you don't dip into sort of negative earnings territory?.

Yes. Running a profitable business is certainly a core tenant of ours and that's what we would intend to do if sales trends were to worsen on us. We do have flexibility in the model to make adjustments as we kind of proved last year and even the pandemic year.

So yes, I think that's paramount gives us not only a stability in positive earnings, but helps maintain our access to liquidity as well. So that's important to navigate through the period we're in right now..

Well, and would a big piece of that being Georgia opening up? I mean, is that kind of been – I guess, how much of a weight has that been on the P&L?.

That definitely has some of the capital cost that we're starting to realize and the fixed cost of owning the building or renting the building. But that's such a strategic benefit and we're going to see realization of value as early as six months from now.

So yes, that is in the near-term weighing on the P&Ls, I've called out in my remarks and it's got a long-term return on investment there, but it's core to adding the foundation for us to be a larger and scale brand and house a brand.

So we think that's important and we've chosen to prioritize that over other things that we have pushed off and decided to wait on in terms of investments..

And to that point, I mean, it sounds like, how do you think about if you become – you know, that allows for different channel distribution, wholesale obviously supporting more stores to the extent that you add another brand here, maybe in 2024, 2025.

Do you feel like Georgia kind of gives you enough headroom to kind of lay out what you're talking about here? Or will there be sort of more needed 2024, 2025 particularly do you sort of grow a portfolio strategy?.

Yes. No that will address – provide significant more capacity for us to support stores, direct order and wholesale or another brand. We still have our three other centers that we've invested automation and not the same kind of automation, but more inbound sortation and outbound efficiencies. So they operate very efficiently.

But as a network we've got now with Adairsville coming live, we'll have the capacity to handle our volume for the next few years. And then to look forward beyond that, but that's a big needle mover for us in terms of strategic flexibility and capacity increase..

Awesome. Thank you very much for the time, guys. Nice work..

Thank you, Dylan..

Thank you. And ladies and gentlemen, this concludes our question-and-answer session. I'd like to turn the conference back over to the management team for any final remarks..

No, nothing here. We're excited about the new year and look forward to sharing more with you on the next call..

Thank you, sir. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day..