Good morning, and welcome to the Petco Fourth Quarter 2023 Earnings Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I would now, like to turn the conference over to Cathy Yao.

Please go ahead..

Good morning, and thank you for joining Petco's fourth quarter and full year 2023 earnings conference call. In addition to the earnings release, there is a presentation available to download on our website at ir.petco.com, summarizing our results.

On the call with me today are Mike Mohan, Petco's Interim Chief Executive Officer; and Brian LaRose, Petco's Chief Financial Officer.

Before they begin, I would like to remind everyone that on this call we will be making certain forward-looking statements, which are subject to a number of risks and uncertainties that could cause actual results, to differ materially from such statements. These risks and uncertainties, include those set out in our earnings materials and SEC filings.

In addition, on today's call, we will refer to certain non-GAAP financial measures. Reconciliations of these measures can be found in our earnings release, presentation, and SEC filings. And finally, during the Q&A portion of today's call, we ask that you please keep to one question and one follow-up. We will allow for 30 minutes for Q&A.

With that, let me turn it over to Mike..

Thank you, Cathy. Good morning everyone, and thank you for joining us today. I'm going to spend some time, discussing the leadership changes that we've announced today, while Brian will take us through our financial results, and initial expectations for the year ahead.

As you will have seen from today's news, I've been appointed by the Board, to serve as interim CEO, while we conduct a comprehensive search, for a new CEO. Ron Coughlin has stepped down as CEO and Chairman, and will serve as an advisor to the Board, during the transition.

I am honored to be here with you today, and serve such an incredible company, with a mission that matters to improve the lives of pets and pet parents. I've served as Petco's Lead Independent Director for the last three years, and I'm proud to be stepping into lead our 29,000 dedicated Petco partners, who bring our mission to life every day.

The Board has spent some time with the executive team, over the past several months, to assess our operating and financial results. I'm confident that given our position, as a leader in pet health and wellness, we will be able to improve performance in the years ahead.

I want to share my initial perspective on the business, and what we'll do, to drive improvement.

Petco is an iconic brand in the pet care category that, is benefiting from the long-term megatrends of humanization and premiumization, supporting consistent and resilient category growth, in a market that is expected to approach, $200 billion in sales, by the end of this decade.

Petco has a combination of differentiated products, a commitment to veterinary, and other services, and an omni-channel model that taken together is unmatched in our industry. With the only full service pet health and wellness ecosystem, Petco sits at the forefront of the industry, and is uniquely positioned, to win for the long-term.

While we have made progress in a number of key areas, over the last several years. I recognize, we have not been executing the way we need to, in a number of areas, to deliver on our full potential. Most critically, we have not adapted quickly enough, to recent changes in consumer preferences.

First, we did not anticipate, the magnitude of the shift, to value in both our consumables, and discretionary business. And second, we did not expect customers, to pull back as quickly as they have, and for this duration, when spending on discretionary items.

As a result, our in-store and omni-channel offering, was not appropriately aligned, with our customers' needs. This has led to two fundamental problems that, we need to address with speed. One, an erosion of market share as customers sought out alternatives, and two, a significant decline in profitability.

Our work here, has already begun, with the reintroduction of value brands, in our consumable business, and adjusting our discretionary offering, to provide more balanced price points. But simply reintroducing these products into our assortment is not enough.

This more balanced assortment, must be supported with stronger retail and online customer experiences, and more disciplined execution. This starts with effective marketing to both existing, and potential customers. It builds with strong in-store and online merchandising.

It is further supported by the education of Petco partners, to ensure they can effectively sell our complete offering. And finally, it needs to be supported, by effective supply chain management that delivers inventory profitability with high-end stocks across our store base, and efficient delivery to omni-channel customers.

Going beyond these critical near-term actions, we have to engage pet parents more effectively. We are focused on executing against high-quality, top-of-funnel customer acquisition and long-term retention, so more customers benefit, from the full Petco offering.

In doing so, we'll double down on our efforts, to maximize the opportunity, to fully leverage the competitive advantages and opportunities, we have with our in-store and online customer experience.

And we'll act purposely, to connect with pet parents, to drive share gains, and grow margins through improved baskets, and a quality of sales in a meaningful, and substantial way.

Improving our customer experience, retail execution, and overall cost structure, will help us drive profit stabilization in the near-term, and growth in the medium and long-term.

I plan to have us work against fewer, and more clearly stated priorities and outcomes, while keeping our teams energized, supported, and equipped to execute against achievable goals, and making progress, against promises we commit to for ourselves, our customers, and shareholders. Throughout my over 36-year career in retail, one truth has remained.

This journey is never linear, but it must be built on a world-class retail experience. If our comprehensive ecosystem, is the engine that drives Petco's success, then the trust and advocacy of our customers, vendors, and partners, is the fuel that powers it.

This principle, will sit at the heart of everything we do, beginning with our employee experience. This is an exceptional business that serves millions of pets every year.

And I believe that, by focusing on our mission, while addressing the realities of the business's performance with clear, consistent, and focused prioritization, we can unlock Petco's full potential. Finally, on behalf of the Board and all of us at Petco, I want to thank Ron for his leadership over the last six years.

Ron has overseen the evolution of Petco as a full service omni-channel retailer, and champion for pet health and wellness. We are grateful for his leadership, dedication, and passion for pet, people and our business. Thank you for your time. I'll now pass it over to Brian to cover our financial performance. .

Thanks, Mike. I'd like to start, by thanking our Petco partners, for their relentless efforts in 2023. While we experienced a challenging year, they continued to do everything they can, to deliver the very best, for pets and pet parents day in and day out.

Turning to numbers, for the quarter, net revenue was $1.7 billion, an increase of 6% year-over-year, which includes an extra week in the fourth quarter. For the full year, net revenue was $6.3 billion, up 4% year-over-year, inclusive of the extra week, which contributed approximately $120 million in revenue in Q4 and for the full year.

In Q4, comparable sales on a like-for-like fiscal basis, were down 1%, driven primarily by the absence of discretionary recovery, and lapping a more inflationary environment. While we saw early gains in revenue, from the aggregate impact of our assortment actions, they were relatively small in magnitude for the quarter.

For the full year, comp sales were up 2%. Unless otherwise specified, the results I'll discuss, are on an as-reported basis, including the extra week in Q4. In the fourth quarter, our services team delivered 17% revenue growth, driven by ongoing strength in our vet hospitals, mobile clinics, and grooming services.

In merchandise, consumables was up 9% year-over-year, reflecting the impact of lapping prior year inflation, coupled with the pricing actions, we took in the third quarter. Our discretionary supplies, and companion animals businesses, experienced continued softness down 1% year-over-year.

Moving down to P&L, Q4 gross profit was $606 million, down from $627 million in the prior year. Gross margin for the quarter, was 36.2%, a decline of 350 basis points, driven by our investment in bringing value brands, into our consumables assortment, and ongoing discretionary headwinds.

In Q4, we also took a $21 million inventory write-down charge, as a direct one-time response, to our assortment actions that were taken in connection with our operational reset, with approximately 60% of the charge, related to lower velocity supply SKUs, and 40%, related to consumable SKUs that, will no longer be part of the assortment.

This charge, was a necessary step, to optimize our SKU footprint - and our reset is now completed, and we believe we are in a good place, with inventory. Ex-inventory reset gross margins would have been 37.5%.

In terms of the new brands, although it is still early days, we are pleased to say that we are seeing positive momentum, in both transactions and basket, leading to a small, but positive net impact on revenue, from our assortment and pricing changes.

This has translated to positive customer net ads in the fourth quarter, suggesting early momentum from our reset. In Q4, SG&A as a percentage of revenue, increased from 34.8% to 36.2% year-over-year, as a result of ongoing investments made in store labor, as well as increased depreciation.

Q4 adjusted EBITDA, was $105.3 million, down 33%, with an adjusted EBITDA margin rate of 6.3%, down 370 basis points, year-over-year. Q4 adjusted EPS was $0.02, compared to $0.20 per share, in the prior year.

Turning to the balance sheet, our liquidity remains strong, with $572 million inclusive of $125 million in cash and cash equivalents, and $447 million of availability on our revolving credit facility. As a reminder, we also maintain callers, on roughly two-thirds of our debt, which have helped mitigate the impact of rising rates this year.

Our Q4 CapEx of $49 million is down 26%, year-over-year. I'll now turn, to our 2024 outlook. Given the change in leadership, we are not providing full year guidance, at this time. Instead, we are providing revenue, adjusted EBITDA, and adjusted EPS guidance, for fiscal Q1 only.

For the first quarter, should current demand conditions persist, we would expect revenue, of approximately $1.5 billion, adjusted EBITDA of approximately $70 million, and adjusted EPS of approximately negative $0.06.

For 2024, which as a reminder, will be a 52-week year, the environment remains uncertain, and as a result, we are taking a prudent approach, to our plans for the year.

From a full year perspective, we expect net interest expense, of approximately $145 million, inclusive of the estimated impacts of our hedges, against the forward rate curve, and $272 million weighted average, fully diluted shares. Approximately $140 million of capital expenditures, including the build-out of approximately five to 10 vet locations.

In the meantime, our mobile clinics business, continues to perform ahead of our expectations, and we're confident that the demand there, will help support vet economics.

To provide some additional color regarding assumptions for the full year, we are currently not expecting a substantive change, to the underlying demand environment, including discretionary. With respect to profitability, there are a number of actions that, are being contemplated, as part of the leadership transition.

We will communicate as those plans are finalized. We do expect stabilization of profitability, as the year progresses. Although we are seeing early traction from implementing our assortment and pricing actions, we believe the scaled revenue, and profit benefits, will take time to phase in, increasing throughout the year.

We remain on track to achieve $40 million in cost benefits, in year one from the cost opportunities we identified, as part of the planned 150 million in run rate savings, by year end 2025.

That said, the cost benefits will be partially offset, by additional investments into store labor, to ensure that we deliver a differentiated, hands-on customer experience in our stores, as well as mitigation against gross margin.

On capital allocation, we remain focused on our balance sheet, as we navigate this environment, leading to a deceleration in our pace of that build out, and a balanced approach, between investments and cash flow.

To close, our focal points this year, are disciplined execution, operating in a more efficient manner with a focus on expenses, stabilizing margins, and cash. Thank you for your time. And with that, we'll be happy to take your questions..

[Operator Instructions] The first question comes from Steven Forbes with Guggenheim. Please go ahead..

Good morning. Mike, Brian, I wanted to focus on capital expenditures, the guide for the full year, maybe a two-part question. Of the $140 million, can you break it down between maintenance and strategic CapEx.

You mentioned five to 10 vet hospitals, but just how are you thinking about the broader, sort of strategic initiatives here? And then, although you're not providing full year guidance, was the $140 million a result, of sort of planning the business, to a neutral free cash flow state, or any sort of comments on, where you sort of, are bridging free cash flow for the year?.

earnings, working capital and CapEx. We've talked about CapEx. The most powerful of those three is earnings, Steve, and our focus is on bending the profitability curve, of this company and improving profitability..

And then just a quick follow-up. I don't know if we can maybe focus on the fourth quarter supplies, trends, or sort of what's implied, by the first quarter sales guidance, for supplies.

But any way, to help better understand, like whether we're seeing any path to stability, or any stabilization in supplies trends? Or how that business today compares to, I don't know if you want to baseline it back to 2019? Just is there any path, to sort of stability in the underlying supplies trends, now that you've reintroduced value brands, and reengineered the assortment?.

Yes. Let me kind of help you with the revenue, Steve. So, we reported down 1%. That's with the extra week in there. We didn't break that $120 million extra revenue, by subcategory. But if you do the math, you get to about the same decline rate, as we've had the last couple of quarters in supplies and CA combined.

So from a growth rate standpoint, there hasn't been stabilization. We've taken significant action on the cost side, on the assortment side in terms of pricing. So, we're confident, we have the right actions in place.

We felt that it was most prudent, to plan our year as if there, is no meaningful change in the demand environment, at the holistic level, but specifically to that category..

The next question comes from Kate McShane with Goldman Sachs. Please go ahead..

Good morning. This is Mark Jordan on for Kate McShane.

Thinking about the change in leadership that was announced today, can you help us better understand, what the Board might be looking for in new leadership?.

Hi, Mark, Mike here. Thanks for the question. I appreciate it. Right now, we are really focused on improving our urgency, and driving operational performance and profitability, and really operating at a world-class retail level.

So from a Board standpoint, we're doing a comprehensive search, and we're looking for skills in that realm, to help drive our business forward..

Let me just add, Mike probably won't say this, but he's coming in with 36 years of retail experience, with a reputation for operational excellence. So, this is somebody who can come in and actually make meaningful change..

Perfect. And just one follow-up, if I could.

Does this change anything, with regard to the near-term strategy that was communicated, maybe going more down market, with the value brand; still committed to that?.

Yes. Mark, we're an iconic brand and advantaged ecosystem. And if you look at, how we think about our customer offerings, and the reintroduction of value brands, it's just one part of our story of making sure, we have the assortment that makes sense for our customers.

We have work to do, though, to make sure our customers, and our partners truly understand, what we offer and make sure that, they can navigate that entire assortment, but it fits well within our current strategy..

Yes. And I would just add to you. Whether it pertains to the reset, or just adding more broadly to our portfolio, anytime we bring new offerings into our portfolio, job one is to make sure that those offerings, are what the customer wants, and that we're selling what they want, where they want it, how they want it at the right price.

Over time, we need to make sure we continue, to cultivate that assortment, so that everything we bring in is -- it contributes profitably to the enterprise..

The next question comes from Peter Benedict with Baird. Please go ahead..

Hi, good morning. Good morning, guys. First question is just around, some of the near-term opportunities, to impact the business. Mike, I think you mentioned supply chain management.

I'm just curious maybe any more detail there, what you guys can do on that front? And related to that, kind of on the customer experience side, is that a suggestion that you're going, to be putting more labor back into the stores? Or I'm just kind of curious at the store level, what you envisioned on that front?.

Thanks, Peter. It's pretty early to give you some specifics, but I'm going to start with the customer experience and then I'll get to your supply chain question. When you look at the broad offering we have on products and services, we definitely have work to do, to improve our in-store and online shopping experience.

So our customers, can navigate our breadth of offerings. We have a very unique proposition that needs, to be clear for people when they shop us in-store and online, and that work can commence immediately, and it has.

And as we think about being an omni-channel retailer, we have this unique position of having our 1,500 stores as pickup locations, but there's a group of consumers who want merchandise shipped to them.

And we have work to do, in our supply chain operations, to make sure that we can find the most effective way, of getting products to people, and the team is making progress there. I don't know, if you could add some....

Yes. I would just start, Peter, by saying our profitability is unacceptable. We recognize that we need to look at every vector across the spectrum. So while you mentioned supply chain, I'll tell you it starts at the top of the P&L with sales.

Making sure that we have the right sales construct and that we're getting - we're meeting customers' needs, across our entire assortment. Within gross margin, obviously, sales flows through to gross margin But there are multiple components of that. There's a broader merchandising cost, and supply chain opportunities.

And then, of course, within SG&A, we will look at everything. While we've done a - while SG&A this quarter was up, part of that was investment in store labor. We do expect, some additional investment in store labor in the first quarter, with other offsets within SG&A, but we have opportunities across SG&A and gross margin..

Got it. That's helpful. I guess my follow-up would be, maybe I'll try Steve's question a little bit.

Just is there any opportunity within working capital, as you think about '24? I think you've spoken to there being some, but is working capital the type of thing that, could be maybe neutral to cash flow in '24? Is that a reasonable starting place? Just curious what you're working on, from a working capital standpoint? Thank you..

It's a good question, Peter. Of those three levers, I will tell you, again, earnings is the most powerful lever. We have for free cash flow. We have taken a very strategic approach, to capital this year, and reduced that number down to $140 million. We did a good job in working capital this year.

If you look at the free cash - if you look at the cash flow statement, what we did on inventory and payables, we made meaningful progress this year. So, I don't want to overcommit on working capital. I would tell you there are opportunities, probably not to the size, and scale that we saw in 2023. The biggest lever we have is earnings..

The next question comes from Oliver Wintermantel with Evercore ISI. Please go ahead..

Yes, thanks. You had a follow-up question on gross margins being down for the last several quarters. Brian, you mentioned trying to be more stable on profitability. Can you maybe lay out how you want to stabilize gross margin in this kind of environment with consumables still very strong in the value offerings? Thank you..

Yes. Thanks for the question, Oliver. Let me do it in the construct of the first quarter guide. I will tell you, if you look at the guide relative to last year, the implied decline in dollars, the vast majority of that is in gross profit with a lesser - much lesser impact in SG&A.

We have investments in store labor offset, by OpEx savings in other areas, not one for one, but close. So most of that is gross profit. So, it's a combination of three things, Oliver, it's mix, it's margin pressure in both consumables and discretionary items and it's the pricing actions that we implemented in the second half of last year.

So how do we improve it? Number one, you have a maturation of the pricing actions that we took. So, we took those in the third quarter. We do expect those, to continue quarter in and quarter out, to improve both from a profitability and revenue standpoint. The value brands will continue to scale and contribute profitably.

Our vet business has some maturity to do. So, we've scaled back that that builds to five to 10 this year, and that business as it matures, will contribute profitably. But to be quite blunt, Oliver, we've got to get after cost.

If we look at what's our gross margin line, that it's cost and it's assortment, right products, right place, right price and right time..

Got it. Thank you. And then the follow-up is, you guys mentioned net adds were turning positive in fourth Q. Could you maybe give us some information on how much - how many customers, you added and what the recent trends are? Thank you..

The only thing I'll tell you, Oliver, is yes, we had net adds this quarter. For us, it's all about lifetime value and making sure we have the highest quality customers. So, we'll continue to invest in growing customers that, continues to be important.

But more importantly, it's making sure that we enhance the overall customer experience, to support our profitability goals. So, we're not going to disclose a specific number..

[Operator Instructions] The next question comes from Zach Fadem with Wells Fargo. Please go ahead..

This is David Lantz on for Zack. Thanks for taking our questions.

Are there any performance-based reasons to step back on the vet hospital build-out? Or is this all about cash preservation? And with that, could you talk about current revenue and profit contribution from vet hospitals? And how are you thinking about the impact for next year?.

Yes. The answer to your first question is no. I mean this is - I'll start with - I'll break it into two parts. The vet it continues to be strategic for us. But we made a decision this year to balance capital allocation, and return against what we are striving for in free cash flow.

The vet business itself continues to perform not just in the hospitals, but our mobile vet clinics has been a tremendous, tremendous growth vehicle for us for the past call it, 12 to 18 months, particularly in this environment.

That's light capital, meets the customer where they want to be in this environment, and we continue, to see growth in that area. So, we think overall - vet economics continue to track. So, we'll continue, to view this business strategically..

Got it. That's helpful. And then supplies and companion animal were down high single-digits, on a normalized basis.

How would you say this compares to the supplies category as a whole? And can you talk about, any share shifts you're seeing in mass?.

You mean within that category, as it compare? I mean, the category is down. I think you can look at different numbers, for the category, but the category is down. I think we're a little bit overweight in that category. So, we've had a more overweight impact in terms of mix on our business.

In terms of the share shifts, I will just acknowledge at the enterprise level, we have lost some share. Mike addressed that. That's one of our top priorities, is to make sure we get that share back, without compromising our profitability..

The next question comes from Steven Zaccone with Citi. Please go ahead..

Great. Good morning. Thanks for taking my question. Mike, good luck in the new role; and Ron, best wishes for the next step, if you're listening. Question I had was on stabilizing our market share this year.

How do you think about that? Like what are the key priorities, and the value brands that you put in the business, would you consider adding more value to the assortment, if that's a way to win with the customer?.

Hi, Steven, it's Mike. Thanks for the question, and I appreciate your acknowledgment. I think, if I look at market share, I first would start that, we're participating in a really large and fragmented market, and we just have low share, independent of our current share performance, the opportunity is significant.

And if I was franked with my assessment, which I tried to be in my prepared remarks. We have room and improvement needed in our retail fundamentals.

And if I look at those priorities around, creating an experience that's easy to shop, having an assortment that makes sense, instilling more discipline on where we invest, and how we fund it, it gives us a ton of space, to work on share opportunities in our categories, and across our channels. So, I would answer your question that way..

Okay. And then, Brian, a question on just thinking about the top line, because you made the comment, you're not really expecting demand to change through the year. First quarter revenue guidance the math I'm getting to, is comps could be down like low to mid-single digits.

Is that wrong? And then how do we think about, the cadence of the year, if that is the trend in the first quarter?.

Thanks, Steve. Yes, that's how the math would scratch out in terms of the implied guide. Beyond that for the year, we're not going to comment beyond Q1. I will tell you, we made a comment that we would expect profitability trajectory, to improve throughout the year. Certainly, some of that would come with top line..

The next question comes from Anna Andreeva with Needham. Please go ahead..

Great. Thanks so much. And good morning, guys. Thanks for taking our questions. I wanted to follow-up on the impairment charge that you took. So, should we think that, within consumables, it's some of the more premium brands that, are no longer being carried by Petco. Just hoping to understand that a bit more.

And then secondly, can you talk about the small town stores. Just remind us, how are those performing? And are you pausing expansion with that concept as well? Thanks so much..

Yes. First, on the charge, Anna, no, that would not be the correct takeaway. When we look across the charge, it's for lower-velocity SKUs in both supplies and consumables. So, we mentioned it was consumables that will no longer be part of the assortment. Those are lower velocity.

Our premium brands are great brands with high velocity in that space with great partnerships with those vendors. So, I wouldn't say that's the right takeaway at all. Secondly, on the small town stores, they've tracked to our model. Ultimately, are we still investing there? Yes, it is scaled down.

But we've been doing that for three or four quarters now..

The next question comes from Seth Basham with Wedbush Securities. Please go ahead..

Thanks a lot. And good morning. My first question, Mike, is just in terms of your marketing strategy going forward.

It seems like you think there's a, disconnect between what Petco offers and what customers think you offer, how are you going to change that going forward?.

Yes. Thanks for the question.

I would just draw back to the rapid introduction or reintroduction of value brands to our assortment, which was incredible by the work that the team did, but you have to bring it all the way through and make sure customers understand that we have the most complete offering of products and services for pets and pet parents.

And we need to spend time attracting high-quality customers at the top of the funnel, which to be fair, we're just starting to do. So if I look at the changes we've made, it takes time for customers to resonate with what the brand stands for. And we want to be the destination for pet parents to think about every single thing they need for their pet.

And so we need to spend some time and investment there..

That's helpful.

And how are you considering the loyalty programs going forward? Any changes to Vital Care or the other loyalty programs, as you think about being able to attract all types of pet parents?.

No fundamental changes, Seth. I would tell you, we always continue to look at our loyalty programs. We had a good quarter in Vital Care. We didn't talk about it in the script, but we're up over 720,000 Vital Care Premier members, those continue to be very good customers for us that sit in the top decile of customer share of wallet.

We always look at those loyalty programs, and we've talked in the past about that program continuing to evolve. So we still have the one offering, but I would expect it to evolve and not change fundamentally..

The next question comes from Kaumil Gajrawala with Jefferies. Please go ahead..

Hi, guys. Good morning. I guess there's a few things you're doing at the same time, improving share and bringing down costs.

When you think about competition and how they're behaving, those that are gaining share, are they just sort of naturally gaining share because of maybe channel mix or assortment? Or is there something execution related that you're also trying to address? And if that's the case, how do you balance bringing down your costs while addressing some execution issues?.

market share, profit and cash..

Got it. Thank you..

The next question comes from Simeon Gutman with Morgan Stanley. Please go ahead..

This is Lauren on for Simeon Gutman. My first question is on pet food inflation. Is there anything you can share on that? We've heard a lot of big players in retail, talk about modest inflation for '24 in food. Can you talk about how you're viewing this for the category? Thanks..

Yes. On a forward-looking basis, I'm not going to comment on inflation. I will tell you that certainly, what we saw in the - if you normalize the consumables growth rate in the quarter, it would have been a deceleration and a big driver of that was lapping the inflationary impacts of last year.

So that would be similar to what you've heard from others..

Got it. And my follow-up is just on traffic and ticket. I guess, like relative to the 2019 baseline, can you talk about traffic and ticket trends in the business and also if they got better or worse in Q4? And also any expectations embedded in guidance for Q1. Thank you..

Well, I'm not going to get into that level of detail. I will tell you, and specifically, I'm not going to break traffic and ticket it down back into 2019. I will tell you that basket remains strong for us. I think the team has done an exceptional job.

We're very, very good Petco partners inside of our pet care centers, and they are exceptional at as customers get through the door making sure that they walk out with the largest basket that we can. Our job is to make sure that we better support them in that endeavor. We give them the right products to sell to customers.

We give them the right marketing support to get those products socialized with customers and we give them the tools to actually do it. They're exceptional when they can do it. So basket has been a big driver for us..

This concludes our question-and-answer session. I would like to turn the conference back over to Cathy Yao for any closing remarks..

This concludes today's earnings call. Thank you for joining..

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect..