WSM
#Okay, hi, Dan.
Regarding the tax rate, no, we were not aware of that when we first gave out our guidance.
Obviously, there are things that change, as you go through any quarter.
And there's variability with your tax rate, and obviously this was a good guide for us, so that's a positive.
On the flip side, we also didn't expect this incremental supply chain costs.
And so thankfully, we had this, and we still landed a very solid quarter at $0.58.
The second part of your question, Dan, I will take that, about the macro.
And look, we're watching the markets along with everyone else.
It goes without saying that a significant and sustained pullback in the stock market could lead to a reduction in consumer confidence and impact the discretionary spending landscape.
But that being said, our demand has been strong all year, particularly our furniture business.
And recent economic reports in housing and consumer confidence are positive.
And I believe our brands are well-positioned to gain market share in the second half.
I will take that, it is <UNK>.
I think the labor cost we are expecting is going to be predominantly in Q3, as well as the shipping cost.
Obviously, Q4 has got a lot of noise going on with it, given it is the holiday quarter.
So there will be things going both directions from that.
But it's specific to this incremental investment, labor, we expect ---+ and shipping, primarily, we expect to be in Q3.
The investment in the inventory tool is obviously ---+ is a multi-year investment, but we will be rolling out enhancements as we move even through this year, and through the next year or two.
I think that the big thing to remember is that shipping furniture and large [cube] has always been a competitive advantage of ours, and a big differentiator.
There's a lot of people who sell stuff, and have websites.
And if you can do that really hard thing well, you put yourself ahead of the pack.
And it is just really crystal clear to us that customer service in this area, in high touch, is incredibly important.
And honestly, while the port disruption was extremely difficult, the good news is that it caused us to re-examine every single element of our supply chain.
And we have identified significant opportunities to improve service levels and, over time, drive down costs.
Yes, we were disappointed that we were not able to completely offset the big launches in electrics in Q2 of last year.
Last year, we had our big Nespresso and Vitamix launches in the quarter, and our cookware, I know as I said, a lot of our proprietary businesses, were very strong.
But they were not strong enough to completely offset those releases.
And why we are confident that this is going to improve is that we have more releases in electrics, and across all of our businesses, as I mentioned earlier, towards the back half.
Also, one of the other businesses that was a disappointment, further than what we planned [down] on our outdoor business.
Because frankly, the market has been saturated with a lot of outdoor cooking items, and we did not see enough real innovation to invest in that.
And we didn't want to just drive mark downs.
So we pulled that back, probably a little bit too far, frankly.
And that's an opportunity for us, going next year, to drive more innovation in that area.
And also, obviously, it is not as big a part of the business in Q3.
I think we have a very exciting lineup for that back half, both through Q3, our Thanksgiving entertaining assortments and food stories, as I said on the prepared remarks, are very strong.
We have a lot of key big money introductions.
And then Q4, it's very competitive, obviously, to talk about the specific product lines.
But I think we have a lot of opportunity, not just with the product line, but peak season execution, and providing our customers with a great experience.
And being more efficient, frankly, than we were last year.
Sure.
Yes, gross margin was actually down about 70 basis points.
And 50 basis points, as we said, was due to the port, with the higher shipping and fulfillment-related costs.
We also have in there ---+ which I know creates a little bit of noise ---+ but when we have higher franchise revenues, technically, that puts pressure, so to speak, on the gross margin, because it is a cost-plus model.
And so it impacts the gross margin, with very few costs in SG&A that drops down to a higher profitability at the op margin level.
And so you're seeing about 20 basis points of impact, within the gross margin level, for that.
We also had some higher fulfillment-related costs that were primarily offset with the 40 basis points of occupancy leverage.
But I think the really great news, which is unfortunately under the covers ---+ you guys cannot see it ---+ is that the pure merch margins are essentially flat to up.
And I think you've been hearing me say that now, for a few quarters.
And what that tells us is that the health of the business is great, and that the fact that our long-term initiatives, such as the insourcing of our foreign agents, is working.
And so that is a really great story.
I think unfortunately, we have the noise of these higher shipping costs that, over time, should improve.
And as you had mentioned, with the occupancy leverage, these pure merch margins that are flat to slightly up, and then the shipping costs going away, we should see improved margins over time.
The retail profitability was about 10 basis points, and that was primarily due to occupancy leverage.
That was the biggest driver.
But the retail revenue was both from the new West Elm stores that outperformed, and the incremental acceleration of both our franchise and Company-owned stores.
If you are talking about the revenue line ---+
Yes, we're really focused on total brand performance.
And so we are actually really pleased with the results of both channels.
I know there's been some focus on e-commerce, then we had a 9.1.
But with total revenue growth of 8.5, we have strong growth, effectively, in both channels.
And so obviously, sometimes, the customer is going to want to shop online, sometimes they want to shop in the store.
And we want to serve them wherever they want to shop.
So I really would not read anything more into it than that.
Yes, what I said earlier is the ---+ whenever you have something that happens that's significant, you learn a lot, and you get into it.
And we see opportunities to both be better in-stock, and then to cut overstocks, hence our inventory optimization initiative.
And as I think you all know, we've regionalized our network, and that's a big change from the way we used to run it.
And so we have a lot of opportunity to understand better customer demands by region, and get the product there, in the first time, in the right place, and the supply chain is critical.
Customers have a lot of choices.
And the ---+ it is one thing to buy something; you need to have a great experience.
And so as we've gotten into this, we have seen this is a strategic investment that is so important to the core of what we do, which is to serve our customers better than anyone else.
Yes, our promotional calendar has been strategic and competitive.
We plan it in advance, and assess it on an ongoing basis.
Our posture is to be competitive.
We expect to continue to take market share through the back half of the year.
And the reality is, the competitive environment is a reality.
And we've talked about before, we've anticipated this, we've made changes in our supply chain that allow us to be more competitive.
Most notably, the insourcing of our foreign agents, our in-house product development.
And we are focused on giving our ---+ most importantly, our customers, inspiring and innovative products at great prices.
From a sales impact for the port, I guess the good news is that it was less than what we anticipated.
We haven't really quantified it, because the farther out you get, just like when we said in the Q4, the beginning of it and the end of it, it gets really murky as to what's causing what.
And so we believe that there was definitely an impact in Pottery Barn Kids, which is what we had expected.
But it wasn't anywhere near where we thought it would be, in the range of the $5 million to $10 million.
And so it really was, for us in Q2, the port story was about higher shipping and fulfillment-related costs.
The second part of your question.
I'm sorry.
On the macro, as I said earlier, we are three weeks in.
We have a Labor Day shift, we've had a lot of market volatility.
We never read too much into short-term volatility or changes that are based on volatile markets.
We've seen it before.
But the balance of what we are seeing is that we have a strong lineup for the balance of the year.
The key aspects of our business that differentiate us haven't changed from our strong brands, our multi-channel model, our superior supply chain.
And we are focused on profitable growth.
I think that holding yourself to a high level of profitability forces a discipline that ensures success.
And so regardless of what happens in the macro, we believe that we are poised to take share.
So I think ---+ we're trying to understand your question a little bit.
But I think on the costs that were incurred in Q2, we did say earlier that that will continue.
It is not necessarily related to the cost of getting a 6.3 comp, if that's what you're alluding to.
It is really the incremental cost associated with the port, the higher shipping and fulfilment costs.
But also this incremental supply chain labor costs.
And those will continue, to some degree, into specifically Q3.
Maybe a little bit in Q4, but predominately Q3.
But not at the same levels that we have been trending.
That's hard to (laughter) disaggregate.
Who knows.
(laughter)
Yes.
No, no, not at all.
I want to thank you all for joining us again today, and asking great questions, and thank you for your support.
We will talk to you next time.
