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#We can move on to the next.
Well, we did see an increase in coupon usage for the second quarter with a slight decrease in the average coupon amount.
I mean, price transparency continues to be prevalent and the coupon helps bridge that gap if there is a difference.
From the coupons critically ---+ it has always been an important part of our value proposition.
But at the same time, we are committed as an organization to move to smarter, more intelligent marketing, personalized, targeted, being more meaningful, and being more efficient and optimizing that over time as well.
So ---+ I think that when we go back to the old question, was it like in 2008 and 2009 when people became more cost-conscious, became more aware of pricing when things started to go down this track, you know, the coupon has clearly ---+ and has been associated ---+ strongly associated with what's been very important.
But really we need to be working, and we are working, on becoming a lot more intelligent about our marketing and making it much more personalized.
You know what.
I think that, as Susan ---+ as <UNK> said, I guess, in this last quarter, that the coupon redemption was actually up.
So, at the same time, I think that people aggregate ---+ they gain intelligence about it over time in terms of how they aggregate them, how they use them.
So that does change.
And I think what other competitors do in availability of coupons, impacts things as well in their marketing.
So but I don't think, if you are looking for a thesis, that it has become a lot less responsive or a lot more responsive, we cannot support that thesis.
Good question.
It's funny because it's all integrated for us.
So a customer goes into a store, and whether they are literally standing there and they are buying online on their phone today, or a customer is researching online and going into a store.
So it bleeds in many different ways, so it's not easy to predict.
But we would expect and we would be modeling that incrementally both should improve.
Again, being up against a weaker third quarter, it's, in both cases, across our businesses and the additional days benefits whatever channel you shop through and whatever concept you are shopping with.
So we should see it incrementally across every way we do business.
Well, I'll take the first part and you will take the gross margin.
Okay.
The $29 ---+ nothing is permanent.
Right.
I guess death is permanent, but I'm not even sure taxes are.
But the $29 is something that we've planned now through the holidays.
But we have to be nimble enough to respond to competitive environment and into things that we learn and see in this time frame.
But we are modeling and planning on that through the holiday season.
But again that ---+ so we would not term that as permanent.
For the margin question, I'll leave that for <UNK>.
Sure.
So to your point, when you exclude the 12 basis points, there was a little bit of improvement, I guess, in the deleverage.
But essentially, we are always looking to improve any aspects within gross margin, the merchandise margin, as well as, as we discussed earlier, even though we have increases in coupon expense, we are looking to optimize, through coupon strategies, how to improve that.
We are always focusing on strengthening our deals with our vendors and the additional differentiated products.
That helps to mitigate margin erosion as well.
Yes.
And as <UNK> had said earlier in our comments, we had anticipated the pace of gross margin deleverage to be reduced, and less than last year.
So (multiple speakers) ---+ okay.
So, you're right, <UNK>.
We have talked about how 2015 is a peak in terms of the CapEx spend for us and that we anticipate coming off that after 2016.
One of the items that we've called out for 2016 and previous years is our POS, which we do believe that will not be as anniversarying as much as it has in the peak for 2016.
So there are items that come on and there's items that come off.
But POS is one of them that I can call out.
And also the new Lewisville distribution facility that we mentioned in the call earlier, that is just opening for inbound freight this past quarter but will start opening for outbound freight next month.
So that's another call-out that we made earlier in the year in terms of part of the CapEx spend for the year.
As you recall, that's an 800,000-square-foot facility.
I guess what you're asking, <UNK>, is there a new normal.
No, it's so dependent upon technology, things change so quickly, we are seeing literally hundreds of vendors that we didn't see three years ago with opportunities of things that we might want to try or do or look at.
So I think that that's right to think that way, that there's more opportunity, more things to ---+ that are possible and things that we would be choosing among than, historically, when you were opening up stores, and that's the world you lived in.
And the things that you were doing, whether it be in logistics or real estate or construction office or planning, the things that you were doing were much more predictable and they would staid; whereas the things we're looking at today are rapidly changing.
So I think there is a new normal.
But what <UNK> and <UNK> were saying, for the foreseeable future is that we do see what's on the horizon, the short-term horizon, and that we see the spend coming down.
But I do think there is a new normal.
You know, I would say that we need more time.
I mean, the pressures on gross margin are ---+ continue to be innate to all of retail as retail is just going through a transition.
And we have been going through a period of investment for some time.
And at the same time, hopefully, with the new POS system, the backend and the frontend put into place for the Web businesses, a lot of the big expenditures, hopefully the things that we'll be building on won't be as expensive as putting them in place initially.
Well, you're right, <UNK>.
For the moment, really there has been little marketing around most of it.
So ---+ and it will be an effort to be better known for these areas.
But I think it really starts with us doubling down on being viewed as the expert for the customers' home and everything home-related.
And if we start there and do a good enough job there with differentiated products, with really getting better services and solutions in place, then it opens up the doors to these other things.
The further you move from the trunk of the tree out to the branches, the more difficult it is to tell the story.
But when we are adding lighting and furniture and those type of categories, those will be easier for us.
But for someone to look like ---+ for a chicken coop, that will be less likely.
But again, we're not in a rush to make a mistake.
We have to do it right and be diligent about it.
We also have to vet all these vendors that have vendor direct to make sure that they could ship, they could ship on time, that their product is what they say it is, that their customers' experiences are good before we would want to be out there pounding our chest that we have it.
But over time, if we execute against the core business and continue to earn the reputation and the credibility with the customer, growing these other aspects of the business will be a marketing effort that's a lot more easily done.
But it's a great question, <UNK>.
Hi, <UNK>.
Yes, we did call out, in an order of magnitude, payroll-related expenses for Q2 that's similar to the ---+ an increase that we saw in Q1 as well.
And we believe payroll and wage pressure will continue.
We are not immune to it.
It's impacting the broader workforce, including all of retail.
It's also something that we are seeing, as you pointed out, being a more than one-year impact, that there are scheduled increases, depending upon the state or the city or the county, for multiple years out.
So we will need to incorporate that as we make our plans going out, and provide that communication in the future.
But we do see continued wage pressure.
You know, I think that is not something that we directly provided, although I'm sure with some of the communication and information that we've had, you could make some assumptions from there.
That's probably not the direct answer.
It's something we can consider in the future.
But I do believe, with some of the assumptions we provided ---+ or some of the metrics we provided, you could make some relative assumptions.
But overall, it's not material.
The entire sales activity for One Kings Lane for the quarter is not material.
It's a small part of the overall business.
Yes.
There was a multitude of reasons for assumption changes in there.
We've updated it for Q2 actuals.
It reflects modeling changes for non-comp businesses such as Linen Holdings and 1 One Kings Lane.
It reflects changes in timing for new store openings and closes, and reflects changes in shipping and sales return estimates.
So it's a multitude of items in there.
And we will continue to update that as the year progresses.
Well, right now we are working on our fiscal 2016 year.
And when we get closer to fiscal 2017, we will provide information on where we think that model and EPS range would look like for next year.
And if you wouldn't mind repeating the first part of your question.
I believe it was investments in cost of goods sales, cost of goods sold, and SG&A for the year.
Well, we are going to continue investing in payroll.
As we had mentioned, we do have wage increases, and we are committed to providing superior customer service in our stores.
And so the technology expense is also associated with our strategic initiatives, and we will continue to see some of that as well.
It depends on our mix of strategic initiatives as we roll forward in terms of IT projects.
I'm sorry, <UNK>.
Go ahead.
Well, in terms of CapEx, if we invest less in CapEx in future years, the less CapEx you would have over time, you have less depreciation associated with that, if that's what you're asking about.
And considering all your existing assets remaining the same, you would see, over time, a benefit in the P&L with less depreciation.
No.
But what we would say, <UNK>, is that a lot of the benefits have yet to be derived, the closing of the San Francisco Wharf, and the system conversion, a lot of the benefits, obviously, we haven't begun to see yet.
Yes, we took on some inventory for One Kings Lane.
We also took on a little inventory related to the opening of the Lewisville, Texas facility we talked about.
In our inventories, we continue to manage them.
We are obviously getting ready for holiday, and so we think they are in good shape and they are going to continue to be tailored to meet customer demand.
And then also going forward, <UNK>, you look at that settlement.
We said it a few times.
The inventory we are adding for the furniture and home decor business, that's heavy VDC.
And that if you go into our Hyannis store, the Bed Bath, the new store there, I think you will see an example of some opportunities to do what we call Store of the Future, which is to show product not carried and make it available to the customer, and reduce inventory carrying costs.
You're welcome.
Here's the answer.
The answer is that we don't have a target.
But we do have the objective to drive differentiated product.
And I think you've probably heard it from us before.
And everybody will cringe, but differentiated product is life-and-death to us.
So it really is.
So if you look at Bed Bath & Beyond, which does depend a lot on branded product, we work on lead-time, first-to-market with product, but we've worked very hard on.
If you look at Artisanal or you look at ED bedding, or you look at what we have done with Wamsutta, very important.
If you look at concepts like Cost Plus World Market, Christmas Tree Shops andThat!, largely proprietary, significant proprietary products.
Look at One Kings Lane and that we have now launched this private-label program.
If you look across Harmon, where we measure cost in growing our private-label product, in each of the categories that we do business in, it's essential for us to drive differentiated product and to, over time, be known for it.
So ---+ but we don't set a goal because it goes down to what we are able to execute and customer acceptance of it.
So, in certain categories, things that have a plug, it's very difficult for us to drive a lot of differentiated product.
So, I can't answer the question with a percentage or a number, but I could tell you that it's larger in certain businesses, smaller in others, and being driven passionately across all.
Thank you, Adrianne.
And thank you all for joining us on the call today.
We look forward to having you join us on our next quarterly earnings call, which is scheduled for December 21, 2016.
Have a good night.
