Earnings Call Transcript - CTRN Q2 2021

Operator, Operator

Greetings, and welcome to the Citi Trends 2Q 2021 Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we’ll conduct a question-and-answer session. As a reminder, this conference is being recorded Tuesday, August 24, 2021. I would now like to turn the conference over to Nitza McKee, Senior Associate. Please go ahead.

Nitza McKee, Senior Associate

Thank you, and good morning, everyone. Thank you for joining us on Citi Trends second quarter 2021 earnings call. On our call today is our Chief Executive Officer, David Makuen; Chief Financial Officer, Pam Edwards; and Vice President of Finance, Jason Moschner. 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?

David Makuen, CEO

Thank you, Nitza, and good morning, everyone, and thanks for joining us today on our second quarter fiscal 2021 earnings call. This morning, I will review our continued transformation of our business model, highlight our strong financial and operational results for the second quarter, discuss our confidence in the business for the remainder of the year, and I will update you on our progress related to the evolution of our Citi master plan and activity in support of our strategic growth initiatives. In addition, Pam Edwards, our CFO, will elaborate on our financial results and provide details about our guidance for the remainder of the year. I would be remiss if I did not take a moment to once again emphasize my true gratitude to our dedicated teams across our organization. Our industry has faced many challenges since the pandemic emerged, and our teams have never wavered from their passion and dedication to serve our customers and communities. The Citi Trends culture is becoming stronger every day, and the root of our culture is our people. Thank you, especially to our internal teams and vendor partners for making Citi Trends the sought-after brand experience for our loyal and growing African-American and Latinx families’ apparel, accessories, and home lifestyle needs, at prices that will never break the bank. Our journey has just begun, and we have a long runway ahead of us as we gear up to expand the Citi Trends experience to so many more communities, associates, and business partners. Now, let me discuss the key highlights of our second quarter performance, compared to the second quarter of 2019. Total sales increased by 29.8% versus Q2 2019, supported by an increase in comp sales of 25.6% versus Q2 2019. Our strong topline increase was a result of growth in our average basket size, driven by spending, as we have seen for the last five quarters, from longtime loyalists, lapsed comebacks, and many new customers. In fact, our customers are in a better financial position, which we expect will continue as employment levels rise and the economy continues to improve. We are once again very encouraged by the broad-based trend across our categories. In fact, we registered strong double-digit growth versus 2019 across five of our six categories, including ladies', men's, kids', beauty and accessories, and home lifestyle. Our buying, planning, and allocation teams are truly trend masters, showing amazing skills in developing proprietary assortments, building relationships with sought-after brands, and scouring the landscape for great values. Our momentum points to the underlying improvement and transformation in our business when it comes to consistent flow of improved on-trend assortments, rush receipts at excellent values, and the evolution of our supply chain capabilities. Central to our performance and momentum is our unwavering confidence in the power of our physical stores in underserved communities that really need us. Throughout the quarter, we paid close attention to enhancing our unique specialty value store experience by putting our customers at the center of decision-making tailored to their needs and desires. As Pam will describe in greater detail, we registered strong results in the middle of the P&L, resulting in significant growth in our gross and operating margins, as well as continued expense leverage. We achieved these results despite macro freight and labor headwinds heading into the quarter. The fact that our operating margins expanded nearly 700 basis points in the second quarter compared to Q2 2019 showcases the diversity and adaptability of our operating model. Earnings per diluted share of $1.36 far exceeded our beginning of period internal expectations. This was another well-executed, high-performance quarter for Citi Trends, and the momentum from Q2 has carried into August, with a great start to our back-to-school and back-to-dorm seasons. As we look forward to the remainder of 2021, I am pleased to report that based on our strong first half performance, the momentum we're seeing in the third quarter, and confidence in our ability to capitalize on the opportunities that lie ahead, we've increased our full year, total sales and EPS outlook above the high end of previously provided ranges. Our revised outlook now calls for midpoint total sales of $1 billion, which will have us reaching our previously shared long-range topline target more than a year earlier than planned. Importantly, the base foundation of our business has improved, built by improved and expanded trend-right assortments, resulting in higher spend per customer, which we believe is sustainable over time. The Citi Trends transformation is on a clear path for many years of meaningful growth. With that, I'll turn to Pam, our CFO, who will provide more details. Pam?

Pamela Edwards, CFO

Thank you, David, and good morning, everyone. As David mentioned, this was another well-executed quarter. We are very pleased with our first half results and the continued momentum we're experiencing thus far in the third quarter. I would also like to echo David's comments in expressing appreciation to our incredible team. In what has remained a fluid environment, we delivered stellar first half results, and we could not have done so without the hard work and dedication of our associates. Our accelerated growth rate has challenged our teams, but all have risen to the occasion and continued to excel in their performance. As mentioned in the press release, the company is reporting operating results for 2021 relative to Q2 2019 to provide a more normalized comparison of performance since Q2 of 2020 included significant favorable one-time expense reductions, such as furloughs, reduced store hours and closures, abated rents, and other COVID-19 cost credits. Before I get into the details of the financials, though, let me address the topic of supply chain, which is under our operational pillar between our buy and sell pillars. As we mentioned on our last call, with our outsized performance, we ran into some bottlenecks getting many available products through our distribution centers and into our stores fast enough in Q1 to meet customer demand. We moved quickly to address those bottlenecks and ramped up our dropship capabilities to meaningfully expand our ability to move goods to stores. By tackling the expected supply chain headwinds and implementing strategies to mitigate costs while more efficiently flowing our products, I'm pleased to report that our freight costs came in better than we expected in the second quarter. The availability of high-quality goods remains plentiful, and our ability to move the goods throughout our network has meaningfully improved positioning us well for the fall and holiday selling season. Now, let me turn to the review of our results. Total sales in the second quarter were $237.3 million, an increase of 29.8% compared to 2019. Comp sales grew 25.6% on a two-year basis. Growth in the quarter was driven primarily by a healthy increase in the average unit retail selling price, as well as higher units per transaction, resulting in strong growth in the average basket size. Sales were consistently strong throughout the quarter. We achieved gross margins in the quarter of 40.8%, an increase of 350 basis points compared to 37.3% in the second quarter of 2019. The increase in our quarterly gross margin rate continued to be primarily the result of strong full-price selling and fewer markdowns. SG&A leveraged 270 basis points versus 2019, to 31.8%, due to strong sales growth and disciplined expense controls. Operating income of $16.4 million was compared to $0.2 million of operating income in the second quarter of 2019. Our net income was $12.5 million for the quarter, compared to net income of $0.4 million in the second quarter of 2019. Earnings per diluted share was $1.36 compared to $0.03 per share in the second quarter of 2019. Turning to inventory, compared to the second quarter of 2019, total ending inventory decreased by 14.3%, while total sales increased by 29.8%. We experienced improved inventory turns for the second quarter, and our inventory freshness increased to record levels. Lastly, the company repurchased approximately 215,000 shares of its common stock at an aggregate cost of approximately $18.9 million in the second quarter. We ended the quarter with approximately $20.9 million remaining on the buyback authorization announced on June 2, 2021. In addition, today, we announced in our press release that our Board of Directors has authorized an additional $30 million share repurchase. Turning to our fiscal 2021 outlook, we feel great about the momentum in our business, including a strong start to our back-to-school and back-to-dorm season. As we continue to operate at a high level of growth, we are confident in our ability to capitalize on the opportunities that lie ahead in the second half of the fiscal year and are therefore raising our guidance. Specifically, we now expect to generate total sales of $990 million to $1.0 billion, a midpoint increase of approximately 28% compared to fiscal 2019. This would result in expected earnings per diluted share in the range of $6.30 to $6.40 or a midpoint increase of 354% compared to 2019. Within this guidance, we expect that our gross margin will be in the high 30s to low 40s, consistent with previous guidance. I will now turn the call back to David for closing comments.

David Makuen, CEO

Thanks, Pam. As a result of our accomplishments and momentum, we are hard at work evolving our Citi masterplan, a plan that will build on what we've shared in the past, firmly positioning Citi Trends as a purpose-led growth brand, a vital one-stop trend shop for underserved African-American and Latinx communities. We will provide more specific targets in conjunction with the unveiling of our revised Citi masterplan at the ICR conference in January of 2022. Also, we will continue to partner with our Board of Directors in the process of building out our go-forward capital allocation plan and look forward to updating you on our progress. Rest assured, the entire Citi Trends leadership team, along with each and every Citi team member, is full of passion and has the expertise to build our future one brick at a time. I will now briefly reiterate and update you on our four very active strategic growth initiatives that will drive continued accelerated sales and earnings growth. As a reminder, they are: number one, growing our fleet and expanding our customer base; number two, optimizing our product mix; number three, reinvesting in our infrastructure; and number four, making a difference within the communities we serve. First up, growing our fleet and expanding our customer base; our sights remain set on a fleet potential of 1,000 stores, representing a 70% growth from where we are today. We see a tremendous opportunity to grow both within existing DMAs and enter new DMAs over time. Our growth will remain focused on three distinct types of neighborhoods: African-American centric neighborhoods, melting pot, or a mix of African-American and Latinx populations, and Latinx centric. A key driver of this growth will be the rollout of our new CTX customer experience in 2022. As mentioned during our Q1 call, we launched two lab stores designed to represent a testing ground that amplifies and takes our intimate specialty value store experience to the next level. We added two more lab stores during the early portion of Q2, and after rigorous testing and analysis, we are extremely pleased with the results thus far. Customer and associate feedback has been outstanding, and we look forward to scaling CTX in 2022. It's so exciting to bring to life in more compelling ways than ever before our exclusive trends, sought-after brands, and head-to-toe looks, making it a more special shopping experience for our existing and new customers. Lastly, we remain on track to approximately open 30 new stores and 20 remodels in 2021. Our forward plan calls for opening at least 100 new stores and remodeling at least 150 stores from 2021 through 2023. We are confident we can meet and possibly exceed these goals. Next up, optimizing our product mix. At the root of our transformation at Citi Trends is our constant optimization of the basics, fashion, and trends that allow our customers to show up and be seen while not breaking the bank. This transformation is anchored in our new construct of six categories, with each senior buyer assuming the role of mayor of their respective category and being responsible for bringing that category to life. Ongoing product mix optimization speaks to our responsibility to our customers to calibrate existing assortments tailored to their needs while adding new incremental businesses into our highly fungible store model. With our unit inventory down considerably, it has presented opportunities to clean up the selling floor, remove fixtures, and create space to further optimize our offerings to our customers. Our category mayors are staying close to their respective customers, partnering with resourceful vendors to provide unique assortments that are on-trend. We are utilizing data analytics to test, learn, and build new opportunities to further grow our sales productivity, drive improved inventory returns, and maintain healthy gross margins. Third, reinvesting in our infrastructure. As I have addressed in the past, we are keenly focused on utilizing a portion of our free cash flow to strategically reinvest in our infrastructure and systems across our buy, move, and sell pillars of our operation. In light of the supply chain challenge, as mentioned earlier, we are embarking on some investments to improve our processes and capabilities. We have a lot of good work in front of us, but we are moving in the right direction. We’re also on track in our planning of investments for our buy and sell pillars, grounded in implementing solutions that will leverage powerful data to produce enhanced insights and actions. I'm confident that prudent investments in these areas will contribute directly to the continued transformation of our business model. We will provide more details as this develops. Lastly, making a difference within the communities we serve. More than ever, the presence of our stores serves as an informal neighborhood hub, where store managers and team members know customers by name and take a genuine interest in not only styling our customers but also listening to their stories and being part of the fabric of the local culture. Our Citicares Council, along with our Board of Directors, are committed to establishing additional footholds in our communities through the lens of diversity, equity, and inclusion (DEI) and corporate social responsibility, which includes ESG. A great example of how we made a difference during Q2 was through our first annual Black History Makers Program to honor Black entrepreneurs who are making an impact in their communities. We announced the winners of 10 $5,000 grants on June 16, coupled with the launch of our Citicares small business academy, in collaboration with a leading national law firm. Together, we are offering valuable curriculum to help all applicants in our Black History Makers program. Getting to meet the winners was as exciting as it was inspirational. It's our hope that these grants will support them in pursuing their dreams and aspirations. We look forward to sharing more with you in the months ahead as we seek to celebrate and activate the legacy of our diverse and inclusive team and culture. This was another well-executed quarter for Citi Trends. Our transformation remains well underway, and our updated guidance is a clear indication that we're confident in the momentum we are seeing in the business, as well as our outlook for the balance of the year. We remain committed to expanding the Citi Trends brand reach and see a long runway of profitable growth ahead of us as we look to continue to fuel market share gains and build shareholder value over time. I will end with a shout-out to our employees and leadership team for their hard work and unwavering dedication to all things Citi. We’re thankful for our loyal and growing customer base. We will continue to prioritize the health and safety of our associates and customers. Thanks for joining us today. We really appreciate your interest in this exciting growth story. We are now ready to take your questions.

Operator, Operator

Thank you. Our first question is from the line of Chuck Grom with Gordon Haskett. Please go ahead. Your line is open.

Chuck Grom, Analyst

Hey, guys. Good morning. Nice results here. David, bigger picture, your sales per square foot should be around $150 if you hit the $1 billion in sales target that you outlined today, which is obviously a great improvement from 2020, but it's still below a lot of your peers, your off-price peers in particular. When you think about the model and the opportunity on this front, just wondering if you could help us think about where you think that sales per square foot can grow over the coming years.

David Makuen, CEO

Hey, Chuck, thanks a lot for the kind words and the good question. Sure, let me take a stab. I'd start with our average sales per store has grown considerably versus 2019, up from roughly $1.4 million to just shy of $1.7 million for fiscal 2021. And that points to the improved sales per square foot. Relative to our model, where we plan on pushing is how do we get the most productivity out of each box? I think it's all going to come down to, in part, rolling out our CTX experience that I mentioned, where we've done that in the lab stores. It’s really been our testing ground to see how high is high, directly related to your question. What we're seeing are some nice lifts, not only for the box, but we're learning a lot about the individual categories. Based on where they're positioned in the store and how we merchandise them, we're seeing some credible sales per square foot by category going in the right direction. So, over the next few months and remainder of the year, we're continually tweaking that formula, and that's what we'll begin to roll out next year. I believe as we remodel and open new stores at higher productivity rates, we'll go north of that number you quoted. I think it should be really accretive to the overall business. As you and I have spoken in the past, the opportunity to have a lot of flow-through from those additional topline sales and higher sales per square foot is large since we don't have to add a lot of staff to our stores to service that additional sales. That make sense?

Chuck Grom, Analyst

Yes, it does. I guess, it's probably a little too early to get some of that color on CTX, I presume, in terms of what the lift is or what the productivity is within those handful of stores that you've done so far.

David Makuen, CEO

Yes, it’s a little early. But what I would say is, travel and safety permitting, I would love to show it to you and walk you through that experience. We've got a couple that are reachable in the northeast and a couple down south. So, we’ll continue to monitor our progress, and during our Q3 call, we’ll give you another update.

Chuck Grom, Analyst

Okay. That's great. And then some of your larger off-price peers have spoken about taking retails up over the past week, looking ahead to the fourth quarter and into 2022, given some of the supply chain constraints and less promotional activity out there. Just curious your views on the strategy and if you guys would look to take prices up in certain areas if needed.

David Makuen, CEO

Yes, it's a good question, Chuck. A highlight there is, we remain steadfast at offering the same value that we've always been known for. So, in a broad sort of macro context, we are not aggressively raising prices. What we've discovered a little bit in our business over the last six months is, if we add more value in quality and it's not like-for-like goods, we're able to command some higher retails in specific categories. And our customer has shown us that they will pay for high-quality, trend-right goods that aren't available anywhere else. So, it's less about raising prices in most cases. It's more about bringing in assortments that are improved and enhanced versus prior years, that have better fabrications and fits. We're finding that our customer will pay a fair value for those goods. So, like-for-like products. We’re not raising prices but we're definitely continually hunting down the right trends and right value portion that enables us to charge a fair price. It's helping our average unit retail inch upwards, which is a positive contributor toward our higher basket and higher sales.

Chuck Grom, Analyst

That's great. And just last one for me would just be for Pam. You talked about how some of the supply chain bottlenecks were pretty significant in the second quarter. And it seems like the outlook for the back half is improving a little bit. Just, I don't want to put words in your mouth, but maybe if you could just flesh that out for us. What's improved and what's the outlook on that front? Thanks.

Pamela Edwards, CFO

Yes. Good question, Chuck. As we mentioned in the first quarter call, we saw the headwinds begin in the last month or the first quarter, and then continue for the rest of the year as the impact. We had expected that to be pretty significant, but we weren't accepting that, and we were looking for ways to mitigate that cost. One of the ways that we were able to jump right on immediately was increasing our dropship program. By ramping that up, that's not only a way to cut costs but also a way to add speed. With speed, the product gets to the store sooner, meaning customers have access to it immediately for the latest trends. This has been a win for us, not just from a freight headwind perspective. We expect that to continue for the rest of the year as we ramp it up even more while looking at other ways to mitigate the external macro headwinds we're facing.

Chuck Grom, Analyst

Got it. Thanks a lot, guys. Good luck.

Operator, Operator

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

Dana Telsey, Analyst

Congratulations, everyone, on the terrific performance. A couple of things. As you think about the complexion of the comp, how did the basket do? How did the transactions do? And did you see anything post-child tax credit as compared to pre?

Pamela Edwards, CFO

Yes. Overall, the primary increase in our sales came from the basket size. We’re seeing a very healthy balance of both the average unit retail and units per transaction increase overall. We think that will continue into the fall, which is something we've been seeing consistently for the first quarter.

Dana Telsey, Analyst

Got it. And I think, Pam, you had talked about the freight impact on the gross margin would be around 170 to 190 basis points. Are you still seeing that, or is there any adjustment to that?

Pamela Edwards, CFO

Yes. We've certainly seen that moderate. We were able to claw back some of that in the second quarter, based on the implementation and ramping up of our dropship program. We're seeing that the 170 to 190 basis points moderate down. We're not being specific on the exact amount, but it's probably 50 to 70 basis points better than we expected.

Dana Telsey, Analyst

Great. And then David, with the new CTX format, what are the learnings from that so far? And as you continue to remodel stores, any adjustments that you see being made? Is it category? Is it with sales associate engagement, data that you're getting to enhance your go-forward game plan?

David Makuen, CEO

Thanks, Dana. Yes, I think CTX is showing us some incredible things about the brand. First off, the change in the vibe and the general tone in the store is dramatic. We start with an entirely new palette of colors. We allow the merchandise to be more front and center against a more muted background. We've changed the entire floor layout so that it's really a nice play on changing adjacencies, allowing the customer to do more 'ping-ponging' around the store, meaning they can bounce from apparel to a non-apparel item and even meet up with an unexpected home item within the apparel section and so on. I have to tell you, it's a re-imagination of the Citi Trends store. The associates feel proud to work every day. They feel empowered to put outfits together because we've created fixtures that make it more enjoyable to pair items. The customers are experiencing this change positively, which has led to increased traffic—so much so that we’re seeing this great energy, including a new music selection. So, it has been a top-to-bottom, front-to-back re-imagination of the experience. As we look forward to your second question, this will absolutely influence our remodel plans. As we enter and finalize deals for 2022 for both new and remodeled stores, it's an exciting time at Citi Trends. Our confidence in this re-imagined experience is strong and it's part of our momentum moving forward.

Dana Telsey, Analyst

Got it. And then anything for the holiday season that we should note, planning this year compared to last year, in terms of any significant changes?

David Makuen, CEO

I think it's a great question about Q4, one of my favorite seasons. Citi Trends started reinventing how they approached holiday effectively with Q4 of ‘19, which represented a great quarter. We had a strong quarter last year by amping up the gift quotient in our stores. This year is going to be bigger and better than ever; we are geared up for a great joyous festive season. Our customers are typically very generous, especially to their larger families and loved ones, and we are ready. You'll see bright, shiny, fluffy, smell-good gifts throughout the store, and our associates will be prepared for what will no doubt be an influx of holiday shoppers.

Operator, Operator

Thank you. Our next question is from the line of Jeremy Hamblin with Craig-Hallum. Please go ahead. Your line is open.

Jeremy Hamblin, Analyst

Thanks. And I'll add my congratulations on the impressive performance. I wanted to see if we could get a little more granular on the gross margin. Pam, you noted about 350 basis points of improvement versus 2019 levels. I was hoping that you could put some context around that, the component parts, breaking down the product margin improvement, occupancy leverage, and then maybe offset by how freight compared in Q2 versus 2019.

Pamela Edwards, CFO

Sure. Hi, Jeremy, and thank you for your comments. We don't include occupancy in our gross margin number that we're reporting. The main drivers of the benefit relate to the initial markup, markdown, and a little bit of strength offset by the freight headwinds we've discussed. The majority of that results from lower inventory levels, driving lower markdowns and lower shrink numbers. We're also seeing good initial markup as we continue to increase our average unit retail from better trends and the overall product mix.

Jeremy Hamblin, Analyst

Okay. And then I'm hoping that you might be able to provide a little more granularity around recent trends, in terms of whether you've seen a positive impact since the child tax credit advance payments hit in mid-July. Have you seen a recent improvement in trends over the last four weeks? Any additional color that you might be able to share on that?

Pamela Edwards, CFO

Sure. I think in the days immediately following the first child tax credit in July, we did see an uptick. What we also noticed during that time was the later back-to-school sales. The additional food stamp dollars and the child tax credit, combined with our optimized product mix, complicate this analysis. So, I will say it wasn’t as material as we've seen with some past stimulus programs, but we certainly did see some uptick; it's just hard to dissect the direct impact.

Jeremy Hamblin, Analyst

Right. And I think the increased SNAP benefits don't start until October 1, so that could be a development too.

Pamela Edwards, CFO

That’s right. Yes.

Jeremy Hamblin, Analyst

So, I also wanted to understand some of the regional performance. I think a lot of the growth toward 1,000 units is going to come in less developed markets, whether it's California or particularly in the Northeast where there seems to be tremendous opportunity. Can you provide a little more insight into how your markets in the northeast or California are performing overall relative to your base?

David Makuen, CEO

Hey, Jeremy. Thank you for that question. From a new store growth perspective, we plan on, in the foreseeable future—let's call it the next 18 months—focusing on both densifying current markets as well as entering very sparsely populated markets. Regarding California, we've seen significant strength, especially in our Latinx-centric stores, and those are thriving. We've seen an incredible new customer capture in those stores. This represents a brand awareness opportunity with Citi Trends, as we've been around for years. There's awareness to gain—market share to pick up. We’re seeing that happen in California. We are developing a template to use as we enter other fertile marketplaces throughout the US. There are good signs with our lab stores, and it’s exciting as we continue learning and evolving.

Jeremy Hamblin, Analyst

That sure does help. And then last one from me here is, you noted that your guidance has you on track for an average unit volume in the $1.7 million range, which is very impressive. Would you expect this to grow in ’22 now that you're kind of hitting these three-year marks early in terms of your sales and profitability?

David Makuen, CEO

Good insights. Our job right now is maintaining a constant comp. We have really good indicators through surveys suggesting we've captured an extraordinary amount of new customers and lapsed comebacks, folks who've formerly attrited but returned. It's crucial our focus is to keep them engaged fully. We’ve prioritized maintaining relationships with those customers, which have been a big drive for us. Our belief is that as we continue to deliver improved and enhanced on-trend assortments at great values, those customers will stay with us. That's what we’re focused on—building the right assortments and rolling out the CTX experience across multiple markets. We believe this positively affects our sales per store.

Jeremy Hamblin, Analyst

Thanks for the color. Best wishes.

David Makuen, CEO

Thanks, Jeremy. Have a great day.

Operator, Operator

Thank you. Our next question is from the line of John Lawrence with Benchmark. Please go ahead. Your line is open.

John Lawrence, Analyst

Yes. Thank you. Congratulations, David.

David Makuen, CEO

Thank you, John. Good to hear you.

John Lawrence, Analyst

Yes, thanks. Just a couple of questions that some have previously asked. Can you go back when you started and came to Citi Trends, you looked at the assortment palette, growth opportunities, and you devised the assortment that has generated a lot of sell-through for vendors. Can you talk about how that process has changed? We’ve had pandemics but ultimately you’re making a lot more for a lot more vendors than probably before your arrival. Can you talk about that process and what the pandemic has done to those relationships as you try to bring new vendors into the mix?

David Makuen, CEO

Great question, John, regarding our evolution of our assortment. Our job is to work back from the customer and deliver trends and assortments that resonate with them while offering newness and freshness. I’d say our journey from last April to now has been eye-opening for our teams. I'll give a shout-out to our buy team. They've done an amazing job at strengthening relationships with current vendor partners, and also opening many new ones. It's been about understanding customers better—what they want based on their life stages and sizes. We rounded out our ecosystem of vendors to serve diverse customer groups. This evolution is ongoing. As we’ve learned, we must stay on our toes and never rest on our laurels. Our team is action-oriented, testing and learning their way to the right solutions for our customers. We wouldn’t be here without our vendor partners, and we’re excited for both our businesses to grow and thrive going forward.

John Lawrence, Analyst

Great. Thanks for that insight. When you discuss the categories, how much different is it as you continue to acquire information and data about this customer? How do a New Jersey store versus a California store differ in terms of assortment?

David Makuen, CEO

It’s a good question, John. Today, I’d tell you the manager of the boxes is very similar, and that makes things a bit easier to operate. However, there’s an opportunity to keep figuring out, to your point, the differences between a customer in Newark, New Jersey, and one in Hawthorne, outside of LA. There will be differences, no doubt. That's where the three customer types come into play: African-American centric stores, melting pot stores that mix African-American and Latinx populations, and Latinx centric stores. This is something we're going to evolve over time, but we have lots of successful stores in each of those categories. Our goal is to make them more productive through the right assortments that cater to their tastes.

John Lawrence, Analyst

Great. Thanks for the insight. Congrats and good luck.

David Makuen, CEO

Thanks, John. Have a great day.

Operator, Operator

Thank you. And there are no further questions on the phone lines. I'll pass it back to our speakers.

David Makuen, CEO

Thanks, everybody, for tuning in today. We'll see you at the next call. Stay safe and healthy. Bye-bye.

Operator, Operator

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.