1 800 Flowers Com Inc Q2 FY2025 Earnings Call

Good day, and welcome to the 1-800-Flowers.com Inc. Fiscal Year 2025 Second Quarter Conference Call. Please note that this event is being recorded. I would now like to turn the conference over to Andy Milevoj, Senior Vice President of Investor Relations. Please go ahead.

Good morning, and welcome to our fiscal 2025, second quarter earnings call. Joining us today are Jim McCann, Chairman and CEO; Tom Hartnett, President; and James Langrock, CFO. Before we begin, I'd like to remind you that some of the statements we make on today's call are covered by the safe harbor disclaimer contained in our press release and public documents. During this call, we will make forward-looking statements with predictions, projections and other statements about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties including those contained in our press release and public filings with the Securities and Exchange Commission. The company disclaims any obligation to update any of the forward-looking statements that may be made or discussed during this call. Additionally, we will discuss certain supplemental financial measures that were not prepared in accordance with GAAP. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures can be found in the tables of our earnings release. And now I'll turn the call over to Jim.

Thanks, Andy, and good morning, everyone. This morning, I'll begin with a brief overview of our second quarter performance, and then I'll turn it over to James and Tom who will provide a context for the results and look ahead. Our second quarter revenue declined 5.7%, showing year-over-year improvement, but not at all at the pace that we have been anticipating. There were several factors that contributed to our performance. First, we experienced softer than anticipated consumer demand, and we saw businesses reduce their corporate gifting orders this holiday season. Second, we encountered challenges with the implementation of a new Harry & David order management system, or what we call OMS, that escalated during the peak of the holiday season, impacting revenue and earnings for Harry & David and for our other brands. This morning, James and Tom will share more details behind some of these factors and how we are responding to them. Additionally, we'll discuss our view of the ever-changing post-COVID world of consumer behavior and how we engage with our customers. And now I'll turn the call over to James.

Thanks, Jim, and good morning, everyone. This morning, I will walk you through our second quarter performance and discuss the items that contributed to our performance in further detail. Our consolidated second quarter revenue declined 5.7% with several factors contributing to this performance. First, we experienced lower consumer demand in a highly competitive and promotional environment. Combined with changes in the online marketing environment, this negatively impacted our marketing efficiency. Consequently, our increased marketing spend did not yield the expected results. Specifically, our free and lower-cost marketing channels declined more than anticipated. Second, our corporate business partners became more cautious with their spending, resulting in decreases in average order values, items per order, and the total number of orders placed. Overall, our average order value declined 1.2% for the quarter. Third, we encountered challenges with the implementation of the new Harry & David order management system, which intensified during the surge of holiday orders. Our e-commerce business declined 8.3% for the quarter. We estimate that the issues related to the order management system reduced Q2 e-commerce revenue by about $20 million. These trends were slightly offset by an increase in our wholesale gift basket business. After adjusting for the $20 million impact of lost revenue, Q2 e-commerce revenue would have decreased 5.6%, and total revenue would have dropped 3.2%. Before I address gross margin, I wanted to take a moment to discuss the order management system implementation that impacted our performance. As the business began to scale significantly in December, the new Harry & David system created challenges with certain more complex customer orders during the peak holiday season. These issues resulted in bottlenecks that hindered our ability to process orders promptly and in some cases led to order cancellations. We were able to resolve many of these problems manually; however, they did result in some order cancellations and additional expenses to correct orders and satisfy our customers. Despite these implementation issues, it's important to note that we successfully delivered over seven million orders during this holiday season at an enterprise level. Although the order management system implementation primarily affected our Harry & David business, we believe it also had some spillover impact on our other brands due to our centralized customer care function. As Tom will elaborate on shortly, we are actively resolving the issues with the new system. Now turning to gross margin. Our second quarter gross margin was 43.3%, which remained flat compared to the prior year. The quarter was highly promotional as consumers continued to seek out and respond to promotional offers. Our gross margin was also influenced by the additional costs related to the challenges of the order management system, including expedited shipping fees, which we estimate negatively affected gross profit by around 20 basis points. Excluding those OMS-related costs, gross margin would have been 43.5%. Adjusted operating expenses decreased by $2.9 million to $239 million compared to the previous year, continuing to benefit from our Work Smarter initiatives. We believe we are just beginning to explore the potential to enhance our planned operational efficiencies and there is much more we can accomplish. Through careful cost management and strategic technology investments, we aim to streamline processes and reduce expenses without sacrificing the quality of our offerings while improving the customer experience. In addition to the revenue impact, we estimate that the extra costs connected with the order management system, including expedited shipping and higher customer care costs, affected Q2 EBITDA by about $4.8 million. We also incurred expenses of around $1.5 million, primarily consisting of redundancy costs as we transitioned to our new customer care platform. All in all, this affected Q2 results by approximately $6.3 million. Considering these factors, Q2 adjusted EBITDA was $116.3 million compared to $130.1 million in the prior year. To clarify, our adjusted EBITDA does not account for the estimated $20 million of lost revenue during the quarter, which corresponds to a loss of about $8 million in EBITDA. Over the last few years, we have indicated our gross margin returning to its historical average, and we're pleased that post-pandemic, it has recovered significantly towards our long-term average in the low 40% range. Moving forward, as Tom will highlight, we are intensifying our focus on all aspects of our sales and marketing expenditures. We believe there is potential for further efficiency gains as we adapt to evolving technology and consumer preferences in engaging with e-commerce platforms. Now, let’s turn to our balance sheet. Net cash was $87 million, down from $117 million at the end of the same quarter last year. Our cash balance stood at $247 million at the end of the second quarter. Inventory decreased to $157 million compared with $161 million at the end of last year's second quarter. Regarding our debt, we had $160 million in term debt and no borrowings under our revolving credit facility, compared to $195 million a year ago. At the end of the quarter, we made a $25 million prepayment on our term loan and amended our credit agreement. Regarding guidance for fiscal 2025, due to our Q2 performance, we are updating our fiscal 2025 outlook. We now anticipate full fiscal year revenue to decline in the mid-single digits. Adjusted EBITDA is projected to be in the range of $65 million to $75 million. Free cash flow is expected to fall between $25 million and $35 million. We regret that our Q2 performance did not meet our expectations. Some of the challenges were self-inflicted, and as we work through these issues, we are optimistic about our future performance and the initiatives we are pursuing. We are confident that the strategies and foundational measures we have implemented will significantly improve our trends and generate substantial shareholder value. Now I will turn it over to Tom.

Thanks, James, and good morning, everyone. As James outlined, the second quarter presented us with several unexpected challenges. Changes in online marketing trends impacted our performance and businesses reduced their corporate gifting orders this holiday season, both in terms of average order values and total orders placed. Furthermore, our results were pressured by challenges that escalated with our new Harry & David OMS implementation. As with any new system implementation, it's difficult to anticipate every issue that might arise, and we felt the system was prepared for the holiday rush. The OMS implementation presented mounting challenges during the peak of the holiday season. The order issues were directly related to Harry & David orders and in particular, more complex orders that needed to be manually corrected, such as certain product bundles, wine gifts, and club orders. It is important to highlight that many of the system challenges were exacerbated due to the significant surge in demand that we experienced during the holiday season. We have resolved many of the issues and prioritize the remaining ones, which we expect to correct in short order. These challenges further reinforce our conviction that in addition to our Work Smarter and Relationship Innovation initiatives, which have improved our company, we need to fundamentally review all aspects of our marketing and sales strategy. We must accelerate our evolution to ensure our platform is both highly effective and efficient in supporting our customers' gift-giving needs. We will accelerate our Work Smarter initiatives to cut costs, and in turn, increase investment in our growth-oriented relationship innovation initiatives and marketing strategies. As we focus on expanding our customer base, we see significant opportunities to leverage new technology to enhance engagement and build deeper relationships with our customers. These initiatives are designed to inspire our customers and help them connect with the important people in their lives. They are also designed to give them more and better ways to interact with us. Our relationship innovation initiatives are in the process of transforming our organization into a comprehensive celebratory ecosystem. We are continuing our evolution from a transactional company to one that is experiential and personalized, focusing on enhancing customer engagement and satisfaction. This shift reflects a growing expectation for seamless and enjoyable shopping experiences that integrate advanced technologies to deliver tailored content and recommendations based on individual consumer behavior. We are confident that our efforts will enhance our customer experience and yield better results. Now I'll turn the call back to Jim for his closing comments before we open it up for Q&A.

Thanks, Tom. As we reflect on the past 18 months, our company has made progress in our relationship innovation initiatives that are focused on strengthening our relationships, enhancing our platform, and offering a wider range of gift-giving options. But we also recognize the need to move faster and be more aggressive in certain areas, including our marketing and sales strategy. We must respond quicker and provide better value for our customers that have curtailed their spending the most in the current macro environment. We must become more effective with our advertising spend and invest more in marketing until we can rely less on external channels and more on our existing customer base. AI can significantly help us here. It will provide us with an opportunity to accelerate our personalization efforts and present customers with content that is specific and appropriate for the sentiments that they are expressing. Our robust customer data set will enable us to deliver highly personalized marketing experiences, ensuring that we are not only attracting new customers but also nurturing the existing relationships. Leveraging these innovative tools presents an unparalleled opportunity to better serve our customers and forge even deeper, more meaningful relationships with them. The future holds incredible promise for us and I'm thrilled about the possibilities that lie immediately ahead. Now we look forward to keeping you appraised on our progress and now I'll ask the operator to restate the Q&A instructions.

The first question today comes from Anthony Lebiedzinski with Sidoti & Company.

So first, I guess, sort of a bigger picture type of question here. So obviously, after the pandemic, we've seen changing patterns in consumer engagement. But, do you feel like these shifts in consumer engagement actually accelerated during the quarter? Or is it just kind of more of the same that you saw here in the December quarter?

Anthony, thanks for your question. I think what we saw, we have to read through the smoke here, the smoke being the difficulties we had with the implementation of the OMS. But yes, I think we're seeing an end to what we call the COVID bubble. We had a great acceleration in demand when people were homebound and that's eased up considerably. So we think that this fiscal year is the end of that for us. We're seeing signs of the consumer responding better. We've introduced some lower price points and some high and broadening of our price ranges, and we've seen good take on the lower end, but we need to do even more of that. So we have some of those products pipeline. So Tom, I would say that we're seeing good response from the customer; you pointed out in your remarks that we saw a degradation in our business demand, but the consumer demand was actually making up some of that until we hit the wall with the OMS system.

Anthony, it's Tom. Yes, I think we're seeing a similar bifurcation on the customer. We are seeing that lower demographic at lower household income customer, which is continuing to obviously watch their budget and their pocketbooks. And we have seen some good results with some of the product introductions and the prices that we've brought forth. But as Jim mentioned, we need to do more.

Got you. Okay. And then as far as the issues with the order management system, when was this initially put in place? And as far as getting this system to work as it should be, what's the time frame as to when you would expect to be 100% fully functional as the system was designed to be?

Anthony, this is James. So we implemented the system at the end of August into September. We did all of the necessary user acceptance testing. We did regression analysis, simulation testing to simulate the peak of the busy season. So like with any system implementation, there's going to be some issues along the way. But what happened as we got into the peak of the busy season after Thanksgiving, the surge of that and with some more of the complex orders in the system that were getting put on hold and it was creating a real backlog, so a lot of orders are being put on hold or canceled because of that. We had manual workarounds on that. So really, it kind of showed itself in the peak in December, the issue. We're working through that now. The last two weeks had a significant impact because we were processing large order volumes daily. Any task that required manual intervention was contributing to our backlog. As Tom mentioned, our platform customer service system experienced a ripple effect from these issues. We were reallocating all our resources across the company to address the OMS challenges, which led to staff shortages and reduced availability across our brands. During those last few weeks, the minor issues that could be managed during testing periods became too much to handle. So, Tom, what is our current status on the path to full recovery as Anthony inquired?

Yes. So many of those challenges were addressed within the quarter. We still have some open items. We expect that the majority of those will be resolved in this quarter or Q3 quarter.

We are on track to reach full capacity within the next two quarters. However, I would like to note, Anthony, that the current volume levels in the Food Group are manageable and not causing any systemic issues. Regarding flowers, we did not modify the order management system, and flowers will take a more prominent role in our business this quarter and the next due to upcoming holidays. The order management system we implemented a couple of years ago has been functioning well. While we are addressing fixes to the order management system for Harry & David and the Food Group, it is not affecting customers because we have the resources to handle these issues as we resolve the remaining ones.

So for the customers that cancel their orders because of these issues, do you plan to do a specific marketing outreach to them to make sure you don't lose those customers permanently? Just wondering how you're thinking about that from a marketing perspective?

Yes, Anthony, absolutely. I mean we've reached out already to those customers. We have a win back program going on. We're extremely focused.

Going throughout the year.

Yes. There'll be multiple touchpoints with those customers throughout the year. It's extremely important to us. In some cases, we did lose the trust of some of those customers that we failed. We take that very seriously, and we're working to regain their trust.

The next question comes from Alex Fuhrman with Craig-Hallum.

Looking out over the next couple of weeks, it looks like a little bit of a better placement for Valentine's Day relative to the Super Bowl this year. Can you talk about how you're going to go after Valentine's Day this year? I know it's been challenging the last couple of years since the Super Bowl moved a week later. Are there maybe opportunities to engage with customers before the Super Bowl or maybe really be hyper engaged during that couple of days between the Super Bowl and Valentine's Day? Just curious what you've learned and how that's going to impact your strategy this year?

Thank you for your question. In response to the placement question, we are pleased that Valentine's Day falls on a Friday this year, which is ideal for sales. We appreciate your efforts in moving the Super Bowl date, which is beneficial because last year it was just two days before Valentine's Day, causing significant distraction. Having five major selling days after the Super Bowl is crucial for our holiday strategy. We have a marketing plan in place to engage customers well in advance, providing incentives for early orders. Our selling period is two weeks long, with the Super Bowl right in the middle, which is much better than last year’s timing. Additionally, Easter is positioned better this year; last year it was at the beginning of the fourth quarter, limiting selling days in the third quarter. An early Easter can dampen sales due to its timing, but this year it's later in April, allowing for a stronger sales period. While not the biggest holiday, it's important for us, with good margins and customer demand distribution, making it easier for florists to serve our customers. These strategic placements significantly benefit us. Tom, would you like to add anything regarding the marketing aspect?

No, we've been focused on Valentine's for a long time, and there are different types of customers who can be engaged and attracted early in the season. Some are more planful or price conscious, and they may connect with these offers before the Super Bowl in this case. Additionally, there are many customers who will appreciate the extra days of selling this year compared to last year.

This year in the fourth quarter, having five fewer selling days between Thanksgiving and Christmas seems to have affected us as well. The timing of those three major holidays really influences our performance. We're pleased to see that in the second half of the year, we have good opportunities around Valentine's Day and Easter.

Okay. That's really helpful. And then if I could just ask quickly on corporate gifting. It sounds like the decline there was a little bit self-inflicted, a little bit demand. Can you just help us to kind of give us a little bit more historical context? And how big is your corporate gifting business today compared to what it was before the pandemic? And what's your kind of outlook there for the next couple of years?

This year, the corporate gifting revenue was approximately $70 million, down from $84 million last year, indicating a decline of nearly $15 million or 17.5% year-over-year. This decline was more pronounced than what we experienced during the pandemic. It was clear that corporate sales experienced a significant drop, with our corporate clients cutting back on spending. The average order value decreased, along with fewer items ordered per transaction and a reduction in the total number of orders. We are closely examining these trends. Some of this decline can be attributed to the Order Management System issues, and we are working to understand the underlying factors. The weakness in corporate consumer spending was notably more significant than in the consumer sector.

Just to add, Alex, we are bullish about the corporate business. We...

We had some hotspots in the corporate business on lower price point items across the enterprise.

So I think we have to retool some of our offerings, but...

And how we go to market, how we staff our teams on the marketing. They stay engaged more year-round because they have the breadth of product offerings year round.

The next question comes from Michael Kupinski with NOBLE Capital.

In terms of the marketing strategy you talked about, I was just wondering in some of the issues that you had with marketing. I was wondering if it was more the content and message or related to maybe some of the channels you were using and just getting a lower return. I was just wondering as you kind of look forward in terms of the marketing strategy, what types of changes are you anticipating at this point?

Michael, it's Tom. I think there were some specific changes in some of our bottom of the funnel channels where the search engine results page changed some of the rankings that really hit us in kind of natural search and branded search where those are very low-cost channels for us and those declined more than expected. As we go forward, we continue to push more in the mid and upper funnel channels, etc. And we think we continue to refine our content and we find our content to be more relevant to individual segments of our customers. So we think we continue to make strong strides there, and we're hopeful AI is a term used a lot, but we're hopeful that we'll see an increased efficiency with our ability to deliver content at that larger scale.

We are noticing some challenges with our technology components, specifically in the implementation process rather than the technology itself. We underestimated how demand would influence it, but we are moving forward aggressively with our other technology investments. This situation is affecting us in two main areas. Firstly, on the cost side, we are becoming more efficient by digitizing many of our operations. Secondly, we also expect a significant impact on our marketing as we adopt more tools and capabilities. We anticipate that these changes will enhance our cost management and revenue generation, especially in the upcoming quarters and throughout the rest of the calendar year. This year is crucial for us as we implement these new digital tools aimed at fostering growth and improving cost efficiency.

And just to follow up on that. The margin outlook is actually a little bit better than what I was looking for, especially with the lowered revenue expectations for the year. Can you talk about where you anticipate to see improved adjusted EBITDA margins? Will it be a combination? Or maybe if you can give me the weighting of reduced commodity costs, transportation costs, or just from your Work Smarter initiatives? I was just wondering if you can kind of give us some additional color on that?

This is Jim. I'll ask James to provide some insight on that. We're not expecting any savings on commodity costs. While they have moderated and returned close to the average, there are still fluctuations that affect us. We're comfortable with cocoa prices for the remainder of this year, which covers the Christmas season. However, with issues like bird flu, egg costs can increase significantly, and availability can be uncertain. These are factors we believe we can manage on a daily basis. So, we don't anticipate real savings there. The savings will come from our Work Smarter initiatives, including how we operate and the number of people we use. The automation we are implementing in our distribution centers is already yielding positive results. What would you add, James?

And Michael, I would like to emphasize that we are examining all facets of the business. Our goal is to streamline processes and lower costs. However, I want to point out that some of the savings we achieve in terms of EBITDA margin will be reinvested back into the business and our sales and marketing strategy. While we are cutting costs, we do need to allocate a portion of those savings to marketing and sales.

But now that we're closer to the average on gross margin and realizing that we could have had a better gross margin if it weren't for the OMS issue, we feel more confident about it.

Got you. And typically, you guys in periods like this, which has been challenged for some e-commerce type companies and things like that, you kind of stepped on the M&A activity. And I was just wondering if you can just kind of gauge what the M&A at that level might be at this point?

I think many in the consumer-facing e-commerce space have experienced similar challenges. This creates a strain for us, but thanks to our strong balance sheet and valuable assets, the interest in partnerships has increased. While it's still uncertain if we will pursue any specific opportunities, I believe the prospects will be significantly better than in the past few years. If we identify the right opportunity that enhances our customer experience, we may become more active in pursuing these opportunities in the upcoming quarters.

The next question comes from Linda Bolton-Weiser with D.A. Davidson.

Just a clarification, if you would, on the Valentine's Day placement. Maybe I'm confused, but I always thought that when Valentine's Day is in the middle of the week, it's better because then the guys placing orders have them delivered to women's offices, etc. And I thought if it was Friday or Saturday, it's bad because they won't send the flowers, so they'll just buy them and take the woman out to dinner or something. So I thought one thing was much better than Friday. And Wednesday was last year, and Friday is this year. So can you just clarify? Maybe I'm just confused on that.

Sure, Linda. There has been some confusion, and I understand. This is actually my 49th Valentine's Day, and the trends are clear. Wednesday tends to perform better than Tuesday. However, I believe Thursday is the best overall day because it allows for last-minute deliveries. If customers check online on Thursday and see that delivery is unavailable, they are likely to accept a delivery on Friday. This extends our sales opportunity for that day. From a sales perspective, Friday is actually our best day because we prefer our customers to be at work and focused. On weekends, they have other activities and options, such as shopping or dining out, which can distract them. When they’re working, whether at home or in the office, it limits their choices, making it a better sales environment for us. So, while I understand Thursday has its advantages, I'd prefer to emphasize that Friday offers the greatest sales potential.

Just to clarify, you mentioned there will still be some fixes in the upcoming quarters. For Valentine's Day on the food side, will all the issues be resolved? I understand the flower side is more significant, but will the food side have all its problems fixed for Valentine's Day?

On the food side, we expect that most of the issues will be resolved. However, as Jim mentioned, if there are still challenges, it could lead to customer-facing problems. We have the necessary internal resources to ensure that any issues that do arise can be managed through manual intervention, and they will not affect demand.

And Linda, we are extremely disappointed with the challenges from the OMS system, but I want to remind everyone that we delivered over seven million orders in Q4. So while we had some issues, we still managed to deliver the majority of orders to our customers in Q2.

We don't expect the same level of demand in the Food group. If there are any unresolved issues, they are manageable with our current processes. We anticipate achieving full functionality with the new systems by the end of the fourth fiscal quarter or the spring quarter. Any unresolved issues will not be noticeable to customers because, although demand is good, it is not nearly as high as it was during the last couple of weeks of December in the Food Group.

Okay. Understood. And then finally, I was just curious about the efficiency of your marketing cost spend. But I was wondering, in general, about digital marketing costs. They were expected to decrease after the election. Is that what you observed in the broader marketing environment, that there was a decline in rates after the election?

I would say that compared to before the election, the rates were more reasonable afterward. Overall, when we look at the previous year, we did observe increased costs in the lower part of the funnel where we were advertising.

That was efficiency, right?

Yes, that was more about efficiency. And then on the mid and top, it was kind of a mixed bag, I'd say. I mean, we saw definitely some great opportunities with some partners and some tactics we had, and others were a little higher. So I'd say it was mixed across the board. But certainly, as we came out of the election, the costs were down.

Okay. And then just one last one. Just if you could review your tariff exposure. You've probably got some on the PMall side and also some of your baskets and stuff. Could you review what the plan is there?

Well, it's an ever-changing landscape, Linda. This is Jim. We had a little jolt to our cardiac systems earlier in the week when Colombia was threatened with tariffs. Colombia is an important market for us on the floral side of things. They grow a lot of product that we use here in the U.S. So, we're very happy a couple of days later to see that resolved, but we'll never get that sleep back. But tariffs are something to watch. James, how do you give some context again to Linda, about how our sourcing materials, where they come from, how they be exposed to tariffs?

Sure, Linda, just a little way of context. If you look at our cost of goods sold, is approximately $1 billion on an annual basis, our cost of goods sold. Within that, roughly 40% of that is comprised of the cost of merchandise. And within that, it's about 10% of that would be China. So we're talking about there's $40 million, $45 million of purchases from China. So clearly, the tariff will have an impact, but off of a base of $1 billion of cost of goods sold. So we're looking at and we're...

Cost of goods sold is $1 billion, $40 million to $45 million of exposure to Asia. And so that's what we'd be watching the tariff. So we don't want to see any increase in cost, but any increase in costs would be.

The next question comes from Doug Lane with Water Tower Research.

Just a follow-up on Linda's question. What would you have done if tariffs had been enacted in Colombia?

We would have postponed this call to assess the impact, which would have been painful since we depend on Colombia and nearby markets for a good supply of our product. The good news is we don't have to revisit that plan, as the situation seems to be completely resolved. However, it could have been damaging. Therefore, I do not have a definite answer for you, Doug. We're just relieved that we don't need to address that.

In the short term, it would be challenging in weeks, especially leading to Valentine's. I mean, obviously, our buys, our florist buys have been largely in place for a period of time.

Yes. I assume the tariff, Tom, would have been on top of our contracted prices, right?

Don't assume everything is finalized; it will all be negotiated. However, in the midterm, we should be able to adjust product distribution to different markets around the world to somewhat mitigate the situation.

And we've been conscious of that for a while. So we had a whole program to encourage domestic growing products in partnership with our grower community and some of it independent with our domestic growers. That program has not produced the results we wanted because, frankly, some of our providers who we spent a long time cultivating decided that cannabis was a more profitable crop. Well, that didn't turn out to be the case. And a few of them have returned to flower production, but not all of them yet. So, it's something we're always conscious of Doug, and we've had 10-year plans in place to increase the breadth of sources for our flower product, a lot of it in partnership with our grower community because they have the same issues and concerns. So it's something we work on all the time.

Is Colombia that important? Or could you shift supplies to other countries in case it's just an isolated incident?

No, it's that important to us. The entire industry is reliant on Colombia for approximately 50% to 60% of all the fresh flower products grown and sold in this country.

Well, so everybody would be in the same boat. That's helpful.

Yes, in the boat. We don't want to be in that boat.

No. But right, it's not good for anybody. Just to shift gears on the wholesale business, because you hit it on the first quarter call that wholesale is going to be good this year. And frankly, it's a lot better than I thought it was going to be. So it's a bit of a reversal from recent trends where e-commerce has been outperforming wholesale, and now you have e-commerce down in the mid- to high single digits depending upon your adjustments and the wholesale is up strongly in the teens. So that's a big shift. I just wondered if you could talk a little bit more about that shift and whether you think that's something that's going to continue? Or will e-commerce revert back outperforming wholesale?

Doug, what we think on that is it's counter indicative. In other words, wholesale resolved because retail in-store traffic was better. So that's where that product is sold. So that shows you that the customer felt comfortable going out and about and shopping in the retail store, which took away from the shopping on e-commerce. So that's going to be a counterbalance to the e-commerce hit. However, going forward, we expect wholesale to stay stronger because we've cultivated new relationships in the wholesale channels this year. So we'll have a broader base of customers in the years ahead. So we expect that it won't be counter indicative of the e-commerce pressure we saw. We expect both to go up next year. We're anticipating and I hope we haven't built the plan yet. But on the wholesale side, we have a broader wholesale customer base, so we'd expect that will continue to look good because of the break of customers and products, frankly, that we've introduced there that was so successful in the retail stores this year. Well, thank you all for your time and attention today for your interest. It was a tough quarter for us. I will tell you that as I look at the big influencers that we've experienced during this period, we think three things have happened here. One is that the COVID phenomenon so many of us in e-commerce have experienced is playing its hand out, so it's coming to a close. So we wouldn't have that. We're hopeful that we won't have that to deal with. We are concerned that the bigger macro environment is still impacting the paycheck customers who, for a couple of years there as a result of recovery programs had a great deal of discretionary spending capability. We're still concerned about them. That's why Tom spoke about the work we're doing to broaden our product lines and prices, both more attractive and higher end for our higher-end customers who seem to be weathering this one quite well. And frankly, we're disappointed in our own execution this quarter and the first two quarters of the fiscal year for us, the OMS issues should never have happened. We're embarrassed by it. We're very disappointed by it. And as Tom and James both mentioned, we're doing everything we can to make sure it never happens again, that these issues are fixed and that we do everything we can to do the right thing for the customers that were impacted by this. Yes, we have seven million very happy customers, but even a few thousand customers that were hurt, negatively impacted by this, while there's a heck out of us, and we'll do everything we can to make it right. So thanks for your interest, your attention. We look forward to further discussions with you when you reach out. Thanks so much.

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