Earnings Transcript for KSS - Q2 Fiscal Year 2024

Operator: Good morning. My name is Audra, and I will be your conference operator today. At this time, I would like to welcome everyone to the Q2 2024 Kohl's Corporation Earnings Conference Call. Today's conference is being recorded. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] At this time, I would like to turn the conference over to Mark Rupe, Senior Vice President, Investor Relations and Treasurer. Please go ahead.

Mark Rupe: Thank you. Certain statements made on this call, including projected financial results and the company's future initiatives are forward-looking statements. Such statements are subject to certain risks and uncertainties, which could cause Kohl's actual results to differ materially from those projected in such forward-looking statements. Such risks and uncertainties include, but are not limited to, those that are described in Item 1A in Kohl's most recent annual report on Form 10-K and as may be supplemented from time to time in Kohl's other filings with the SEC, all of which are expressly incorporated herein by reference. Forward-looking statements relate to the date initially made, and Kohl's undertakes no obligation to update them. In addition, during this call, we may make reference to non-GAAP financial measures. Reconciliation of non-GAAP financial measures can be found in the investor presentation filed as an exhibit to our Form 8-K filed with the SEC and is available on the company's Investor Relations website. Please note that this call will be recorded. However, replays of this call will not be updated. So, if you're listening to a replay of this call, it is possible that the information discussed is no longer current, and Kohl's undertakes no obligation to update such information. With me this morning are Tom Kingsbury, our Chief Executive Officer, and Jill Timm, our Chief Financial Officer. I will now turn the call over to Tom.

Tom Kingsbury: Thank you, Mark, and good morning, everyone. We continue to work hard to reposition Kohl's for future growth and have taken significant actions to accomplish this. While we recognize efforts of this scale take time, we were hopeful that a return to top-line growth would materialize more quickly. We are making progress against our strategic priorities. However, our performance has been impacted by a continued challenging environment and softness in our core business. During the second quarter, we attracted more new customers to Kohl's and experienced an increase in overall transactions, both of which are positive developments. At the same time however, our customers exhibited more discretion in their spending, which pressured overall sales and overshadowed strong performance in our key growth areas, including Sephora, home decor, gifting, and impulse. Although we are disappointed with our second quarter sales, we continue to execute well operationally, enabling us to deliver a 13% increase in earnings, driven by gross margin expansion and strong inventory and expense management. Looking ahead, we are focused on ensuring that the substantial work that we've done across product, value and experience is fully recognized by both new and existing customers. We will capitalize on new opportunities such as our partnership with Babies "R" Us and expect to continue to benefit from our key growth areas. And we will evolve our marketing to highlight all of our new product initiatives, while also amplifying our focus on value with an emphasis on lower price messaging. As Jill will discuss in more detail, our outlook for the balance of the year assumes the macroeconomic environment will remain challenging. Importantly, our operating discipline, our solid cash flow generation and healthy balance sheet will continue to provide meaningful support as we work to return Kohl's to growth as demonstrated by our Q2 operating performance. Through all of this, we will remain focused on executing against our four strategic priorities, which are

Jill Timm: Thank you, Tom, and good morning, everyone. For today's call, I will provide additional details on our second quarter results, as well as an update on our fiscal year 2024 guidance. Net sales decreased 4.2% in Q2 and are down 4.7% year-to-date. Comparable sales declined 5.1% in Q2 and declined 4.8% year-to-date. As Tom indicated, in Q2, we attracted more new customers to Kohl's and experienced an increase in overall transactions, both of which are positive developments. However, customers exhibited more discretion in their spending, which led to a smaller average basket size. Digital sales outperformed store sales in the quarter, so both were down to last year. Other revenue, which is primarily our credit business, decreased 5% in the quarter and year-to-date, in line with our expectations. Moving down the P&L. Second quarter gross margin was 39.6%, up 59 basis points versus last year. This increase was driven by inventory management and lower freight expense. Year-to-date, gross margin was 39.6%, an increase of 54 basis points. SG&A expenses declined 4.2% to $1.2 billion in Q2, benefiting from lower store-related expenses even as we invested in marketing and technology to support our growth initiatives. The decline in store-related expenses was driven by fewer Sephora openings, fewer store refreshes, and tightly managing expenses with the decline in sales. Year-to-date, SG&A expenses have decreased 2.5% compared to last year. Depreciation expense in the quarter was $188 million, and $376 million year-to-date, both up $2 million to last year. Interest expense was $86 million in the quarter, down $3 million from last year. As a reminder, Q2 interest expense included a $4.6 million pre-tax charge related to the make-whole call we executed on our May 2025 notes during the quarter. Year-to-date, interest expense decreased $4 million to $169 million. Net income for the quarter was $66 million and earnings per diluted share was $0.59. Year-to-date, net income was $39 million and earnings per diluted share was $0.35. Moving on to the balance sheet and cash flow. We ended Q2 with $231 million of cash and cash equivalents. Inventory at quarter-end was down 9% compared to last year, once again exceeding our commitment of mid-single-digits decline. Inventory management remains a key focus of ours with the goal of increasing churn, which increased 7% in Q2. Looking ahead, we feel good about how we are positioned entering the fall season. Year-to-date, operating cash flow was $247 million, an increase of $228 million last year. And year-to-date, adjusted free cash flow was a use of $34 million, an improvement from a use of $140 million in the prior year. Now, let me touch on our capital allocation priorities. Capital expenditures year-to-date were $239 million, significantly less than the $338 million last year, driven by fewer Sephora openings. We are still planning 2024 CapEx of approximately $500 million, consisting an investment in 350 impulse queuing lines, 140 Sephora small shop openings, the launch of 200 Babies "R" Us shops, and six new store openings, including one relocation. After investing in the business, strengthening the balance sheet and returning capital to shareholders also remains a top priority. We ended Q2 with $410 million on our revolver, down from $560 million at the end of Q2 last year. During the second quarter, we redeemed the remaining $113 million of our 9.5% notes due May 2025, lowering our long-term debt. For the remainder of the year, our focus will be on paying down our revolver balance and rebuilding our cash position. Looking ahead, we will continue to monitor our options with respect to the July 2025 notes and will likely address them closer to maturity given the favorable coupon rate. As for shareholder returns, we continue to prioritize the payment of our dividend at current levels. In Q2, we distributed $56 million in dividends to our shareholders. And as previously disclosed, the Board, on August 13, declared a quarterly cash dividend of $0.50 per share payable to shareholders on September 25. Now, let me share some details on our updated outlook for 2024. As you've heard this morning, we continue to have strong confidence in our strategy and are working hard to reposition Kohl's for future growth. We are approaching our financial outlook for the year prudently, taking into account our first-half performance and ongoing uncertainty in the consumer environment. For the full year, we currently expect net sales to be in the range of a 4% decrease to a 6% decrease versus 2023, as compared to our previous guidance range of a decrease of 2% to 4%. Comparable sales to be in the range of a 3% decrease to a 5% decrease. Our previous full-year comparable sales guidance range was a 1% decrease to a 3% decrease. Other revenue is expected to be down mid-single-digits for the full year. Given the uncertainty surrounding the timing of the implementation of the CFPB late fee rule, which is currently being challenged in litigation, we have excluded any potential impact from our updated guidance. We will continue to monitor development and will provide an update when appropriate in the future. We expect gross margin to expand 40 basis points to 50 basis points, and SG&A dollars to be down 2% to 3% for the year. We expect operating margin to be in the range of 3.4% to 3.8% as compared to our prior guidance range of 3% to 3.5%. And EPS to be in the range of $1.75 to $2.25. This compares to our prior guidance of $1.25 to $1.85. In closing, I want to reiterate that we remain financially strong and are prepared to navigate this environment. As we've demonstrated in Q2, our operating discipline, solid cash flow generation and healthy balance sheet will continue to provide meaningful support as we continue our work to return Kohl's to growth. With that, Tom and I are happy to take questions at this time.

Operator: Thank you. We will now begin the question-and-answer session. [Operator Instructions] And we'll take our first question from Bob Drbul at Guggenheim.

Bob Drbul: Hi, good morning. I guess, if I could get two questions in. The first one is just, Tom, on the core business with what you're doing in women's and dresses and the shops, can you just expand more on like how those businesses with shops are doing versus non -- stores that don't have the shops in them? And just wondering if you could just talk a little bit more on the expectations for promotional environment for the rest of the year?

Tom Kingsbury: Well, I think it's -- to answer the first -- the last question first, it's going to be very promotional. We're really focused on that. The customer is squeezed, and we think it's really important that we deliver as much value on the selling floor as we possibly can. The fourth quarter is always promotional, but we think it's going to be even more promotional just based on what we're currently experiencing right now. Overall, the customer that was -- the middle-income customer, they're really stressed in terms of what they're dealing with right now. So, we're going to try to deliver as much value as possible as I said. As far as women's in terms of shops versus non-shops, obviously, if they have dresses, they are performing better, because dresses are performing very well. We are very pleased with our performance in that category. We are expanding to all stores based on our current performance overall. The women's business is one of the businesses in the second quarter that from the first quarter went backwards. We're not happy with that. The team is working really hard to turn it around. We have a really good team there. The intimate apparel business really hurt us there. We struggled with some of the key brands in our assortments there. It made up a lot of the decrease that we had overall. We haven't really turned the corner in the active business. Active improves in the other areas very nicely. The junior business, it's really in the middle of a transformation. We are moving that product from the middle of the women's sportswear business to the front of the store. We saw a real nice lift in those stores that have been able to accomplish that, that should be done, obviously in the third quarter overall, but we're putting the women's business under the microscope and we really are trying to work hard to turn that business around as soon as we can.

Bob Drbul: Great. Thank you very much. Good luck.

Tom Kingsbury: Thank you.

Operator: We'll move next to Mark Altschwager at Baird.

Amy Teske: Hi, good morning. This is Amy Teske on for Mark this morning. Can you speak to the cadence of demand through the quarter and if there were any material differences between regular pricing, clearance? And then, amid the ongoing macro challenges, what is giving you the confidence that core merchandise initiatives are on track?

Jill Timm: I can start with the cadence for the comps, and we really don't speak inter-month. What I would say is we had a pretty consistent quarter from that perspective. Nothing to call out this quarter on reg and clearance. We had a unique event in Q1 when we were comping a very large markdown from the year before. And so, we're really back to normal business, and Q2 isn't a huge clearance quarter for us. Obviously, Q1 is much more impactful because of the seasonal change and then Q3 is another time that we have a big clearance. So, there really isn't much to talk about from that perspective. I think we said we had started out, on the call in May, a little softer. So, we saw some ebbs and flows, but obviously, down at the -- where we were in Q1, so down 5% was well below where expectations were for the quarter. And I think the big things is the newness is working, and you heard that from Tom on the call, but it does, to your second question, really come back to some of these core items, particularly as Tom just talked about in women's. We saw that not only in intimates, we saw it in the seasonal assortment as well. So, swim and some of the other summer assortment had not really resonated as much, but the newness with dresses is doing incredibly well. So, as we look ahead, we're looking at what we can do to continue to bring in that newness and really leveraging the market, and that's the strategy that Tom has brought to the table. So, you should see a lot more newness on the floor, which has been resonating with the customer. And then, as Tom mentioned, the juniors business was soft in those areas that we left it in the middle, but as we moved to the front right across from Sephora, we saw that business pick up and we think we're really taking advantage of that Sephora customer, bringing it to the forefront, so they can see the newness that we're bringing in, particularly around brands like Aéropostale, Limited Too and madden girl have done well as we've launched them as well.

Amy Teske: Great. Thank you.

Operator: Next, we'll move to Chuck Grom at Gordon Haskett.

Chuck Grom: Good morning. Thanks very much. On Sephora...

Tom Kingsbury: Good morning.

Chuck Grom: ...can you guys speak about the percentage of customers that are cross-shopping the store when they make a Sephora purchase today and how that compares to, say, maybe earlier in the year or maybe 12 months ago? And then zooming out, you talked about revisiting juniors. I guess, how can you take advantage of Sephora in a better way going forward?

Tom Kingsbury: Well, we've seen a nice crossover in terms of customers that are shopping at Sephora. Primarily it's around 35% of the Sephora baskets have another product from Kohl's in their basket. It's primarily -- there's women's in the basket, juniors is in the basket, impulse and accessories overall. We're trying to take advantage of that. That's one reason why we're moving juniors to the front of the store, because we think there's a lot of crossover from the Sephora customer into juniors, because of the fact that it's a trend -- it's a -- Sephora is a trend product, juniors is a trend product overall. We feel that's true with accessories as well. So, we're trying to connect those categories as much as possible. We feel that over time the more and more we do that, the more we are going to have repeat customers overall. It's been sort of stable. I think it was -- initially it was a little bit higher, but it hasn't changed dramatically. I don't know, Jill, do you have anything you want to add to that?

Jill Timm: No, I think we've seen it very consistent in terms of the cross-shop that we have. We also see that those customers do shop us like 1.5 times more frequently. So that -- I think one of the calls we had in the quarter was that our transactions were up. And I think Chuck, we haven't seen that for a while. So, we are seeing that customer shop and buy more frequently and the conversion was also up. So, the new product that we're bringing resonating. I think the only thing I would add is kids was also seen in the basket. So, as we now can complement that with our Babies "R" Us initiative that we'll be launching. So, really all the areas that we've seen in the basket really trying to have some enhancements around that to take advantage of the fact that we're seeing it over a third of the baskets, but really how can we continue to grow that, and then even get more trips out of that customer knowing that beauty is a replenishable item.

Tom Kingsbury: Yeah, the other thing that's exciting about the Sephora and we've said this multiple times before is that 40% of the customers that are shopping Sephora at Kohl's are new to Kohl's. So that's a pretty phenomenal number overall. And we're still on target to hit the numbers that we've been saying all along.

Chuck Grom: That's great. It seems like a big opportunity. And then, just on Babies "R" Us, any early reads thus far? How impactful do you think it could be to comps? And then just, Jill, just on the back half outlook, anything on the phasing of comps or gross margins that we should be thinking about in our models? Thank you.

Tom Kingsbury: I'll let Jill answer that obviously, but I'll talk about Babies "R" Us. It's early. I mean, we have it in 100 stores, and it's just really got into 100 stores and it's obviously by the end of September, it will be in the 200 stores. Just some color on it. The number one category so far is baby gear, car seats and strollers, et cetera, which is really good, because that's what we really want to see. The second category really is furniture, that's another positive that they are really shopping us. I mean, if it was feeding or something like that or gifts, we wouldn't be as excited about it, but candidly though, it's so early. We hate to really tout it too much because -- give us some time and we'll be giving you color on that as it emerges. Jill?

Jill Timm: Yeah. And in terms of the guidance, I guess, what I would say is a lot of our initiatives for the back half are starting. So, we do expect there to be a build from that perspective. Obviously, we just talked about 100 stores for BRU opening in August and another 100 coming in September. The impulse lines, we're opening up an additional 200 in the back half of the year as well. And that's been a real positive for us, really getting that extra item, a little extra dollars from that customer. So, we're looking to bring that into 350 stores this year. So that will happen in the back half as well. And then, a lot of these brand launches that we're talking about are just setting on the store, so the newness that you'll see. And then, as we go into holiday, I think what we're excited about is building off some of the successes from last year, particularly around gifting. So, we're going to have a stronger presence in gifting across the store. I think almost 2x what we saw last year. We're going to have big Sephora gift shops if we think about how we can bring those gift boxes out onto the floor as well really around fragrance and skincare, so learning from what we saw last year. So, I would just say that it probably is going to be a build from a sales perspective as those initiatives continue to build for us. And then, from a margin perspective, I think it's probably going to be pretty similar. I mean, Q3 has more of a clearance, but I think with the inventory management that we've had, we've really been able to benefit off of that strength. So, I would say a pretty clear, between the two, a pretty even margin increase for the year.

Chuck Grom: Great. Thanks, Jill. Thanks, Tom.

Operator: We'll take our final question from Michael Binetti at Evercore.

Unidentified Analyst: Hi. This is [Jacquelyn Wang] (ph) on behalf of Michael. Just on the guidance, what's driving the increased margin leverage in the guidance in the second half despite the lower sales, and how durable is this? Also, what's the impact of excluding the CFPB from the 2024 guidance? I know it was included in the first quarter.

Jill Timm: Sure. I think, from the back half of the year, the way we looked at the guidance is the low end is really the trend that we have seen in the front half of the year, so down 5%. And then, the down 3% really is about the initiatives that we just talked about in the build in which we think that they can bring in. So, really around the newness in Babies "R" Us, the completion of 140 Sephora shops, having new brands launching into the business, having impulse. So that's really how we see the build. In terms of margin, obviously 40 basis points to 50 basis points, we just completed the first half of the year, up over 50 basis points. So, we will see some freight moderation that did benefit us in the front half. We won't have that same benefit into the back half. And then, I think that also gives us room to really lean in from promotions where Tom started this call, we do expect it to be highly promotional in the holiday. So, we did give ourselves some room from that perspective as well. So, that's how the margin plays out. And then, from a SG&A perspective, obviously showed some really good disciplines in the front half of the year. I think, we've proven we have a pretty cost discipline culture from an expense management perspective. So, we'll continue to lean in on that, particularly if we have those softer sales, it will ebb and flow. From a CFPB perspective, I think the way I would contextualize it for you is when we originally guided we said that our other revenue line would be down mid-teens for the year and it would be down mid-single-digits in the front half of the year. Well, we just completed the front half of the year and it was down 5%. And now, we said for the full year, it would be down mid-single-digits. So, really that differential in the back half, it will be much more in line with the front half. And I think if you do that math, you'll get kind of the impact for the CFPB on the guide that we just updated. So, hopefully that hits on your three points.

Unidentified Analyst: Yeah. Thank you.

Operator: And we do have another question. We'll go to Oliver Chen at TD Cowen.

Oliver Chen: Hi. Thanks a lot, Tom and Jill. On the core apparel footwear and the microscope that you're taking, which issues will be easier to fix in the nearer versus longer term? And on the guidance, Jill, on the raise, what happened regarding the top-line and just the mechanics of the guidance in terms of having a softer revenue? Thanks.

Tom Kingsbury: Well, as far as the women's business, I think the junior business will be an easier business to turn around, because we can really leverage the marketplace in order to turn it around, because there's a lot of product out there, and it's quick turn. So, I think the trend business will be the easier piece of it. I think, some things like intimate apparel will be harder, just because it's a more traditional business and it's really driven by the brands overall. So, I think that'll be harder. Trying to integrate more of the classic brands into the assortment will also take a little bit more time. Rebuilding our petite business, I think that will be something that we can react to fairly quickly, because we really went out of that business. So, I think just rebuilding the inventories, we'll be able to do that. But I think that -- I think we'll see progress quicker, as I mentioned in juniors, plus moving it back and putting it in the front of the store. I think that'll help a lot overall. Jill?

Jill Timm: Yeah. I think in terms of guidance, Oliver, the way I look at it is from a top-line perspective, really centering the low end at the actuals that we just produced in the front half of the year. So, I'm saying that that would have no trend change from that. And then, the upside is really about the build of all the initiatives that we laid out, which is where we do have confidence. We continue to see Sephora outperform our expectations. It's doing incredibly well. We added another 140 stores. We have a lot of newness happening there, as well as learning from our last holiday around gifting and how we can lean into that more to make it even bigger. We have Babies "R" Us, which just literally set this month, and it really complements that younger customer. They're coming in for product that's complete white space for us. So, it is a big opportunity for us. And then, impulse we've seen huge success with just bringing in those extra products. It does have a lower AUR drain, but it does have them come in and add that extra item into the basket, which has been a success for us as well. So that will go to another 200 stores. And then, just really hitting on some of those areas like Tom mentioned around the fashion element. We're going to have a bigger dress presentation in all stores, really even hitting on holiday dress, which wasn't something that we have typically done in the past, but really helping from a women's perspective. And then, new brand introductions across juniors, young men's, women's. So, I think that's how I feel good about the top-line of it. And then, I think, we've proven with inventory management, since Tom has come in, we've been able to run inventory down even more than mid-single-digits, which has really helped manage the margin, but giving ourselves room to make sure we can be competitive during a very promotional holiday season. And then, I think the cost discipline on SG&A makes me -- we've confidently done that over the last several years, which helps us get to the op margin for the year. So, I think that's kind of how I looked at from a guidance perspective. Really the low end just saying we do nothing different and it stays on trend. So, it kind of feels like derisk from that perspective, and then the initiatives can build us back up to the top end.

Oliver Chen: Okay. Thanks. And a follow-up. Are you more concerned on UPTs or traffic and how might that relate to what you're seeing? And second, what changed the most in terms of the health of the consumer, because we've had this choiceful-considered mixed consumer when we last spoke as well? Thanks.

Jill Timm: Yeah. I think the biggest thing we saw, one is, what makes me happy is I actually talked about positive transactions. And Oliver, I think that's probably the first time we talked about that in several years. So, we're seeing transactions go up and we're seeing conversion go up and that gives us indication that the newness we're bringing in is really resonating with the customer. What we're seeing is that middle-income customer, that is our core customer, continues to be squeezed. And I think we've seen that they're being more discerning with what they're purchasing and that has been either less items because of the fact that they're spending some more money on a higher-ticket item like a Sephora, or they're just spending less in general. So, I think the pressure from an AUR perspective. Some of the AUR -- we introduced lower AUR items; home décor, lower AUR, impulse, lower AUR. So, some of it was just as the newness came in, it was in that forefront. If we think of what we're introducing in the back half of the year, bringing back fine jewelry into 200 stores, bringing in Babies "R' Us, like Tom mentioned, gear being a number one seller, those are all going to be higher-ticket items and we're seeing that resonate with the customer. We know fine jewelry is something our customer misses. So, we just have to really deliver that back for her. So, I think that's how we can get back from an AUR perspective. But also expecting that that wall is going to be continue to be pressured and that's why we included the guide that we did for the back half of the year.

Oliver Chen: Okay. Thank you. Best regards.

Jill Timm: Thanks, Oliver.

Tom Kingsbury: Thank you.

Operator: We'll take a question from Dana Telsey at Telsey Advisory Group.

Dana Telsey: Hi, good morning, everyone. Jill, as you mentioned, the conversion and traffic, which is obviously something new. As you think about the Babies "R" Us and some of the other new partnerships, where do you expect some of the biggest impact to come from? And then, Tom, on the category of home, what are you seeing there as opportunities going forward? Thank you.

Jill Timm: Sure. I think for Babies "R" Us, it did just launch and we are going to be launching a registry to complement that and I think that happens at the beginning of October. So, I do think there's a large opportunity for us really first on that younger customer. I think as we have a registry really having that beginning part of their lifecycle from a family perspective having them come in. And early days, we are seeing a nice halo effect to the kids' business. So, I think that really just helps us bring extra items into their basket as well from, a, how can we be more relevant to that customer. And not only do we have gear, we have all of the feeding and toys and accessories as well. So, I think those are quick add-ons that we can see come into the basket. So, I do think Babies "R" Us could be a larger impact not just for the sale of that product, but for the halo that it does for the store. But also really as we talked about earlier that Sephora customer is buying kids. So, really how to expand them to buy even more across the store and then continue to increase that 35% of attachment up higher. And I think Babies "R" Us can be a key place to do that. I also think some of the newness, Dana, that we've talked about in terms of relevancy of brands and fashion and just going to the market and being much more relevant from that perspective on chasing. So, we're really chasing in a reactive way for things that the customer likes is going to be something that continues to benefit us and it's a muscle we're building. So, when we do it, it works really well. We just have to do it more broadly and more I think deep in some of the areas that are just getting started and I think that could be a large benefit for us as well. And I would just say I think there's a lot of partnerships that Tom and the merchant teams are out there looking for that we're excited about as well. So, I think there's going to be a lot more newness coming into the store, which I think is important to our customer.

Tom Kingsbury: Yeah, as far as the home business goes, I feel very good about the home in terms of the progress the team has made there overall. Home decor has been very good, not only in the seasonal decor, but also in everyday decor. Yeah, I'm looking forward to the holiday season. Team has put together an incredible holiday decor presentation, which will be right in the front of the store as it was last year, but you'll see a significant build in terms of the presentation there overall. The pet business has been extremely strong overall, and we see that building as well. The big issue we have there is, we have a very large electrics business, which is hurting us. Our bedding business needs to be turned around overall. The wall art business has been good, and obviously, that's part of the core business, but we are seeing a lot of progress there. I feel very good about that. We just have to get over the hurdle of the electrics business and we have to rebuild the bedding business. But in general, I think the team has done a very nice job of repositioning the home business for growth. The other thing that we're excited about is our entire gifting presentation there as well. But again, we look forward to the back half of the year to see some growth there.

Dana Telsey: Thank you.

Tom Kingsbury: Thank you. Well, I want to thank everyone for listening on the call today. Have a good day.

Operator: And this concludes today's conference call. Thank you for your participation. You may now disconnect.