Sam Sato: Yes. Jonathan, this is Sam, again. I’ll address the kind of future viewpoint. So as we invest in different elements of our infrastructure as well as our organization, and I’ll remind you of two specifically. So the investment in Adairsville into this fully automated fulfillment center, we believe will drive meaningful cost efficiencies. In fact once operational, the fulfillment center in the Southeast on a CPU basis will be close to half of what it is in the current network. And so in addition to speed the market and accuracy, we’re going to get much more cost efficient around the input cost to flow through merchandise both to our retail stores and our consumers. So that leads to some improved flow through. And then at a higher level, we recently announced the hiring of a executive to oversee our sourcing and materials innovation.
And we believe that that starts to open up the door for us to expand our IMUs as we move forward. And so as we think about that group and what they’ll be able to deliver, we really think that we’ll start to see some of that improvement as we head into 2024.
Jonathan Komp: Okay. That’s helpful. And certainly would welcome any quantification as some of those benefits as you get more color over time, just given the level of gross margin that would be appropriate for a premium direct brand. So any color over time there would be helpful? But that’s it for me today. Thank you.
Sam Sato: Great. Thanks, Jonathan.
Operator: Thank you. And our next question today comes from Jim Duffy at Stifel. Please go ahead.
James Duffy: Thank you. Good morning. Two lines of questioning for me guys. The first more strategic, so to return to growth, either need more customers or more velocities and dollar per customer, which of those two do you think is more important for Duluth to get back on a growth path, and how are you kind of managing the business accordingly?
Sam Sato: Yes. This is Sam. I don’t know that I would say either is more important than the other. I think they’re equally important and again, I would point you to some of my prepared remarks around our focus, certainly what it has been and where we’re going to continue to drive focus through our marketing and advertising initiatives. A big chunk of that is on opening up broader brand awareness and certainly I spoke a lot about our focus and success last year and what we’ll continue to focus on this year in terms of re-engagement and retention. So the new and maintaining our current customers are really important for sure. And then your second point was on
James Duffy: No, that was it. You’ve covered. No, you’ve covered it.
Sam Sato: Yes. Okay, great.
James Duffy: Second question was more related to cost, but I do have a follow-up on just the multi-branded strategy as it relates to more customers or dollars per customer. Sam, how do you ensure that with the media mix spread across multiple brands, that’s not spreading the dollars too thin?
Sam Sato: Yes. So it’s kind of a combination of things. What we’re doing is we’re being really, really strategic about where we place those dollars. So at a high level, as we look at ensuring that we’re investing against the growth of each of the brands in a increasingly fragmented marketplace more and more of our consumer insight research is telling us where we’re getting the highest engagement from our target customer, and we’re really going to place bets there. And that means that there’s going to be some channels that maybe important to our customer, but they’re lower on the priority list in terms of how much they engage or how much content they consume there. And so we’re going to just €“ we’re going to start from the top in terms of, where we get the biggest visibility and eyeballs, and we’re going to place bigger bets there.
James Duffy: Okay. And then Dave, this one for you, it’s on at Adairsville and the cost savings opportunity, $50 million investment to a big number. Can you talk about how you get to comfort on the ROI for that? You talked about the cost per unit at half the rate of what it is currently. Can you help us isolate what that cost component translates to and benefit to margin?
Dave Loretta: Yes. Sure, Jim. The cost savings on cost per unit, it’s part of the pick, pack and ship process is going to be very compelling. And as we plan to get volume up to almost half of our volume of direct outbound orders in the back half of this year, that will translate into savings. That’s reflected in the 10 to 30 basis points of selling expense margin for the year. Now heading forward, we certainly expect that to continue and get the full-year benefit and it will continue to be refined. But that 10 to 30 basis points easily would be slightly larger next year in 2024 and ongoing help offset cost increases in fulfillment operations from wage rates, et cetera. So we’re seeing this as our first test in automating the fulfillment outbound facilities and see that that’s going to be a meaningful improvement in the P&L cost structure for us going forward.
James Duffy: Okay. So we should think about that fulfillment expense just continuing to lever in 2024 and 2025 based on benefits from Adairsville?
Dave Loretta: Certainly in 2024, we’ll see incremental increase in 2025. We’ll see. That’s a bit far out and we haven’t given much more all around that period of time?
James Duffy: Understood. Thank you.
Operator: Thank you. And our next question today comes from Janine Stichter with BTIG. Please go ahead.
Janine Stichter: Hi. Good morning. I was hoping you could comment in light of just taking a pause on opening new stores this year. Any updated thoughts on expanding wholesale. Just curious how those tests are going? And then was wondering if there’s anything else you can share on the initial learnings from the 20 stores that you’ve reconfigured? Thank you.
Sam Sato: Hi, Janine and welcome to the call. Thanks for the question. This is Sam. Yes. As we’ve said on previous calls, the physical stores really important piece of our omnichannel strategy for a number of different reasons. And we want to make sure that we’re doing the right level of deep dives around the consumer where importantly, our brand would resonate from a physical store perspective. And so we’re in the middle of a pretty intense site selection process. And we think we’ve got a few locations, potentially nailed down for 2024, but the pause was really just about us as we came out of COVID, making sure that we kind of reset ourselves in terms of our priorities and where we are going to invest in the business. And while again, stores really, really important to our long-term omnichannel strategy, we had some other priorities like the automated fulfillment center that we thought, made more sense for us to tackle ahead of opening new stores.
But our plan is to gradually expand the store base as we move into 2024 and beyond.
