Donna Dellomo: Okay. Good. I don’t know. Technology. Well, good morning. So, yes, so as Mary mentioned, we do see — we do plan in all the guidance that we provided earlier about 340 basis point leverage or tailwind on inbound freight costs. But there’s about 100 basis points of headwind that’s netting up against that, that related to increase in outbound and warehousing, which would be everything around warehousing labor just operating costs in total. As I said, we are going to use this year specifically that net gain of about 240 basis points is going to help mitigate some of the investments in our future — continued investments in our future that you see in some of the deleverage around SG&A. So this year, it’s helping mitigate some of those investments.
And we would hope as we go into future years out as we continue to grow and get the continued deleverage, which we will probably see a little bit more or the leverage, I should say, on inbound freight costs we will see going into fiscal ’25 as well. But right now, there’s about 340 basis points of leveraging related to inbound freight in the guidance that we’ve provided.
Brian Nagel: Great. That’s all very helpful. I appreciate it. Thank you.
Operator: Our next question is from Thomas Forte with D.A. Davidson. Please proceed.
Thomas Forte: Great. Thanks. Shawn, Mary, Donna, Jack, a great quarter, great year. So for my one question, Shawn, I’m going to use my question for your current thoughts on international expansion.
Shawn Nelson: Yes. We are very excited by the prospects of international expansion. We hold our patents and trademarks all over the world, and we intend to get there. But likely not this year, we are very focused on the opportunity domestically. We’ve done a fair amount of research to understand the opportunity internationally, understand the size of the prize. And frankly, we have barely scratched the surface in terms of what we think we can do against the total available market just in the United States just in the categories we compete in now, and that’s definitely the best use of investment dollars in the near-term. And so we will continue to focus on the U.S. We will continue to gain market share, we believe. And — but we do look forward to international expansion sometime in the future.
Thomas Forte: Great. Thank you.
Operator: Our next question is from Maria Ripps with Canaccord. Please proceed.
Maria Ripps: Great. Good morning and congrats on strong results. So it seems like your guidance factors in some level of conservatism. Are you noticing any changes in consumer trends or purchase behavior sort of over the past few months as inflation has been decelerating, but the broader sort of macro environment remains highly uncertain? And maybe related to that, given that your products carry a higher price point, how has your Designed For Life philosophy been resonating with consumers in this macro environment?
Mary Fox: Okay. Good morning, Maria. Hi and thank you for your questions. I will take the first one and then I think Shawn will talk a bit more around Designed For Life. So I think as we’ve shared before, we do see varying shifts in how our customers are transacting, how they’re experiencing our brands. But actually, of late, we are seeing more stabilization. So the high-end continues to be strong. AOV has been strong. At the low end, we sometimes see a little bit of shift in terms of configuration size and so forth. I would say the one clear trend that we are seeing is a little bit more of an uptick on Lovesac credit card, why we factored in fully for the year. So you know that. And then I think — our customer traffic continues to be very strong.
And I think we saw that in quarter 4. And I think that just bodes well to the strength of our flywheel because whether it be 38% of our customers aren’t even cross-shopping with anyone, it just goes back to the strength of the brand continuing. So as you called out, we’ve baked in the conservatism for this year, but as we have a strong line of sight for the year from the very exciting innovation that we talked about that’s launching halfway through this year. That really will cause us to widen significantly our aperture to gain even more share through to the touchpoint expansions that continue to over perform pro forma with amazing economics and then the marketing machine that we have around just the share gains of customer lifetime value with incredible CAC ratio, performances that you just don’t see anywhere else.
So all baked in, but obviously with pragmatism to the macros and the team’s agility, will continue to reflect in how we think about everything. And then I think, Shawn, do you want to answer the first — the second question Maria had as well?
Shawn Nelson: Yes. I think that in this environment, we feel really confident based on what we are seeing. Clearly, we are already into the first quarter of our new year. And we are all watching the same news and we recognize that the consumer is under pressure in many respects. But our Designed For Life products and business model, we think, has resilience that others don’t. So while we are not seeing the 50% and 60% kind of growth we saw for a few years past. We are seeing stronger growth in the rest of the category. This has been a trend in the entire time, before the pandemic, through the pandemic, post-pandemic, and here we are today. And we feel really good about that. And I think that many onlookers question why that is.
And I think the biggest, most glaring answer to that is our product. We have a very different product and the rest of the category. It’s Designed For Life, built to last a lifetime, designed to evolve. This resonates with people who have a brain, who can do the math and understand that they are investing in something that can be with them the rest of their lives, and we are very proud of that. With that said, the evidence, I think is apparent not just in our results — financial results, but we’ve experienced recently the highest rate of customer satisfaction we’ve seen. And this is through all of this choppiness and through all of the supply chain choppiness and here we are on the other side of that. And I think it shows our investments that we’ve made in the infrastructure of the business and our team bearing fruit.
And that will, again, further strengthen the flywheel of people spreading the word of mouth about the Lovesac brand, about our Designed For Life products. And we intend to continue to take massive market share, particularly in this environment when others are beleaguered in various ways. And so we feel really confident about our product, about our brand, the way that we’ve wrapped it around the Designed For Life ethos, what, of course, it means for the environment and everything that we stand for.
Maria Ripps: Great. Thank you so much.
Operator: Our next question is from Matt Koranda with ROTH MKM. Please proceed.
Matt Koranda: Hey, guys. Good morning and nice job on the quarter. Just wanted to see if you could provide any commentary on growth by channel that’s embedded in the fiscal ’24 outlook. Just for example, in terms of showroom comps versus location expansion that’s embedded in the outlook? And then curious if you’re going to grow across online and the other channels as well? And then how are you factoring in StealthTech attach rates? I noticed the data point you shared suggest that StealthTech rates are probably in the high teens plus this last year. There’s probably maybe some improvement there, but just curious if you’re factoring that into the fiscal ’24 outlook.
Mary Fox: Yes. Good morning, Matt and thank you for your questions. I will take the StealthTech one and then Donna can talk a little bit about the mix for the year. So, yes, obviously, StealthTech, we’ve had in market for just over a year. And whilst we always are very excited about the performance I shared earlier in terms of the growth and particularly where we see the long-term runway and all of the success that we’ve had, we have built in for continued growth, both in terms of just overall AUV in the business as well as also attracting new customers because one of the great advantages we saw last year, and I think in quarter 4 our customer traffic was up nearly 18%. It was really driven, as new customers came in to drive to test this new technology, this new experience and really to hear and feel it.
So we’re continuing to plan for that to grow. I think I shared earlier that we expect it to be over $100 million as the brand continues to build out in our flywheel. And I think one of the great successes is the marketing strength. And if you look at the customer acquisition costs, just the ratio just continues to improve, it just really does enable us to be able to continue to share the message about what we see as the best home audio system in the market with an amazing experience coupled with our Sactionals. And then Donna, I think do you want to touch on the channel mix for the year?
Donna Dellomo: Yes. So for the channel mix, we are projecting both Internet and showrooms to increase year-over-year relative to all the things we discussed to showrooms, product innovation. The one channel, which I specifically called out is the other channel, which right now, we are not projecting because of the returned box inventory transactions. That was about $22 million that we are not — today has not been built into being repeated in any of our guidance. So that’s the one channel just by removing the inventory to those barter inventory transactions that in our current projections is not projected to increase. But the other — the Costco and the Best Buy within the other channel is — in total, the other channel is not projecting to increase just because of the extraction of those inventory — barter inventory transactions.
So showroom increasing, Internet increasing. Obviously, we look at it all as omni-channel. So, it’s increasing in total and it’s increasing separately as well. And the other channels just as a highlight, because of the return boxed inventory transactions not currently being reprojected to happen again Q2 through Q4, that is coming down slightly. But Costco and Best Buy increasing year-over-year within that channel. Hopefully, that helps.
