The Lovesac Company (NASDAQ:LOVE) Q4 2024 Earnings Call Transcript

The Lovesac Company (NASDAQ:LOVE) Q4 2024 Earnings Call Transcript April 11, 2024

The Lovesac Company misses on earnings expectations. Reported EPS is $1.87 EPS, expectations were $1.93. LOVE isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Greetings, and welcome to The Lovesac Fourth Quarter Fiscal 2024 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I will now turn the call over to your host, Caitlin Churchill, Investor Relations for Lovesac. Thank you. You may begin.

Caitlin Churchill: Thank you. Good morning, everyone. With me on the call is Shawn Nelson, Chief Executive Officer; Mary Fox, President and Chief Operating Officer; and Keith Siegner, Chief Financial Officer. Before we get started, I would like to remind you that some of the information discussed will include forward-looking statements regarding future events and our future financial performance. These include statements about our future expectations, financial projections and our plans and prospects. Actual results may differ materially from those set forth in such statements. For a discussion of these risks and uncertainties, you should review the company’s filings with the SEC, which includes today’s press release. You should not rely on our forward-looking statements as predictions of future events.

All forward-looking statements that we make on this call are based on assumptions and beliefs as of today, and we undertake no obligation to update them except as required by applicable law. Our discussion today will include non-GAAP financial measures, including EBITDA and adjusted EBITDA. These non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from our GAAP results. A reconciliation of the most directly comparable GAAP financial measure to such non-GAAP financial measure has been provided as supplemental financial information in our press release. Now, I’d like to turn the call over to Shawn Nelson, Chief Executive Officer of The Lovesac Company.

Shawn Nelson: Thank you, Caitlin. Good morning, everyone, and thank you for joining us today. What a year it has been. In our 25th year in business, in true Lovesac fashion, we made meaningful strides across a number of areas as we strengthen our omnichannel infinity flywheel, reinforce our Designed for Life product platform, and make the strategic investments necessary to profitably scale our brand and business for years and years to come. We crossed $700 million in revenue for the fiscal year, reflecting high-single-digit growth for the year, and tripled revenues of just four years ago. That is against the category that was down mid-teens for the year and approximately flat now over the past four years. Despite industry headwinds, we delivered material gross profit dollar expansion, with gross margins up into the high 50%s.

This more than covered the essential investments in product and capabilities to support sustained profitable growth. While net income was down versus last year on a reported basis, excluding the non-recurring expenses related to the restatement that we’ve discussed previously, we are pleased to deliver net income growth for the year. We ended the year with $87 million in cash and zero borrowings on our credit facility, a very healthy balance sheet. These results include a solid fourth quarter performance in which we delivered year-over-year growth in revenues, gross profits and net income. While a mid-quarter lull meant we fell just shy of our guidance for net sales, we managed costs well, and we’re within the ranges for gross margin, adjusted EBITDA, net income and diluted EPS, all of which Keith will review in detail later.

The outperformance we have delivered compared to industry over the past four years is underpinned by our focus on the customer, our advantaged products and our unique omnichannel business model with an infinity flywheel unlike any other. We compete in a large addressable market of over $46 billion. We continue to take market share every year, and yet we barely scratched the surface of this huge and fragmented category. We approach this TAM and everything we do through what has always been a sustainability lens rooted in our very unique Designed for Life philosophy. We make things that are built to last a lifetime and designed to evolve. This approach in doing business delivers unmatched product longevity, which when paired with the services we intend to launch should continue to drive long-term relationships with customers who love us.

This is how we build a brand unlike any other. Our brand health is stronger than ever, gaining against our category with innovation that is changing the landscape of the home as seen in response to our new Angled Side and StealthTech products. We have best-in-class touchpoint economics. We estimate they are second only to Apple and Tiffany’s with incredible payback periods of about one year and 4x the sales per square foot productivity compared to most of our competitors. Our advantaged supply chain delivers orders to our customers in a matter of days backed with evergreen inventory. And through the investments we’ve made, we’ve driven further supply chain efficiencies of late, enabling us to reduce inventory at fiscal year-end by almost 20% without compromising delivery times or customer experience.

In addition to strengthening our supply chain and distribution capabilities, our investments over the past few years have been focused on expanding our showroom footprint, building technology capabilities, elevating end-to-end customer experience, and ensuring our innovation engine is cranking. As we enter fiscal ’25, we’ve made many of the key foundational investments and are now focused on driving our next phase of growth. We are actively developing many new products to meaningfully expand our total addressable market in the comfort seating category and new categories as well. The actions we are taking today will position us to capitalize disproportionately when the category returns to growth, which it will. We’re continually refining our marketing strategies and tactics to draw new customers into our brand fold, deepen the relationship once in the brand fold, and enhance the overall lifetime value of customers.

For fiscal 2025, our outlook begins with a conservative macro backdrop. It’s the prudent thing to do. We’re estimating another year of category declines, including a full year decline of approximately 10%, with a modestly better back half than first. It’s important to appreciate that our unique business model enables us to plan this way without giving up the upside. If the macro does better, we can ride the demand curve in near real time, a capability that very few of our competitors have. With that as a foundation, we expect to deliver net sales growth of approximately flat to up 10%, representing continued market share gains. Please note that we expect EBITDA to grow faster than sales over the long term even while we continue to reinvest into SG&A and truly exciting future sales drivers.

Lovesac is an outlier. We’ve achieved category beating high growth rates for years. We’re profitable, cash flow positive, have net cash and an active product development pipeline that spans products and categories. Lovesac is in a position of strength with a truly massive opportunity ahead of us. We’re primed to over-participate in a category rebound through continued market share gains on existing products. Then, we’ll compound that growth by expanding our brand and business even further. As powerful as our product platforms, innovation pipeline and marketing prowess are, we would be nothing without our amazing people. A huge shout out to each and every one of our core #LovesacFamily, you make the magic happen. Speaking of amazing people, I will now hand the call over to Mary Fox, our President and Chief Operating Officer, to discuss the key operational highlights of fiscal 2024 and priority areas for the upcoming year, after which, Keith will go over our financial results and guidance in more detail.

Mary Fox: Thank you, Shawn, and good morning, everyone. As Shawn discussed with sales growth of 7.5% for fiscal 2024, our results reflected industry leading growth driven by our unique omnichannel business model. Importantly, on a four-year basis, our sales were up 200% from pre-pandemic levels compared to the category at flat over the same time period, and our adjusted EBITDA margin has increased 930 basis points. We believe this consistent financial outperformance is ahead of any other brand in our category, underpinned by our customer- and product-centric focus on our unique omnichannel infinity flywheel. We have built the business model and the platform unlike anyone else in the category, resulting in a total addressable market opportunity that is significant, brand health that is strong and growing, best-in-class touchpoint economics, and an advantaged supply chain.

A few highlights of our infinity flywheel that Shawn shared earlier. We compete in a large addressable market of over $46 billion. We believe we have the number one selling couch in America, but have massive market share potential remaining as we’ve barely scratched the surface of this huge and fragmented category. We’re confident because our customers are our strongest proponents. Word-of-mouth is our number one awareness driver, and over a third of our customers report that they don’t even cross shop with other brands. Our brand health is stronger than ever with innovation fueling these gains. The launches of Angled Side and StealthTech have helped drive a customer lifetime value, customer acquisition cost ratio that is unsurpassed, and continued strength in our marketing ROI enables healthy reinvestment.

We have best-in-class touchpoint economics that we estimate are second only to Apple and Tiffany based on incredible cash payback periods of one year and up to 4 times the sales per foot productivity of our competitors. And finally, our evergreen inventory coupled with an advantaged supply chain enables delivery times measured in just days, resulting in customer satisfaction of over 84%, increasing customer loyalty and further differentiating Lovesac from the crowd. We are uniquely positioned to continue to profitably take market share with our core platforms, even through the current market dynamics that Shawn discussed. On top of that, we expect our growth to further benefit from disciplined investments in our strategic initiatives and capabilities that expand our addressable market.

I will now provide key highlights of our go-forward plans on each of our strategic initiatives. Firstly, product innovation. Angled Side, which we launched last summer, continues to be a highlight for us. Notably, it continues to gain share, representing the largest mix of size within our Sactional business and driving a higher AOV than Sactionals without Angled Side. Additionally, customers who select Angled Side report having an even higher satisfaction with comfort than our standard side customers. For StealthTech in fiscal ’24, Sactionals that were sold with StealthTech generated nearly 3 times the average Sactional order value. We’re also excited about our next StealthTech launch that is expected in the second half of this year. This minor launch will continue our commitment to bringing an elegant and invisible technology to our customers that enriches their experience on our product platforms.

In addition to StealthTech expansion, we have several other exciting and disruptive launches across both our Sactional and Sac platforms this year. We expect these to drive AOV and to broaden appeal of our product platforms. Stay tuned since we think you’ll love them. In early fiscal ’26, we are planning to launch a material innovation that we expect to significantly open the aperture of where we compete in the couch category and enable us to accelerate our market share gains. We look forward to sharing more details with you closer to launch. Lastly, behind the scenes, we’re already developing many innovations for disruptive Designed for Life product platform launches in existing and new product categories over the next several years. Secondly, our omnichannel experience, and we have become a true omnichannel retailer through a combination of our physical touchpoints and digital platform.

For the physical aspect of omnichannel, I discussed our strong showroom economics when I covered brand health. And we’ve seen year-over-year occupancy cost reductions as we lean into our real estate strategy and shift to a higher percentage of non-mall locations and improved deal structures. In terms of our showrooms, we continue to see opportunity to roughly double our current showroom fleet from 230 to more than 400 locations over the next five years, and we’ll continue exploring productive opportunities to bring our products and our services to our customers. For fiscal ’25, we expect to open approximately 30 net new showrooms as we continue to leverage our predictive analytics tool and consistently optimize our fleet and our site selection model with industry leading paybacks.

Turning to the ecommerce aspect of omnichannel. We had a strong year with ecommerce sales growth of 12% and we’re one of the only brands to grow in quarter four when we beat the ecommerce category trend by over 1,200 basis points and with customer satisfaction improving year-over-year. Looking at our other channels, our Best Buy shop-in-shops, which ended the year at 44 locations which are discrete from our 230 showrooms, are very powerful as they allow tech-focused shoppers additional opportunity to experience our products, especially StealthTech, which is most effective when experienced in person. To that end, Best Buy shop-in-shop attachment rates for StealthTech are roughly double that of our standalone showrooms and 8 times our online platform.

For Costco, we continue to strengthen our partnership with nearly 50% growth in physical roadshows planned for fiscal ’25 versus fiscal ’24, backed by additional bundle assortments and increased relevancy for customers. The first step in expanding our assortment is the introduction of Angled Side at Costco, which started in Q1. We’re proud of our roadshow results thus far and see significant runway for continued future expansion. Our efforts are resonating with consumers as evidenced by our improving customer satisfaction scores. These scores improved year-over-year to our highest levels recorded, driven in particular by strategic investments in resources and technology in our customer service capabilities, supply chain, and our digital experience.

Looking to fiscal ’25, as part of our focus on customer satisfaction, we have begun a multiphase project to optimize the customer experience with a project we’re calling [My Hub] (ph). This will create a one-of-a-kind post-purchase experience whereby a customer can visit their account online and do everything from check the status of their order all the way to receive personalized content and videos based on their specific purchase and setup ideas. Phase 1 launched earlier this year, and subsequent phases will further integrate the omnichannel experience in a way that no other brand is doing. Thirdly, for our ecosystem, we have a circular operations philosophy and have developed a circular ecosystem for our customers and our products, driving optimal value for our customers and their investment in our Designed for Life product platform.

The goal is long-term relationship. During the year, we continued to market our product and brand using national advertising in traditional formats, including TV and established media, coupled with various digital strategies, leveraging social media, non-linear TV and influence some advertising. Our digital marketing efforts focus heavily on localized and targeted tactics driving shoppers into a Lovesac touchpoint to experience our products in person. This reinforces our commitment to a truly omnichannel business model, meeting customers where they choose to interact with us. In quarter four, we successfully tested new targeting and promotional messaging for existing customers. As we grow our customer base, we believe that speaking differently to this segment is a key driver of success in building long-term value and loyalty and plan on rolling this out in fiscal ’25.

Media ROIs also improved year-over-year as we drove highly qualified traffic to our touch points and website throughout the year with a very special focus on hyper local digital marketing. We plan to expand new marketing tactics to drive high ROI performing traffic to our touchpoints to experience a demo. And we also plan to leverage prime and linear TV buys to drive reach. And here are a couple of data points to illustrate our progress. In fiscal ’24, we gained over 155,000 new customers, and first year purchase margin was up mid-single digit from fiscal ’23. Our full first year customer lifetime value, customer acquisition cost ratio remained flat year-over-year, with CAC and LTV increasing relatively the same amount year-over-year in spite of some headwinds in promotional, pricing and media inflation pressure.

As a reminder, we more than breakeven at the first purchase and we know that our customers do repeat adding to or upgrading their Designed for Life Sactionals or Sac for decades. Our repeat business increased to 43% of overall transactions from 38% at the end of fiscal ’23, demonstrating the opportunity to build long-term relationships with our customers around our Designed for Life platform. Lastly, we just expanded an internal test for associates and open-box item sales. With this program, we are creating the foundation that we’ll leverage as we begin to activate the right side of our flywheel and enable customer lifetime value through services, notably beginning with trade-in and resale. And finally, making disciplined infrastructure investments and driving efficiencies.

Since her IPO in fiscal 2019, Lovesac has consistently demonstrated a very disciplined approach to investing and growing the business for the long term. Over this time period, we achieved profitable growth despite category headwinds and inflationary operating costs, and we will continue to manage the business this way. In fiscal ’24, we delivered material gross margin improvement through COGS reductions and by leveraging cost reductions for inbound freight and warehousing, as well as new capabilities in planning and operational simplicity. This enabled an 18% reduction in total inventory at year-end, but more opportunities remain. We launched a new order management system that should further enhance customer satisfaction, improve delivery metrics around timeline expectations, and increased efficiency of working capital.

We also see incremental savings on inbound freight and logistics through new partnerships. In fiscal ’25, our other investments for growth will be primarily in the areas of technology and research and development to continue to fuel our flywheel and deliver the transformative innovations to come, some of which I shared earlier. So, in summary, we are pleased with the progress on our strategic priorities as we continue to successfully expand the business and make important foundation investments to drive as well as support the substantial growth that lies ahead. Before I turn over to Keith, I wanted to briefly mention our third annual ESG report, which was published in December ’23, and where we outlined our roadmap to reach zero waste and zero emissions by 2040, an admirable goal.

Sustainability starts with the word sustain, and we believe our Designed for Life approach to Sactionals has diverted thousands of couches from landfills. Additionally, we repurpose and remove from the waste stream a very large amounts of plastic bottles for use in upholstery fabric, more than 73 million in fiscal ’24 and more than 253 million to date. In short, Lovesac makes products that sustain from sustainable materials. I will now pass the call over to Keith.

Keith Siegner: Thanks, Mary. Fiscal ’24 was a momentous year for Lovesac. It marks our 25th anniversary and we delivered several milestone achievements. Revenues exceeded $700 million. Gross profits exceeded $400 million, representing a gross margin over 57%. Net income of $23.9 million as reported, was down from fiscal ’23, but adjusting for the just over $5 million in non-recurring expenses related to the successfully resolved restatement, net income would have been up. Inventories declined 18%, and we ended the year with $87 million in cash on the balance sheet. All of that is despite category headwinds and pressure on operating expenses from investments in people, systems, and product innovation to set us up for sustained profitable growth for the long term.

Now, let’s jump right into a quick review of the fourth quarter of fiscal ’24, which as a reminder included a 14th week, representing the 53rd week from our fiscal year. Then, I’ll discuss our outlook for fiscal ’25. Net sales increased $12 million or 5% to $250.5 million in the fourth quarter with the year-over-year increase driven by showrooms and web. This was slightly below our expectations provided in early December, owing to a mid-quarter lull before a bounce back in late January. Showroom net sales increased $15.4 million or 10.9% to $156.9 million in the fourth quarter as compared to $141.5 million in the prior-year period. The increase in showroom sales was driven by the addition of 35 net new showrooms compared to the prior-year period, partially offset by a decrease of 4.1% in omnichannel comparable net sales.

Internet net sales increased $1.7 million or 2.2% to $78.1 million in the fourth quarter, as compared to $76.4 million in the prior-year period. Other net sales, which include pop-up shop, shop-in-shop, and open-box inventory transactions, decreased $5 million or 24.6% to $15.5 million in the fourth quarter. The decrease was principally due to a lower open-box inventory transactions, which were only $2.9 million compared to $8.5 million in the fourth quarter of fiscal ’23. As a reminder, we may engage in limited open-box inventory transactions with Icon going forward to ensure our warehouses are operating as efficiently as possible. However, we believe this recent run rate is more reflective of a potential baseline level, given the success of our return to stock program and the beneficial impact of resale and trade-in, which are targeted for launch later this year.

By product category, in the fourth quarter, our Sactional net sales increased 7%; Sacs net sales decreased 13%; and our other net sales, which includes decorative pillows, blankets, and accessories, decreased 8% compared to the prior year. Gross margin increased 360 basis points to 59.7% of net sales in the fourth quarter versus 56.1% in the prior-year quarter, primarily driven by 550 basis points decrease in inbound transportation costs, partially offset by 100 basis points in higher outbound transportation and warehousing costs, and 90 basis points related to higher promotional discounting. SG&A expense as a percent of net sales increased by 170 basis points in the fourth quarter or less than half the deleverage seen in the third quarter.

The deleverage was primarily due to deleverage within employment costs, continued investments to support current and future growth, professional fees, and selling-related expenses tied to the Lovesac credit card. In dollars, employment costs increased by $6.8 million, primarily driven by an increase in new hires in fiscal ’24. Selling-related expenses increased $0.5 million, principally due to credit card fees related to the increase in net sales and an increase in credit card rates. Rent expenses increased $0.2 million, offset by a decrease in overhead expenses of $0.1 million, consisting mainly of increases of $4.4 million in infrastructure investments in other miscellaneous items and $2.4 million in professional fees, offset by a decrease of $6.4 million in equity-based compensation.

We estimate non-recurring incremental fees associated with the restatement of prior-period financials was approximately $1.9 million in the fourth quarter. Advertising and marketing expenses increased $3.7 million or 14.2% to $29.5 million for the fourth quarter of fiscal ’24 compared to $25.8 million in the prior-year period. Advertising and marketing expenses were 11.8% of net sales in the fourth quarter as compared to 10.8% of net sales in the prior-year period. Operating income for the quarter was $40.4 million compared to $36.5 million in the fourth quarter of last year, driven by the factors we just discussed. Before we turn our attention to net income, net income per diluted share, and adjusted EBITDA, please refer to the terminology and reconciliation between each of our adjusted metrics and their most directly comparable GAAP measurements in our earnings release issued early this morning.

Net income for the quarter was $31 million or $1.87 per diluted share compared to $26.2 million or $1.65 per diluted share in the prior period and included just under $2 million of non-recurring expenses as mentioned earlier. During the fourth quarter of fiscal ’24 and ’23, we recorded an income tax provision of $10.2 million. Adjusted EBITDA for the quarter was $48.4 million, as compared to $46.7 million in the prior-year period. Turning to our balance sheet, our total merchandise inventory levels are in line with our projections, down 18% versus the end of fiscal ’23. We feel exceptionally good about both the quality and quantity of our inventory and our ability to maintain industry-leading in-stock positions and delivery times. Mary discussed ongoing initiatives to further optimize on top of this year’s successes.

We ended the fourth quarter with a very healthy balance sheet, inclusive of $87 million in cash and cash equivalents, as well as $36 million in availability in our revolving line of credit with no borrowings. Please refer to our earnings press release for other details on our fourth quarter financial performance. So now our outlook. As Shawn mentioned, the category has remained unpredictable and in decline. After a strong finish to January, February was a particularly difficult month. We then experienced substantial improvement in trends in March. Given this, we want to be transparent that we’re prudently basing our outlook off another year of category declines, specifically a 10% full year decline with modest improvement in the second half versus the first half.

Should the category perform better, we would expect to perform better or vice versa. For the full year of fiscal ’25, we estimate net sales of $700 million to $770 million. We expect adjusted EBITDA between $46 million and $60 million. This includes gross margins of 57% to 59%, advertising and marketing of approximately 13% as a percent of net sales, and SG&A of approximately 39% as a percent of net sales. We estimate net income to be between $18 million and $27 million. We estimate diluted income per common share in the range of $1.06 to $1.59, and approximately 17 million estimated diluted weighted average shares outstanding. As a reminder, fiscal ’25 will contain 52 weeks versus fiscal ’24, which contained an additional 53rd week in the fourth quarter.

For the fiscal first quarter, which is our most difficult quarter to lap of the year, we estimate net sales of $126 million to $132 million. We expect adjusted EBITDA loss between $13 million and $16 million. This includes gross margins of approximately 55%, advertising and marketing of 14% to 15% as a percent of net sales, and SG&A of 51% to 53% as a percent of net sales. We estimate net loss to be between $13 million and $16 million. We estimate basic loss per common share to be between $0.84 and $1.03 with 15 million weighted average shares outstanding. In summary, stabilization of the category and an eventual return to category growth are ahead of us, even if that timing is unclear at the moment. While in this category fog, we are balancing prudence and efficiency in expenses with our belief that it’s essential to stay focused on the big picture.

That’s the massive long-term opportunity for tremendous value creation for all Lovesac stakeholders. We are building the Lovesac brand and investing in new product innovation that spans style, function, and new categories. Make no mistake, we aim to grow irrespective of the category in the near term, continuing our track record of market share gains. Plus, we’re primed to capitalize on the category rebound as soon as it happens and more in real time than our peers. As this occurs, the additional revenues should drive expanding flow through of top-line growth to bottom-line growth. I’ll now turn the call back to the operator to start our Q&A session.

Operator: Thank you. At this time, we’ll be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Brian Nagel with Oppenheimer & Company. Please proceed with your question.

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Q&A Session

Brian Nagel: Hi, good morning.

Shawn Nelson: Good morning, Brian.

Brian Nagel: So, my question, maybe I’ll just make it like one question with a few parts, but just really with regard to kind of the sales trajectory. So, Keith and I think Shawn mentioned it too, you talked about, if I heard you correctly, some weakness in — or strength in January, weakness in February, then restrengthening in March. Again, if I heard that correctly. So, the question I have there is, is there anything — I mean, we’ve talked about a difficult category for a while, others have mentioned this as well. But is there anything you noticed that would kind of driven that — anything new, so to say, that’s driven that sales volatility? Then, the second question I have, if you look at the guidance you gave, the sales growth guidance you gave for Q1, is that reflective of where sales are tracking now, recognizing we’re pretty late into the fiscal first quarter?

And then the third question, just as you — you talked about restrengthening sales over the balance of the current fiscal year. Is there anything in particular that you’re pointing to there? Or is that more you did discuss some product launches or just more kind of timing related to the overall industry dynamics? Thanks.

Mary Fox: Yeah, thank you, Brian. I’ll probably take the first part and then [Keith can take up] (ph) the rest. So, I think as Keith obviously shared with our guidance for the year, we are obviously still assuming the category to remain very tough. And we will, even with the guidance that we’ve talked about, continue to take very strong market share. Specifically, we talked about January was very strong for us. We had dialed promotions up a little bit more because we’ve seen, as Keith talked about, a bit of a lull in December as we tried to pull down off the typical Black Friday promotions. We did that again in February, and what we saw is the same dynamic as in December. So, key competitors were up to 50% off during February and had very aggressive deals even in clearance.

So, for us, that was the first factor. And then, as we pivoted into March, we moved back to 30% off and all of that is baked into our guidance, because it’s clear we need to have a very compelling value in category that’s deep in promotion. And we’ve done that and we feel really good. To your point, March has been very strong, and a big, big step up from where we were in February. I think the second piece, which was a little bit of what happened in February, is we did have a little bit of disruption. We moved to a new media agency. So, there’s a little bit around media planning, timing, and some targeting. This is all back on track. So, again, hence giving us the confidence for the rest of this year and the strengthening of the sales. So yes, as your question talks about the guidance for Q1, that is reflective and baked in.

And as Keith had shared, March has been much, much stronger. In the early start of April, we are also seeing that as well. I think Keith…

Keith Siegner: Yeah. Just to add on that, so when we look at the credit card data from Bank of America, which is one of the primary, let’s call it, real-time-ish benchmarks that we look at for category performance, it’s still around down 14% for both February and March, right? So, when you put the two months together, our performance is still showing market share gains even if not where we would have planned for it for the reasons Mary just discussed that impacted February. I would highlight that because of the 53rd week and because of the five weeks that happened in our P2, we’re really just entering P3 right now. So, it’s basically from the early part of this week through the end of the quarter, which is May 5. So, we still have basically most of all of P3 to go and that’s all incorporated into our guidance.

But again, we were encouraged as to the rebound we saw in our trends in March. When we think about the drivers for the year and where that shakes out, obviously, we tried to give you more context around the baseline of category that’s underpinning our outlook. And when we think about our ability to take market share, it’s a lot of the same things. Mary talked about we have a number of product launches coming this year. We have enhancements to our marketing. We’re going to continue to tweak and optimize our promotions. We do have touchpoint expansion, right? We also have what looked like to all of us easier compares, especially on a two-year basis as we progress through the year. So, put all that stuff together, we still have secular levers within our control that we are going to pull and continue to refine that we think will support another year of market share gains.

Brian Nagel: I appreciate all the color. Thank you.

Operator: Thank you. Our next question comes from the line of Maria Ripps with Canaccord Genuity. Please proceed with your question.

Maria Ripps: Great. Good morning, and thanks for taking my questions. So, I appreciate all the color around sort of your guidance. But sort of broadly, it looks like you were able to outperform the category by wide margin for a couple of years now and sort of deliver growth in a declining category. So — but kind of — and you just sort of highlighted some of the reasons for softer Q1, but is there anything that maybe has changed in sort of in your ability to outperform the vertical, especially as we look towards Q1 with expected revenue declines?

Mary Fox: Marie, hi. Yeah. Sorry, we’re just switching around. So thank you for the question. So I think, we still feel incredibly confident in terms of all the factors around why our company has been so successful in the last four years. And if you think about 200% growth in the last four years on a category that is flat and we’ve just delivered a year where no one else is at the growth rate that we have delivered that we compete against. So, we see a very strong line for the past around innovation that I touched on. We talk a lot about the continued performance around marketing and just the brand stickiness that continues to grow and improve. And our awareness, our unaided awareness is still low, but the aided awareness and then how we’re able to pull customers through our purchase funnel continues to be very, very strong.