The Lovesac Company (NASDAQ:LOVE) Q4 2023 Earnings Call Transcript

The Lovesac Company (NASDAQ:LOVE) Q4 2023 Earnings Call Transcript March 28, 2023

Operator: Greetings. Welcome to The Lovesac's Fourth Quarter Fiscal 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. Please note, this conference is being recorded. I will now turn the conference over to Rachel Schacter of ICR. Thank you. You may begin.

Rachel Schacter: Thank you. Good morning, everyone. With me on the call is Shawn Nelson, Chief Executive Officer; Mary Fox, President and Chief Operating Officer; and Donna Dellomo, our 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 measures 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, Rachel. Good morning, everyone. And thank you for joining us to review our record results for fiscal 2023 and to discuss our outlook and plans for fiscal year 2024, which is already underway. I will begin by sharing a high-level overview of both. Then Mary Fox, our President and COO will discuss our key growth initiatives for fiscal 2024. Finally, Donna Dellomo, our CFO, will review our financial results and a few other items related to our outlook in more detail. Starting with our fourth quarter and fiscal 2023 performance. We put up a record results for the fourth quarter and for the full year building on our long track record of outperforming the industry and driving share gains. For the quarter, we delivered sales growth of 21.7% and adjusted EBITDA growth of 51% both ahead of the outlook we shared on our Q3 call.

For the year, we generated a total annual net sales increase of 30.8% to $651.5 million. Total, omnicomp sales growth of 21.9% and an adjusted EBITDA earnings increase of 8.7% to $60.4 million. We ended the year with total liquidity of $79.5 million, which includes cash of $43.5 million and availability on our line of credit, notably, our strong debt free balance sheet positions us well to navigate a difficult macro backdrop. Put perspective on the significance of these results, fiscal 2023 was a challenging year for the furniture industry, given the macro pressures facing the consumer. As of year-end, our data sources showed the home category overall to be down 16% versus the prior year. In contrast, our full year sales increased 30.8% indicating meaningful market share gains.

More importantly, these industry leading sales results were achieved by converting real-time demand as we typically ship just days after an order is placed. We never had any meaningful backlog inflating our revenue results. We also continued with inflation across our cost base to varying degrees. Additionally, we were up against the record financial results that were delivered in fiscal 2022 and 2021 stacked. Our strong financial and operational results continue to be reflective of our unique competitive and operational advantages across our people, brand, business model and operating platform. The Lovesac is a sustained growth story with a 4-year net sales CAGR of 40.8%, and 4-year adjusted EBITDA CAGR of 105%. Shifting gears back to FY '23 full year results.

We are very proud of our accomplishments for the year, which were driven by our unique omni-channel business model centered around our infinity flywheel where success drives more success. Our infinity flywheel allows us to do business differently and consistently outperform the category in which we operate. In a nutshell, it goes like this. Customers see our highly advantaged high ticket proprietary products of the advertising of every kind. They seek to experience it in one of our various branded physical touchpoints. Configure it online or in showroom is the research invest in it, because Designed For Life products are so long lasting, and investable. Evolved and upgraded to drive lifetime value, because Designed For Life products uniquely facilitate this kind of repeat behavior.

And finally, they advocated actively because their experience with the product and our brand was so good. Thanks to the investments we've continued to make that improve our customer experience model ongoing. This then drives more people to see us again, which starts the process all over again and further drive the flywheel. Mary will expound on each node of this flywheel, sharing specific results to validate it and our plans to enhance it further through the investment for our future. We have made of late and continue to make even as we hold ourselves accountable to produce meaningful profits. In terms of our outlook for FY '24. We expect the macro backdrop to remain challenging as elevated inflation and higher interest rates drive a more cautious consumer and put pressure on the high ticket, more discretionary home category overall.

We are highly cautious operationally in this environment. We are controlling expenses very tightly in every realm in the name of efficiency. We also expect to realize significant benefits from amortization over the last year's inbound freight costs. This will drive up gross margins beginning in Q2 especially and serve as a partial offset to known as G&A increases year-over-year. The net result will be EPS growth. We will continue to make surgical investments in our future because we believe very strongly in the TAM headroom for the seating and home audio categories, where we have less than 2% penetration and the massive total available markets that await in adjacent categories not yet announced, which will leverage our highly competitive Designed For Life approach.

Recent investments begin to pay back as soon as the second half of this year and expected results from a key product launch in the Sactionals family of products. We have a scheduled for physical touchpoint expansion and product launches that will drive reliable sales growth with positive cash flows for another year of strong market share gains versus broader decelerating category. Donna will provide more detail on guidance. This is a continuation of a multiyear trend for Lovesac. We greatly outperform our category. And this further strengthens the Infinity flywheel effect spoken of. At Lovesac, we are maniacally focused on the long-term because we are convinced that our business model has tremendous potential for continued high margin revenue growth in our current categories, adjacent categories and related services.

Because of our differentiated approach, these opportunities are unique to us. We make very long-term Designed For Life products. We pair these with long-term focused programs, policies and services that will eventually be monetized. The intended result is long-term relationships with customers, a brand that people just love. Our pursuit of this long-term vision is relentless and sustained. We view the need to run a very disciplined, efficient cash generating business right now in this challenged macro environment, so that we may unlock our promising future. This means preserving cash, managing expenses tightly, ending surgical with investments but investing nonetheless. We are willing to be this disciplined because we can be patient. Looking forward to the expanding opportunity ahead.

Management is 100% committed to this way of thinking. This is a big part of what we mean when we speak of sustainability. Products that can actually sustain and a pragmatic cash generating business that can actually sustain sustainability in all its forms is our greatest passion. So in summary, it was a strong end to another great year at Lovesac. We made important strides against each of our strategic growth initiatives and made good progress strengthening our foundation to support the long runway of growth still ahead. We are already more than 6x the size we were at IPO in 2018. Cash generative in the year ahead and profitable ongoing even with significant headwinds contemplated. We are braced for a choppy macro backdrop and we'll continue to execute with discipline, willing to adjust to changing conditions and deliver bottom line results as we grow and drive long-term value for all stakeholders.

Before turning the call over to Mary, I want to thank the entire Lovesac team for all they accomplished in fiscal 2023, while navigating much uncertainty. We have a great team and a culture that exudes the sentiment inferred by our timeless ticker symbol, both at our hubs and on the frontlines, and in all our various touchpoints. We are so thankful for their discipline and commitment and generally cool disposition. We look forward to building on our success in fiscal 2024. With that, I will hand it over to Mary to cover our strategic priorities and progress. Mary?

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Mary Fox: Thank you, Shawn, and good morning, everyone. We are pleased with our strong end to the fiscal year as we delivered record results in fiscal '23. Even in a difficult operating environment. As Shawn shared, our net sales growth in fiscal '23 was 30.8%. And using fiscal '29 as a baseline, our 4-year demand comp stack is up 293%. Every year, then we have delivered profitable growth with a 4-year net sales CAGR of 40.8%. And a 4-year adjusted EBITDA CAGR of 105.5%. This consistent financial outperformance every year is ahead of any other brand in our category, underpinned by our customer and product centric focus, and our unique omni-channel business model with an infinity flywheel unlike anyone else. A few highlights of our unique infinity flywheel include: firstly, we compete in a large addressable market of over $46 billion.

With 48% of households having an annual income of over $75,000 per year, we have the number one best selling couch in America. We continue to take market share every year, and yet we barely scratched the surface of this huge and fragmented category. Customers love our Designed For Life brand and product platform. And they tell their friends and family this which has resulted in word of mouth becoming our number one awareness driver. 38% of our customers report that they don't even cross shop with any other brand. That can highlight our brand health is stronger than ever, with innovation that is changing the landscape of the home. This is exemplified by our marketing ROI, which continued to be very strong. In addition, the innovation of self Tech has helped us to continue to have incredibly efficient marketing with a customer lifetime value, customer acquisition cost ratio of over five that is unsurpassed.

This in turn enables us to continue to drive sales with market leading levels of investment. Thirdly, we have best-in-class touchpoint economic second only to Apple and Tiffany. With incredible payback periods under a year and four 4x the sales per foot productivity of our competitors. We continue to see improvements in our new showroom ramp up rate, which gives us additional confidence in our ability to expand penetration with our touchpoint expansion plan. And finally, our advantage supply chain delivers orders to our customers in a matter of days with evergreen inventory. This results in customer satisfaction of over 84%, increase in customer loyalty and the strengths of our Infiniti flywheel. We are uniquely positioned to continue to profitably take market share, even through the current market dynamics that Shawn discussed.

As you are aware, we run our business with a strong focus on growth and an ROI driven investment discipline, as demonstrated by our results in fiscal '23 and . We will continue to grow ahead of the industry fueled by disciplined investments in our strategic initiatives and our capabilities. I will now provide key progress highlights on our go-forward plans on each of our strategic initiatives. Firstly, starting with products innovation, StealthTech continues to be the highlight for us. Notably the product continues to gain share, and we believe we have merely scratched the surface with respect to its potential, which we believe will grow past the $100 million and more in annual sales in the future. Our fiscal '23 Sactionals that were sold with StealthTech had an average order value close to $8,500, or nearly 3x the average Sactional average order value.

Total transactions for Sactionals with StealthTech included were over $100 million for fiscal '23 and building throughout the year. As we have shared looking out to the next 2 to 3 years, we have planned new product launches for each year. And in the second half of fiscal '24, we will launch a significant innovation that will further open up the aperture of our share in the couch category. We look forward to sharing more details with you closer to the launch date. Looking ahead in terms of product innovation, we're excited about our innovation agenda. We are consistently adding to our product portfolio. And that's expanding our addressable TAM from Sacs, the Sactionals to home entertainment with StealthTech and more to come where home meets tech.

We are focused on unlocking the future runway with disruptive Designed For Life innovations planned steadily over the next 10 years, some in new product categories. Secondly, our omni-channel experience. We have become a true omni-channel retailer through a combination of our physical touchpoints and digital platform. Our continued focus on first-party data is enabling us to be a leader in utilizing the right customer and prospect data to drive a truly personalized omni-channel experience and meets the needs and expectations of our shoppers wherever they choose to experience our brands and products. For e-commerce we had a very strong quarter 4 with sales growth of 26.4%, bucking the furniture e-commerce trend by over 4,600 basis points as one of the only brands to grow and be profitable.

Traffic and conversion increased for fiscal '23 overall, and conversion in particular has accelerated in quarter 4 as we benefited from a full quarter of our redesigned configuration tool which enhance the overall experience. In terms of our showrooms from a financial standpoint, they continue to generate very high four-wall contribution and deliver increasingly strong returns with cash on cash pay back in under a year, and reduced occupancy cost year-over-year. We now see opportunity to roughly double our current showroom fleet from 195 to more than 400 locations over the next 5 years, and we will continue exploring shop-in-shop opportunities with additional retailers. Looking at our other channels, our Best Buy shopping shops are very powerful, as they allow shoppers to experience our product, including our immersive surround sound system, and StealthTech embedded technologies that are most effective when experienced in-person.

Importantly, Best Buy shop-in-shop attachment rates for StealthTech are roughly double that of our standalone showrooms and 4x online, and they continue to grow. For Costco, we continue to strengthen our partnership with growth in physical road shows plans for this year, which are managed by our team and are delivering improved economics to pre-pandemic level. Our omni-channel model is resonating with consumers as is shown by our improving customer satisfaction scores. Overall, customer satisfaction in quarter 4 improved from Q3 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. As we look ahead, we will continue to expand and improve our omni-channel strategy.

And for fiscal '24, we expect to open 30 new showrooms. Our real estate strategy continues to evolve, leveraging both our predictive analytics tools and consistently updating our site selection model. Thirdly, our ecosystem. Our ecosystem is unique and robust with leading indicators that are all positive and best-in-class including a customer lifetime value to CAC ratio that grew year-over-year. Strong ROIs and marketing and word of mouth is our number one awareness driver. Our ecosystem is centered around circle to consumer philosophy and the development of a circular ecosystem for our customers and products, driving optimal value for our customers and their Designed For Life product platforms they have invested in. The goal is long-term relationships.

During the year, we continue to market our products and brand using national advertising and traditional formats including TV, and established media coupled with various digital strategies leveraging social media, nonlinear TV and influencer 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 omni-channel business model, meeting customers where they choose to interact with us. In fiscal '23, we gained over 130,000 new customers, and our first year purchase margin was up double digits from fiscal '22. Importantly, our full first year customer lifetime value CAC ratio continue to increase versus fiscal '22 in spite of some headwinds in cost inflation throughout the year.

Included our measure of customer lifetime value is actually only the first purchase plus any repeat business within the same fiscal year. We more than breakeven at the first purchase, and we know our customers do repeat, adding to or upgrading they're Designed For Life Sactionals or facts for decades. Our repeat business increased to 38% of overall transactions from 35% at the end of fiscal '22. We perceive these ROI metrics and our overall top and bottom line performance to be at the highest range of performance in the home and many other categories. We are proud of these results, especially when they were strong like this before the pandemic during and even after the pandemic. For fiscal '24, we will deploy new marketing tactics and notable endeavors that include continuing to invest in high ROI performing programs such as Search and continuing to grow our hyper local marketing to drive relevant traffic to our touchpoints.

We will also be leveraging prime and linear TV buys to continue to drive reach, and we expect to spend at a rate of 12% of net sales in fiscal '24 in line with last year. We also maintained our strong focus on ESG priorities, publishing our second annual ESG report in December of '22, where we outlined long-term targets for diversity, equity and inclusion, a roadmap to reach zero emissions by 2040, new ESG targets in focus areas we designate as earth, love and purpose, among other items. Along these lines in fiscal '23, we repurpose more than 70 million plastic bottles into upholstery fabrics or Sactionals and Sacs. And to date, we have diverted more than 179 million plastic bottles buffs from the waste stream. We believe we've diverted thousands of couches from the landfill as well giving the extremely durable and adaptable nature of Sactional.

And then lastly, making disciplined infrastructure investments. In fiscal '23, we made critical investments and enhance our best-in-class supply chain, including opening our fifth third-party operated DC in the Fort Worth area. And this was fully at scale by the end of the fourth quarter and ahead of our target. We also invested in technology, talent and working capital to ensure best-in-class delivery times in a highly volatile supply chain environment. In fiscal '24, our investments for growth will be primarily in the areas of technology and research and development to continue to fuel our flywheel. This year, we will also expect to sustain our customer satisfaction by delivering orders in just days while also delivering inventory productivity improvements of around 20%, enabled by our recent investments.

This will have significant effects on the efficiency of working capital as well as the associated cost reductions across inbound freight and warehousing, which we will start to see in the second half of the year following our upcoming launch. So in summary, we are very pleased with our fourth quarter results to cap a very strong year for the Lovesac brand against a difficult backdrop. We made strong 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 in fiscal '24 and beyond. And when I pass the call over to Donna to review our quarter 4 and fiscal '23 results and our outlook to fiscal '24. Donna?

Donna Dellomo: Thank you, Mary and good morning, everyone. I will begin my remarks with a review of our fourth quarter results and then discuss our outlook for fiscal 2024. Net sales increased $42.6 million or 21.7% to $238.8 million in the fourth quarter of fiscal 2023. With the year-over-year increase driven by growth in all channels. This increase was stronger than what we had originally projected for the quarter, primarily driven by higher than planned internet net sales. Showroom net sales increased $24.1 million or 20.5% to $141.9 million in the fourth quarter of fiscal 2023 as compared to $117.8 million in the prior year period. The increase in showroom net sales was driven by an increase of 10.2% in comparable showroom sales related to strong holiday promotional campaigns, and the net addition of 44 new showrooms and five kiosks compared to the prior year period.

As a reminder point-of-sale transactions that we reflect in our comparable sales metrics, represents orders placed through our showrooms, which does not always reflect the point at which control transfers to the customer, and when net sales are recorded. Internet net sales increased $60 million, or 26.5% to $76.4 million in the fourth quarter of fiscal 2023 as compared to $60.4 million in the prior year period, driven by a strong holiday promotional campaign. Other net sales which includes pop-up-shops, shop-in-shop and barter inventory transactions increased $2.4 million, or 13.3% to $20.5 million in the fourth quarter of fiscal 2023 as compared to $18.1 million in the prior year period. The increase was largely driven by continued planned open box returned inventory transactions with icon our inventory border partner.

We hosted an additional 33 New Costco in-store pop up shops and we continue to operate 22 Best Buy shop-in-shops. As a reminder, our inventory transactions with icon are part of our see to see, DFL, and ESG initiatives. We repurpose returned open box inventory in exchange for media credits, which are being used to support our advertising initiatives to create brand awareness and drive net sales growth. Our current fiscal 2024 projections only reflect open box inventory transactions in the first quarter, as we continue to review all options available to align with our CDC, DFL and ESG initiatives. Any of these initiatives beyond the first quarter will be upside to our fiscal 2024 projection. By product category, in the fourth quarter, our Sactional net sales increased 23.6%.

Sacs net sales increased 6.9%, and other category net sales, which includes decorative pillows, blankets and other accessories increased 10.7% over the prior year period. Gross margin increased 70 basis points to 56.6% of net sales in the fourth quarter of fiscal 2023 from 55.9% of net sales in the prior year quarter, primarily driven by a decrease of approximately 190 basis points in total freight partially offset by a decrease of 120 basis points in product margin. The decrease in total freight which includes inbound and outbound freight and warehousing costs was principally related to a 290 basis point decrease in inbound container freight costs partially offset by 100 basis point increase due to higher outbound transportation costs and warehousing.

The product margin decreased was driven by higher promotional discounting. Our gross margin rate came in slightly below our projections by 40 basis points due to lower deleverage in inbound freight than originally projected in the fourth quarter. Given the decrease in inbound freight rates, we continue to expect to see associated benefits, which will be modest in Q1 and most impactful in Q2 and Q3 of fiscal 2020. 2024. The 18.9% year-over-year increase in SG&A was driven by an increase in employment costs due to new hires and variable equity compensation, increases in rent expense related to the addition of 49 new touchpoints, with higher percentage rent on showroom net sales, increase in technology and professional fees, and an increase in credit card fees related to increases in both sales volume as well as interest rates.

SG&A expense as a percentage of net sales decreased by 60 basis points as we leveraged in areas including infrastructure investments, selling-related expenses and employment costs, even given the almost 22%. sales increase. Advertising and marketing expenses increased $300,000 or 1.2%, $25.8 million for the fourth quarter fiscal 2023 as compared to $25.5 million in the prior year period. Advertising and marketing expenses were 10.8% of net sales in the fourth quarter of fiscal '23 as compared to 13% of net sales in the prior year period. As a percentage of net sales, advertising and marketing decreased by 220 basis points due to improved performance in our media activities, which has driven an increase in net sales. As a reminder, advertising and marketing investments benefit multiple fiscal periods.

Depreciation and amortization increased $535,000 from the prior year to $2.6 million, principally related to capital investments for new and remodeled showroom. Operating income for the quarter was $38.1 million compared to $24.2 million in the fourth quarter of last year, driven by the factors just discussed. Net interest expense of $16,000 for the fourth quarter was slightly lower than the prior year's period related to unused line of credit fees that increased due to the increase in our revolving line of credit earlier this year. Before we turn our attention to net income, net income per diluted share and adjusted EBITA, please refer to the terminology and reconciliation between each of our Justin metrics and their most directly comparable GAAP measurements in our earnings release issued earlier today.

Net income for the quarter was $27.6 million or $1.74 per diluted share, compared to $32.6 million or $2.03 per diluted share in the prior year period. During the fourth quarter of fiscal 2023, the company recorded an income tax provision of $10.4 million as compared to an income tax benefit of $8.5 million in the fourth quarter of fiscal 2022. The tax benefit recognized in the prior year was primarily due to the release of the valuation allowance on the company's net deferred tax assets in fiscal 2022. The release of the full valuation reserve had a positive impact on both the fourth quarter and in the fiscal year 2022 earnings per diluted share. Adjusted EBITDA for the quarter was $48.3 million as compared to $32 million in the prior year period.

Adjusted EBITDA for the fourth quarter was ahead of our expectations driven by higher net sales and leveraging of SG&A and marketing expenses. Turning to our balance sheet. Our total merchandise inventory levels are in line with our projections and have leveled out as we had discussed on our prior call. Inventory increased 10.6% year-over-year and we feel exceptionally good about the quality and the quantity of our inventory. Our evergreen in-stock inventory is a competitive advantage, and it is not comprised of seasonal merchandise. We do not run the risk of being overstocked or having to be promotional to reduce inventory levels. Our inventory levels are in line with our goals to maintain industry-leading in-stock positions and delivery times.

As we move into fiscal 2024, inventory levels will moderate due to inbound freight relief and our technology investments, which enable us to pragmatically allocate inventory more efficiently. We ended the fourth quarter with $43.5 million in cash and cash equivalents and $36 million in availability on our revolving line of credit with no borrowings. This reflects the timing of our inventory investments and the seasonality of our net sales, profitability and cash generation. Please refer to our earnings press release for other details on our fourth quarter and fiscal year 2023 financial performance. Now moving to our outlook. For fiscal '24, we expect the difficult macro backdrop to persist. Against this backdrop, we continue to expect to outperform our category and gain share primarily driven by our planned innovation and touchpoint growth.

For the year, we expect net sales of $700 million to $740 million, driven by the net planned opening of approximately 30 new showrooms and total comparable sales in the high-single-digit to low-double-digit range. Our outlook embeds the expectation that the new product introduction that Shawn and Mary discussed will launch in the second half of the year and does not include any assumption for open-box inventory-related barter revenues beyond the first quarter, which was approximately $22 million in net sales for Q2 through Q4 and fiscal 2023. We expect adjusted EBITDA margin for the year to be 8% to 9% with the year-over-year decline driven by our investments in payroll technology and research and development that support current and future growth as well as the impact of higher interest rates on credit card fees.

Deleverage across these areas of SG&A is expected to be only partially offset by gross margin expansion resulting from inbound freight due to lower container costs. Earnings per share are expected to be in the range of $1.83 to $2.24 with a weighted average diluted share count of 16.4 million shares. Additionally, fiscal 2024 will contain a 53rd week in the fourth quarter, which is expected to contribute approximately $6 million in net sales $400,000 in adjusted EBITDA and $0.02 in EPS, which is reflected in our fiscal 2024 guidance. For the first quarter, we expect net sales of $133 million to $136 million, being driven by the planned opening of approximately 16 showrooms and a total comparable sales decrease in the 3% to 5% range. As a reminder, we are up against our toughest comp comparison of the year in the first quarter, given our Q1 comp last year was 42%.

We expect adjusted EBITDA loss in the $4 million to $5 million range, driven by an expected gross margin decline of approximately 100 basis points and SG&A deleverage primarily in payroll, rent and credit card fees. Loss per share is expected to be between $0.36 and $0.37 for the first quarter with 15.2 million weighted average shares outstanding. We are making important investments in the business to support current and future growth, including the new product introduction discussed. These investments are critical to our ability to drive long-term growth and sustained market share gains. We are also investing from a position of strength when it comes to our balance sheet. We ended the year with $43 million of cash on the balance sheet and $36 million of availability under our ABL and no borrowings.

With the second half of our year traditionally being the strongest in net sales, the timing of our new touchpoint openings and new product launches and our planned flow of inbound inventory, we expect to use cash during the first three quarters of the year before generating substantial free cash flow in the fourth quarter to end the fiscal 2024 with a significantly higher year-over-year cash balance and no borrowings under the ABL. So in conclusion, we are very pleased with how we finished fiscal 2023. Despite the challenging macro environment and inflationary impacts, our team continues to execute our growth strategies and operate the business with discipline. We are braced for what promises to be a dynamic fiscal 2024, and we will continue to prioritize disciplined execution to drive long-term growth, market share gains and value for all of our stakeholders.

With that, we would now like to turn the call back to the operator, who can open it up for questions. Operator?

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