Q1 2024 Earnings Summary
- The company's "Work Smarter" initiatives, including investments in automation and better inventory management, have led to significant cost savings and operational efficiency improvements, such as reducing inventory by over $60 million compared to last year and achieving freight savings through an expanded distribution network.
- The company is benefiting from reduced ocean freight costs, which have returned to almost pre-pandemic levels, and lower commodity prices for ingredients like butter, eggs, and wheat, contributing to improved profit margins.
- The company is successfully attracting higher-income customers who are purchasing higher-priced items, resulting in increased average order value (AOV), with customers gravitating towards higher-priced products and bundles, including luxury items priced at $500 and $799.
- High commodity costs continue to pressure margins: Despite some commodity costs like eggs and wheat returning to historical norms, key ingredients such as sugar and cocoa remain very high. Additionally, fuel costs, while moderated from their peaks, are still very high compared to historical norms, impacting transportation expenses.
- Persistent high labor costs without reversion: The company acknowledges that labor costs have significantly increased from pre-COVID levels, with entry-level seasonal holiday help wages rising from $12-$13 per hour to around $20 per hour, and they do not expect these costs to revert back down. This sustained increase in labor costs will continue to pressure the company's margins.
- Pressure on lower-income consumers may limit sales growth: The company notes that 62% of Americans are living paycheck to paycheck, and this segment may not have the discretionary income to purchase gifts outside of key holidays. The tighter-walleted consumer is struggling, which could impact the company's sales, particularly in everyday gifting occasions.
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Commodity Costs Impact
Q: Which commodity costs are declining or pressuring costs?
A: Management noted that certain commodity costs like butter and eggs have come down from significant highs, with eggs back to historical norms. However, key inputs like sugar and cocoa remain very high. Fuel costs have moderated slightly but are still elevated compared to historical levels. -
Logistics Optimization
Q: How will logistics initiatives benefit the holiday season?
A: The company has implemented a "Work Smarter" program, enhancing logistics through measures like opening a distribution center in Georgia and investing in automation. By better placing inventory across the country, they've saved over $60 million in inventory compared to last year , reducing freight costs and improving efficiency ahead of the holiday season. -
Seasonal Labor Costs
Q: How is seasonal labor availability and cost compared to last year?
A: Management reported improved labor availability this year without significant hiring issues. Entry-level seasonal labor costs have risen from pre-COVID levels of $12–$13/hour to around $20/hour, and these costs are not expected to decrease. -
Holiday Consumer Demand
Q: How are you attracting budget-conscious holiday shoppers?
A: The company is introducing more products at lower price points, such as offerings at $29.99. They are also offering higher-end products up to $799 to cater to affluent customers. This strategy aims to meet consumers "where they are" amid economic pressures. -
Customer Demographics
Q: Are new customers higher-income individuals?
A: While exact figures were not provided, targeting efforts are refined to attract higher-income customers. Average order values are up, driven by more customers purchasing higher-end products. -
Marketing Spend
Q: Have you increased marketing campaigns?
A: Management stated they did not increase marketing this quarter, preserving resources due to high customer acquisition costs. The cost of acquiring a customer remains "pretty stiff" and even "more expensive now" than before.