Designer Brands Inc. (DBI) Earnings Call Transcript & Summary

Hi, everyone. Good afternoon. Thank you so much for joining us today as part of our 28th Annual Goldman Sachs Retail Conference. I'm Jenna Giannelli, the Retail Consumer Credit Analyst here at Goldman Sachs. And today, I have the pleasure of hosting Roger Rawlins, Chief Executive Officer of Designer Brands. So Roger, thank you so much for being with us here today. Would you like to kick off this session with some brief opening remarks and then we can jump into questions?

Yes. Thanks, Jenna. And I really just want to say thanks to everybody for taking the time on a Friday afternoon to talk a little bit about our business. We had a really, really good second quarter, and it was a continued progression from where we had really started making progress in the back half of last year. And excited to share a little bit about what we've got going on in Designer Brands. So open to any questions you guys might have.

Excellent. Excellent. So let's start on that strength that you just mentioned in the second quarter. The business has obviously shown a very strong recovery thus far year-to-date. Can you talk a little bit about your outlook for the second half of the year? And particularly, one thing that we're asking all companies participating is how you're thinking about consumer demand going forward as we lap some of the kind of the benefits such as the stimulus that we had in the first part of the year?

Yes. Jenna, so our view on the back half is that we've tried to manage everything towards 2019. So that's sort of the level at which we're trying to make certain we get over that bar. And we feel very confident based on how back-to-school had begun in the second quarter and how it has progressed to date that we will be able to deliver at least 2019's operating income as an organization, which for us having managed through this, we are really, really excited to be able to just share that we feel very confident in our ability to do that. One thing that's a bit different about our business because our consumer, average household income for DSW customer is about $100,000. We've not reaped -- we don't feel like we've reaped a lot of upside from all the stimulus because we are fortunate enough that our customers haven't necessarily been receiving that stimulus. And we've been able to track that as each of these events have occurred. And so we feel as this thing comes -- as it comes back and there's less stimulus out there, we don't think we will see the same kind of pressures that other retailers that reaped, we think, material benefits during this time period that we don't anticipate that we'd see a major slowdown in our business as a result because we didn't get the benefit on the front.

And in terms of just the customer trends, I mean, what are you seeing or if anything, in terms of their behavior? How do you think their mindset has perhaps shifted post-pandemic in terms of how they're shopping, how frequently they're shopping, what categories they're buying? And are those sustainable? Or is it kind of a short-term blip that we're seeing post-COVID?

Yes. I'll start with, first, I think it's around the assortment. That's the piece that we have felt the biggest impact. And it is just the casualization of America has accelerated in an even bigger way. And I'm on vacation this week, and everybody that you see, if you're out at night, they're wearing casual footwear. And it's athleisure. It's not a lot of field product unless it's a material -- like social occasion that you're going to a wedding or an event, something like that. And I'm really proud of the fact that our organization prepandemic had started shifting into this category. And we were lucky enough to have a kids business up 55% in the second quarter and seeing that trend as we've continued into third. Our athleisure athletic business was up 45%. Again, these are the 2019 levels, which is just amazing to see that kind of shift. And what we're excited about is that we're able to maintain that piece of business where we were so underpenetrated and where we're seeing the green shoots in the dress business and that social occasion business, we're positioned to really jump on that. So we feel like we are in a very, very healthy place to be able to capitalize on how we think the consumer is now behaving. So that's a big shift. The second big shift is digital, digital, digital. I just think about, I remember doing this event a few years ago in New York versus now I'm sitting here and doing it through this. I mean everybody has gotten accustomed to be able to work this way. And we think that, that trend is going to continue in how consumers engage with our brands. So the importance of understanding your customer, leveraging the data that you're able to get from these kind of interactions to better inform your assortment strategy, to better inform your marketing, to better inform your footwear or your footprint strategy, the number of stores you should have, where they should be located. For us, that's something we're going to be -- we're working a lot on. The other good news piece for us is as the consumer has come back to us, you're always concerned, wow, you're going to lose this momentum you've had digitally. And what we have found is the consumer has shifted to digital. But as they've started to come back to the physical plant, we haven't lost momentum in digital, and that is -- that's a home run for us. In the second quarter, we had -- in the 25-year history of DSW, we had the largest quarter increase in new customers in the history of our company. And it's because we are engaging and we're learning how to engage, frankly, like a dot-com retailer and attracting new customers. And so we're retaining them, this digital consumer, while the more historical store consumer has come back to us. So again, that's why the comps were what they were, if you look at what we did in second quarter.

Great. I mean, while we're on that point, as you think about new customer acquisition and bringing those customers in the door, what data are you using, what loyalty, what perks, what method do you have kind of in your toolbox to keep them coming back? And what have you seen thus far in terms of their shopping behavior versus maybe more of your traditional customer?

Yes. The pretty cool thing is what we have found is, the digital consumer, it does skew younger than what has been our core, more mature consumer that we carry. So it's introduced a new consumer to our brand, which is fantastic. So I'm really excited about that. The other thing I would say is for us as an omnichannel retailer, and again, sounds like you're not sounding real humble when you say this, but for the last 3 years, our organization has been recognized as the #1 omnichannel -- publicly traded omnichannel retailer in the United States. And that's 3 years in a row, that's up against the Nikes, that's up against the Walmarts, those kind of folks. And the fact that we are recognized in that way, now that we've got these customers that are engaging digitally, and we've already built the infrastructure where our stores -- we don't even call them stores. We call them warehouses, and they act as a warehouse. So when COVID hit, we were able to turn that on to be a point of fulfillment. Well, now that we have all this data, and we're seeing how the consumer is behaving both digitally and in the store and that we have those things married together, for us, we think we are positioned to really jump on some market share as this thing, hopefully, at some point, we get beyond this. So we're really excited about what our future looks like.

And as you've seen that growth in online, I'm going a little out of more questions but we're kind of getting to those topics. As you've seen that growth in online, how do you feel like you've done it successfully in terms of balancing the margin? I guess, what are those puts and takes? You see the tremendous online growth, but then, obviously, there's the cost associated with that and whether it's shipping or return rates. How are you balancing that and making it so successful and still seeing growth overall in your business and earnings?

Yes. I think the big thing for us is understanding that there is no such thing as a store or a dot-com transaction. And it's looking at it as one engagement with the consumer. And we, as an organization, have been very focused on where are the big SG&A or margin expansion opportunities that we can look at for the consumer. And in doing that, you're able to say, wow, you know what, we can fulfill out of the store because we are within 20 minutes to 70% of the population and get it there in 2 days or 3 days versus fulfilling it out of the fulfillment center as a dot-com business. And yes, that might be slightly cheaper, but it might not get there for 5 to 7 days. And so it's looking at the entire transaction, the entire relationship and taking out of it the channel and then looking for -- now that you look at all those transactions, where do you see the greatest point of leverage. And that's the approach we've taken. It's helped us in margin. So as an example, as you buy, narrowing the assortment of the things that you buy and buying deeper. So transitioning from carrying upwards of 700 labels that we buy product from to where now the top 50 account for 80% of the business we do. So by doing that, we're able to go deeper in sizes, be in a better inventory positions with our key partners. So that's an example of how in the past we thought dot-com, and so we would buy a whole bunch of stuff for dot-com. And then we would think stores, okay, we got to buy stores and then you step back and say, "Wait a second, the assortment isn't looking like what the consumer really wants from us." And so using that kind of lens, I think has really helped us.

So I guess, in that answer, I heard you talk a bit about speed and just the consumer, which are 2 of, I guess, the 3 core pillars of your strategy, the other being brand. I guess talk to us a little bit about that overarching strategy? And what are some of I mean -- you just highlighted a couple of them, but some of the key initiatives over the next 12 to 24 months that we should be looking for as supporting that overall strategy, those 3 key pillars?

Yes. That's a great question. So the way we're sharing this, and we've been messaging this to the organization, it's CBS. It's easy to remember, at least a few of us grew up with CBS as one of the 3 networks we watched. But it's all about C, the customer. And for us, over the next 12 months, it's about data, data, data. How do we leverage? We have 30 million rewards members. We're doing $3 billion of retail sales. How do we leverage that data to better inform things we can solve for the consumer, whether that be how we evolve the assortment, how do we accelerate speed of delivery, things like that. So it's putting the infrastructure in place to better leverage that data. So that's the first big piece. The second one is, it's all about these top 50 brands. And that is a focus of the organization. And historically, that's not who DSW has been. Our assortments have been very, very broad and not very deep. And you're seeing us being able to leverage these relationships in a bigger way. So you're going to see us focus on those top 50 brands. And you're also going to see us over the next 12 months elevate the brands that we own and operate. So Vince Camuto, Lucky, Jessica Simpson, Jennifer Lopez, Mix No. 6, Crown Vintage; Kelly & Katie, now Hush Puppy (sic) [ Hush Puppies ], which we just did a great deal with Wolverine to be the sole distributor of the Hush Puppies brand in North America. It's taking those brands and elevating them in a meaningful way side-by-side with these top 50 brands. So that's the brand piece. And then all of that sort of connects to the speed. And when we say speed, there's really 2 big buckets. The first is obviously speed to customer. We need to be faster. When we were buying from 700 labels, and we were passing on value on those labels, people are willing to accept a 7- to 10-day delivery. Well, now when you're putting in front of the consumer the best brands in retail and you're buying a Gucci shoe from DSW, which I would encourage all of you to go look at our Gucci assortment, you're not wanting to wait 7 to 10 days. There's going to be a different expectation that you're going to have of us. So we have to find ways to accelerate our supply chain. That's the first piece of speed. And then the second one is speed to market with product. Three years ago, we acquired the Camuto organization with an expectation that we become a vertical enterprise. And we've now learned how to do that, and that muscle has been developed. And so you're going to see us take that data from the customer, leverage the brands that we have and find out how can we get to market faster. I really respect what Steve Madden and his team have done. In our industry, they really are as good as it gets as around speed and responding to customer needs. We have to be able to do that, if not better. And we have all the tools in place to do it. Now we've got to go focus and execute on it. So that's how I think over the next 12 to 24 months, that's how you're going to see that CBS play out for us.

Given you're building that expertise or you built that expertise in building up not partner brands, but also some of our own brands, could we see you use that or leverage that and take it into further brand acquisitions? Is that something that is kind of on the horizon or could be part of the DNA in the next couple of years?

Yes. I think you're going to see us continue to play whether it be through an acquisition or a partnership like what we've just done with Hush Puppies. And I'd give you a reason why that's beneficial to the brand. So hushpuppies.com will still be operated by the Wolverine team. However, hushpuppy.com (sic) [ hushpuppies.com ], items that are purchased and generally online between 20% to 40% of your sales are returned. So there's a huge cost structure tied to that. DSW will be the point of return for those Hush Puppies shoes. And then those will go into our assortment, and then we will make them the first point of fulfillment when there is an order for hushpuppies.com to eliminate any kind of markdowns that people might have taken on that. So when you start thinking through why do dot-com retailers need physical locations? We can offer that to those kind of brands. So I think you're going to see us enter into more and more of these kind of partnerships, unique relationships to build differentiated experiences and products for those brands and for our customers.

And have you talked about in the past, or can you just remind us of your footprint, how much of your digital sales are being fulfilled from the store right now, whether it's pick up from store, curbside pickup? And where could some of those metrics grow to over time?

Yes. When you think of -- it's again, why we got out of calling our store, stores. We are running anywhere from 70% to 80% of our digital demand is being fulfilled, whether it be the store -- the warehouse, the customer-facing warehouse, delivering that product to the consumer, whether it be buy online pick up in store or buy online and they're going to ship to that store to go pick it up. I mean there are so many ways in which we can leverage that footprint to engage with the customer. It is something that we have as a competitive advantage that I think in the past, everybody looked at stores as being something that was really a big overhang on your business. And the reality is, when utilized properly, they are a great weapon to have in your arsenal.

Right. And the off-mall component of it as well, certainly takes away that hurdle of some of the curbside or pick up in store option. So that's certainly good. When you think about connecting more with the customer, better understanding their needs, you mentioned some investments overall in CRM. How do you feel currently with the status or level of the technology that you have, do you think that you need or could benefit from incremental investments? And what are some -- kind of walk us through again some of -- what have been some of those key investments that you've made and what's been yielded from them?

Yes. I think the big thing that we started probably about 5 or 6 years ago was investing in our digital infrastructure. So getting us on a consistent platform that all of our brands and businesses could operate on. So we have that platform in place for DSW. And in the last roughly 24 months, we have implemented that platform up in Canada. So we run and operate the shoe company up in Canada as well as roughly 20-ish DSW stores up in Canada. And so we've implemented that DSW digital experience that won all the omnichannel awards, we've now implemented that in Canada. And within 12 months, we became the second largest footwear retailer in Canada from a digital perspective, which is amazing. And it's because we have this platform. We just recently put the Vince Camuto organization on that same platform. So you're going to see us continue to leverage that platform to grow these brands that we have acquired or that we are building. So that's been the biggest thing. Then the other pieces you're going to see is the -- that supports the experience, the customer experience is how do we continue to expand our supply chain. And when I say that, meaning fulfillment centers. So we were lucky enough to -- in the Camuto organization to acquire a state-of-the-art experience distributions/fulfillment center in New Jersey. How can we leverage that? To date, it's been underutilized, so we will be attempting to do that to take speed out of the equation. We're looking at things we can do on the West Coast to help facilitate again speed to customer. And those are things that you're going to see us continue to invest in.

While we're on that topic of supply chain, let's go there because it's been such a big topic for all the retailers and companies that we had participate in the last 2 days. So talk to us about what sort of challenges and bottlenecks you're seeing in your supply chain. Do you have a point of view on whether you might see some moderation or alleviation of the constraints that we have? And then what are some of the key levers that you're using to mitigate the supply chain headwinds, whether it's pulling forward receipts or air freight, moving production, whatever it might be, what's been your biggest tool?

Yes. I think our business, we have been planning down because we were in COVID. Business was challenged and so that everybody is aware in the footwear industry, you're talking about a 6 to 9 months historically, that's sort of the cycle, in 6 to 9 months, which is why that S pillar, speed, is so important for us because that's ridiculous. In this day and age, it shouldn't take you 6 months to get shoes from something that's in the designer's head until it shows in front of the consumer, that's just crazy. So we got to take speed out of that. But at least as it relates to current supply chain challenges, we have been lucky enough because we are #1, 2 or 3 as it relates to these top 50 brands. We're #1, 2 or 3 accounts with those top brands. And so we are pressing hard on leaning into that relationship to say, "We are part of your family." And I use this example to our group on a regular basis, feed your family first. So if you're one of those top players, you're going to be lucky enough to get goods ahead of other people. And so that's what we're leaning into is those relationships, relationships. How do we ensure we get in line first for those goods. So that's priority #1. The second one is that we have been doing some things to accelerate receipts. So we are airing things in where appropriate. We are paying to get prioritized in line wherever we possibly can. And then we're leveraging our Camuto team's ability to make products to help respond to where we're at. So those are the big things that we are doing. As far as how long do I think this is going to last, I think all of us wish that COVID would just go away. But I think as long as we're continuing to have these challenges with COVID, I think we're going to continue to see these kind of supply chain issues, I'm guessing at least 3 months until after COVID is something that isn't daily, something that we are talking about and thinking about. So I don't see any short-term fix for this because unless we can solve COVID, I think we're going to continue to see these challenges. But what I like about our organization is we've continued to be nimble throughout this whole thing, and we have found ways to work around it. And that's what we're doing today, and we will continue to do as we fight this fight.

Understood. And so it does sound like you're leaning into some of those key relationships to mitigate these pressures. As you've had this focus or this renewed emphasis on your top core brand, how does -- talk to us about like the push-pull between the relationship with that brand partner, feeding your family and then your own development of your own core brands. I mean, is there -- how does that work? Is there a sensitivity there? What is their response? How supportive are they? And how do you balance the prioritization of those 2?

I think if you don't mind, I'm going to step back a couple of steps to explain why we have those brands comfortable with what we're doing. And it goes back to when we were buying product from 700 labels to then go and try and build your own brands with that many people you were trying to partner with, you were good. To build your own brand, you're going to have to eat some of the food that was being fed to all of those people, right? We're now going from 70 -- 700 down to these top 50. And in that top 50, there are 7 that we own and control ourselves. So it's really these top 43. Those top 50, if you go back 3 years, 4 years ago, they accounted for roughly 40% of our total sales. Today, they're 80%. So what we've done is by narrowing the number of labels brands we buy from, we've created all kinds of open-to-buy for these top 50. So it allows you to grow your relationship with the top brands in footwear. At the same time, you're able to grow your own brands alongside of them as you've eliminated essentially 650 labels of stuff that you procure. It doesn't mean we don't offer their brands. We're just offering them through a different channel called dropship, meaning we do not take the liability. We do not own the inventory. We will sell the goods if the consumer wants it, and if we see demand go through the roof for something, we will start buying those goods and ensure that they're in every single warehouse. But to continue to spread it as broad as what we were doing, we never would have been able to do what we're doing today with our own brands because there would not have been enough open-to-buy to support it. Is that helpful?

Absolutely, absolutely. Yes. I mean I would imagine too, just when we're thinking about efficiency within the store and store labor, which is also such a challenge right now that, that simplification probably adds some level of efficiency as we think about just the flow of goods at a store.

I think the best example that -- I used this the other day with the team, we were talking about exactly what you said, the efficiency of what it's like in our stores. We had no store that had identical inventory. Think about that. 525 physical locations, none of which looked alike -- looked at all alike. By now doing what we're doing, we're having 40%, 50% of our assortment being consistent in every single store. Now we have stories we can tell. Now we can actually do things called floor sets. We can actually tell a back-to-school story and be consistent across the company and be more efficient in how we approach it versus literally building a plan for 525 stores. I mean that's crazy when you think about what we were trying to deal with. So those are ways in which this is going to allow us to be more efficient as an organization.

You mentioned dropship, and that was something I wanted to ask about. We've seen a lot more retailers just doing that and leaning into it. How much of your business, I guess, when we think about the overall pie, I mean, how big could this grow, how successful has it been? And have you had a lot of those examples where you see consumers demanding something like, hey, we have now -- we have to go and do more -- find more of that. So is it really like a filtering tool for even in some way?

That's exactly the approach we are taking. We are continuing to offer more and more brands. However, we're also looking at how we can expand assortments within brands that we buy from. So I'll give you a great example. We're in the middle of back-to-school. We are, for the first time in the history of our company, having a real back-to-school because while we played in kids, not in the way that we actually invest it, we went after it, looking to be 15% of our business in this window of time. We are now starting to offer the #1, #2, #3 T-shirt, sweatshirt, legging, whatever it might be that comes from some of these top athletic brands, and we're doing it digitally. And then that will better inform things that we -- then buy next year for back-to-school that we would put in the physical plan. As we go through holiday, we're going to look for more gifting ideas that we can do through a Drop Ship Program to, again, better inform how in future holidays, we might be carrying whatever that kid's play set is or whatever the case that might work for that child. So those are all ways in which you can learn from this Drop Ship Program to better inform where you put your inventory dollars.

And I know you've talked about in the past in some of your calls that just in general, inventory, productivity and how that's a priority. And obviously -- and that sounds like that's clearly helping and sits in that initiative. When we think about inventory, productivity, working capital, what is the right level? Is there more opportunity for perhaps release or more efficiency? Or given some of the supply constraints, could we need some investment going into next year? I guess, just how to think about inventory and working capital over the next 12 months?

There -- throughout this entire thing, we -- I shouldn't say throughout this time, I've been in the retail business for over 30 years. And I was taught that all brands back when there was a whole bunch of limited divisions that the way you managed your business was you would always plan your sales to be 3 to 5 points better than your inventory position. So if you're going to play at a 5% comp, you plan your inventories flat, right? That's the way you always want to accelerate return. How do you improve return? And frankly, for 30-some years, that's how I have as a finance professional before I was in this job, that's sort of the lens I used. We're now running a business that's running with 30- to 40-point gap between sales demand and inventory levels. And what we're learning is we actually can do more with less. And by forcing the organization to narrow and by going deeper and by really investing in the things and forcing the merchants to invest in what matters has allowed us to extract the margins that everybody has seen, which is, I think, the best gross margin in the history of DSW in the second quarter, right? So we are not going to go back to the way it used to be. We've got to continue to manage our business. It won't be a gap as much as it is now, but I feel very comfortable that we can run 10 to 15 points better in sales than inventory. And again, it's discipline, discipline. But the things we've learned over the past 18 months going through this are not going to just get thrown away and suddenly everybody starts buying inventory. We can leverage our learnings to be better at managing our cash flows.

I hope that is right, and that's an accurate projection as we go over the next couple of years, that would be great. I mean one of the things that we've heard from companies across the board this earnings season and across the conference is just how much promotions have really been pretty moderate because of this lack of -- or the difference in sales versus inventory. So I guess, have -- can this moderate promotional environment, can that stay the same? Or have we kind of found religion on that? Or are we going to go back into a more intensely promotional environment as we go into '22 and into '23?

I think the disciplines I'm talking about will not exist for every retailer. And therefore, there will -- promotions will come back. I don't think they're going to be as extreme at least for the next 12 months as they have been in past years, but not everyone will remain disciplined. I think as it relates to our business, we talk a lot as we sort of debate our strategy. And if you look at who DSW was when it first started, it would be more on the T.J. Maxx, Marshalls kind of perspective where you never could rely on what inventory you were going to have. You've got whatever you got. So you really couldn't plan to be in stock on things. And that's a different model. It's a very successful model, but it is a different model. And as our business evolved and now that we represent these top 50 brands, all of whom have MAP pricing. So you don't see nearly the kind of promotional cadence that exists in those brands. And the fact that we had sort of gone to being in the middle. And to me, in the middle in our world is death. And so we've had to pick a lane. Do we go back to being the T.J., Marshalls? Or do we go that we are a great value play because of our rewards program and the value prop that we give to our 95% of our sales that are done through our rewards program, that's a great incentive for the consumer. But let's sell at regular price. And then if you're building brands, it's hard to build brands if you're discounting every day. So we are going to skew more to where we're carrying the best brands. Again, I keep -- I'd use the Gucci example. Go look at our Gucci assortment. We've got an amazing product. And it's selling at what is full retail or slightly discounted based on what we're able to do in relationship with Gucci. So it's -- to me, that's the example of where we've got to be and continue to focus our organization.

And in addition to some of the key brands, I mean, it sounds like you've also been leaning into some other categories where maybe historically, you haven't been as penetrated or you wanted to increase the penetration, whether it's in the athletic wear or in the kids arena. So can you speak a little bit to just the expansion or increased emphasis on those categories and what the competitive landscape looks like within those categories specifically and what the opportunity is to gain share?

Yes. There are 3 areas we're going to continue to focus. Athleisure is the first one. Prepandemic, it was about 35% of our sales, and the industry was at 55% penetration. So you can see the market share opportunity that we had. And now in this pandemic, it's gone to about 55% of our business, but it's gone to 75% of the industry. So we think we're still -- we're so underpenetrated in that segment. You throw out the Jordans and the Yeezys, those things. And I think there's so much growth potential for us in that side of the business. So that's 1 big bucket. The second one is kids. Mom and dad dictate what the child is going to wear. And if you're...

I don't but maybe one day. But in general...

But at least they -- yes. They control the checkbook, I should say. But not in my house, my 5-year-old does. But I think being at a point where you can make it easy for the consumer to get both their children's footwear as well as their fashion needs met through our channels, we think that's a huge win for us. And what I'm really excited about is the data is telling us that not only are we capturing kids' footwear market share, we're actually capturing the household market share. So mom and dad are staying with us when they're buying the kids shoes. So that's exciting. And I use the example, we finally registered in the top 15 in kids market share per NPD. And if you go back 2 years ago, we were not even a blip on the map. So I think that's the second we're going to continue. And then the third, which is the core to our business and what we still will stand for, which is seasonal. And that is the sandal business. That first day in the Midwest in March when it's 70 degrees and they're like, "I got to go get my sandals. It's time to go." I cannot wait to see that day when it's 50 degrees and there's a little bit of frost in the morning and people want to go get their boots. We are going to always remain positioned and focused to take advantage of that. And we think those are the 3 big areas in our assortment that we're going to continue to focus on.

Great. And we've talked a lot about the top line opportunity, initiatives you're working on, industry trends. On the operating margin side, I mean, can you talk just on the SG&A line, what are some of the puts and takes? What are the areas of investment, whether it's marketing, where might there be opportunities for efficiency? And just generally, how should we think about the SG&A line over the next couple of years?

Yes. For us, the -- one of the bigger things we did during this pandemic that was game-changing for us was we started looking at marketing, including the markdowns that came with marketing. And so we started talking to our marketing team about, hey, we will invest more in a digital ad or we will be doing some things to acquire customers as long as you can show us how you can extract value without having to take a markdown, right? And how do you not have to run offers in order to go attract new consumers. And so we've learned and we're managing that as one bucket, and you've seen that come through in a big way for us to our bottom line. So that's an area we're going to continue to focus on because I think we're really about a year into it. I think there's lots and lots of ways in which we can leverage that. The other is everything we do in our supply chain. We, again, as an off-price retailer, it never was a focus because you never could control it. And now that we are carrying in-line goods and playing in a different way, we're going to get after our supply chain in a meaningful way. So that's the other big bucket of SG&A. It rolls -- some of it rolls into margin. But at the end of the day, cash outflow for expenditure, that's going to be an area we're going to focus. As far as some of the challenges, I think we're all going to face -- it's -- everyone talks about it, it's wage rate. It's how do we become more efficient, as I talked about, leveraging the stores, looking at your portfolio of associates and saying, what's the ratio of part-time to full-time, how can you leverage different roles to help you manage through this. I think those are going to be challenges as we continue to move forward. But the way -- another way in which we're going to offset that is also looking at occupancy costs. I think what we have learned is we've narrowed the number of choices, and we have more depth is it does change what the footprint looks like. So do you really need 25,000 square feet, can we do 15,000? And suddenly, that is a material change in our SG&A. So those are all things that right now our team is actively working on. And if Jared were here today, I'd let him share all the work that he's leading in that space.

Yes. I mean on the labor front, I mean, how do you feel about the level right now of labor in the stores. Have you kind of had to yet increase wages or bonuses? What are kind of some of the things that you have or able to do to get that support in the store that you need, obviously, like you said that everyone is dealing with right now?

Yes, I think the big thing for us is ensuring that we're doing right by our associates. And people do not leave organizations, they leave people. And so making certain that our district managers, that our regional managers, our store managers are the absolute best that exists in the marketplace. And we've had turnover and yes, we're facing challenges, but not nearly as severe as what I think others have. I'm really proud of the folks that run our distribution center. Our turnover rate in our distribution center is less than our home office. I mean that is crazy. And that's in Columbus, Ohio, which is as competitive a market as you could possibly find around that kind of talent. So it's about teams, it's about leadership, and we're going to continue to compete on wage. We're not going to underpay in any way, shape or form. But what we're emphasizing is this is the time where great leaders step up. And that's -- you've got to have that -- we can talk about love, trust, ownership; love, trust and ownership. That's what you've got to have, the culture within your organization. And that's how we are going to continue to practice.

Great. Roger, before I lose you because I know we're almost out of time. With all the success, tell me how you think about just the priorities for cash and balancing business investment and returning some of that success and cash back to shareholders?

We -- during this pandemic, obviously, I think, if you're not familiar, we took a significant hit when the customer was not social occasion, and we had to leverage up our business. And so right now, I will tell you, our priority is getting ourselves out of that situation. We have, hopefully, about $150 million of cash coming from the government through some of the stimulus things that had happened that we're able to claw back a tax refund. We're anticipating getting that in the fall season. That's huge for us. It's trying to serve as much of that debt as we possibly can to get us back in a position where we can, whether it be buying back stock, paying dividends that we can play, the way we were playing before this pandemic. That's -- over the next 12 months, that is our focus.

Excellent. Well, thank you so much for joining us today. I really appreciate your time and conversation. So thank you and best of luck.

Thanks. Great talking to you, and I hope everybody has a great weekend. Thank you.

You, too. Take care.

Bye-bye.