Zulily's (ZU) CEO Darrell Cavens on Q1 2014 Results - Earnings Call Transcript

| About: Zulily, Inc. (ZU)

Zulily Inc. (NASDAQ:ZU)

Q1 2014 Earnings Conference Call

May 6, 2014 5:00 PM ET

Executives

Nancy Shipp – IR

Darrell Cavens – President and CEO

Marc Stolzman – CFO

Analysts

Debra Schwartz – Goldman Sachs

Mark Miller – William Blair

Justin Post – Bank of America Merrill Lynch

Shawn Milne – Janney Capital Markets

Rohit Kulkarni – RBC Capital Markets

Operator

Good afternoon, ladies and gentlemen. My name is Shannon and I will be your host operator on this call. Your lines will be placed on a listen-only mode. At the end of the presentation management will be available for questions. (Operator Instructions). At this time I would like to introduce Nancy Shipp, Investor Relations at Zulily.

Nancy Shipp

Good afternoon and thank you for joining us on our conference call today to view our first quarter 2014 financial results. With me today are Darrell Cavens, Chief Executive Officer; Marc Stolzman, Chief Financial Officer and Mark Vadon, Chairman. Each will be available for Q&A following today’s prepared remarks.

Before we begin I would like to remind you that we will make forward-looking statements during this call regarding future events and financial performance, including our guidance for Q2 2014 and full fiscal year 2014. These statements are based upon assumptions that are believed to be reasonable at the time they have made and are subject to significant risk and uncertainties. You should not relay on these forward-looking statements as predications of future events and we undertake no obligation to update or revise these statements.

Our actual results may differ materially and adversely from any forward-looking statements discussed on this call. For a discussion of factors that could affect our future results and business, please refer to our disclosure in today’s earnings release and our most annual report on Form 10-K and subsequent reports we filed with or furnish to the SEC in particular our quarterly report on Form 10-Q for the three months ended March 30, 2014 to be filed with the SEC.

Also please note that during the course of this conference call we may discuss certain non-GAAP financial measures as we review the company’s performance. Please refer to the investor relations section of our website to obtain a copy of our earnings release which contains descriptions of our non-GAAP financial measures and reconciliations of non-GAAP measures to nearest comparable GAAP measures.

This call is being recorded and webcast live on our investor relations website and a replay of this call will be available there as well for the next 30 days. Now I would like to turn the call over to Darrell our CEO. Darrell?

Darrell Cavens

Thanks, Nancy. Good afternoon everybody and thanks for joining us on Zulily’s first quarter earnings conference call. I’m excited to share with you our first quarter results which reflect our continued strong growth and performance. Today I’ll review some of the key highlights from the quarter and talk about the continuing investments we are making across all areas of the company.

After my comments I will pass the call on to Marc Stolzman, our Chief Financial Officer who will put our first quarter numbers in more details and provide and outlook for the second quarter and updated guidance for the full year.

This year started strong and shows our team’s obsession with operating new products every day at great value and how that continues to resonate with our customers. We ended the quarter with 3.7 million active customers, up 93% from the first quarter of 2013. We grew revenue 87% year-over-year to $238 million in the first quarter of 2014. Revenue per active customers remains strong at $65 in the quarter. Non-GAAP adjusted EBITDA for the quarter was $2.6 million while Non-GAAP free cash flow was $1.6 million. Our customer continues to stay passionate about our business and 83% of our North American orders for this quarter were placed by customers who purchased from us in the last year.

While these metrics demonstrates the strength of our business model, I still believe there is more work to do. While our revenue growth was strong at 87% versus a year ago our actual order growth exceeded the revenue growth. Total orders placed were 5.5 million up 91% from a year ago. Additionally average order value was up 4.3% compared to the first quarter of 2013. The difference in growth rates between orders placed and revenue recognized was caused by carrying a higher than normal backlog into the end of the quarter.

Incremental marketing spend and strong product offering delivered by our merchandising teams lead to a higher than expected order volume. This required our fulfillment centers to rapidly ramp operation as we approach the end of the quarter. Marc will discuss this in more detail later in the call but this dynamic not only contributed in increase in our deferred revenue but also lower our gross margins during the quarter.

The good news for the business and for our customers is that we’ve since worked through that extra backlog and normalized our shipping times to year end levels. We continue to focus on growing the business and investing in growth when the opportunities present themselves. Our merchandising team has stayed focused in bringing the new brands and expanding our assortment. To-date we have introduced over 13,000 brands to our customers and expanded to a wider diversity of product categories. We are now launching on average as many as a hundred of – today which I believe give us an incredible opportunity to deliver something each morning to our customers that could make them to say wow, look at what Zulily has today.

In the first quarter over 60% of units ordered came from non-kids apparel categories. We continue to be aggressive on expanding our assortment and working with our vendors to launch new fun and exciting products. At the same time we continue to build on our planning department to help our vendors, expand their business alongside hours. I mentioned earlier that we become more aggressive with marketing as the quarter progressed. We continue to see the ability to invest marketing dollars at higher levels with payback period that I believe are among the best in the industry.

As we continue through 2014, we’ll look to make incremental investment marketing beyond what we had originally targeted for the year. As you will remember our marketing is aimed to generating high quality subscribers. While some of those subscribers become customer immediately after joining many of them receive emails or push out vacations for an extended period of time for activating in the customers. That means this increased marketing spends doesn’t immediately generate bottom-line growth.

Over a longer period our history has shown that as subscribers become customer and then customer repeat purchase the returns become extremely attractive. With all the growth happening in the business we are aggressively hiring and bringing on new employees. We ended the quarter with 1,380 employees compared to 1,110 at the end of 2013. In addition, to our employees there are now over a 1,000 associates in each of our fulfillment centers. Much of our aggressive hiring in the first quarter was in technology. Technology is key to taking advantage of the growth opportunities in front of us and efficiently scaling operations.

In our first quarter approximately 47% of North American orders were placed on mobile devices, up from 39% a year ago. From the beginning we have known that our daily browsing base shopping model is the right fit for mobile. Our target customer’s constantly on the go and she relies on her mobile device for everything including shopping. Mobile is an opportunity for growth and we’ll continue to invest in optimizing the experience for our customers.

We are investing aggressively to expand our fulfillment centers and add automation to improve both capacity and productivity. I am confident we have the team and approach in place to continue scale up and keep up with customer demand.

In total, we are at between $45 million and $55 million of capital improvements in 2014 with the majority of that allocated to enhancements in the fulfillment centers. As I mentioned last quarter, we are doubling the size of our Nevada fulfillment. Our new facility is expected to come online in the third quarter of this year. We will continue to make strikes in improving our shipping times but we have balance with our commitment to delivering a diversity of great products at incredible vales.

Our brand promise to our customers is to bring them something special everything that can surprise and delight them. This is what our customer continues to value the most.

To wrap up it’s our continued focus on the core of our business and executing on the details every day that have made this a successful business. I want to take a moment to thank the amazing Zulily team and our vendor partners that worked tirelessly to bring thousands of special brands and great values to our customer every day.

And with that I’ll turn the call over to Marc to review the numbers in more detail.

Marc Stolzman

Thank you, Darrell. We are excited to report great results in the first quarter. Net sales totaled $237.9 million, representing an increase of 87.3% versus the first quarter of 2013. As Darrell mentioned previously our order levels for the quarter actually increased 91% year-over-year due to the high performing events that push demand higher than we had targeted. We aggressively added associates and invested in capacity on our fulfillment centers. However, we had unrecognized revenue that flowed into the second quarter. This not only affected revenue but impacted our gross margin.

Gross profit came in at $63.7 million compared to $36.6 million in the first quarter of 2013 which as a percent of net sales was 26.8% compared to 28.8% in the first quarter of 2013. You can see the lag in our revenue recognition when you look at our deferred revenue account on the balance sheet. More specifically our order to shipped tonnes in Q1 2014, were 13.2 days compared to 11.3 days in Q1, 2013. As a reminder to everyone we recognize revenue when an item is delivered to a customer’s door not when we ship it.

While we now expect the incremental deferred revenue to be reported in the second quarter results we learned we could have planned better and faster. As Darrell indicated earlier, we plan on investing $45 million to $55 million in capital this year with the lion’s share of focus on automation and technology in both our Nevada and Ohio fulfillment centers. The short-term effects of implementing these changes while also operating in the facilities will keep some near term pressure on gross margins but will improve our productivity capacity and visibility long-term.

Marketing for the first quarter of 2014 totaled $23.1 million compared to $15.4 million for the first quarter of 2013. As a percentage of net sales marketing was 9.7% compared to 12.2% for the first quarter of 2013.

Our active customers, which we define as customers who have made at least one purchase in the previous 12 months rose to 3.7 million at the end of Q1 2014, compared to 1.9 million at the end of Q41 2013, an increase of 93%. Selling, general, and administrative expenses for the first quarter of 2014 were $43.6 million compared to $22.8 million for the first quarter of 2013.

Selling, general and administrative expenses include stock-based compensation expense of $3.2million for the first quarter of 2014 and $0.9 million in the first quarter of 2013. Excluding the impact of stock-based compensation expense SG&A decreased to 17.1% of net sales, compared to 17.3% of net sales for the first quarter of 2013.

Operating loss in the first quarter of 2014 totaled $3.0 million compared to $1.6 million operating loss in the first quarter last year. During the first quarter of 2014 we continue to be in a taxable loss and cumulative net loss position and recorded no tax expenses during the quarter.

Net loss totaled $3 million for the first quarter of 2014. First quarter basic and diluted net income per share was $0.02, compared to basic and diluted net loss per share of $0.09 in the first quarter of 2013. The non-GAAP diluted net loss per share for the first quarter of 2014 was $0.02, compared to $0.01 for the first quarter of 2013.

The non-GAAP diluted earnings per share calculation normalizes the treatment of the convertible preferred shares to an as converted basis in order to show the quarter consistent way with the way the preferred shares affect our going forward earnings per share post the IPO.

Non-GAAP adjusted EBITDA for the first quarter of 2014 was $2.6 million compared to $0.5 million for the first quarter last year. Cash flow generated by operating by operations totaled $17.4 million in the first quarter. We continue to generate cash from operations significantly in excess of our operating income, which is consistent with the fundamental design of our business model.

We ended the first quarter with cash, cash equivalents and backlog that I mentioned earlier. In general we maintain a low level of inventory as a result of our innovative business model which further contributes to our favorable working capital dynamics.

Now turning to our guidance, for the second quarter of 2014, we expect net sales to be between $261 million and $276 million. Net income is expected to be between $2 million net loss and $3 million net income. Non-GAAP adjusted EBITDA is expected to be between $5 million and $10 million.

For the full year, consistent with Darrell comments earlier regarding our continued investment in marketing we are now raising fiscal year 2014 net sales guidance and expect net sales to be between $1.15 billion and $1.2 billion up from our prior guidance of between $1.1 billion and $1.5 billion. We are reiterating our prior bottom-line guidance with net income before taxes expected to be between $15 million and $25 million. Non-GAAP adjusted EBITDA is expected to be between $45 million and $55 million.

Additionally, capital expenditures continue to be projected between $45 million and $55 million and will be primarily for our fulfillment centers to support our growth as we scale as well as continued investment in technology.

Now let me turn the call back over to Darrell to wrap up before we take your questions.

Darrell Cavens

Thanks Marc. In closing, we are pleased with our first quarter results. And hope that it’s clear that we are investing in our people and technology to maximize the opportunity we see in front of us. I remain excited about the passion we continue to see from our customers for the brand that we are building. We look forward to providing you with another update on our second quarter conference call.

I’ll now turn the call over to you operator and be happy to take your questions.

Question-and-Answer Session

Operator

(Operator Instructions). Your first question comes from the line of Debra Schwartz from Goldman Sachs. Your line is open.

Debra Schwartz – Goldman Sachs

Great, thank you. I was wondering if you could just give us a little bit more color on category mix at quarter end particularly as you’re ramping your marketing spend, are you seeing consumers come to Zulily for categories other than kids? And then two can you just give bit more color on the impact that you expect to see from the technology investment that you’re making?

Darrell Cavens

Sure. Like on the category expansion what we’re seeing is and I think you’ve seen sort of migrate over time where we continue to expand our merchandizing team to provide a broader and broader offering every day and I think overtime kids as a percentage has declined as we found more kind of unique products and categories. We talked about on the call last time about our extension of home, I think we’re seeing kind of great opportunity there but it’s a very, very kind of broad set of products and categories we expand. When I look at the site today for example and see organic food items out there that are doing incredibly well, I look over the last quarter and everything from kind of outdoor toys for the backyard, multi-thousands of price points, it’s very, very diverse. I think we continue to find kind of new opportunities to just find products that kind of delayed our customers.

On the technology side I think we’re very, very focused on just improving the daily experience for our customers in terms of relevancy and then a lot of effort going into fulfillment to just make sure that we got the capacity there as well as we’re able to overtime drive down unit cost so that we can continue to kind of improve the offering for customers and drive down that variable cost expense so that we can just provide more and more value to customers.

Marc Stolzman

Hey, Debra this is Marc to add on what Darrell was saying, I think as we’ve expanded the mix you definitely see the existing customers going more horizontal the people who are originally buying kids apparels from us, they’re now buying women apparel for themselves they’re buying home products. So you see the migration, but the other great thing about it is as we’ve added those categories we can deploy more marketing dollars because there is more households that are relevant to our offering.

And so I think that’s part of the story of why you’re seeing such great growth in active customers as we’ve got a broader and broader potential audience for what we’re doing and then the great thing the team has done around technology just allow us to intake their broad offering and tune in personalize to the individual.

Debra Schwartz – Goldman Sachs

Thank you.

Operator

Your next question comes from the line of Mark Miller of William Blair. Your line is open.

Mark Miller – William Blair

Hi, thanks. Could you elaborate little bit on the backlog and this can what happen there that you got behind, what backlog would you have been contemplating in your guidance? And then in terms of ramping up the marketing I’m sure you’ve thought about the challenges that you’re currently facing with shipping but I guess do you run the risk of further pressuring the fulfillment system if you’re pushing this hard on customer growth?

Darrell Cavens

Sure. On the backlog we worked very hard, work with our suppliers to bring product inbound and move that through our network and our system as fast as possible. So as we came out of the quarter what we saw just our incredibly strong volumes and from our planning side we just got a little ahead of where we had planned to be. The team reacted very quickly to bring in additional staff and we’re able to handle it and kind of move through that very quickly just happened to be right at the end of the quarter as we did that.

I think as we look at marketing and the investment there I think we’ve seen this balance over the last four years where continuing to invest aggressive ahead on the fulfillment and logistic side to make sure that we’ve got a good offering and then we can move kind of the volume that our customer demand through the system. But it’s finding that great balance of the marketing spend compared with that investment in fulfillment.

You see us this year putting a lot of investment in fulfillment with our new Nevada facility as well as the significant increase in technology spending in mechanization and automation into our Ohio facility. So I feel very confident about the capacity we have in place now as well the future capacity that we’re adding and balancing the marketing spending appropriately so that we can keep the experience strong.

So I feel like we’re managing that balance well and as I look forward in particular you see the increase investment and I feel good about us being able to ramp marketing overtime.

Marc Stolzman

Hey Mark I’d just add that so I think you asked about the quantification I think simply we release orders placed and we released average order value and if you multiply then you get some sense for kind of gross, merchandize or gross order value or whatever you call that, and if you look at the growth rate there versus the growth rate revenue you can kind of triangulate in on kind of how much dollars moved into, or how much excess backlog there was that then has consequently already shipped in Q2, so it will just help you triangulate them.

Mark Miller – William Blair

Okay. That helps. And then what were the actual merchandize margins in the period if we also adjust for this impact on the gross margin?

Darrell Cavens

Yeah, so we don’t disclose the individual merchandize margins but we have continued to see consistent performance over a long period of time and categories have expanded I don’t have anything more to provide on that right now.

Mark Miller – William Blair

Okay. My last question is along the lines of category expansion and so specifically on home versus the core categories in mom and kid, could you share with us any I guess any perspective around relative demand versus supply considerations for example, 1% of the items are being sold in these categories that you’re offering as compared to what’s available from the vendors is that as high as the core business or is it different? Thanks.

Darrell Cavens

Sure I think what we continue to see a great ability to discover sort of new brands and new products across categories and strong depth of inventory across all of our vendors. I don’t see any real difference across categories in terms of inventory depth from suppliers. We work hard with our vendors to understand the depth of entry we think we can sale through and I don’t think we’ve seen changes over time as we added additional categories or expanded our vendors in kind of the available depth inventory or sale through rates there I think if anything we continue to find more and more great product and great merchandize out there.

Mark Miller – William Blair

Thanks.

Operator

Your next question comes from the line of Justin Post from Bank of America Merrill Lynch Your line is open.

Justin Post – Bank of America Merrill Lynch

Thank you. I’ve a couple of questions, first as you look at your cohort analysis any changes that you’re seeing as far as returns on adding a new person or do you think the cohorts are getting better as far as the average expecting revenue per cohort, anything you can help us with that? And then on the shipping time maybe help us understand there has been any effect on reorders if a shipping time takes longer for an individual I don’t if you’ve look at that at all but what are your thoughts are on balancing those and overtime potentially bringing those down any plans to that maybe for the next 12 months. Thank you.

Darrell Cavens

Sure. I think if you look at the cohort they’re very, very healthy. I think we’ve seen them trend very consistently overtime even as we increase marketing overtime and very, very healthy and very, very consistent.

I think on the shipping issue is interesting, because the time moved up slightly as we exited the quarter there but our model is just so different I mean our customers are coming in and discovering new kind of unique product every day that they’re not showing up with a kind of need based purchase there. And so a small movement in that shipping type what we seen just doesn’t change customer behavior in terms of repeat, doesn’t change customer behavior in terms of engagement really in any way. And I think that’s surprising to lot of people again because the customer is coming in and discovering the products it’s just a very, very different purchase model.

I think over the last four and half years since we started this business that’s been a consistent question and concern from people that customers won’t buy this way or that kind of longer time they takes and traditional retail to be an issue and we’ve just not seen that to be the case, as that kind of time moves around we just not see an impact, repurchase rate or engagement rates.

That being said we are focused aggressively at driving down those ship times, you see that investment in technology, and in infrastructure, and I think overtime you will see that kind of trend down over time. What we won’t do though is to drive that down at the expense of diversity of products or of value to the customers. So those two things are something that we’re obsessed about internally every day and make sure that we’ve got that amazing diversity unique products that priced in a way that you just can’t find elsewhere. And as long as we can keep those tenements in mind and drive those shipping times down I think the offering for our customers is just phenomenal and is going to make them keep coming back.

Justin Post – Bank of America Merrill Lynch

Okay great and going back to the issues in the quarter now of course it’s a great problem to have extra orders I think that’s really good to see, but when you have orders that exceed your estimates how do you manage the vendor relationship and how do you work through those situations?

Darrell Cavens

Sure I think if you look at kind of the way our order flow and our supply chain works, as we are taking customer orders, our vendors are then shipping that product to us so we are able to receive them in our warehouse even though there is a lag time there, I mean most items as they come in to our fulfillment center we’re shipping out same day or next day.

So as you look at the backlog there it’s really just product that is on the dock or coming to the facility for us to move through. It doesn’t change our relationship with the vendors in any way and it’s really us just making sure that we have got the staff in place to move through that. I think as I mentioned in the kind of prepared remarks we have now got over a 1,000 people in each facility moving through that product and it’s just making sure that we have got the capacity to handle that on the people side but it hasn’t changed in any way shape or form the current relationship with the vendors.

Justin Post – Bank of America Merrill Lynch

Okay, and last one, in the quarter were there any categories that really surprised you or that are really tracking well?

Marc Stolzman

Yeah, I can take that one. Categories are something that we don’t disclose individually. I think Darrell earlier made a couple of comments just about some thematic direction on where we see expansion, how things are performing but we don’t disclose any of the individual categories.

Justin Post – Bank of America Merrill Lynch

Great, thank you.

Operator

Your next question comes from the line of Shawn Milne, Janney Capital Markets.

Shawn Milne – Janney Capital Markets

Thank you and good afternoon. Let me just go back to the backlog issue real quick. Marc, I wondered if you can give a little bit more break out of the cost implications towards at the end of the quarter which hit gross margin, is there a way to bucket some of those – the extra cost there was it just added people was there any mark down effect, I don’t think that was the case given your prior comment but is there any way to sort of quantify that gross margin impact and I have a follow up.

Marc Stolzman

Sure. So it’s a delicate question because we don’t provide the components of cost of goods sold. However what I can tell you is two specific things that occurred. One as Darrell mentioned as we brought on the people to ramp up the capacity we worked longer shifts, we worked more over time and that increased the base wage rates within the facility, that’s a large part of the increase but more specifically because this was at the end of the quarter and you know our revenue recognition we have the situation where we shipped a significant amount of items in the final week of the quarter where all the shipping cost and all the fulfillment cost are incurred but the actual revenue and shipping revenue and product revenue is deferred to the next quarter.

So it’s in many ways the worst case in terms of the P&L, none of the revenue all of the cost to fulfill and that additional over time in staffing and the item I just referred to was a significant part of year-over-year change in gross margin.

Shawn Milne – Janney Capital Markets

Right and that makes – so I mean if you think about just the timing element you are going to have the exact opposite in the second quarter right where you have got revenue flowing through without as much variable cost so we should see some snapbacks there?

Marc Stolzman

Yeah, definitely and we certainly took out into account when setting both top and bottom line guidance.

Shawn Milne – Janney Capital Markets

Okay, and then just on the engagement side, in terms of orders per customer now we have the ordered number in the press release, that’s helpful, thanks. It looks like, at least the quarterly number was flattish maybe down just a hair year-over-year but that’s up against the very tough comp, is there anything else going on there, and any color around mobile engagement would be helpful. Thanks.

Marc Stolzman

Sure I will take your comments about the trend and then I think Darrell might take the other side of that. So I think you have been referring to revenue per active customers what I’m guessing in that case and revenue per active was down slightly, 65 this quarter I think it was 67 last quarter of 2013 and really the same issue I just described having the deferred revenue when the orders have been received but the deferred revenue, the active customers were there, the orders were there, all of the revenue wasn’t recorded so it did impact the revenue per active customers but other than that the underlying trend is very strong.

Darrell Cavens

And I will touch on mobile. I think what we –- you see it in the numbers there, what we continue to see our customers engaged with us aggressively on mobile. I think they are coming to us any place they are when they have got five minutes of time and looking for a moment of escape or a moment of entertainment, they are finding us and we find more and more over time that’s happening on mobile and excited to just keep improving that kind of experience over time whether it be on tablets or phones we are pushing hard just to continue to improve that experience and we see our customers engaging with us in very, very consistent ways over time and we are just getting more and more of them to mobile over time.

Marc Stolzman

I guess one other thing, I’d add is we are continuing to also find kind of good ways to acquire customers across different channels including on mobile and I think there is continues to be a lot of opportunity to find customers on mobile and to be very kind of tactical and deliberate about kind of acquiring in cost effective ways and unique ways that we are seeing working.

Shawn Milne – Janney Capital Markets

Just a follow up on that, you talked about getting a little bit more aggressive on marketing and it sounds like you are having success with mobile advertising. I don’t know if you can add a little more color here of your spending in certain channels at different rates or more color on your online spend, thanks.

Darrell Cavens

Sure, I’d say what we continue to see is a great diversity of marketing acquisition spend and marketing sources and so whether it’s across kind of your traditional online placements, whether it be mobile, whether it be television I think what we have found is that the brand resonates incredibly well with customers and any which way we put the brand out there we’re finding great ways to economically acquire customers but we have continue to add key members to marketing team and we are finding more great partners and ways to kind of deploy more marketing dollars.

I feel very kind of confident and excited about the trends we are seeing in marketing and it really comes down to a tremendous amount of kind of detailed execution across all those channels but there isn’t any big shifts that we are seeing or kind of behavioral changes other than we are just seeing kind of good consistent opportunities across the board.

Shawn Milne – Janney Capital Markets

Great, thank you.

Operator

Your next question comes from the line of Mark Mahaney from RBC Capital Markets. Your line is open.

Rohit Kulkarni – RBC Capital Markets

Hello, this is Rohit Kulkarni filling in for Mark, just a quick one again on mobile if you could just further elaborate draw that out a bit further as in any compare and contrast to behavior of mobile shoppers versus non-mobile specifically you can talk about perhaps acquisition cost, how they vary or average order value or purchase frequency anything around those lines and as you see this business becoming increasingly mobile in the next 12 to 18 months perhaps as high 60%-70% how that – how do you think that should play out?

Darrell Cavens

I don’t think we really give any kind of more kind of detail in terms of how customers behave other than I mean you can see it from sales numbers that customers are engaging with us incredibly well on mobile I would just say I think we see that customers anyway they find us whether it would be on desktop or mobile are very, very engaged and we continue to improve the experience so that over time if that remains customer preferences we think that we have got phenomenally strong offering. I don’t have anything to add it’s kind of as we look forward other than just key thing kind of improving that experience and I think that’s why they are coming back again and again and again.

Rohit Kulkarni – RBC Capital Markets

Okay, and just a quick one on shipping times, you partially addressed this question before but as you look the balance between adding new products and using that as a way to improve the overall consumer experience and balancing merchant relationships with shipping times but as overall e-commerce is going more towards same day shipping, faster shipping and consumer expectation of versus what it was maybe two three years ago, is probably going to be different in the next year or so.

So to what extend do you think your kind of core kind of philosophy about consumer satisfaction would need to adjust to such a potential change in consumer expectation?

Marc Stolzman

Yeah, it’s interesting right, because I think we are entrepreneurs and we go and start things and do things differently than they have been done before. So we are not out there looking at the rules that have been dictated how people build an e-commerce company. So we build something that pretty different but I think if you go back four years, if we showed up at your offices there at RBC and said we are going to launch e-commerce business and we are going to have real long shipping times and we are going to charge people for shipping and there’s no product reviews and returns are not readily available we probably wouldn’t have gotten an investment from you.

But we’ve built a company to a scale and at a pace which has not often been done before and I think it’s because we are doing something completely different. And so we formed white space in the e-commerce market by doing that. And it’s been interesting though watching as we have gone in the market and if you look at our customers like would our customers like things fasters, sure. But you look overall we are seeing no problem getting new customers. We are seeing no problem getting existing customers to spend more money.

We are looking at net promoter scores that are off the charts. Our customer are happy, they love the model and so we’ll work on speeding it up but it’s been interesting watching people’s reaction as we enter the public markets and seeing the press on this because you do things that are different and it takes people a while to figure out what you are doing and why it works but I mean look at the numbers, it works. So I think overall I would say we continue and that’s whole thing of like you know next day shipping that didn’t just happen right. People have been looking and trying to push that for the last decade in the e-commerce right.

So it’s not that all of a sudden we are going – the world is going to next day shipping and we are being left behind. We have a set of customers and a set of use cases that are just different and we’ll continue as we have said all along we’ll continue to try to do everything we can to make our customers happy and part of that is trying to speed it up speed up the delivery but it won’t speeding-up the delivery at the expenses of raising prices or of launching fewer products.

And so we are focused on get better and better at the things people love us for and at the same time invest in speeding things up. So you’ll see us do that but we are very happy to be misunderstood for a long time I think as one of the other e-commerce icons out there like to say we are fine being misunderstood for a long time as people look for us to try to ship next day, that’s not what our customers want.

Darrell Cavens

Yeah I couldn’t agree more with Marc there and I think you can tell we get pretty passionate this business because I think what we have built here is really unique in the marketplace and I think that’s customers are responding to and what I won’t let us do is ever lose that uniqueness. And so I think there is opportunity overtime to drive that shipping time down, I think we have talked about that in the past but I think you will see us continue to do things that are innovative and unique to help to drive that down but our passion and our obsession really comes back to that curation every day, that story coming every day and that values you just can’t find elsewhere.

Rohit Kulkarni – RBC Capital Markets

Yes, great. Thanks a lot Marc, thanks a lot, Darrell.

Operator

(Operator Instructions). There are no further questions at this time. I will turn the call back over to the presenters.

Darrell Cavens

Great, well thank you everyone, very much appreciate all your time and look forward to giving you an update next quarter.

Operator

This concludes today’s conference call. You may now disconnect.

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