Staples Management Discusses Q1 2013 Results - Earnings Call Transcript

| About: Staples, Inc. (SPLS)
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Staples (NASDAQ:SPLS) Q1 2013 Earnings Call May 22, 2013 8:00 AM ET

Executives

Chris Powers

Ronald L. Sargent - Chairman, Chief Executive Officer and Chairman of Executive Committee

Christine T. Komola - Chief Financial Officer and Senior Vice President

Joseph G. Doody - President of North American Delivery

Demos Parneros - President of North American Stores & Online

John Wilson - President of Europe Operations

Analysts

Daniel T. Binder - Jefferies & Company, Inc., Research Division

Gary Balter - Crédit Suisse AG, Research Division

Michael Lasser - UBS Investment Bank, Research Division

Brian W. Nagel - Oppenheimer & Co. Inc., Research Division

Bradley B. Thomas - KeyBanc Capital Markets Inc., Research Division

David Gober - Morgan Stanley, Research Division

Gregory S. Melich - ISI Group Inc., Research Division

Aram Rubinson - Nomura Securities Co. Ltd., Research Division

Michael Baker - Deutsche Bank AG, Research Division

Colin McGranahan - Sanford C. Bernstein & Co., LLC., Research Division

Kate McShane - Citigroup Inc, Research Division

Matthew J. Fassler - Goldman Sachs Group Inc., Research Division

Gregory Hessler - BofA Merrill Lynch, Research Division

Operator

Good day, ladies and gentlemen, and welcome to the Quarter 1 2013 Staples, Inc. Earnings Conference Call. My name is Matthew, and I will be your operator for today. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. And now I would like to turn the call over to Mr. Chris Powers, Director, Investor Relations. Please proceed, sir.

Chris Powers

Thanks, Matthew. Good morning, everyone, and thanks for joining us for our first quarter 2013 earnings announcement. During today's call, we will discuss certain non-GAAP metrics to provide investors with useful information about our financial performance. Please see the Financial Measures and Other Data section of the Investor Information portion of www.staples.com for an explanation and reconciliation of non-GAAP measures and other calculations of financial measures that we use to analyze our business.

I'd also like to remind you that certain information discussed on this call constitutes forward-looking statements for purposes of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by such forward-looking statements as a result of various important factors, including those discussed or referenced under the heading Risk Factors and elsewhere in Staples' 10-Q filed this morning.

Here to discuss Staples' first quarter performance and business outlook are Ron Sargent, Chairman and Chief Executive Officer; and Christine Komola, Chief Financial Officer. Also joining us are: Demos Parneros, President of North American Stores & Online; Joe Doody, President of North American Commercial; and John Wilson, President of Europe. Ron?

Ronald L. Sargent

Thanks, Chris, and good morning, everybody. Thanks for joining us today. This morning, we reported our results for the first quarter of 2013.

Total company sales were $5.8 billion, which was a decrease of 3% versus Q1 of last year. Earnings per share from continuing operations came in at $0.26 and we generated $306 million of free cash flow during the first quarter. Excluding the negative impact of stores closed during 2002 (sic)

and the stronger U.S. dollar, total company sales were down 2% year-over-year.

I'm pleased to report that our reinvention plan is on track and is gaining momentum. We're driving sales from our expanded assortment, and we're accelerating growth online. During the first quarter, we saw growth in North American contract, staples.com and quill.com. We reported our best European Retail comp sales in almost 3 years, and sales per square foot were stable year-over-year in our North American Retail stores.

Before we get into the segment results, I'd like to give you a quick update on the progress we're making on our strategic reinvention. During Q1, we continue to expand our assortment. We added 20,000 new products on staples.com in areas like teaching and education, office decor, facilities and breakroom and safety supplies. Over the past year, we've added over 90,000 new SKUs to the site, which are driving close to $1 million of incremental sales per week, and we're seeing nice traction from the increased assortment on quill.com as well. We also expanded our offering of Staples -- or of Apple accessories beyond staples.com during the first quarter. We now offer Apple products to our mid-market contract customers and in half of the stores in the United States.

In terms of driving growth online, we're gaining momentum in staples.com with sales up 3% compared to Q1 of last year. This improving trend is supported by our expanded assortment, as well as the investments we're making in customer acquisition and website improvements. In mid-March, we relaunched our Staples Rewards program, which now offers customers 5% back in rewards on all products and all services. We've also improved the program to offer free shipping with no minimum purchase. Our new Rewards program further differentiates Staples from competitors. And the early response from our customers has been encouraging with enrollments up nicely year-over-year.

Beyond the investments we're making to accelerate our online sales, we're also adding new leadership and new expertise to drive this key growth initiative. We've recently announced the addition of Faisal Masud to the Staples team. Faisal joins us from Groupon and has also worked at eBay and Amazon. He will assume the new role of Chief Digital Officer and will be responsible for driving growth in staples.com and will play a key role in implementing our omnichannel strategy.

During Q1, we also announced the nomination of Raul Vazquez for election to our Board of Directors. Raul is the CEO of Progreso Financiero and previously served as the CEO of Walmart.com. He is a multichannel veteran. He has deep digital expertise. And he would be an outstanding addition to our Board of Directors.

We also are driving growth in our services business. Copy and print sales in North American Stores & Online were up in the mid-single-digits during the first quarter. We've increased our focus on customer acquisition and building strong relationships with our top customers. We've also realigned our in-store and online offerings and our retail sales force continues to build momentum. EasyTech sales also grew in the mid-single-digits during the first quarter despite tough trends in the PC category. The replacement cycle for computers has lengthened, and as a result, more customers are relying on Staples for services like virus removal, diagnostics and PC cleanup.

Turning to omnichannel. Here we're in the early innings of this initiative. We've successfully rolled out our new cross-channel features like Reserve Online and Pickup in Store. And we've improved our in-store staples.com kiosk, which gives our retail customers an endless aisle shopping experience. We've implemented incentive plans to drive omnichannel sales and improve our in-store conversion rate. I'm also pleased to announce that earlier this week, we opened our first 2 12,000 square-foot omnichannel stores in Norwood, Massachusetts and Dover, Delaware. This new format provides customers with a much more interactive experience and helps drive increased awareness and sales of our expanded offering on staples.com. We're excited about the omnichannel opportunity. We expect momentum to build throughout 2013 as we invest in associate training and continue to increase customer awareness of our unique integrated offering.

Our funding the future activities, they're right on track. We remain committed to driving $150 million in gross savings for the year. Through the first quarter, we've completed over 90% of our vendor negotiations, and we're tracking ahead of plan. In terms of square footage reduction, we've closed 13 stores. We downsized and relocated 7 stores in North America during Q1. And we streamlined our store labor model in the U.S. to reduce costs and increase efficiency. We're also reshaping our contract sales force, reducing administrative task and focusing more time on selling. During the first quarter, we hired category experts and retrained our sales force accelerate sales in categories beyond core office supplies. And in Europe, we continue to make good progress reducing headcount, consolidating subscale operations and streamlining back-office functions.

Now let's take a look at our Q1 results for each of our business units. And I'm going to start with North American Stores & Online. Sales for the first quarter were $2.8 billion, down 4% compared to Q1 of last year. In the last 12 months, we closed 48 stores in North America. This negatively impacted our Q1 sales growth by approximately 1%. First quarter same-store sales, which excludes staples.com sales, declined 2%. Average order size was flat and customer traffic was down 2% year-over-year. Staples.com sales grew 3% versus the prior year. During the first quarter, growth in tablets, facilities and breakroom supplies and copy and print services were more than offset by weakness in computers, business machines, software and technology accessories.

North American Stores & Online Q1 operating margin decreased 107 basis points versus last year to 6.2%. This was driven by investments to drive growth in staples.com, deleverage of fixed expenses and costs associated with streamlining the store labor model in the United States during the first quarter. We remain focused on reducing square footage and improving the productivity of our retail stores. Our plans for 2013 now call for approximately 40 net store closures in North America versus our previous guidance of 30 net store closures. We also continue to expect a total of 45 relocations and downsizes for the full year.

Moving on to North American Commercial. Sales for the first quarter were $2 billion. That was an increase of 2% compared to last year. Sales accelerated during the first quarter, with low single-digit growth in both contract and quill.com. We're building momentum with our expanded assortment on quill.com. Top line growth remains strong in adjacent categories like facilities and breakroom supplies, which was once again up double-digits during the first quarter. This was partially offset by weakness in core office supplies, which were down in the low single-digits during the first quarter.

North American Commercial operating margin for Q1 decreased 56 basis points versus last year to 7.3%. This reflects investments in marketing and sales force to drive growth, as well as reduced product margin, partially offset by the favorable comparison to Q1 of last year, which included headcount reductions and the settlement of a contractual dispute.

In International Operations, sales for the first quarter were $1 billion, a decline of 11% in local currency and 13% in U.S. dollars versus Q1 of last year. The sales decline reflects weak top line trends in Europe and Australia. Over the past year, we've closed 49 stores in Europe. This negatively impacted Q1 sales growth for International Operations by about 2%. In Europe Retail, same-store sales were down 3% during the first quarter, our best comp since Q3 of 2010. Average order size increased versus Q1 of last year but was more than offset by a decline in customer traffic. Our European delivery businesses remained under pressure as the difficult macro trends in Europe, retender pressures from our enterprise customers and weak demand for core categories, like ink and toner, continue to weigh on results.

During Q1, International Operating margin decreased 18 basis points versus last year to a loss of 1.1% of sales. This was driven by lower product margin and deleverage of fixed expenses in our European delivery businesses and Australia, partially offset by the favorable comparison to Q1 of last year, which included headcount reductions and the settlement of a contractual dispute. Our European restructuring program is on track. And while we don't expect rapid improvement in our top line trends during 2013, we do expect to see margin improvement going forward as we benefit from the actions we've taken to reduce our cost structure and simplify our business going forward.

And with that, I'll turn it over to Christine to review our financial results.

Christine T. Komola

Thanks, Ron. Good morning, everyone. During the first quarter, total company sales were $5.8 billion, a decrease of 3% in U.S. dollars versus the first quarter of last year. In the 12 months preceding Q1 of 2013, we closed 97 stores in North America and Europe, which negatively impacted total company sales growth for the first quarter by about 1%. The stronger U.S. dollar also negatively impacted sales growth by about 50 basis points during Q1. Excluding these 2 items, total company sales were down about 2%.

Our first quarter earnings per share from continuing operations on a fully diluted basis decreased 7% to $0.26 versus the first quarter of 2012. Gross profit margin for the first quarter decreased 58 basis points to 26% of sales, which reflects investments and pricing to accelerate growth and deleverage of fixed expenses in our International and North American Stores & Online businesses on lower sales.

SG&A decreased 4 basis points versus last year's first quarter to 20.9% of sales. This decline was driven by a favorable comparison to Q1 of last year, which included severance expense and the settlement of a contractual dispute. We also had savings related to headcount reductions and a change in management compensation during Q1 of this year. These favorable items were offset by investments in sales force and website enhancements to support our strategic reinvention.

Total company operating margin decreased 52 basis points during the first quarter to 4.9%. Our effective tax rate for the quarter was 32.5%, which was unchanged versus Q1 of 2012. And our first quarter capital expenditures came in at $41 million, down from the $52 million we spent in the same period last year.

With operating cash flow of about $348 million, we generated free cash flow of $306 million, and we remain on track to generate more than $900 million in free cash flow for the year. During the first quarter, we repurchased 4.9 million shares for $65 million. And our plan is to continue repurchasing common stock through open market purchases during 2013.

As you think about our other uses of cash in 2013, please do keep in mind that we do plan to repay with cash $867 million of debt, which matures in January. And on an annualized basis, we plan to pay over $300 million in cash dividends. At the end of Q1, Staples had approximately $2.5 billion in liquidity, including cash and cash equivalents of about $1.4 billion and available lines of credit of about $1.1 billion.

Turning to our outlook. Our guidance for 2013 is unchanged. We expect full year 2013 sales to increase in the low single-digits compared to 2012 sales on a 52-week basis of $23.9 billion and we expect full year 2013 diluted earnings per share from continuing operations to be in the range of $1.30 and $1.35. As we mentioned last quarter, our strategic reinvention is focused on accelerating sales and earnings growth, and we expect momentum on the top and bottom line to continue building throughout 2013.

Thank you for your time this morning. I'll now turn it back over to our conference call moderator, Matthew, for Q&A.

Question-and-Answer Session

Operator

[Operator Instructions] And your first question comes from the line of Dan Binder from Jefferies.

Daniel T. Binder - Jefferies & Company, Inc., Research Division

It's Dan Binder. I had a couple of questions for you. First, on the delivery business. I was wondering if you could break out for us what your -- in terms of the positive sales that you saw there, how much of it was generated from acquisition of accounts versus growth in spend for existing accounts.

Ronald L. Sargent

Joe?

Joseph G. Doody

Yes. First, let me break it down a little bit between Quill and contract. Quill had a very good quarter. In fact, Quill had their best quarter in more than 5 years with a positive 3% growth. And there, it was heavily driven by new business. Also the marketplace ramp-up with the expanded assortment was a clear driver of growth for them. And they continue to have strong growth in facilities and breakroom. But clearly, it was a combination there of both new business and some increased sales to existing customers primarily through the assortment expansion and facilities and breakroom. In contract, there, we had a positive sales growth, over 200 basis points improvement from Q4. Sales to existing customers were up slightly. We also continue to see very strong growth in facilities and breakroom. Our new business acquisition was up slightly in terms of number of new accounts. And as far as new business from those accounts, it was up more significantly, so a little bit bigger average new customer that was brought on. And we continue to see very strong growth in facilities and breakroom there as well.

Daniel T. Binder - Jefferies & Company, Inc., Research Division

And once you get to the SKU count that you want to online and in delivery, I know you noted that there was about $1 million per week coming in from those extra -- from those new SKUs that you've added over the last year. I think you're going on like 300,000 or 400,000 SKUs. What do you ultimately think that can generate in terms of incremental dollars either per year, per week, however you want to frame it?

Joseph G. Doody

Well, I don't think we've really given out a forecast on that, Dan. First, I'd say that the $1 million per week right now is essentially the run rate on our staples.com site. We also noted that quill.com is getting some good growth there as well, probably more like 1/3 of that in terms of size of magnitude. But we're very happy with the ramp-up, and we continue to add new SKUs, get incremental sales and incremental margin dollars from those.

Daniel T. Binder - Jefferies & Company, Inc., Research Division

And then Ron, my last question was around the sales guidance for the year. Obviously, with a negative number in Q1, you sort of start out in a bit of a hole. You have to make up some ground. I'm just curious, at what point do you think the business could inflect? Is it early as next quarter? Or are we thinking more back half?

Ronald L. Sargent

It's hard for me to predict what our sales are going to be 3 months from now. But our plan is certainly to accelerate from the first quarter every quarter of this year. And I think the online expansion is a big part of that. But we've also got a lot of new things coming on our retail side of our business. I do think we will have a drag from the stores we've closed throughout the year. But we expect sales to continue to grow from here and end the year at a slight positive top line sales growth, which I think would be not only our plan, but what we're expecting even after the first quarter.

Operator

Your next question comes from the line of Gary Balter from Credit Suisse.

Gary Balter - Crédit Suisse AG, Research Division

I wanted to ask a more theoretical question there of the direction where you're taking the company because in past years, not last year, the year before, but in past years, you used to give us, "Here's the goal for operating margins in North American Stores, in Commercial, in International or contract and International." And now we're looking at it. And in this quarter, we had overall 50 basis points but bigger declines in the North American side of the business. And it seems like you're constantly making investments to drive the top line. Could you step back maybe and talk to us about what you see is the strategic direction where Staples is going now? Are you looking more for market share and willing to sacrifice margin? Do you view these as temporary investments? How should we be thinking about it?

Ronald L. Sargent

Well, I mean, I think when I look at our 2 biggest challenges, we've got to get the top line growing again and I think we've got to improve our results in International. I think as we outlined during the -- when we announced the strategic reinvention plan, we think we've got kind of 4 areas to grow the top line. And whether that's online or omnichannel or services or assortment, those are the areas we're going to make the investments in. And we think obviously, if you're growing the top line, I mean, sales tends to cure all ills and I think the bottom line will follow. So it's a little hard for me to kind of say this quarter or next quarter what are the operating margins going to be because I think the focus has really been on delivering the guidance that we gave you this year, which is the $1.30 to $1.35 while continuing to take costs out of the business and reinvesting a good portion of that cost we're taking out of the business to grow the top line. So we're really trying to run the business for the next several years, not just quarter-to-quarter, but we think the investments in online and other growth areas is really important and we'll continue to do that. But we still feel very confident that the $1.30 to $1.35 earnings per share that we articulated is there.

Gary Balter - Crédit Suisse AG, Research Division

Well, maybe said another way, how much margin deterioration are you willing -- like is the top line the goal right now and it will come at whatever is necessary on the margin line? Is that the way we should be thinking about it?

Ronald L. Sargent

No. I wouldn't say that we're going to grow the top line at all cost because we know we have kind of bottom line expectations from our shareholders as well. But I think we tried to frame it with our guidance this year that we expect to get the top line growing again and we think that'll accelerate even further in '14. And I think you'll see that as the quarters unwind this year. But at the same time, I think our bottom line guidance is relatively flat from year-over-year. And I think this is the investment year. And we obviously expect those investments to pay off in '14, '15 and '16.

Gary Balter - Crédit Suisse AG, Research Division

Is there any assumption built into the second half of the year about when the merger of your competitors closes?

Ronald L. Sargent

No. There's not at all. I mean, we're basically just kind of working the plan that we articulated, first of all, last September but more recently last quarter. And if there's any benefit of that merger happening, that would be on top of and in addition to anything that we're planning on ourselves. So we're assuming that we're a standalone industry that is going to continue to grow with our plan versus expecting something from somebody else.

Operator

Your next question comes from the line of Michael Lasser from UBS.

Michael Lasser - UBS Investment Bank, Research Division

Two questions. One, are you seeing any evidence that you're seeing share gains right now as it stands? The acceleration in your contract business may suggest that you are. Maybe if you dig down into the new contract wins, who are you unseating as the incumbents?

Ronald L. Sargent

Joe?

Joseph G. Doody

Yes. Michael, I think it's definitely not due to anything related to the merger announcement. It is due to the work that our team has been underway for many, many months. And so nothing has really changed there as far as the average customer just doesn't get impacted by the merger announcement, doesn't really affect them until they see a change. And they've not seen a change and they won't see a change until probably 2014. So the gains that are going on are part of our plan for the year. And the team is executing well against it so far.

Michael Lasser - UBS Investment Bank, Research Division

What about the uncertainty as those incumbent contracts are up for renewal? It would seem to be an easy pitch to go on and unseat who's ever currently has that business. And is that influencing how...

Joseph G. Doody

It may make it a little bit easier. And I'd also -- you could also argue that our existing customers that are coming -- our existing customers coming up for renewal would make it easier for them to stay intact with us. So I think it will help as far as the major customers are concerned, the more educated enterprise customers, because it's a major switch for them when they switch vendors. But for the mid-market customer, which is majority of our contract business, not a big issue to them now and won't be a big issue until it directly affects them.

Michael Lasser - UBS Investment Bank, Research Division

Okay. And my follow-up question is for Ron. You've outlined your reinvention plan and you're making progress there. At the risk of asking something kind of corny, do you think that you need to make bigger cultural changes within the organization to really effectuate change? Or do you believe that, that's going to be an outcome of what you're doing?

Ronald L. Sargent

Well, I think the industry has certainly changed and our company has changed over time. And obviously, when you look at more than half our business being online today versus, gosh, when I joined the company, it was 100% retail. I mean, I think those are fundamental changes and I think we're trying to, one, bring in talent that will support those changes; two, we've kind of done some reorganizational things, particularly joining the dot-com business with the retail business. But yes, I mean, I think there is a cultural shift from being kind of a traditional retail bricks-and-mortar company to being an online company. And I think we're navigating that pretty well. And I've got to tell you, I think we have longer to go.

Operator

Your next question comes from the line of Brian Nagel of Oppenheimer.

Brian W. Nagel - Oppenheimer & Co. Inc., Research Division

So a couple of questions. First, Ron, in your prepared comments, you talked about -- you, I guess, updated us on the store closing number to 40 from 30. I mean, not a big change. But the question I have there, is that -- is it just simply a tweaking? Or is there some type of strategic shift you're making there with respect to the real estate portfolio?

Ronald L. Sargent

No, it's really tweaking. I mean, Demos' team has done a wonderful job kind of looking at every store that's up for renewal. And as you know, we've got a couple hundred stores coming up for renewal every year. And we're not only looking at what's a great store versus an average store versus a not-so-good store. But we're also looking at kind of the implications of networks, where you've got kind of a handful stores and could you close one and benefit every other store surrounding it. I don't know. Demos, do you want to add anything to that?

Demos Parneros

Sure. Definitely a tweak in our approach. We, as Ron mentioned, take a very hard look at store-by-store and then network-by-network. We look at individual store profitability and margins as well the network. And the thing that's been encouraging for us is that we've got good line of sight for the next 3 years. It's about 750 to 800 stores coming up. And it really comes down to a deal-by-deal situation. And if it really makes sense to pull the trigger and close the store, we've been aggressive in doing that if it makes sense for us. If we feel like the store's profitability is good enough and even with risk for the next few years, it's fine. We renew on a very short-term basis and we've been successful at doing so. So I think we're adjusting and navigating sort of real-time going forward, and this feels like the right place at the current time.

Ronald L. Sargent

And the good news is the key metric for us is sales per square foot. And that's been declining for a couple of years. And now that has stabilized and we expect sales per square foot to go up. And that's what you want in terms of sales productivity on a retail store.

Brian W. Nagel - Oppenheimer & Co. Inc., Research Division

Got it. And then second question, and maybe a bigger picture, but some of the other questions focused on top line, too. But as you look at the top line, I mean, what I'm gathering from the comments you're making here, it seems like there was even more of a stabilization in the business broadly speaking here in Q1 versus the prior quarters, a lot going on with internal initiatives, macro. The question I have, are you seeing -- is the macro environment overall manifesting itself? And then the buying patterns of your customers, is that turning better for you here that's helping you kind of aid the stabilization in your business?

Ronald L. Sargent

I think things are getting a little better. In North America, we are seeing a continued sluggish growth economy. I think things are getting better, but I've got to tell you, they're are getting better at kind of a glacial pace in North America. The other completely opposite story is in Europe, where the economy remains in deep recession. I think they've had 6 straight quarters of contraction to the eurozone. Unemployment, I think, is now up to about 12%. And there in Europe, we don't really see a recovery until the 2014 or '15 timeframe. The good news is I think jobs are coming back. A lot of the jobs that have been added over the last couple of years have been in areas that are not big consumers of office products, things like manufacturing and hospitality and utilities and transportation. But I think the higher consumer of office supply industries, things like financials and services, are starting to come back as well. So I think the worst is over for the economy, but the improvement is glacially slow.

Operator

Your next question comes from the line of Brad Thomas of KeyBanc Capital Markets.

Bradley B. Thomas - KeyBanc Capital Markets Inc., Research Division

Wanted to follow up on a comment that you made, Ron. You noted that sales per square foot in retail during the quarter were stable. Obviously, the company is taking actions to improve the cost structure in retail. What kind of comp or sales per square foot do you need to generate to maintain profitability in retail?

Ronald L. Sargent

Gosh, that's a hard question. I don't know what you mean, like maintain profitability, because our retail business is very profitable.

Christine T. Komola

I think just -- Brad, it's Christine. As we think about the metric around sales per square foot, it really does drive -- get driven by sales and managing the overall cost. So there are several things that we use to drive that. And I think we will continue to see improvement moving upwards. There's no specific target around it. But we are expecting that between all of the activities that we've got going on, as well as the cost takeout within the 4 walls of the store. That's how we're starting to really think about it and drive our teams to think about it.

Demos Parneros

If I could add just one quick comment. Just kind of big picture the way that we're thinking about the store network is to continue to take out unproductive square footage as we've been doing. So we're on track to deliver our 3-year square footage reduction and we do that through closings, as well as downsizing. In the meantime, we have just opened our brand-new prototype store that is 12,000 square feet, which we believe is the most productive store we've ever had. And it's a combination of strong omnichannel components, as well as a very edited and carefully selected assortment. In addition to that, we've just launched a brand-new, more productive, leaner labor model. So all those things together puts us in a really good position going forward as we continue to prune square footage and really focus on what's inside the box from a sales and a margin standpoint. So hopefully that helps.

Bradley B. Thomas - KeyBanc Capital Markets Inc., Research Division

That's helpful. And just to follow up on sort of the overall level of promotion from the company in the stores and online channel, it seems that there's a number of investments you're starting to make, improving the rewards, doing free shipping. Do you feel this is the right level of promotion today to hit the top line goals? Or do we need to see more investments over the next couple of quarters?

Christine T. Komola

Brad, again it's Christine. We do think that we'll continue to invest in the top line over the next few quarters. But equally aggressively, we are taking cost out. As Demos mentioned, we are -- we've realigned our store labor model to take cost out within the stores as you downsize these stores and you take cost out from everything from occupancy to fixture cost, capital. So it's a dual effort. So I expect that over time, it'll be a -- invest some, take cost out type of model. And that it'll start to continue to pay for itself.

Operator

Your next question comes from the line of David Gober of Morgan Stanley.

David Gober - Morgan Stanley, Research Division

Just one high-level question, and then hopefully, we'll kind of dig in, in the follow-ups. But Ron, I guess, as we kind of think about your commentary about revenue growth accelerating kind of into the back half and into 2014, what gives you the most confidence in that kind of playbook playing out? Is it the, I guess, rank ordering just the overall economic situation or the jobs growth that you're expecting to see? Or is it more internally driven, and maybe some of the progress that you're seeing on some of those initiatives that you've been working on for the last year or so?

Ronald L. Sargent

Yes. I wouldn't give a whole lot of support for the economy because we're assuming the economy is going to continue kind of in a slow growth kind of mode and it's not going to really help us much. But I think many of the changes we've made in the business, the investment in services where we're seeing kind of mid- to high single-digit growth, the expansion of the assortment. And I think that's probably been the one that has surprised me the most. I mean, we kind of defined ourselves historically as a place to buy office products. And I think our customers are giving us permission to be the place to buy a lot of things for their business. And it's not just office products. It's safety equipment. It's retail supplies. It's many of the categories. Even technology, we thought kind of a more curated assortment of technology probably made sense for our customers. But our customers are saying, "We want choice." So I think the assortment expansion, products that we're not stocking but we're partnering with others who stock it, has been a really pleasant surprise. I think it's early days on the omnichannel area. I think we're lapping some of the large contract losses that we had talked about in the past. So I think that's kind of behind us. We're seeing strong double-digit growth in facilities and breakroom. I think the new rewards program has been well-received by customers and the sign-ups are heading beyond what we expect. So I think we've got lots of kind of growth areas in many parts of our business. And I think when you look at the second half, frankly, I think our comparisons are a little easier. We've got Hurricane Sandy, remember, impacted our sales in the second half. Black Friday was just so-so for our business. We expected a lot out of the kind of Windows 8 launch in the fourth quarter. So I think the compares are a bit easier as well. So yes, I guess, I am kind of encouraged about sales accelerating and momentum accelerating continuing throughout the year.

David Gober - Morgan Stanley, Research Division

So Ron, in that response, you mentioned technology. And obviously, you've had some progress on a lot of different categories, and technology has been one where you had, for a number of quarters now, you've had a drag on results. It sounds like you're definitely more encouraged there. Is that new product categories? Do you think that you're seeing -- you'll see more progress in tablets or other kind of adjacent areas? I guess, what gives you confidence that the weak results in technology stabilize or actually turn positive at some point?

Ronald L. Sargent

Demos is probably the best expert to talk about technology. But when you look at the computer business, I mean, it was very disappointing. It's been very disappointing for the last year. I'm not sure that the traditional PC business is going to recover. But Demos has got a lot of great things that will help compensate for that.

Demos Parneros

This is sort of a double-edged sword. When it's working, everybody's happy. Unfortunately, we're in this decline stage with a lot of the old tech, old business machines and some of the deterioration in things like boxed software related copiers, faxes, digital cameras, GPS. All of that continues to erode. And essentially, it's slowly going away. We had very good success with our tablet expansion. Our assortment is second to none. Obviously, everything but Apple hardware in our stores. But the Apple accessory business has been a very good, pleasant surprise in the U.S. so far. Our mobile phones business, which has been in 500 stores, has been a good lift for us. And we are preparing to continue to add another 500 stores to that business. So I think it's a little bit of a work in progress. We have been told, although I'm reluctant to be overconfident on new product introductions based on the comments from earlier, that there is a good strong pipeline of product for holiday. I think tablet prices will continue to be more and more competitive as that business heats up. And it's really transitioning very quickly away from laptops to become to a more stable level and away from reader category and really on to the tablet and mobile phone platform. So we're participating in that. Our teams have done a really good job in getting the right assortment in-store and our associates in the store are prepared to sell it. So we're in the midst of it.

David Gober - Morgan Stanley, Research Division

And Demos, maybe as I have you here, maybe if I could just sneak one quick follow-up on the Staples Rewards relaunch. Are you seeing any significant uplift there since you relaunched with the 5% back?

Demos Parneros

5% back has been very encouraging for us. Number one, it's simple for customers. They really get it. It includes the entire store. It's 5% back on anything, services, products. And our goal was to increase our sign-ups significantly with new customers. And in a short couple of months, we are very encouraged by the level of sign-ups and enthusiasm in stores. We're starting to see repeat shopping activity. So I'd say all systems go on Rewards so far. And the free shipping with no minimum fee Rewards customer is a big differentiator for us. And customer feedback on that has been very strong.

Operator

Your next question comes from the line of Greg Melich of ISI Group.

Gregory S. Melich - ISI Group Inc., Research Division

I wanted to start with the gross margin. And I can build on what Gary was asking. If we sit back and we see it was down almost 60 basis points, I guess, the dollars were down around 6%, how should we think of that decline in either rate or dollars in terms of product margin investment, mix and deleverage?

Christine T. Komola

Greg, it's Christine. So in terms of our gross margin, we deleveraged about the 60 basis points, and it really varies by segment. So North American Stores & Online was about 40 basis points. Commercial was about 50 basis points. And International was about a little over 100 basis points. So as we think about the segments, that was a big conscious decision in terms of where we were going to put the investment to grow. So you could see that the online businesses in North American Stores, as well as the online business in Quill really did grow based on the investments that we made in there. Now part of that investment, we did start to fund that investment with our COS initiative to get product savings. International was a heavy deleverage because of the fixed cost that they have. And that, as you take out the infrastructure with the 200 basis points around stores for that business, that over time, that's going to take time to cycle through as people actually leave and we actually do physically close our consolidated warehouses. So it is a conscious decision on where we're investing and how we're investing in it. And that's really the thought around our growth combined with the deleverage that you saw.

Gregory S. Melich - ISI Group Inc., Research Division

And so just sort of following on to that strategically, where you're getting the traction, either [ph] the product margin investment, in particular, do you expect to dial that up in those categories? Or do you think the balance is sort of where you wanted to be?

Christine T. Komola

I think it's going to vary. But I think in general, it's about where it's going to be. I mean, you'll see continued investment around that amount in those businesses. And I think it'll be pretty consistent.

Gregory S. Melich - ISI Group Inc., Research Division

Right. And then I think it was in the retail areas, there was a SG&A charge that was related to some severance, like I think I've got that on the original comment. How much was that? And if we think about the SG&A deleverage, how much of it was ongoing in retail and how much of it is sort of just a one-off?

Christine T. Komola

That was more of a one-off. As we start to really right-size our store labor model in stores, that was about, I don't know, $9 million or $10 million. It wasn't a significant amount, but it does impact this quarter. And we do expect that's part of our cost-out plan that will -- as we reshaped the store labor model. Demos has done a great job of taking labor, reallocating it out of our management team kind of into a more normalized hourly activity and really streamlined that process. So you'll see the benefit throughout the rest of the year.

Gregory S. Melich - ISI Group Inc., Research Division

Great. And lastly, Christine, you can start this, but if anyone wants to chime in. The free cash flow of $900 million for the year. Just want to make sure that's before any cash restructuring cost. Is that right?

Christine T. Komola

That actually -- that would actually include any restructuring activity.

Gregory S. Melich - ISI Group Inc., Research Division

Got it. And as a reminder, that was like, what, $250 million this year, something like that?

Christine T. Komola

About $150 million.

Gregory S. Melich - ISI Group Inc., Research Division

About $150 million this year. And then I guess, longer term, and I'm going to turn this one to Ron, do you think that's a -- if this strategy continues to work, rightsizing the business, getting productivity stabilized and growing again, are you comfortable with that sort of cash investment each year to kind of keep improving the other parts of the business?

Christine T. Komola

I think as we look at our investment, I think you'll continue to leverage the investment over time. So I think that we will -- as sales grow, we will continue to give back to the business, as well as give back to shareholders through the buyback program and through the dividend program. So I don't -- I think it's hard to predict over the next -- beyond the 3 years, but our intention is to...

Gregory S. Melich - ISI Group Inc., Research Division

I guess, that wasn't my question. Is $150 million of cash restructuring cost every year, is that sort of a good sort of run rate?

Christine T. Komola

No. I think as we continue to look at our investments, the $150 million is more around the restructuring of last year's expenses. So we don't expect to have a significant portion like that every year.

Ronald L. Sargent

Yes. We have no plans for kind of an annual restructuring charge. So I would assume no.

Operator

Your next question comes from the line of Aram Rubinson of Nomura.

Aram Rubinson - Nomura Securities Co. Ltd., Research Division

A question about International and North American Retail. Not suggesting that there's an analog between the 2, but I guess, what I'm trying to figure out is you want to make sure that there's not an analog between the 2. So what are we doing -- the North American Retail is kind of falling off, I don't know if there are kind of similarities to the way International did when it first began to underperform. And what you're doing to kind of learn from what seems to be stabilization in International margins now, of course, at a low level, how you might kind of leapfrog the issue in the U.S. and kind of take what you're currently doing in International, which is aggressive and apply it to the U.S. before you do become an analog?

Ronald L. Sargent

Yes. I think we're talking about an apple and an orange. I mean, our retail business in Europe is kind of breakeven due to a lot of reasons, obviously execution over the years, a lousy economy, a lack of scale. And I don't think that relates anything at all to kind of our North American Retail business, which is kind of an 8% profit business that is doing just fine. So I'm not sure there's lessons that we can take from International to the U.S. We are trying to obviously employ best practices from things we're doing in the U.S. to our International business. But I mean, it's a null set. I mean, they don't relate at all.

Aram Rubinson - Nomura Securities Co. Ltd., Research Division

Okay. I thought that maybe since you were kind of really taking very aggressive actions in International that it might be, "Hey, let's kind of do that ahead of time in the U.S. just in case." But it's -- you're really seeing them as different, I understand.

Ronald L. Sargent

And I think we took that action with our U.S. retail business and North America Retail business last year.

Christine T. Komola

I think our actions for the U.S. retail business is really focused on the store remodel program, as well as the omnichannel. So I think that the actions are equally urgent but just different actions.

Aram Rubinson - Nomura Securities Co. Ltd., Research Division

Okay. And also I'm not sure if this was asked. But can you comment on the attrition rate inside of your contract business, whether that has been, let's say, benefited by the looming acquisition or just kind of curious whether that's begun to be a benefit for you?

Joseph G. Doody

I wouldn't say that it was a big factor, Aram, in the quarter. But clearly, I think it is a -- I do see it as a potential benefit as the year unfolds. Certainly, the uncertainty of whether it's going to be a merged-up player out there or not, and it helps with our retention of our existing customers, that uncertainty. But it was not a major factor in Q1's performance.

Operator

Your next question comes from the line of Michael Baker of Deutsche Bank.

Michael Baker - Deutsche Bank AG, Research Division

A couple of questions. First, just curious, what do the margins look like on these new expanded categories, particularly if they're sourced through third parties? Is that one of the factors leading to the lower gross margins? Or is it more just being more aggressive on price?

Ronald L. Sargent

Yes. The answer is yes. I mean, the good news is that we don't handle any of this product, and it's being -- mitigations combined and sent. But the goal here is really generate incremental margin dollars. And since this is all incremental sales and you're competing with some pretty aggressive online players, you're going to have to have a lower margin rate, and we do.

Michael Baker - Deutsche Bank AG, Research Division

Okay. Good enough. Two more if I could. One, Europe comps, best in 3 years but the economy still pretty bad there, maybe even getting worse. Why do you think comps have gotten a bit better, i.e. down less? Is it just simply easy comparisons? Or is it some of the changes that you guys were making over there on the retail side?

Ronald L. Sargent

Well, we've closed our worst stores. But John Wilson's on the phone, and maybe I should let John kind of weigh in.

John Wilson

Sure, Ron. Closing the stores did help a bit, but I think it's more a function of some aggressive actions we're taking in Europe, particularly in the more difficult markets. We've had some pretty aggressive promotions but smart promotional activity and really focusing some of the basics, I would say, getting back to promotional planning, aggressive promotional planning, synchronizing their promotional activities with our in-store stock positions and buy. So I'd say it's more about better execution and more integrated planning in the environments that we're in. They're very tough environments. The retail expectations going forward are continued difficulties and challenges. But the closures combined with better execution is really what I would say is the biggest factor.

Michael Baker - Deutsche Bank AG, Research Division

Okay. Interesting. One more if I could. I'm just curious. I just wanted to talk about the merger real quick, the pending merger. I understand that you don't think you picked up any additional share. But just wondering theoretically, how do you try to take advantage of any disruptions? Do you reach out to customers other competitors and actively tried to win business more aggressively than you would otherwise? Or did you just sort of let them come to you? Just curious as to how that process works.

Ronald L. Sargent

Yes. I don't think we're necessarily doing anything we wouldn't otherwise. I mean, we aggressively go after our competitors' customers all the time and having doing that for 26 years. So I don't know that anything has really changed. I think obviously our customers read the newspaper. And when we get questions, we answer it. But at this point, it's really premature to even know if the merger is going to happen.

Operator

Your next question comes from the line of Colin McGranahan of Bernstein.

Colin McGranahan - Sanford C. Bernstein & Co., LLC., Research Division

First question on the reward and free shipping program. Was there any impact or what was the impact of that on gross margins in the quarter? And then I guess, bigger picture, how do you think about the required lift from that? And what kind of an ROI you get on that program?

Christine T. Komola

I can do the first one, Colin. It's Christine. In terms of the free shipping, there is -- we do have free shipping for most of our customers, almost 98%. But there was a slight impact because delivery in the Quill business and in the staples.com business is slightly more expensive than, for example, a contract business. So it did impact margins slightly. And then...

Colin McGranahan - Sanford C. Bernstein & Co., LLC., Research Division

And the 5% reward?

Christine T. Komola

The 5% reward, no, that's basically -- we took from the previous program and reallocated the dollar. So as of right now, that hasn't had a big incremental expense to us at all.

Demos Parneros

In fact -- can I comment for a second? The 5% back serves as a good trip generator back to the store. In terms of covering the cost and what return is needed, that's calculated into our expected lift for new enrollments. And we are right on track if not slightly ahead to deliver on that. So it's only 2 months in, but we are right on track with it. So we feel good about the program, the customer reaction and the financials as well.

Colin McGranahan - Sanford C. Bernstein & Co., LLC., Research Division

Okay. Great. Secondly, on pricing, Ron, I know in the past you've said you thought you were still a couple of percent away from where you wanted to be. How do you feel you are today relative to your most competitive online competitors?

Ronald L. Sargent

I think we're going to continue to invest in price, I think we have over the last 12 months. And I think we will continue to do that, to look at individual SKUs and the elasticity of product line. And we made pricing a little bit differently on the online world than we would in the retail world. Having said all that, I mean, on the contract side, we've got 3,000 sales reps out there, and I would guess that our pricing is much better than you'll see in any online competitor. So I think our challenge on pricing, and we're continuing to invest, is really on the quill.com and staples.com. And I think with price matching as needed in the stores, we're going to continue to look and spending a lot of energy understanding pricing in every segment of our business. We're looking at more dynamic pricing. But yes, I think pricing is going to be one of those key things. But I don't think that's the only reason customers choose to shop our online business or even our retail business even more importantly.

Colin McGranahan - Sanford C. Bernstein & Co., LLC., Research Division

Great. And then on the new categories, Ron, you said you were pleasantly surprised at some of the pickup as you've added assortment. Any particular areas or categories that have been surprisingly positive? It's a pretty broad swath of stuff out there from one educational product to large-screen TVs to feeding tubes. So I'm wondering what really is starting to resonate as you added that assortment?

Ronald L. Sargent

Yes. I don't want to get into kind of what's selling because I don't want to invent competitor strategies for them on our conference calls. But the one we kind of focus on most of all and we talk most about is facilities and breakroom. And that's been a home run. But I think there's going to be some other home runs on the online world as we expand assortment as well. But I just don't want to get into which categories are doing well and which are doing poorly.

Colin McGranahan - Sanford C. Bernstein & Co., LLC., Research Division

Okay. Final quickie. Demos, how would you handicap the odds of getting Apple hardware by back-to-school?

Demos Parneros

Obviously, we are working with Apple very closely. The relationship has been very good. We have a great relationship in Canada. The U.S. program has been very good so far. Don't have a definitive answer, but we're moving in that direction, and that's our hope.

Colin McGranahan - Sanford C. Bernstein & Co., LLC., Research Division

Sounds better than 50-50 to me.

Operator

Your next question comes from the line of Kate McShane of Citigroup.

Kate McShane - Citigroup Inc, Research Division

I was wondering if you could talk to us a little bit about staples.com. I know you've just made the hire for your new digital officer. And with it being such a big part of your contract business, and you were one of the early movers to the dot-com business, what capabilities are you hoping to improve upon? And what can we expect to see from that over the next 12 months?

Ronald L. Sargent

Well, yes, I think in some respects, I think we're pretty good in the online world and some we're not. I think when you look at the fact that we do next-day delivery to 98% of North America and we do it free, I think that's pretty good logistics. And I think tying into the marketplace wholesalers and super sellers, I think we're well on our way there. But in terms of investments, we've got a lot to do to improve the front end of our staples.com business. I don't think our website is nearly as good as some of the online competitors. And I think we've got to get a lot better at that. I think dynamic pricing is something we need to play catch-up with some of our online competitors. I think there is a little difference in that we're more of a business-to-business play versus a lot of online competitors are really going after consumers. So the needs of businesses are a little more unique. And the fact that we have thousands of sales reps who actually negotiate individual pricing with millions of customers, I think that makes us a little different as well. But in terms of where I would place the energy in the investment, it would be to improve the shopping experience on our website. And I think it would probably be to be a little more nimble in the area of pricing. Those would probably be the areas where I would place my emphasis. I don't know, Demos?

Demos Parneros

Yes. That's right on. I think the only other thing I'd add to that is on the pricing, it's not really the pricing and the dynamic pricing that Ron described but also the sequencing and the coordination with our store pricing. And I'm really encouraged by the omnichannel activity in stores. Customers are very receptive to walking into a store and really interacting with our sales people on the floor and finding what they need and often pleasantly surprised. Still the other area I'd add is just the continuing aggressive customer acquisition that we're doing to build our file. So that's kind of the workload going forward, and the momentum is building.

Ronald L. Sargent

And you've got to -- when you think about what we're trying to do here, I mean, at some point, you've got to aggressively go out and tell customers either digitally or in more traditional marketing vehicles that Staples, you can buy a lot more than just office supplies at Staples and we're much broader than we have been in the past in terms of what we can do for you.

Joseph G. Doody

I think, Ron -- sorry, it's Joe. I'll comment just one step further. I think with the expanded assortment, I think our website has to become much better at being able to sell that expanded assortment to a customer without confusing them. But also all of our websites have to take advantage of all the knowledge and information that we have. We know what they bought, we also know what they haven't bought. So how do we best present to them those opportunities in areas that they haven't bought but they probably are buying from somebody else and become the really single-source provider to them with our broader assortment? So I think that's a real opportunity from a website standpoint.

Kate McShane - Citigroup Inc, Research Division

That's great. And then just my second question with your Quill results, which seemed very encouraging. Is there any kind of macro readthrough from the improvement there? Obviously, the expanded assortment is helping. But from that particular customer, do you see that customer getting healthier?

Joseph G. Doody

Well, I think it's -- really, Kate, in terms of Quill, they did invest in marketing. So we had a marketing investment that we made during the quarter, and it helped drive mid-single-digit growth in new customers for them. That on top of the expanded assortment that we've added, as well as our continued growth in facilities and breakroom with existing customers helped us to get a bigger share of wallet of those existing customers, as well as add on some new customers. So they've got a good, strong, solid base of customers, very loyal base of customers. And we just -- we're able to acquire some more than we have been in the past due to a marketing investment in the quarter, as well as just do better job of selling the expanded assortment into the existing customer base.

Kate McShane - Citigroup Inc, Research Division

And is that higher level of marketing investment going to continue throughout the year? Will we see it accelerate?

Joseph G. Doody

I wouldn't say we'd see it accelerate. But we'll see it certainly continue to make that investment, especially if we see the results that we've seen through the first quarter.

Operator

Your next question comes from the line of Matthew Fassler of Goldman Sachs.

Matthew J. Fassler - Goldman Sachs Group Inc., Research Division

A question that I think perhaps ties together some of the other questions my peers have asked this morning. You're clearly investing in the business to reinforce your competitive standing, most notably versus the online channel. How do you know when you're done? What are the markers of -- I wouldn't say satisfaction, but if you think about your end game, is it pricing parity? Is it going to be reflected market share trends? Just as we think about this as an investment year, which is basically baked into your guidance and into consensus, and we start to think about what 2014 or '15 might look like, how should we think about what you guys will see as a management team that will establish that the investment has essentially achieved its goal? Is it possible to think about what that end game is? Or is it premature to think about what those milestones might be?

Ronald L. Sargent

Yes. We're probably not ever going to be done, to tell you the truth. I mean, we're kind of a company that feels like there's always more to do. And on this one, we do as well. We're not trying to be kind of an online consumer or kind of a consumer play. I think we kind of said what's unique about our company and whether that's the fact that we do have stores, which I think are really important. Our customer base is B2B. I mean, service in terms of not only free next-day delivery, but we can put it where you want, when you want it, whether it's negotiated pricing, whether it's the hand-holding of a sales force or the fact that our deliveries go on 1,400 Staples trucks or we've got 25 million Rewards members, we've got relationships with 10 million SMB customers. And so we're trying to find the right balance between kind of the fact that we are historically a retail player, but we have increasingly focused on the online and the delivery side of our business. So I think the model is going to continue to evolve to make us more competitive every year and every quarter. And whether that's more assortment or whether it's more investments in online or more investments in omnichannel, that's kind of the plan. I mean, obviously, I'm going to determine success by one of the things I said earlier, we've got to grow the top line and we want to aggressively grow the top line. And we've certainly got to demonstrate that we can operate a business in Europe. And I'm not sure we have done that over the last couple of years. So obviously, growing sales, growing profits, creating shareholder value, I mean, that's kind of what I'm all about. And if i feel like I'm doing that, then I feel like we're making progress.

Matthew J. Fassler - Goldman Sachs Group Inc., Research Division

I appreciate the complexity of kind of the challenge. If you think -- so just one follow-up. If you think about some of the basic objective benchmarks, your pricing, your delivery policies, the kind of membership program you aspire to, is all of that essentially done by year end if you think about what it takes you to get to what you view as market parity, understanding that there might be other changes in investments? But are you sort of caught up with rethinking that you could be in the marketplace by year-end '13?

Ronald L. Sargent

I mean, I think we're going to make a huge amount of progress. We said this is going to be kind of one of those reset years, where we're going to have flat earnings per share because we need to reposition and restructure and kind of reinvent the company. I think we're going to make a lot of progress by year end. Do I think we're going to be as good as some of our online players in the area of IT or website functionality or search engine optimization? I think we're probably still going to kind of have to get a lot better there to really be a big, big-time player in the online world of the future.

Operator

Your next question is from the line of Greg Kessler of Bank of America.

Gregory Hessler - BofA Merrill Lynch, Research Division

So your cash flow from operations ended up coming in pretty strong in the first quarter. I think it was like $348 million versus about $150 million last year. What were the key drivers of that? And did you expect that heading into the quarter?

Ronald L. Sargent

Christine?

Christine T. Komola

Sure, Greg. Yes. The biggest driver was AP. The timing of our accounts payable on a 53rd week last year was unusual. So we did expect it. We expect it will even out throughout the year. That was the main point of it.

Gregory Hessler - BofA Merrill Lynch, Research Division

Okay. So we shouldn't take this quarter and sort of extrapolate it. I'm just trying to figure out if there's upside to your $900 million free cash flow guidance.

Christine T. Komola

It's -- we will be over $900 million. So how much upside, we're not yet ready to predict. But we will be over the $900 million.

Ronald L. Sargent

And we should note that we've got a big debt to pay back in January of next year, which...

Christine T. Komola

Right. $867 million.

Ronald L. Sargent

I think it's $867 million that we'll be paying back out of cash next January.

Operator

And ladies and gentlemen, I would now like to turn the call over to Ron Sargent for the closing remarks.

Ronald L. Sargent

My closing remarks are very brief. Thanks for joining us on the call this morning. We look forward to speaking to all of you again very soon.

Operator

Thank you for joining today's conference. Ladies and gentlemen, this concludes the presentation. You may now disconnect. Have a very good day.

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