Roots' (RROTF) CEO Meghan Roach on Q2 2021 Results - Earnings Call Transcript

Roots Corporation (OTCPK:RROTF) Q2 2021 Earnings Conference Call September 10, 2021 8:00 AM ET

Company Participants

Kristen Davies – Investor Relations

Meghan Roach – Chief Executive Officer

Mona Kennedy – Chief Financial Officer

Conference Call Participants

Brian Morrison – TD Securities

Patricia Baker – Scotia Bank

Stephen MacLeod – BMO

Matthew Lee – Canaccord

Operator

Good morning. My name is Sylvie and I will be your conference operator today. At this time, I would like to welcome everyone to The Roots Fiscal 2021 Second Quarter Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator instructions] On the call today we have Meghan Roach, Chief Executive Officer; Mona Kennedy, Chief Financial Officer; and Kristen Davie, Head of Investor Relations for Roots.

Before the call begins, the company would like to remind listeners that the call, including the Q&A portion, may include forward-looking statements about current and future plans, expectations and intentions, results, level of activities, performance, goals or achievements, or any other future events or developments. This information is based on management's reasonable assumption and beliefs in light of information currently available to Roots, and listeners are cautioned not to place undue reliance on such information.

Each forward-looking statement is subject to risk and uncertainties that could cause actual results to differ materially from those projected. The company refers listeners to its fiscal 2021 second quarter management's discussion and analysis and/or its annual information form dated April 7, 2021, for a summary of the significant assumptions underlying forward-looking statements and certain risks and factors that could affect the company's future performance and ability to deliver on these statements.

Roots undertakes no obligation to update or revise any forward-looking statements made on this call. The fiscal 2021 second quarter earnings release, the related financial statements and the management's discussion and analysis are available on SEDAR as well as on the Roots Investor Relations website at www.investors.roots.com. Finally, please also note that all figures discussed on this conference call are in Canadian dollars, unless otherwise stated.

Thank you. Ms. Davies, you may begin your conference.

Kristen Davies

Thank you, operator. Good morning, everyone, and thank you for joining us. Meghan Roach, our Chief Executive Officer, will discuss our fiscal 2021 second quarter operational performance as well as our strategic outlook for the fiscal year. Then she will turn the call over to Mona Kennedy, our Chief Financial Officer, who will discuss our financials in greater detail. After that, we will open up the call for questions. Meghan?

Meghan Roach

Thank you, Kristen. Good morning, everyone and thank you for joining us. We're very pleased with our second quarter results. Our profitable growth demonstrates the desirability of our brands, our loyal customer base, strong fundamentals, and then work with an incredible team. Throughout the quarter, we continue to successfully adapt to the ongoing disruptions in our industry created by COVID-19 driven by DTC sales gains, we delivered overall sales growth despite our stores in Ontario, our largest market being closed for approximately 15% longer than in Q2 last year.

In addition, our ongoing efforts to drive operational cost efficiencies specifically as it relates to gross margin SG&A generating improvements year-over-year and relative to Q2 2018 when all of our stores were open. During the quarter, we continue to benefit from our omni-channel capabilities. With more stores reopening as we move throughout the quarter, we achieved healthy year-over-year store sales gains and in Ontario specifically with stores reopened, we saw significant year-over-year improvements that more than offset the temporary increases for closures in that region.

As stores continue to be an important connection point with our loyal customers, we also opened five pop-ups in the quarter, bringing the total number to 11. These capitalized stores have proven to be low-risk, high-reward approaches to showcasing key products and collections, capturing event-driven and seasonal traffic and testing new markets is our format. Consistent with our expectations, the increase in store activity resulted in moderated demand online. However, eCommerce remains about pre-pandemic level and online continues to be an important channel for attracting new customers into the brand.

Turning briefly to our international channel, while we continue to see volatility in Taiwan as they work through the impact of multiple ways of COVID-19, we remain confident in the brand strength in that region. In China, we have relaunched our digital platform and, in the U.S., we continue to be pleased with the progress of our digital platform, they remain confident in the long-term growth potential in those markets. From a product perspective, we continue to generate excitement with new and existing customers through collaboration. In July, we came together with a fellow iconic Canadian brand Tim Hortons. We created a limited-edition leather key fob which is on both Tim Hortons coffee cup, it was made at our Toronto leather factory.

We also collaborated with Canadian artist, Jason Logan, and The Toronto Ink Company in our limited-edition collection, one-of-a-kind, natural ink, hand dyed premium sweatshirt. These programs, both earner once that was within days of launching and the Jason Logan sweatshirt was priced at a meaningful premium to other sweatshirts in our site.

Our Partners and Other segment has continued to be on the quarter. We recently released an over jacket in collaboration within the [indiscernible] and Japanese [indiscernible] and asked the question in celebration of the re-launch of MuchMusic on TikTok that was exclusively online at roots.com earlier this week.

Our one of the most exciting launches this year was officially announced this morning, the One Collection. As a focus on removing boundaries and encouraging individual expression, one of the new fleece collection, which embodies our journey towards the future growth. It has gender-free fit and it has offered an extended sizing and contains sustainable material. It reflects an ongoing brand commitment that extends across all aspects of our business and the changes to commerce we continue to evolve our product range and in-store experience.

One of the creating pieces and inspire inner confidence and individuality. And it is designed for customers to focus on the set that expresses their personal style, not size. We work with real people, not only models, to develop an entirely new size of chart. The new size chart runs from one to eight, which is more conventional sizing would align to women, extra small to 4XL, and men double extra small to 3XL. We then had over 50 people from both inside and outside the company, trying multiple sizes to ensure we perfected our new sizing chart at every step.

The One marketing campaign features a vibrant and diverse cast of all sizes, ethnicities and gender identities. It is also worked to create a fit-focused and size-integrated shopping experience in its stores and online. One is about our commitment to invest in sustainable materials also. These curated the entire fleece line from adults to kids turn 80% organic cotton and 20% recycled fibers.

I applaud everyone who has been involved in bringing this vision to life. It has been a significant undertaking and it's an important step forward in making the Roots shopping experience more inclusive. We also seen many long-term growth opportunities for us in these areas.

As I discussed the previous quarters, delivering a positive impact within our communities is an important focus for the entire team at Roots. It's an integral part of who we are as a brand today and it's fundamental to where we're going.

I'm incredibly proud of the direct support we continue to provide for many well deserving organizations. In the second quarter, we donated a portion of sales from our made-in-Canada face masks and select collaboration to Youthline, a non-profit organization that affirms and supports the experiences of the LGBTQ2I plus the youth across Ontario. We also donated 13,000 of our made-in-Canada to First Nations in Manitoba and Ontario in partnership with Save the Children's National Reconciliation Program. In addition, we continue to make progress in our diversity, equality, equity inclusion initiatives across our organization. These are efforts informed by responses and feedback from those team members across North America.

The newest development in this area includes the launch of our DEEI platform to get ARPU, an equation of a new role appointing to company's first ever diversity, equality, equity inclusion specialist.

We've also become an employer partner with Canada's leading diversity and inclusion organization, the Canadian Centre for Diversity and Inclusion. These are all meaningful tasks in our diversity, equality, equity inclusion journey and we are able to further accelerate our progress.

As we look to the remainder if the fiscal year, our near-term operating environment remains fluid. We are navigating resurgence of the Delta variant, industry-wide supply chain headwinds including closures and countries where we source excellent freight costs and delaying due to poor congestion and demand for transportation. We are continuing to run the business in the manner needed to successfully adapt and mitigate these impacts possible.

In early 2020, we outlined the major strategic pillars in the areas of brand, channel, products and operational excellence that we deemed important to running the business and returning it to profitable growth. We made significant progress against these pillars over the last 18 months and we are happy with the strong foundation we built.

As we look to the future of Root in ways we can drive lasting growth, our focus will remain on the firm establishing Root as a brand beloved by customers globally, which means continuing to invest in building beautiful products, creating brand-level exciting partnership, limited edition drops and brand ads and collaboration, further investing in sustainable materials, programs, and processes, creating a customer centric and the customer informed approach to all that we do and continue to extend our geographic reach first and foremost, by establishing a more meaningful presence in the U.S. and China through our digital expansion.

Our secondary focus is maintaining our strong position as an omni-channel brand. Over the last year and a half, we've proven our ability to support our digital penetration that far exceeds our historical level. While we expect e-commerce to continue to normalize at somewhat low levels, once we've exited the pandemic, we still expect it to be elevated and remain a more meaningful portion of our business going forward.

As such, we have dedicated more investments to enhancing our omnichannel capabilities in areas such as further enhance of our website, extending our shipping options and improving customer order management. The other area of focus is continued operational excellence. We'll continue to focus on operational efficiency, repositioning our price value creation with a reduction of commercial depth and breadth, and managing costs to further strengthen profitability and free cash flow generation.

We will also continue to foresee profitable growth opportunity for making investment decisions anchored on the return on investment in each initiative. We made significant progress over the last 18 months. And while we continue to navigate short-term uncertainties, our focus remains in maximizing this assessment business over the long-term. With the high quality, comfort and versatility of our products, we also continue to be well positioned to capitalize on the ongoing casualization of the North American wardrobe.

With that, I will turn the call to Mona to discuss our financial results in greater detail. Mona?

Mona Kennedy

Thanks, Meghan and good morning, everyone. During the second quarter, despite continued headwinds and uncertainty as a result of mandated store closures and operating limitations. We delivered sales growth, gross margin expansion and improved profitability. Our Q2 results continue to demonstrate excitement for our brand, the loyalty of our customer base, the benefits of our omni-channel capabilities and our continued success in driving operational and cost efficiencies.

Looking at our financial results in greater detail, total sales in the second quarter was $38.9 million, up 1.8% from $38.2 million last year, driven by DTC sales growth. For the quarter, DTC sales were $30.4 million, a 6.6% improvement over $28.5 million last year, which as Meghan noted, we achieved despite being closed for longer in Ontario, our largest market. Ontario stores were closed for approximately 60% of the quarter compared to approximately 45% of Q2 2020.

eCommerce sales continued to play an important role in the quarter. And while they moderated with the increase in store activity, we still delivered significant growth over pre-pandemic levels. On the Partners and Other front, sales were $8.5 million, down from $9.7 million last year. This was primarily the result of two factors, an unfavorable foreign exchange impact on wholesale sales to our operating partner in Taiwan and a shift in the timing of Taiwan wholesale orders in Q1 2021, which I had mentioned on our last call.

We had another quarter of strong gross margin improvement as a result of our continued promotional discipline, as well as in-quarter decisions to further adjust our planned promotions, given the positive customer response and strong core price selling we were seeing. A 63.4%, our DTC gross margin for the second quarter, improved 120 basis points over the 62.2% were recorded last year and 710 basis points over the 56.3% were recorded in Q2 2019.

As we have discussed with you in previous quarters, we have quite intentionally walked away from the frequency of promotional activity, as well as the breadth and depth, the brand type season in the past. While this strategy likely places some downward pressure on sales over the short-term, we're confident it is the right approach. If you go back to 2019, there was a tremendous amount of promotional discounting to drive the top line.

While margins were slowly eroding, we will continue to refine and fine tune our current strategy, especially in light of uncertain operating environment. However, we strongly believe this approach is a better way for us to continue to build our brand and maintain brand equity over the long-term. We continue to manage our expenses tightly while closely monitoring our top line performance. We recorded $21.8 million in selling, general and administrative expenses for Q2 2021 compared to $21.4 million last year. We recorded higher costs related to investments in talent and marketing in the quarter, however, they were effectively offset by rent savings.

Our Q2 SG&A also reflects a decrease in government subsidies year-over-year, as expected. We recorded $3.6 million in government rents and wage subsidies, down from $4.4 million in Q2 2020.

Reflecting our sales growth, gross margin expansion, cost managements and the benefit of government subsidies that have offset the impact of store closures in the quarter, we recorded an adjusted EBITDA of $2.9 million, a $1.8 million improvement over the $1.1 million we recorded in Q2 2020.

Now turning to inventory. We're happy with our current inventory balance, which was $47.5 million at the end of the quarter. This was down from $58.6 million a year ago, primarily as a result of delivery delays and the fact that we are now starting to sell through some of our pack and hold inventory from last year. As Meghan mentioned earlier, and we discussed last quarter, we like our peers continue to face supply chain instructions. However, since last quarter, the situation has worsened industry-wise. As a result, we have taken further actions to mitigate the impact on our business.

We continued to strategically manage our inventory and promotion and we'll make in-quarter decisions as necessary around planned promotional activities. We are also using air freight for key seasonal programs. While we would like to see an impact on margins largely in the fourth quarter, we believe bringing the inventory in as quickly as we can is the most prudent course of action right now. We're also leveraging our pack and hold inventory to bridge delays as needed. The situation is dynamic and we continue to monitor it closely. We're working diligently to manage the business for the best possible outcomes, especially, as we move into our busy holiday season.

At quarter end, we had outstanding revolver credit facility borrowing of $17.5 million and had net cash of $8.4 million with net debt of $77.1 million down from $101.3 million in Q2 2020. Overall, we're pleased with our Q2 results. While we continue to face COVID-19 driven challenges in Q3, primarily on the supply chain side, we remain confidence in our ability to deliver on the areas of the business within our control. We are a stronger business and an even more resilient and agile team than we were 18 months ago. Even more importantly, through all of the work we have done, we are well-positioned to keep building on nearly 50 years of brand strength and maximize the long-term success of the business.

With that, operator, please open the line to questions.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] And your first question will be from Brian Morrison at TD Securities. Please go ahead.

Brian Morrison

Thanks very much, operator. Good morning, everyone.

Meghan Roach

Good morning.

Brian Morrison

Mona, I want to go back to your question on inventory heading into holiday season, a pretty standard question, but maybe if you just elaborate on the supply chain supply chain challenges, will you have the desired product in place and will you have the ability to chase sales with the shift to air freight?

Mona Kennedy

Good morning, Brian. The situation is pretty dynamic and we're monitoring it closely and we have a dedicated team working on it. As I discussed on the call, we're taking the best steps to mitigate it. We are continuing to check and strategically manage promotion. We’re air freighting some products and for the holiday season to arrive in time and we're leveraging our pack and hold strategy that we put in place last year that is going to allow us to fill in some holes if they exist. So, we’re working diligently on it and we’re managing the business for the best possible outcomes. And we believe it will be in a good position, but what actually it changes every day. And we’re basically making the right decisions every day to ensure that we have with that holiday.

Brian Morrison

So, can you maybe just elaborate on the pack and hold strategy? I assume this is not seasonal merchandise from spring, but it would be current winter and fall merchandise there’ll be in the stores or in holiday season.

Mona Kennedy

Yes, absolutely. So, if you remember last year in Q3 and Q4, we implemented a pack and hold strategy where we basically pass up some product that was meant for that season that we couldn’t actually sell because of stores were closed. Its products that have never seen the floor and also its product that has a core inventory. So that is a product that we’re going to reintroduce back into the stores and it’s going to look new and it’s going to feel new and it’s really going to kind of fill the holes where we need them.

Brian Morrison

Okay. And then turn into Ontario stores, can you maybe just touch on the traffic as the storage reopening June and July and maybe back to school relative to last year?

Mona Kennedy

I guess comments on back. Oh yes, go ahead. Sorry, go ahead, I guess.

Meghan Roach

Sorry. The joys of being on the phone, so I think Brian, we saw some really healthy traffic and some really healthy sales in our stores when they reopened, particularly in Ontario. I think we were positively surprised by the number of people that we had counting back in stores and it may tend to purchase. So, I think that was great. And I think from a back-to-school perspective, we don’t specifically comment on that time period. But with the one thing I always say is that, we are continuing to really trade the business in the manner that we think is best for the longer-term growth. And so, one of the things you will see is that we did reduce the discounting that we do during the back-to-school period and more this year than we had last year, we usually have a sweat sale around this time. And when you try to do more of a targeted sale on specific products as we knew, we were seeing good sales with some of the products we hadn’t before.

Brian Morrison

Okay. And then last question, I’ll turn it over. Just in terms of you touched on the geographic reach and your progress on the U.S. and China digital presence, what’s your strategy going forward here? Do you look to mature these markets prior to further opening new markets? Are there additional regions to target in the near-term?

Meghan Roach

Yes. I think what we’ll focus on first and foremost is a digitally led strategy. So, I think that we have a lot of potential in the U.S. and China. And those are both for us longer-term markets where we’ve seen a bigger growth. And obviously from an apparel perspective, the U.S. and China are obviously largest markets globally. So obviously, we do see a lot in the big potential, those reasons specifically. We do see other markets where we do have some interesting traction on our online presence.

And so, we’re going to be optimist or opportunistic in terms of leveraging those markets to drive further growth. But definitely the focus in the near-term is on the U.S. and China and then we’re going to look up to – I’m going to look at the other markets just based on how we keep them those things trending.

Brian Morrison

Okay. Thank you very much.

Meghan Roach

Thank you.

Operator

Thank you. Next question will be from Patricia Baker at Scotia Bank.

Patricia Baker

Good morning, everyone. Just the promotional discipline, which has been pretty impressive, you guys have been engaged in that for a period of time now. Do you have any sense of whether, how your customer is feeling about that and how close they are to getting used to meet the different from a promotional perspective and sort of recognizing that the kind of the new approach it needs?

Mona Kennedy

Good morning, Patricia.

Patricia Baker

Good morning.

Mona Kennedy

It seems like, as we kind of see in our margin performance, it seems like the customers are responding to it. Well, we’re selling a lot more product at full price. And the depth of our promotions has gone down and they still perform similarly as we did before. So, I think historically, if you look at 2019, we just went too deep and too frequent with promotions. And now we’re having renewed that we seem like it seems like the customers are still responding to the product.

So, we feel like it’s performing well. We’re going to continue to go ahead with the same strategy in the future. As you see, we’ve seen a 710-basis point improvement in our margin compared to 2019, which has been fantastic. So, all in all, I think it’s going well, we have sacrificed some top line growth, but we believe that’s the right decision for the business and it does elevate the brand in general.

Meghan Roach

And just add on that. I was in the store last week and I thought customer who is looking at your salt and pepper swipes and indicated they own them for quite a long period of time and asking, when they were going on sale, because they were quite interested in buying them. And I told her that if they weren’t going on sale, she immediately went to the cash and bought them, right. So, it takes a little while to train your customers again, that we are not going on sale and it’s been a 1.5 year, but obviously 1.5 year during the pandemic period. So, I think we still have a little bit of retraining to do for the customers to understand the benefit and the fact that we’re not going on sale, but as Mona mentioned, we see some great traction with it so far.

Patricia Baker

Thank you very much for that anecdote. And that’s kind of what I was getting at, because I kind of anecdotally myself have the feeling that the customer has been almost fully trained to recognize that the limits of the past with respect to the emotion is not today. And I guess, once I would make is that it’s probably the combination of that promotional discipline change, but also all the interesting partnerships and stuff and limited items and the newness that you’re putting in there, which is also the two things combined probably having a really positive impact on elevating the brand I would assume.

Meghan Roach

Absolutely. We’re seeing some great traction with our collaborations. And I think as we’ve seen in previous quarter and in this quarter, I mean, we did a variety of mini collaborations. So, we did something with importance. We get something with the weekend and the Japanese [indiscernible] we just launched much music. So, we’ve done a variety of different collaborations that have attracted, I think different consumer bases. And what’s interesting about those things is we’re seeing people who are part of our existing consumer respond to them, but we’re also attracting a new consumer to the brand. And so, we’re continuing down both that pathway and release promotions as well as interesting collaborations to drive demand.

Patricia Baker

Excellent. Thank you so much.

Operator

Thank you. [Operator Instructions] And your next question is from Stephen MacLeod at BMO. Please go ahead.

Stephen MacLeod

Thank you. Good morning, everyone. I just wanted to ask a couple of questions about the in-store performance, I guess, particularly in Ontario, but also as you’ve open other regions as well. Can you just comment a little bit about what you’ve seen in terms of food traffic and basket sizes, conversion trends or conversion rates or anything like that that gives us a sense of how consumers are coming back to the store?

Meghan Roach

Yes, absolutely. So, we don’t get specifically disclose each of those specific metrics. I think that from a high level, what I can tell you as we continue to see really strong AURs, the promotional discounts is obviously helping us. The lack of promotional equation is continuing to really help us in that specific area. Traffic again is obviously nearing that we saw rebound given our stores were closed. In Ontario specifically, once they reopened, obviously think they got such a tropical broth not perspective. So, if you using healthy traffic continuing to see a strong intent to purchase when our customers are in stores and overall, just healthy sales growth from the store base perspective, which has been really positive.

Stephen MacLeod

Great. Thank you. And then e-commerce, I know you didn’t disclose, you sort of mentioned that e-commerce moderated a little bit from store reopened, which would make sense, but still remains above pre pandemic levels. In the past, you’ve given a sort of percent of sales or percent growth. Can you talk about or give some specifics around how e-commerce performed in the quarter?

Meghan Roach

Yes, so I think we talked about in previous calls, how we believe you are someone’s omni-channel retailer, right. And I think I was pretty transparent upfront in previous calls about the fact that we expected to see some moderation in the e-commerce business when stores reopened, just given that massive store base, we do have across Canada and how we are really trying to build ourselves into a seamless omni-channel retailer and brand where people can shop with us whatever they want. So – on a go forward basis, we're really not going to disclose the e-commerce specifically because we think they really see each other.

And so, from that perspective, we're focused on the overall BTC growth. And that's really what we saw. When our stores were reopened, we saw shifting between the two channels. We saw customers continuing to shop both channels, but we did see some customers who shifted back into that physical retail channel. And I think as we mentioned in previous calls, one of the things we did last year was do a survey of our consumers to ask them about their in-store expectations and experiences. And the thing that consistently came back was a significant portion of our customers wanted to go into our stores to touch and feel our products and also a number of customers in and around 30%, 35% only really shopped in the physical store environment.

So again, we think that's one of the reasons we're seeing the healthy return to store growth and e-commerce continues to bring new customers. And as we did mention, it continues to be a higher percentage of overall sales compared to pre-pandemic levels and us versus pre-pandemic levels, but definitely saw some moderation in the quarter as we saw our stores open.

Stephen MacLeod

Right. Okay. That makes sense. And then maybe just finally, in terms of SG&A, the SG&A was sort of held tight in the quarter, just given the stores being closed, continue to be closed. Can you talk about how you expect that to trend sort of in the back end of the year, as you see more stores reopen where you sit today with all stores open but one?

Mona Kennedy

We're managing our SG&A tightly. We're focusing on areas where we need to invest for the returns that we expect, as you would've seen in our commentary. Our SG&A was higher in marketing and then we're investing in the areas that we need to. So, as you think about kind of Q3 and Q4, I think what you need to keep in mind is that yes, stores are going to be opened. So obviously labor is going to be higher, particularly in Q4, in Q3, all the stores last year were opened. So, you wouldn't see too much of an impact there. But in Q4, you would have to see labor going up. I think the other things that you need to keep in mind is rent. So rent expense was down this quarter, but as we go into Q3 remember that last year, we had really big abatements that hit us in Q3. So, we won't be experiencing those at the same level in Q3.

And then I guess lastly, I should say the subsidies. So, the subsidies, as you know, are ending on October 23. Obviously, the rate is going down and it's also based on revenue decline. So, I would expect that to be a lot lower in Q3 and then non-existent in Q4. And then the rent subsidy, I would expect to be lower in Q3 as well, given that our stores are now open and the biggest portion of that subsidy is related to store closures.

Stephen MacLeod

Okay. That's very helpful. Okay, great. Thank you so much.

Operator

Thank you. Next question will be from Matthew Lee at Canaccord. Please go ahead.

Matthew Lee

Hey, good morning. Most of my questions have already been asked. But just in terms of the stores, given that they've been closed on and off over the last year, do you foresee any type of significant renovations required, especially given the transition of the brand?

Meghan Roach

I think, we've commented on this previously. From a renovation perspective, our stores are well invested. They look – they're in a good shape. But we continue to look at them and ensure that they're in the shape that the customers need them to be, right. So, our businesses, omnichannel, we need to make sure that stores are fulfilling the needs of the customer. From an investment perspective, as you see over the past year and a half, we've been doing popups that are very lowing capital and allow us to test different models. And then based on these different models, we may make different decisions next year and in future years in terms of the format of the store. But in general, I wouldn't expect substantial investments in that area that are not coming with the appropriate bottom-line returns.

Matthew Lee

Right. And then can you maybe elaborate a little bit on the modifications conveyed with the deal with your Taiwanese partners?

Meghan Roach

Yes, absolutely. We have a long-term partner in Taiwan. We've been there for over 15 years. And we're continuing to partner with them going forward. They've been fantastic partners for us, it's a great relationship. And so, it's really just modifications to financial term to kind of just reflect the way we're offering with them. So more specifically focused on wholesale margins as opposed to royalty customers so base, continue to expect to see that going forward.

Matthew Lee

All right. Thanks.

Operator

Thank you. And at this time, ladies, we have no other questions. Please proceed.

Meghan Roach

Thank you, operator. Well, that concludes our call for today. We appreciate all of you coming to the call and we look forward to speaking to you in the third quarter. Stay safe and stay healthy.

Operator

Thank you. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines. Have a good weekend.