JOANN Inc. Price & Performance (JOAN)

Executive Vice President and Chief Merchant for Joanne. I will now turn the call over to Chris for his prepared remarks.

Please go ahead.

Good afternoon and thank you for joining us today. And importantly have increased our top line full year outlook. Our 3rd quarter paired a focus on operational retail fundamentals helping us to win in our core categories while over delivering on the implementation and execution of our focus Simplify and Grow cost savings initiative. This has enabled us to stabilize the overall business right size our expense structure and capitalize on trending growth areas. With continued progress in another quarter of strong execution against our strategic priorities, we were able to deliver these results despite what remains dynamic and challenging consumer and discretionary retail environment, while maximizing our opportunities in this market and delivering a great customer experience both in store digitally. [indiscernible] Also during the quarter, supported by the use of advanced data analytics and in conjunction with our averaging the costs, we actioned a strategy to selectively pulse promotions on a close to real time basis to drive shopper conversion and maximize gross profit dollars. With this nimble approach, we are making great progress on delivering the right pricing strategies to drive shopper conversion, we will continue to further optimize average unit retails as our AUCs are expected to be flat to slightly down in Q4.

Before turning fully turning to a tailwind in fiscal 2025. In fact, our average unit costs turned favorable in October are significantly improved on a new on our new inventory purchases. Our e commerce performance was a quarter standout driving double digit improvement year over year. Anchored on our Read and React business approach, we identified customer experience and site performance opportunities and swiftly implemented enhancements that resulted in an immediate uptick in shopper conversion. We have also made great progress on delivering a better, and faster overall online experience setting the stage for As we look to continue to grow our e commerce business, we are also working on a number of initiatives to drive gross profit dollars. Including further work we are doing to optimize operations and utilization of our West Jefferson, Ohio omni channel fulfillment center. Expanded use of the omni channel fulfillment center will not only lower will also lead to an overall improved customer experience. We are fast tracking these efforts and look forward to updating you on our progress on future calls.

And finally, we continue to successfully engage with our core registering increases in our customer counts. Fact, we saw more of our known customers shop in the quarter versus last year, resulting in positive transaction growth from this customer cohort signaling strength in our enthusiast base. While we are pleased with this increased engagement, as you have heard from other retailers, we are also experiencing some basket pressure by way of fewer items per transaction. And are seeing customers shopping closer to their project needs versus stocking up and adding to their stash as in years prior.

That said, and importantly, these customers are shopping with us frequently and converting well. Validating that the Joanne brand positioning is strong and our assortments are resonating.

Although there is much work ahead of us and we remain cautious to continued uncertainty in the broader retail environment, we strategic shifts we have implemented this year combined with our ongoing cost reduction strategies and the strong engagement over Black Friday week give us confidence to increase our full year top line outlook while maintaining our bottom line outlook. Now I'll briefly review the highlights of our Q3 performance. Total sales were $539,800,000 dollars down 4.1% versus the prior year period, which includes a 70 basis point headwind from the strategic pull forward we discussed in the Q2, while also providing a margin benefit the period. More importantly, normalized for the Halloween shift, 3rd quarter total sales were essentially in line with 2nd quarter trend when you adjust for the category pull forward in both quarters. With that in mind, we see this as a clear signal the business is stabilizing For the full season, our largely owned brands Halloween assortment performance was strong. Registering double digit year over year growth. With higher realized margins, validating the success of our Read and React business approach. Notwithstanding the continued strong category performance, we see opportunity to grow this business even further next year.

Expanding on our category performance for the quarter, we are winning in our core categories, which have a strong correlation to our broader business. For example, we saw notable double digit strength [indiscernible] Fleece Sewing Technology. Needle arts, we saw broad demand across both our yarn and stitch categories, fueled by our strategic decision to balance our best in class national brand assortment, while also offering great value with broad selection of our owned private brands.

With regards to fleece, our strong performance was buoyed by the social media trend of tie knot blankets, which emerged in early Q3. While this is typically one of our highest volume fabric categories in the fall and winter months with our core customer, we are seeing great engagement from new and younger shoppers coming to Joanne for their fleece tie blanket supplies. To capitalize on this trend, we went live in November with a new and disruptive social media campaign [indiscernible] k n o t t y, naughty, This campaign targets the under 35 demo and focuses on friends, couples and families gathering together making tie knot blankets for special occasions in their lives. Are seeing a positive impact both in stores and online.

In sewing technology, we saw the greatest gains in purchases of sub-five hundred machines from new sellers entering the market, a strong indication we are attracting younger sewists to [indiscernible] As the category leader, in sewing and fabric, we see this positive trend as a great indicator of overall health and strength across all generations of the sewing industry.

As expected, Due to our strategic pullback of non Halloween seasonal merchandise such as traditional autumn and fall related decor and floral, we experienced a total seasonal merchandise headwind of approximately 150 basis points in the quarter.

We also continue to experience persistent headwinds in our Craft Technology business which for the quarter was worth approximately 100 basis points.

It's important to highlight that as a result of our strategic pullback of non Halloween seasonal inventory receipts, we saw exceptionally high sell through rates with meaningfully improved profitability over the prior year, including contributing to reduced clearance inventory. [indiscernible] As I mentioned earlier, our e commerce performance was a standout in the quarter. We've registered strong e commerce growth of 11.5 percent over last year, a significant acceleration from our trend in the second quarter. With growth of 3%. Our e commerce sales accounted for 13.1% of total company sales in the period, reflecting penetration expansion of 180 basis points. More specifically, to change our prior trends, we executed in improvements to our site by enhancing our cart and checkout experience, Resolving issues that provided the most friction to the customer purchase journey substantially improving performance speed of the site, and beginning an intensive focus and edit of our product assortments. All leading to improvements in experience and shopper conversion. We also saw broad based improved traffic with more effective marketing spend, and SEO benefits from the work we've done on our core site.

We continue to prioritize and identify new opportunities to improve the online experience and drive shopper conversion. And finally, as I also mentioned, we are over delivering on the of of our Focus, Simplify and Grow initiative, which Scott will go into further detail on. Our focus throughout all of this work to our current revenue base which has stabilized at pre pandemic levels. As part of this work, during the quarter, we made the difficult decision to right size our corporate overhead, aligned to that principle.

And are confident in how we are allocating resources to both support and drive the business forward. Additionally, we are pleased with the results from our recently rolled out store labor initiative and remain focused on operating as effectively and efficiently as possible. Including allocating store labor to better serve customers during peak traffic and reducing non value added tasks. Our store teams are doing a Great job. Navigating this holiday season with new team structures and ways of working and are delivering the friendly Clever Ally customer experience we promised to fulfill. With that said, I would like to take this opportunity to extend my gratitude and appreciation to our entire Joanne team. Throughout a year of great change, their unwavering dedication to helping every customer find their creative happy place is what makes Joanne truly unique and drives my confidence and excitement in our future. Turning on to inventory. We entered the 4th quarter with very clean inventory quality with less than 5 percent of our total inventory in our clearance bucket.

Our exposure on fashion and seasonal inventory is relatively low with basic inventory compromising approximately 60% of our total. An increase of 400 basis points to last year. Additionally, with the success of our retail pricing initiative, combined with our focus on driving core categories and our Read and React business approach, unit sales velocity has accelerated nicely and allowed us to invest back into additional basic inventory to meet the increasing demand. To provide a bit of color on the current quarter, although we have many important selling days ahead of us for the holiday season, we are pleased with our trends thus far. As we all know, Black Friday and Cyber Monday are no longer single day events and like many others in retail, we extended our Black Friday event to a full week and Cyber Monday ran for multiple days.

We are pleased with how we competed in this dynamic retail climate Our customer is increasingly shopping us across both physical and digital channels and we are seeing mobile shopping increase at higher levels than before. [indiscernible] Our holiday floral and holiday decor assortments are resonating and we are tracking to achieve our plans in these important categories. Broadly, the categories we saw success within Q3 have continued to be strong in the [indiscernible] While we continue to see pressure from the shopper on items per transaction, which does provide a headwind to the total basket, we are pleased with the transaction velocity and traffic we're driving to our stores in joant.com. Before turning to outlook, I wanted to take a moment to mention our recent corporate which outlines Joanne's corporate responsibility results for 2023. The report, we highlight our impact across our evergreen strategic pillars. Which we take very seriously and implement across the business every day.

These include creating an environment where all team members can be their authentic selves and contribute at the highest level. Minimizing carbon footprint by taking action throughout Joanne and supplier operations powering reusability and customers to tie environmental responsibility to a greater purpose and appealing to Inspiring supporting our diverse customer base and communities.

I encourage you to review the report which you can access at investors. Joanne.com.

Onto outlook.

As we look to the final quarter of the year, we are encouraged by the progress we're seeing in the business which is a direct result of the many strategic actions we've taken and continue to execute on.

As I mentioned, we are increasing our full year top line outlook maintaining our bottom line guidance, which Scott will elaborate on shortly. We remain keenly focused on winning in our core categories. Further utilizing enhanced data driven read and react capabilities, and continued implementation expansion of our Focus, Simplify and Grow cost reduction initiatives. [indiscernible] conclusion, I am proud of what we've accomplished over the past few quarters. And recognize there is more to do. We have made great progress to rightsize our expense structure We have strengthened our already profitable store base with over 95% of our stores generating positive 4 wall cash flow. Have made tremendous strides in our e commerce business to improve the performance and experience and we are attracting and capturing younger customers at an increasing rate through social media and the growth of our selling technology business. While continuing to engage our core. We will continue to work tirelessly we discussed, to fuel sales growth, improved profitability and drive shareholder value. With that, I will hand it over to Scott to review our Q3 results and outlook in more detail.

Scott?

Thanks, Chris. As Chris mentioned, we continue to execute our proactive actions to enhance our read and react capabilities in [indiscernible] our advanced data analytics and progress of our strategic initiatives continued As we close out the year, we remain cautious given the continued challenging retail environment However, our consistent execution of our growth priorities and prudent management of the business gives us confidence to increase our top line year outlook and maintain our bottom line view. Now let me turn to the 3rd quarter results. In the Q3, net sales totaled 539,800,000 a decline of 4.1% compared to last year with total comp sales also decreasing by 4.1%. As Chris mentioned, utilizing our read and react business approach, the strategic pull forward of our Halloween assortment in the second quarter which was a season success, impacted our 3rd quarter sales by approximately 70 basis points. Our read and react approach also allowed us to win in our core categories and capitalize on other marketplace opportunity.

And as Chris mentioned, from a category perspective, we saw notable strength in the quarter needle arts, fleece and sewing technology. This performance is again a direct result of our data driven approach to make sure we provide the right products, prices and choices for our customers our core customers are continuing to engage in this space in a meaningful way.

The success of our strategy to selectively pulse promotions on a weekend in week out basis and maximize gross profit dollars is another great example of how we are utilizing data analytics to stay close to our consumers as we drive towards improved overall performance.

Our non Halloween seasonal category 150 basis point headwind to comp sales in the 3rd quarter, due to our strategic inventory reduction. In addition, Craft Technology continued to underperform and represented a headwind of 100 basis points in the quarter. Our gross profit in the 3rd quarter was 282,100,000 dollars an increase of 0.4 points from the Q3 of last year. The year over year increase was driven largely by continued [indiscernible] 50 basis point positive impact on our gross margin. On a cash basis, in the Q3, we realized 6 $800,000 of cash benefit from lower ocean freight rates, Our gross margin was 52.3% in the 3rd quarter, an increase of 2 40 basis points from the Q3 of last year.

The year over year 2 40 basis point improvement was primarily driven by The previously described 4 50 basis point impact from continued improvement import freight costs. 60 basis point favorable product category mix impact driven by momentum in our core selling categories, 55 basis points benefit from improved domestic carrier freight rates and associated surcharges and a 40 basis point tailwind due to improved clearance activity. A 2 10 basis point decline due to the flow through of inflationary product cost [indiscernible] 100 basis point declines from lower overall pricing driven by actions taken to optimize average unit retail levels a 40 basis point decline due to increased shipping costs associated with growth in our e commerce business, and a 15 basis point decline from lower vendor allowances. Drilling down, our average unit costs were up 2.4% to the Q3 of last year, is an improvement from what we saw in the Q2 of this year.

We continue to anticipate our average unit cost comparisons to sequentially improve throughout the course of the year we cycle these inflationary increases and as Chris also mentioned, we expect Q4 AU AUCs to be flat to slightly down year over year. Average net retails declined 1.2% relative to the same period last year. Turning to expenses. [indiscernible] expenses increased by 1.6% from the Q3 of last year. The primary drivers of the year over year SG and A increase include severance and other upfront costs to implement our cost reduction initiatives, asset impairment and disposal expenses, inflationary pressures on labor and other costs, and we lapped a favorable general insurance reserve reduction in the prior year These increases were partially offset by improved operating efficiencies, including savings generated through our new store labor operating model, as well as optimized corporate headcount. Favorable incentive and stock based compensation activity, and lower store pre opening and closing costs. Our net loss in the 3rd quarter was 21 point $6,000,000 compared to a net loss of 17 $500,000 in the same period last year.

Our adjusted EBITDA in the 3rd quarter was 30 $7,500,000 compared to adjusted EBITDA of $40,200,000 in the Q3 of last year. Moving on to our balance sheet. Our cash and cash equivalents were 28,300,000 at the end of the 3rd quarter.

As of October 28, 2023, we had $72,100,000 of availability on our revolving credit facility. Our face value of debt net of cash, at the end of the Q3 was 1,140,000,000 reflects an increase of $90,000,000 from the same period last year and a leverage ratio of 5.7x as measured by net debt and finance lease obligations relative to credit facility adjusted EBITDA, a trailing 12 month basis. Our inventory at the end of the 3rd quarter was down 9% compared to the same period last year, due to the optimization of inventory receipts and the reduction in excess import freight costs. We continue to maintain low clearance inventory of less than 5% of total leaving us well positioned to leverage our read and write capabilities to further drive the top line. During the quarter, we continued to execute against our Focus Simplifying Grow Cost Reduction Initiative. As you're aware, we had previously identified $200,000,000 of cost savings across supply chain, product and SG and A expenses.

As we implement these cost savings initiatives, we are driving meaningful cash flow improvement fiscal year 2024 that will continue beyond this year. I am pleased to share that based on our execution to date, we are increasing this $200,000,000 target to 225,000,000 dollars with the majority of this over delivery coming in SG and A and supply chain. [indiscernible] Drilling down, as mentioned last quarter, we finalized new agreements with our ocean freight carriers that have put us in a position to continue to experience tailwinds and will have us over deliver on the targeted $100,000,000 of supply chain cost We also continue to execute our broad based initiative to reduce product costs across our business. A significant number of our domestic and import vendors have already agreed to price concessions and we continue to expand this work into all of our product categories giving us confidence we can deliver the targeted $60,000,000 of product cost reductions. Additionally, in the Q3, we made meaningful progress on implementing SG and A reductions and building efficiencies across our organization. First, we are very pleased with the rollout of our store labor initiative that implemented at the beginning of Q3. Similar to what we experienced during the pilot of this initiative, addition to reduced costs, we are confident we are enhancing the in store selling experience as we have converted more labor hours to customer facing sales activities.

Critically important during the peak holiday selling period, we have right sized labor hours to more effectively staff our stores during the busiest selling hours of the day.

Also, as Chris mentioned, the Q3, we made a difficult decision to rightsize our corporate back to pre pandemic levels now that revenue has returned to pre pandemic levels. Cross functionally, we continue to focus on deploying our resources in new ways [indiscernible] more efficient and more effective ways of running the business, while staying true to our strategic priority of providing high quality in store and online experiences for our customers.

Finally, during the quarter, we closed on the sale leaseback of our corporate facility in Hudson, Ohio for a price of 34,500,000 We intend to use the proceeds to invest in the business.

Now let's turn to our fiscal 2024 full year outlook.

We are continuing to utilize our Weed and Rad capabilities through advanced data analytics, Our inventory position is in great shape and we remain diligent on prudent managing all expense aspects of the business while over delivering on our focus simplifyinggrow initiatives. Are cautiously optimistic for the Q4 of the fiscal year. And believe our strategic initiatives, combined with our 3rd quarter top line performance and the ongoing implementation of our cost reduction initiatives, leave us well positioned to deliver on our updated full year fiscal 2024 In terms of our top line, based on our year to date performance, in line of sight for the remainder of fiscal year 2024, are increasing our full year outlook and now expect net sales relative to fiscal year 2023 to be down between 1% 2% compared to our prior outlook of down between 1% and 3%. As we outlined last quarter. This range is inclusive of a 53rd fiscal week in fiscal year 2024 which is worth approximately 2%. Based in large part of the cash benefit of the implementation of our Focus Simplifying Growth cost reduction initiative, and working capital and capital expenditure optimization actions believe we will continue to deliver a significant year over year improvement free cash flow.

However, given our decision to buy into some inventory position now expect that we will see a year over year improvement in free cash flow [indiscernible] 35,000,000 versus our previous expectations of $150,000,000 170 With this, We expect to end the year with inventory down low to mid single digits. Also, our full year outlook for capital expenditures net of landlord contributions is still expected to be between $35,000,000 40,000,000 It is important to remember that much of the work we are doing related to our focus, simplify and grow initiatives will result in a significant cash benefit in fiscal 2024 while we expect that much of the annualized P and L benefit will be realized in fiscal 2025 due to the time it takes for inventory and related costs to cycle through our balance sheet. That said, we are reiterating our year outlook for adjusted EBITDA between $85,000,000 95,000,000 In conclusion, we're pleased with our 3rd quarter performance and are ready to deliver the Q4 and holiday season with a continued focus on our enhanced data driven read and react capabilities, winning in our core categories, and the continued implementation of our Focus, simplify and grow cost reduction initiatives.

We're very proud of our team and their continued execution against our strategic initiatives in the quarter. Which in turn further strengthens our competitive positioning. We're confident in the future believe that we are well positioned to deliver on our outlook for the remainder of this fiscal year and capitalize on any market opportunities for Jillian. With that, we'd be happy to take your questions. Operator?

Certainly. Today's first question comes from Laura Champine with Loop Capital Please go ahead.

Thanks for taking my question. Now that the sales guide is just for that effectively for Q4, can you give us more information on what you expect in terms of store count year on year or any changes in the store base sequentially And what kind of a comp range that would imply to hit your full year guide?

Yes. Hey, Lloyd, it's Scott. Nice to talk to you. In terms of store count, nothing has really materially changed. The last couple of years, we've gone down I think it was 15% last year. It will probably be somewhat similar this year. As we do open new stores and do a lot of 2 for ones and those sorts of things. So there's not material change to the path we've been on with our store count.

Got it. And then on comp, would would that imply a sequential improvement in the same store sales trend?

It basically implies the trend we've been on this year is what I would say from a comp perspective.

Got it. Thank you. The next question is from Peter Keith with Piper Sandler. Please go ahead.

Hey, thanks. Good afternoon, guys.

On the comp headwinds that you've been calling out with some of the Craftech Technology and strategic inventory reductions, Maybe just to give some visibility in the out quarters, when might we think about lapping those and no longer see them as headwinds?

Hey, Peter. How are you doing? It's Chris. So what we've really been able to do this year is reset that base line in a lot of those seasonal businesses. So strategically pulling back early in the year on spring and summer to core categories investing in Halloween, strategically pulling back in autumn and fall, we really see that reset being the new baseline that we start from. So on the seasonals into 2025. So on the seasonal side, I would say We'll be a lot more comp to opportunistic next year. On the Craft Technology headwind side, We continue to read and react to the business. You heard us say for the full year before, we thought it would be still a headwind and it was a little more of a headwind than we thought it would be in the Q3. So we continue to evaluate that. And adjust as we can.

We are looking to see how we can reassort if need be and if the headwinds persist within Craft Technology as well.

Okay. That's helpful. Thank you. And then I guess With the update to the sales guide and and the EBITDA guide holding, I think what implying is quite a bit of gross margin improvement year on year. Now we've been kind of using this adjusted gross margin. We are stripping out those excess freight costs that you guys had boxed out in prior quarters. So my thinking is right with Q4 Is there a notable swing factor from Q3 to Q4 in terms of year on year gross margin change and if so, what are the factors to that?

Yes, Peter, it's Scott. I think the biggest change in Q4 is sort of what we called out with the AUCs turning from a headwind to a tailwind. Expect them to be flat to slightly down in Q4 and then not trend we do expect to continue into 2025. What I will say that does give us some of the fuel to really read and react to the pricing for our customers because our approach is really maximize gross profit dollars And so we're going to be opportunistic where we see opportunities to win.

And so the AUC declines are intriguing and it sounds like something that could actually increase as a benefit next year. Could you help us unpack that a little bit and understand, I guess, the mechanism to to get the lower cost?

A lot of it's coming from our focus, simplify, grow initiative where we've been negotiating all year lower cost lower product costs. And so keep in mind with our long term, call it a 9 on average, it takes a while for those units to come in and then start to sell through. So we're getting to that inflection point in Q4 and that's what we've been talking about where we're going to see a much bigger P and L benefit next year because of that versus this year.

Very helpful. Thanks so much guys.

Thanks Peter.

Thank you.

The next question is from Christina Fernandez with Telsey Advisory Group. Please go ahead. Hi, good afternoon and thank you for taking my questions. I wanted to follow-up on Peter's question around the implied 4th quarter profitability. Because on the EBITDA margin, it looks like it's going to expand pretty meaningful to double digits.

So is it primarily on the gross margin? What can we expect from the SG and A I guess how much of the benefit is having the 53rd week as well?

Yes, I can touch on that. Hi, Christina. In terms of I'll build off the margin piece. So SG and A will also be providing a bunch of that benefit in Q4 is now we've talked about some of our store labor, structure changes that we We talked about the corporate structure changes that we made. So those will all be providing benefits in Q4 as we go forward. So have both the margin benefit we talked and then the SG and A tailwinds from from all of that as well. In the 53rd week, while we haven't disclosed exactly, it is a tailwind for adjusted EBIT in the quarter as well.

And then the second question I had was around the decision to invest in inventory. Can you give more details about what categories or product lines it is? And is this most inventory to be sold through in the first half of next year?

Hi, Christine. It's Rob. I'll take that one. So we have been talking for a few quarters now about the strength in our textiles business.

In particular, certain categories across the fabric And as we mentioned on this call, needle arcs, that's where the majority of our incremental spend is making sure that we're in stock. We've also been talking about our basics business. And as we have seen some strength in those core categories, the basic side of the business that go along with the go along with those projects, think selling construction or foam and fiber. We are increasing our in stocks to make sure that we are And the last question, I had anything any update from the competitive environment? Are you seeing anything do you see anything different in this Q3 and through the Black Friday. [indiscernible] say the competitive environment continues to be really pretty rash overall. I mean, as we all know, the discretionary retail environment is tough and we are being thoughtful in using our data to find the best retails we can for our customer. That said, we haven't seen anything that gives us pause on the promotional front with competitors. And we're we're pretty confident in how we're navigating the current period.

Thank you. Thank you. The next question is from David Lance with Wells Fargo. Please go ahead. [indiscernible] guys. Thanks for taking my questions.

So I was just curious if you could talk about the sales trajectory a little bit in a little bit more detail. I think you had mentioned [indiscernible] Q3 to date trends were tracking in line with Q2, but you ended the quarter down 4.1%. So I was just curious if you could provide an additional color there?

Hey, it's Chris. Yes, the way we looked at the quarter is when you normalize for the Halloween pull forward that we experienced, which was a meaningful impact positively to Q2. But the negative result was it took some sales out of Q3. So when you pull that impact out, the business was really very consistent between Q2 and Q3. And what we're really seeing is some of the categories that Rob called out and that I talked about in the in the earlier portion of the call, we're seeing really good strength in fleece in needle arts and sewing technology. Which gives us a lot of confidence as we head into the Q4.

Got it. That's helpful. And then you provide an update on how you're thinking about interest expense and potential debt pay down in the coming quarters?

Yes.

Hey, David, it's Scott. Right now, we're getting the benefit kicking in of our interest rate swaps so that definitely helps. But the main thing we're focused on is getting this business back to the historical profit level that it's been and generating cash so that we can handle that debt as it comes due in 2026 and 2028. [indiscernible] Thank you.

The next question is from Stephen Forbes with Guggenheim. Please go ahead.

Good evening, Chris Decott.

I wanted to follow-up on operating capital and and you gave some nice color there on inventory for the year end.

But payables as a percentage of inventories fluctuated pretty dramatically over the years here. So any framework to think about where where payables as a percentage of inventory ends the year.

So if you're really asking about how does that inventory composition breakdown, so I think I said on the call, inventory is going to be down low to mid single digits.

What I will tell you is the unit piece is actually going to be up slightly and the cost will be down So that's getting back to how Rob gave some color around the categories we're buying into and seeing that, that's that's how the composition is going to work, especially as our AUCs continue become tailwinds.

And then maybe just a quick follow-up focusing on free cash flow, right, given the change in the guidance for the year.

I'm not sure if you can maybe help us frame sort of how you see the evolution of free cash flow next year in a particular scenario, whether that's sort of a flat sales scenario, just given what's happening with AUC? Is there sort of is there a path to flat or is there is there any sort of framework you can provide us to help think through sort of the free cash flow outflow of the business?

As these benefits start flowing through?

Yes.

I mean, we're still working through the exact plans for next year, but when you see the momentum that we have with the cost savings and then on the product cost side as well, I see a path to positive free cash flow next year. Not just back to flat even in a sort of flat sales scenario. So we're really excited about the momentum we have on the cost saving side and none of that is contingent on any sort of top line growth.

Thanks for that.

Thanks, Steve. Thank you.

This concludes the question and answer session. And the conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines. [indiscernible]