Good morning. My name is Amanda, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Victoria's Secret & Co. Fourth Quarter 2022 Earnings Conference Call. Please be advised that today's conference is being recorded. All parties will remain in a listen-only mode until the question-and-answer session of today's call. I would now like to turn the call over to Mr. Kevin Wynk, Vice President of External Financial Reporting and Investor Relations at Victoria's Secret & Co. Kevin, you may begin.

Thank you, Amanda. Good morning, and welcome to Victoria's Secret & Co.'s fourth quarter earnings conference call for the period ending January 28, 2023. As a matter of formality, I would like to remind you that any forward-looking statements we may make today are subject to our Safe Harbor statements found in our SEC filings and in our press releases. Joining me on the call today is CEO, Martin Waters; and CFO, TJ Johnson. We are available today for up to 45 minutes to answer any questions. Certain results we discuss on the call today are adjusted results and exclude the impact of certain items described in our press release and our SEC filings. Reconciliations of these and other non-GAAP measures to the most comparable GAAP measures are included in our press release, our SEC filings and the investor presentation posted on the Investors section of our website. Thanks. And now I'll turn the call over to Martin.

Thanks, Kevin, and good morning, everyone. Before we dive right into the quarter, I want to first share my deepest appreciation for the hard work and dedication of our associates and partners all around the world. I'm especially thankful for the team's continued commitment to the revolution of our brand and for all they're doing as we push forward our strategic growth plans. I'm delighted by the connections we're making and deepening with our customers as we aspire to become a Victoria Secret where everyone feels seen respective and valued. And of course, I'm delighted to welcome Adore Me associates to our family for the first time this quarter. Welcome, welcome. And as we look back on 2022, our first full year as an independent public company, I wanted to spend a few minutes reflecting on the key actions that we've taken over this past year in support of our strategy and positioning for the long term. It's been a year filled with innovation and many firsts for our customers and our brands. To name a few, we debuted Love Cloud, both a proof point in our best of bras story and our most inclusive marketing campaign ever. We shared our first bilingual campaign for Victoria's Secret Beauty featuring Camilla Cabello. We launched pear, our first fine fragrance pillar in five years and a one-of-a-kind center that is personal to each individual. We introduced our inaugural brand -- global brand campaign, Undefinable, that celebrates individuality and diversity. We extended our channel distribution and now offer an edited assortment Victoria's Secret's and PINK on Amazon and natural extension to continue to grow our business. We deployed a new digital bra-fit technology and have begun to make meaningful improvements to our digital experience to improve the customer journey. We expanded our store…

Our first question comes from Lorraine Hutchinson with Bank of America. Your line is open.

Thanks. Good morning. It sounds like you do expect some sales recovery as the year progresses. Can you just talk through the areas of the business where you see the most opportunity to grow? And then also how much you think you will use the Adore Me platform or technology to try to grow the Victoria's or PINK businesses? Thank you.

Yes, I'll take a crack at that one. So, as it relates to growth, obviously, the most important area for us to focus on past, we're a bra company. That's where we put most of our energy. And while we are active in other categories, health in the core of the business is the most important thing we do. So, you heard me say at the time of spend that we would be having at least two bra launches, major bra launches per year. And so, it has been -- this year will be no exception. In fact, we'll probably have more than two big bra launches. I don't want to say more about that yet for competitive reasons. But we're very excited about the plans that we have in the core of the business. So that's one. The second I would call out is PINK where, as I mentioned, we have had a difficult time in the last 12 months. And it's time for some urgent reinvention. And I've seen that reinvention, and I'm super excited about it. Customers will start to see it towards the end of Q2. It's a new design direction. It's much more fresh approach, more and better outfit starts, more modern raw materials and fabrications. It's a rebuild of the use of our logo, more minimal, less overt logo, an exit from some of our legacy graphics. So, a lot going on in that very important part of the business that I think bodes well for the back half of the year. And you also asked about Adore Me. As I've said previously, we're super, super excited about Adore Me. It's a fantastic company, which just in and of itself is a great growth vehicle for us. But I think there are three ways that we can leverage their technology going forward. One is we're going to test selling an edited assortment of Adore Me merchandise on our site. We're going to test that, that's incremental to our system. That will be up towards the end of Q2. We're excited about that. Secondly, we're going to leverage the technology and try on at home that Adore Me has perfected, and we're going to apply that to our much larger scale customer base in Victoria's and PINK and the same with subscription services that will be applied towards the back half of the year. So, there are many, many ways in which we can leverage Adore Me technology, but we're focusing on those three initially and then there'll be more in the out years as time goes by. I hope that helps.

Thank you.

Our next question comes from Ike Boruchow with Wells Fargo. Your line is open.

This is Kate on for Ike. I guess my first question, Martin, just a follow-up on PINK. Could you remind us how much in revenue PINK was in 2022? And I'm curious, you noted the new organization structure at VS between Lingerie and PINK. Can you just think about -- or help explain how you think the new structure maybe will help benefit the brand? I think historically, we thought that maybe having the separate structure might be helpful in terms of the guardrails around the two. So, I'd be curious just your view on this structure here? And then I have a follow-up on SG&A.

Yes. Thank you for the question. So, sleep is a very important category for us, and we think about it in two chunks. The first part, we call taxi sleep which is very provocative, merchandise leverages up of the very sexy and Dream Angels collections. And then the second part of sleep is more casual sleep, which did particularly well during the COVID period and obviously, is a major part of gifting during the fourth quarter. So, the participation of sleep changes throughout the year depending on the season. But think about 15% to 20% of our total system across Victoria's and PINK. That would be directionally close enough for you at this stage. What's the benefit of putting PINK and Victoria's together? Well, to a large extent, there is a significant crossover of the customer between the two brands. To a large extent, we're in the bra business in both franchises, 50% of the PINK business is bras and intimates. I think it makes sense to build our entire assortment with a single eye to how the customer traverses through the bra and panty experience. And so, for the first time, I think, in our history, we have merchant leadership that is considering how the customer sees the entirety of our intimates category. I think that's very important. There are also benefits in the sort of the back of house in the way that we source and the way that we merchandise that should lead to greater efficiency. In some cases, we're buying the same merchandise but with different design teams and different factories. And it makes sense to have a single eye across those two. So those are the main reasons. One, customer facing, secondly, organizational efficiency on the back end for us.

Sorry, I just had one quick follow-up on SG&A. You guys noted in the commentary with the earnings release, Certainly, it seems like there are some priorities this year for spend between tech investment, incentive comp, supporting Adore Me. I guess to the extent that the top line remains variable, especially [indiscernible] I guess I'm just curious on the flex on the expense front, just given that it seems like those investments maybe have a little less flexibility. About the SG&A flex to the extent to secure that high single-digit margin this year. Thank you.

Yes. Thanks for the question, Kate. I think over the several quarters, I think the business has demonstrated a very capable flex model, as evidenced by each of the last three quarters when North America business has been challenging. Expense dollars in total have been down in excess of $40 million a quarter. So, I feel as if the business from a store payroll and distribution and logistics standpoint, particularly that flex quite well as sales have been somewhat volatile. I think supplementing that is just underline the transform the foundation savings goals that the business has set for the next three years, really a continuation of activity from 2022. So that $250 million goal over the next three years, I think we said a little less than 1/3 of that will actually happen here in 2023. So, we feel like we have multiple levers both on the expense and cost of goods sold lines to not only drive bottom line performance, but also insulate us a little bit if trends remain volatile here in North America. So, the teams are doing a very good job of flexing and executing against the expense initiatives. Even here in the first quarter, where we're highlighting some volatility in sales continuing in North America. Our SG&A guidance, if you take the 32% to 33%, Kate, and put that on the volume estimates, you get an SG&A range of roughly $460 million to $470 million in terms of dollars. Within that, the VS and PINK business for the North America business, primarily is about $430 million or flat to last year in the first quarter, even with those investments in technology, marketing and also bonus-related costs. So hopefully, that helps you understand a little bit better kind of the -- I'll say, the volume of a number of different initiatives and ways that we're flexing the model to keep costs under control, not to mention the wonderful performance on inventory levels that the merchandising and merchandising, planning and allocation teams have executed to here. So hopefully, that helps.

Our next question comes from Alex Straton with Morgan Stanley. Your line is open.

Great. Martin and TJ. Thanks for having my question today. Just two for me. First on the 1Q guide, it looks like it assumes the underlying revenue CAGR to 2019 accelerates a bit from the fourth quarter. So, I'm wondering, does that mean you're seeing acceleration quarter-to-date? Or how should we think about what's embedded there? And then secondly, the comment on the slight growth in market share. I'm just wondering like what did the category grow? And maybe what do you include in that market? I'm just trying to understand how your share changed year-over-year. And also, if there's anything you can share on bras there, that would be great. Thank you.

Why don't I take the second question, TJ, you can address the first question? So, market share, we have lots of different measures of market share. The one that we use most is intimates as a combined category, which is essentially bras and panties essentially. It excludes fine -- one might traditionally call lingerie, meaning sexy sleep. So, in that definition, we have 20% market share. And what we see within that 20% is that the bra mix is stronger and the panty mix is less. Why would that be? Bra is a harder business, more competitive business, higher barriers to entry, fewer competitors. And frankly, we're better at it. It's our most important economic engine. Panties is more of a cut and sew business. It's easily accessible to every player. It has low barriers to entry. And so, it's a more competitive and price led market. So that's the key distinction we look at there. And as I said earlier, essentially flat across the 12 months, maybe 0.1 point of increased. TJ, do you want to take the second question about acceleration?

Yes. Alex, as it relates to Q1 sales, candidly, all suggest that we're looking at more current trends in our business relative to performance. More so than back to 2019, understanding that the business is in a much different place. And it was and much more aggressive kind of liquidation mode or inventory liquidation to move back during those times. So, if I think about the most recent trends in the business, and third and fourth quarter or fall season with North America predominantly being down high single digits, very strong performance in our international business, which was accretive to the total sales numbers that we report in the fall season. In large part, we expect those trends to continue into first quarter. So, from a first quarter perspective, we would expect North America to be down high single digits. We would expect the international business in terms of system-wide retail sales to still be up in the low double digits. We're seeing that happen now, and we're seeing nice response and kind of growth quickly in China, in particular, as stores have begun to reopen. So, feel very good about the international part of the business. And then obviously, we get the benefit of reporting a in our results for the first time. And in the first quarter alone, that will add about four point to 4.5-point increase in terms of growth. So that's how we get from negative high singles to negative mid-singles with the addition of Adore Me. I think the one item of note because I know that then reading some of the sell-side notes from last night and even this morning, the first quarter guide from a sales perspective was a little different than maybe some were expecting Just to underline for you something Martin mentioned in his prepared comments, and that was the drag in the quarter of the impact of PINK apparel being challenging. That drag of about four points. We're expecting that to continue on into the first quarter and potentially into early second quarter until some of the new merchandise that Martin mentioned starts to arrive. So, I think, Alex, if there's a slight disconnect in terms of our expectations for first quarter sales and maybe what -- the Street was expecting. Clearly, in fairness to you, you didn't have visibility to our thoughts around PINK and PINK apparel. So hopefully, that helps.

Thank you. Our next question comes from Matthew Boss with JPMorgan. Your line is open.

Great. Thanks. It's Amanda Douglas on for Matt. So, Martin, maybe to start, you cited expectations for higher promotional activity in the first quarter in the release. Could you expand on your mindset for promotional activity throughout this year as you manage the business with healthier inventories? And then maybe whether or not you see an opportunity for AUR growth with your new bra launches?

Yes. Thanks for the question, Amanda. So, my mindset on promotional activity is consistent with what I've said in previous calls. And it has less to do with being over inventoried or under inventoried and more to do with getting fair share in -- or more in a highly competitive environment. So, when the consumer is feeling less affluent, when she has less money to put food on the table, when she has less money to spend on discretionary items, we all have to be as aggressive as we can in trying to get our share of that wallet. We're competing with beauty. We're competing with vacation -- we're competing with vacations. We're competing with all kinds of competitors who are after that discretionary spend. And while the best way for us to compete on that is with newness and to talk about emotional content, and fresh merchandise, that's definitely the best way to go to market. But also, she needs a nudge in the promotional in the sense of having a promotional reason to come and shop with us. So that's what drives the stance. I think its time to sharpen our -- or has been time during the fourth quarter to sharpen our elbows and make sure that we get a good amount of what's available in terms of discretionary spend. It doesn't have much to do with inventory. Our inventories are very healthy. We're well positioned. We're down double digit on an adjusted basis. We have returned agility to be close to where we used to be entering the season at like 70% or 30% open so that we're keeping our powder dry to enable us to chase the winners. So, expect to see something of a continuation of our position from Q4 into Q1. And as it relates to the balance of the year, let's see how the health of the consumer stands up. I would be optimistic that we can lean more into newness and fresh fashion than promotion, but let's see how the consumer responds. The second question was about AUR. And yes, I mean, when we are designing our architecture for bras, we're not just thinking about extracting more money from the consumer at the top end of the price range. We're thinking about what's the most competitive build across the board. And so, it actually having a stronger opening price point than we've had historically, is a better competitive activity in this environment. And that's what we'll do. So, we're not just driven by -- it has to be all about AUR. We're more driven by what makes most sense for the consumer, what gives us the best broad range of products across the spectrum of occasion and emotion needs throughout the year. But yes, AURs are pretty healthy, higher than they were pre-pandemic and we feel good about what's coming.

Does that conclude your question?

Yes. Thank you.

Our next question comes from Simeon Siegel with BMO Capital Markets. Your line is open.

Martin, any help contextualizing the size of the PINK apparel now versus historically and maybe if you have a view on where it should be in the future? And then minority JV, you called out higher Adore Me expenses weighing on 1Q SG&A, I believe. Would it also lift gross margin? And then just last quick one. I'm just clarifying your guidance. Does it not account for any incremental buyback, including the remaining on the ASR? And then maybe just a similar vein interest is growing. So just any general thoughts on how you're approaching debt versus buybacks? Thank you.

I'll let T.J. take the financial question. Simeon, just give me the PINK question again. What specifically asking about PINK?

How large is PINK apparel? Maybe how is that in the context how are to somebody want be?

So, in round numbers, the PINK business is approaching $3 billion. Half of it is intimate. So, the other half is apparel and sleep. I won't give you the split between apparel and sleep. You maybe have a guess at that yourself. But you can tell from that framing that it's a significant part of the business. And that's why when it was underweight in the fourth quarter, it had such an impact on the total company at four points. I hope that helps, Simeon. T.J.?

Yes. Simeon, on the Adore Me piece, I just want to clarify, I would think about it this way. I would think about their model is different than the VS & Co. model. From the perspective of it's a digitally only -- digital-only business, in large part, they have five or six stores more in test mode than anything else, but it's a digital business for the most part. Their margins from a gross perspective are in the mid-50s. So that would be slightly rate accretive to the company, which means given their operating margins are similar to ours, their expense levels are going to be in the mid- to high 40s. I'm more comfortable with that. That's been successful for them. They've grown their business consistently year after year in the 20-plus percent range, and we're forecasting mid-teens here again in 2023. So, we're comfortable with the financial model. The point in mentioning it here as it relates to expenses is obviously, it shows up in our P&L for the first time here in first quarter. So, their expense levels also tend to be a little more front loaded from a marketing perspective in to two steps. First off, Valentine's Day, obviously, as it relates to the biggest holiday of the year in the first quarter. They've appropriately been aggressive going after the customer when there's a high intent to buy. Additionally, from a marketing perspective, a high intent to buy and a high level of interest in the first quarter with their customer gives them an opportunity to really kind of feed the pipeline for the balance of the year when you think about their model being a high subscription model basis. So earlier they can get customers in the funnel better, similar from a try on a…

Our next question comes from Omar Saad with Evercore Partners. Your line is open.

Good morning. Thank you for taking my question. I was hoping just a couple of quick follow-ups. I hope you guys maybe talk a little bit more about performance across some of your store formats and channels off-mall versus mall the store of the future. Then maybe also something you mentioned at Investor Day, but I don't hear an update on the marketplace strategy. Thanks.

Yes, good questions. Thank you for that. So, let's talk about real estate. So, Store of the Future pilots, the first pilots that we opened that have been open for a reasonable period of time, are performing up high single digit relative to their control group. So up high single digits relative to their control group. So that's good. The first stores that we opened in the new format were in off-mall locations. And those have been good. All of them are projecting to be profitable, which is good news, with particular strength in the stores that are in outlets. So, I don't mean discount outlets. I mean off-mall outlet locations where we put a full-price store. Those have been particularly good and there are a number of those across the United States of America, where we see opportunity. So, as it relates to the real estate strategy of having a higher participation off-mall, we feel really good about where we are. As it relates to the deterioration of the fleet in malls that are vulnerable, no new news. The situation hasn't gotten any better. The situation hasn't gotten any worse. It's about where we expect it to be. So, we're projecting that for the year ahead, we'll have 15 to 20 new stores, all of which will be in Store of the Future and about 50 renovations that will move some of our better and bigger higher-performing stores from the current old format to new store of the future format. Incidentally, in many of those occasions, not all of them, but many of those occasions, we take the opportunity to downsize sometimes bring PINK from being stand-alone into the box, which leads to higher sales densities and more efficiency in terms of the way that we run the operation. So, we feel pretty good about that. And there's about $100 million more capital going into our store’s organization, our stores late this year than we had in prior year. So, I hope that helps in terms of format. The second question was...

Marketplace.

Yes. Thank you. Curated marketplace. So, when we started working with parties, I'm going to say a couple of years ago, it was a little bit of across the board, lots of different brands, particularly too many brands, frankly. When the new management team took over, we determined that the marketplace should be curated and it should be curated on the basis of three things. One, does this brand get us access to a category of merchandise where we're currently underweight; number two, does this third-party relationship get us access to a customer base where we're currently underway; and number three, does this third-party relationship bring a halo to the overall house of Victoria. And we feel really good about where we are now in the curation. Looks a lot like what I've just said and is helping very much. We also see that where our customers buy into those third parties, they also buy into Victoria or PINK at the same time, and they're our most valuable customers with the highest spend per customer. So, is it an important part of our strategy go forward? Yes, it is. We think it's a very, very good tool and it's an area where we can broaden the appeal of the franchise without needing to do all of the lifting within Victoria on her own. So, I hope that helps.

Our next question comes from Adrienne Yih with Barclays. Your line is open.

Great. Thank you very much. Martin, I was wondering if we can go back to kind of the remedy to the PINK apparel piece of the business. You talked about some corrective actions. What exactly sort of have you identified as the core of the issue? I would imagine that you immediately started changing the merchandise that takes about six months, and that takes us kind of into the first -- the end of the first quarter, second quarter. But what exactly you think that the issue is? And then for TJ, could be ask you two things on Adore Me. Should we assume that the sales seasonality also follows the cost, right? So, a little bit more than should be last of in the first quarter or so and then maybe kind of matches the seasonality to VS in the back half? And then for advertising expense, what was it for the year? And I would imagine that Adore Me being DTC is significantly higher. So how should we think about ad expense consolidated for 2023? Thank you so much.

Yes, there's a lot to unpack there. We'll have a go. We're making no frankly on all the questions you asked. I go to in -- what's the challenge on PINK apparel? Well, PINK apparel has been remarkably successful for us over a long period of time. It's been a relatively edited and tight assortment of frames with renewed graphics over time. That's been a very high-margin business and a very predictable business for us. So, boy, we've enjoyed this part of the business over the years. And top 10 when businesses are really, really good and very healthy. We forget to renew them and we lose focus on the product life cycle. Maybe we hang on to them a little longer than we probably should. So, as we look now at what's happening in the marketplace at large, relative to our PINK apparel assortment, we say, yes, we're missing some stuff. We're not quite as trend right as we should be, and we're overly reliant on a logo business and overly reliant on frames that we've had for a number of years. So, time for a refresh. And so, thinking differently about logo, thinking about being more minimal, less over thinking about new fabrications, thinking about new raw materials, better outfit starters and just a fresher approach. So, we have completely scrubbed all aspects of the business, and we've edited out things that we think don't fit. And we've accelerated quickly with the help of our vendor base, things that we think will be really on trend and fashion forward and we'll be ready to come out of the box strong, particularly for the fall season, but we should see early signs of recovery in late Q2. T.J., do you want to take the like a questions?

Yes. Adrienne, the seasonality of the Adore Me business, as you kind of alluded to, first quarter is historically, they're a better quarter followed by fourth. And then obviously, Q2 and Q3 are a little more -- or a little lower, very similar to the VS business, as you mentioned. So that's about as low as we're going to go on the details on Adore Me. I think the second part of your question around advertising for 2022 for the VS and Co business, as Martin has articulated a handful of times most recently at our Investor Day, we typically target about 5% to 5.5% of sales for VS in terms of marketing. I don't see that changing. In terms of absolute dollars, the rate of sales might tick up a little bit depending on where volume goes, but that expense level is something that we're comfortable with from a dollar perspective. I'm not going to go deep on the Adore Me P&L. I'll just say, as you mentioned, in a DTC environment in a growing growth business, their advertising rate of sales is going to be meaningfully higher than what the VS and Co business experiences historically, but we're comfortable with that. We knew that that's not a surprise to us. We're more focused on driving top line with our partners at Adore Me and more focused on really driving that operating leverage on a go-forward basis on the operating profit line. Hopefully that helps, Adrienne.

Yes, it does.

Just before we take the next question, we did a fact check here on sleep participation of our business. I said 15% to 20% across the year. It's more in the full season substantially more in the fall season. I think closer to 20% is a better answer than 15% to 20%. So, think about 20% plus for sleep participation. Next question, please.

Our next question comes from Corey Tarlowe with Jefferies. Your line is open.

Good morning and thanks, for taking my question. So, just to double-click again on this pink apparel dynamic, Martin, I think you used the phrase a number of years. So, as you think about this in transformation that you're undergoing within apparel, what gives you the confidence that it's going to work, number one. And then number two, could you talk about maybe what you saw on the intimate side at PINK just so we can get a sense for how the business is performing overall? And then, T.J., on the flat EBIT guide for the year, I think that with freight coming down, shouldn't that seemingly be a benefit to margins this year? So how do you think about the flat EBIT margin guide within the context of freight coming down and all of the supply chain issues and inventory issues that we saw of last year now getting a lot better? Thanks.

Yes, I'll take the PINK question. So, the fundamental question, how do we know if things are going to work or not when we change merchandise? Well, we have a pretty rigorous process of testing. We have customer panels that we use to get feedback. The community that I rely on most is our stores community. We had our regional managers from across the country in town last week. And I personally went through the PINK assortment with them, and they were extremely excited. They know our customer inside up, and they gave us a very strong thumbs up. So where is my confidence level that it's time to change extremely high. Where's my confidence level will hit it right with what we've got in the back half of the year. Well, you never know for certain, but I feel pretty good about what we've got. The good news for PINK is that our international business is strong and continues to be good. It has been -- intimates has been increasing as a proportion of the business over the last several years steadily, it is our focus. We are a lingerie company and being best at bras in both of our big brands is the most important thing to do. So that business in PINK intimates is healthy and growing.

Yes, Corey, on the second part of your question, I can appreciate the flat EBIT rate guide for the year. We would expect in fairness to your question, we would expect the gross margin rate for the year to be slightly higher than last year. As you mentioned, the supply chain pressures certainly have abated. As we move into the fall season, we'll see if there's the typical kind of seasonal build in rates or not or where rates go. But clearly, here in the spring season, rates both on a container basis and from an air perspective, are lower than last year and getting back close to pre-pandemic levels. So good for us. We're happy about that. I think the flip side is, from an SG&A perspective, and we kind of mentioned this earlier, we've known all along, there were certain parts of the business that we were going to want to invest in here in 2023. As I mentioned, just as a side note, the expense profile for Adore Me is slightly different than ours that's some deleverage on the SG&A line. However, we're really seeing investment is in, I'll call it, three key areas. First off, technology. As we start to increase the amount of focus on the customer experience and customer integrations with Christophe and her team, that's an investment. We're happy to make, and we're confident we'll see benefits from that as we move throughout the year. I think the second piece is, I'll just remind people that we are in the middle of separating from our former parent company or limited brands, separating into two different business, Bath & Body Works and Victoria's Secret. From a technology standpoint, a separation, we indicated in the two brands that there would be a $200 million to…

Got it. That's helpful. You talked about investments that you're making. Could you just update us on the $250 million in cost savings plans? And then also, are you planning to make any more acquisitions this year?

Last question I want to answer which is probably not surprising to you. But the first part of the question, Corey, I think we're referring to the transform the foundation goal that we set in October at our Investor Day at $250 million. In our prepared remarks, I think we indicated that less than 1/3 of that or a little less than 1/3 of that happens here in 2023. And I would suggest that's fairly evenly split or maybe a little bit more tilted towards expense and a little less towards margin here in 2023. So a slight margin benefit -- more benefit on the expense line to fund some of the growth initiatives that I mentioned as we move through 2023, get to the fourth quarter and into 2024, that's really where you'll see the amount of savings from the Transforming the Foundation goal start to grow and it will grow most notably from a margin perspective and cost of goods around initiatives that we're working on with Dean and Chris Collier and their leadership team.

Okay. I think we've got time for one more question.

Our next question comes from Jonna Kim with TD Cowen.

Thank you, for taking my question. Just a quick one. Any early learnings from the loyalty program? And what are you seeing in terms of the customer retention trends and how you plan to leverage the program to further increase retention rate? Thank you so much.

Too early to declare victory on the loyalty. We've only been out for a week. But again, referencing the time I spent with our stores team, they were super energized by it, take-up has been good. A reminder, this is free. And we convert all of the customers who are currently in our credit card system onto the program. So, we should be at about 3 million people in the system by the end of this month. So, there's a sizable body -- sizable community that are going to benefit from this program. And we feel really good about where it's at. We've got new benefits for customers we've got an -- all Access tier at $300. We got a VIP tier at $750 million we've got features that we've never had before that will enable consumers to talk to each other as well as talk to us. So, we think it's going to be a great program. It's been a long time in coming, and I think the benefits will come through in the back half of the year. That's probably all we've got time for, right, Kevin. It's 8:55. We committed to finishing at 8:55. So thank you all for your interest in our business. Wish you well.

Thank you.

That concludes today's conference. Thank you for participating. You may disconnect at this time.