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AT HOME GROUP INC  (NYSE:HOME)
Q4 2019 Earnings Conference Call
March 27, 2019, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

See all our earnings call transcripts.

Prepared Remarks:

Operator

Greetings, and welcome to the At Home Fourth Quarter Fiscal 2019 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation.

(Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Ms. Bethany Perkins, Director of Investor Relations for At Home. Thank you. You may begin.

Bethany Perkins -- Director of Investor Relations

Thank you, Melissa. Good morning everyone and thank you for joining us today for At Home's fourth quarter and fiscal year 2019 earnings results conference call. Speaking today are Chairman and Chief Executive Officer, Lee Bird; President and Chief Operating Officer, Peter Corsa and Chief Financial Officer, Jeff Knudson. After the team has made their formal remarks, we will open the call to questions.

Before we begin, I need to remind you that certain comments made during this call may constitute forward-looking statements and are made pursuant to, and within the meaning of, the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. In particular, statements about our outlook and assumptions for financial performance for fiscal years 2020 and 2021 and our long-term growth targets, as well as statements about the markets in which we operate, expected new store openings, real estate strategy, potential growth opportunities, and future capital expenditures are forward-looking statements.

Such forward-looking statements are subject to both known and unknown risks and uncertainties that could cause actual results to differ materially from such statements. Those are referred to in At Home's press release issued today and in filings that At Home makes with the SEC. The forward-looking statements made today are as of the date of this call and At Home does not undertake any obligation to update any forward-looking statements.

Finally, the speakers may refer to certain adjusted or non-GAAP financial measures on this call, such as adjusted EBITDA, adjusted operating income, adjusted and pro forma adjusted net income and pro forma adjusted earnings per share, a reconciliation schedule showing the GAAP versus non-GAAP financial measures is available in At Home's press release issued today. If you do not have a copy of today's press release, you may obtain one by visiting the Investor Relations page of the website at investor.athome.com.

In addition, from time to time, At Home expects to provide certain supplemental materials or presentations for investor reference on the Investor Relations page of its website.

I will now turn the call over to Lee. Lee?

Lewis L. Bird III -- Chairman of the Board and Chief Executive Officer

Thank you, Bethany. Good morning, everyone. Thank you for joining us to discuss our fourth quarter and fiscal 2019 results. We are pleased with our fourth quarter results that exceeded our top line guidance and met our bottom line outlook, as we continue to better serve customers and invest across the business for the long term. Our sales growth of nearly 21% and comp store increase of 2.1% reflect our continued strong performance at both new and existing markets and the disciplined execution of our team.

The fourth quarter marks our 19th consecutive quarter of over 20% sales growth and our 20th consecutive quarter of positive comps. This strong top line growth was accompanied by adjusted operating income growth of 8% and pro forma adjusted EPS of $0.47. Our solid fourth quarter results demonstrate the strength of our highly differentiated value-driven model that continues to resonate with our customers.

Looking at the future, we achieved some exciting milestones and notable accomplishments -- excuse me, looking at the full year, we achieved some exciting milestones in notable accomplishments. I'd like to take a moment to recognize our team members for their remarkable contributions, including At Home becoming a billion dollar Company, an achievement made possible through top line growth of almost 23% and comp store sales increases of 2.7%. This was our 5th straight year of both positive comp store sales and revenue growth over 20%.

We also expanded gross margins 80 basis points and grew adjusted operating income of 21.4%. Couple with tax rate favorability; we drove nearly 44% pro forma adjusted net income growth and delivered pro forma adjusted EPS of $1.30, at the high end of our guidance.

I'm also pleased with the progress we made on our strategic initiatives this past year. We added 2.9 million members to our growing Insider Perks program during the year, enabling us to better understand our customers' needs and shopping preferences through the related analytics. We grew unaided brand awareness significantly in 2019, and we still have an incredible opportunity to introduce our concept to more customers in both new and existing markets.

We believe increasing brand awareness is and will continue to be one of the drivers behind our healthy and ever increasing new store productivity. In fact the class of 2019 was our most productive class ever, which gives us increased confidence in our long-term potential for 600 plus stores. We opened 31 net new stores in fiscal 2019 across both new and existing markets and ended the year with a 180 stores, still less than a third of our long-term target.

In fiscal 2019, we ramped our direct sourcing penetration from 0% to 10% of purchases. Those direct sourcing and other initiatives, we generated product margin benefits that drove gross margin expansion for the full year. As I've discussed before, we put the associated benefits back into the business through price, quality, store level projects and marketing.

We also took possession of our second distribution center in Pennsylvania and began implementing improving cross stock set up and automation, as we operated in our Texas-based distribution center. With a new DC, we have total capacity to serve more than 350 stores, approximately twice our current footprint, and we now have a bigger foundation for the At Home business to grow upon.

As we turn our attention to fiscal 2020, we look forward to a 6th consecutive year of at least high-teen store growth, low single-digit comps, and high-teens revenue growth. From a full year earnings standpoint, we're committed to our philosophy on reinvestment and delivering on our long-term algorithm over a multi-year period. We feel confident in our new store pipeline, our marketing effectiveness and our merchandising initiatives, and we remain focused on delivering against our strategic priorities.

As a reminder, these key initiatives center around the customer, the At Home brand, our assortment and store experience, store growth, and of course our team. Peter Corsa, our newly promoted President and Chief Operating Officer, will take you through our initiatives of operational efficiency.

Our number one priority is always our customer. In fiscal 2019, we gathered valuable insights and are extremely pleased with the traction of our credit card and loyalty programs. While still early, we are encouraged by our initial learnings and the higher average tickets associated with both the credit card and Insider Perks.

With 4.3 million Insider Perks members today, we're gaining critical mass. In fiscal 2019, we rolled out digital receipts with customer satisfaction scoring, product recommendations on our website, and a more targeted messaging triggered by customer preferences. In fiscal 2020, we will continue expand enrollment as we test and refine our customer engagement strategy to determine the most effective approach to continuing to add customer value.

As part of our reinvestment strategy, in fiscal 2019, we increased our marketing dollars 44% to 3.1% of sales, up from 2.7% in the year before. We are very pleased with the returns we're seeing from this investment. Incremental marketing spend has driven higher traffic in allocated markets and we generated notable increases in both aided and unaided brand awareness year-over-year. The number of customers engaging with us through email has increased more than 50% and unique website visitors were up nearly 40% versus fiscal 2018.

Given these compelling results, the opportunity to significantly expand our brand awareness and the reinvestment capability afforded by our highly profitable model, we will continue to ramp our investment to marketing and advertising in fiscal 2020.

Under our marketing umbrella, we are increasing media and direct-mail spend by more than 50% and we plan to leverage both digital and traditional channels to highlight what we consider our category killers. This month we -- this month, we launched an exciting new marketing campaign called the Perfect One, which gives our customer confidence that with At Home selection and value, you will find the perfect product at the perfect price.

In terms of our Spring LookBook, we plan to reach significantly more households year-over-year and highlight our seasonal patio and garden offerings, as well as our category killers in the everyday assortment. Speaking of our assortment, we continue to focus on providing our customers with simple yet unique and -- unique in store proposition, which is the bright -- broadest variety of inspiring products at the best value and an enjoyable self-help environment. Our expansive assortment and style coverage allows us to be nimble and responsive to our customers' trends and preferences.

We continue to see strength in our modern and country offerings, as well as our category reinventions that well exceed chain average comp in the fourth quarter. I'm also very pleased with the discipline of our visual merchandising efforts; endcaps, feature tables and vignettes drove an outsized customer response in Q4.

For the full year, we saw broad strength across nearly all of our categories and we are especially pleased with the performance of our everyday categories. Category killer like lamps and shades, baskets, bars tools and throw pillows continued to deliver above average performance.

In fiscal 2020, we're particularly excited about reinventions in areas like home organization, frames, everyday greenery and dinnerware. Additional reinventions in window coverings, which were designed to ease the customer shopping experience in a larger and expansive lighting assortment and improvements in visual merchandising and merchant processes should also drive growth over time.

From a seasonal standpoint, we're introducing the new mix and match patio furniture versus the previous sets, as well as new and improved umbrellas, patio cushions, and throw pillows. Above all, this year's reinventions are an example of our continued emphasis on elevating quality at competitive price points.

Next, we're focused on new store expansion. In the fourth quarter, we opened stores in new markets like Longmont, Colorado; Tampa, Florida; Brick, New Jersey; and our very first West Coast store in the Seattle-Washington trade area. We also opened stores in our existing markets like Harrisburg, Pennsylvania; Atlanta, Georgia; and Washington DC.

In fiscal 2019, we achieved our highest new store productivity in our history, which shows that our concept is getting stronger and resonating in new and existing markets where our brand awareness is increasing. In fiscal 2020, we plan to open up 32 net new stores or 18% growth, in line with our long-term algorithm. All of our fiscal 2020 sites have been identified and nearly three-quarters are already opened or under construction.

We're particularly excited to have recently opened our first stores in both the Boston area and the State of California. Our fiscal 2020 pipeline includes a few Southern California sites and we believe California has the long-term potential to become our most penetrated state with over 80 locations. With the strong and growing performance that we continue to see from our new stores, we remain confident in the health of our concept and our ability to pursue the significant white space for our brand, while staying true to the real estate model that has produced compelling returns over the past six years.

We've consistently invested in systems and capabilities to elevate our customer's At Home experience, while simultaneously laying the groundwork for potential test for an expanded digital strategy. We partnered with the best-in-class web platform, allowing us to create a more robust website with tens of thousands of our product images. In 2018, we improved search and filter functionality, upgraded our lifestyle photography and expanded product details.

In fiscal 2019, we tested store level inventory visibility through our website and recently launched it across our entire fleet. In fiscal 2020, we plan to, once again, build upon our efforts and launch a limited test of a buy-online-pickup-in-store solution in late Q4 of this year. This disciplined test will offer customers, in select markets, a faster and more seamless way to access our in-store assortment.

Our goal for the test will be to better understand our customers' response and the associated economics for At Home. Finally, we remain committed to ensuring that At Home is a great place to work and grow as we continue to reinvest in having a comprehensive inspiring employee experience.

We are firm believers that great cultures deliver great outcome. Peter Corsa, our Chief Operating Officer, has been a key contributor to the development of that culture and our success during the past six years and I'm pleased to announce Peter's promotion to President and COO.

In addition of the President title -- the addition of the President title is well deserved recognition for his contribution, as well as his ongoing leadership across our executive team, operations group in our stores. We're proud of Peter and the rest of the team we've built, including the seasoned executives that have joined us in fiscal 2019 and we believe we're well positioned from a talent standpoint to deliver our next phase of growth. We look forward to making further progress on our initiatives and continue to pursue significant opportunity ahead of us.

I'll turn the call over to Peter to update you on our operational efficiency initiatives. Peter?

Peter S. G. Corsa -- President and Chief Operating Officer

Thank you, Lee. Good morning, everyone. Fiscal 2019 was an important year for At Home and we made strides improving the efficiency of our operations. This is critically important for a business like ours, which is predicated on delivering outstanding value to our customers. The results of our efficiency initiatives, much like our scale benefits, will be reinvested for the benefit of the customer, whether that's in product quality, price, or store labor.

Our goal is to deliver an ever improving value proposition for our customer. Direct sourcing is a key initiative with a long tail, and we've been disciplined in pursuing and ramping this effort. Direct sourcing was one of the drivers of our product margin expansion in fiscal 2019, generating dollars for reinvestment in marketing and store labor. We exited fiscal 2019 with the direct sourcing penetration of 10% of purchases and we expect to exit fiscal 2020 at almost 15%.

Our target is to methodically increase penetration each year, with the long-term goal of directly sourcing approximately 30% of our assortment. Direct sourcing has also aided our tariff response efforts. We have effectively mitigated the impact of the 10% tariff on Chinese imports, primarily through a combination of cost reductions, strategic price increases enabled by our competitive advantage, and relocating production to other countries. We're monitoring the trade negotiations and have developed our strategy for potential increases, but pending any formal policy changes, we continue to run our business under a 10% tariff assumption.

We are pleased to have navigated the tariff related port congestion and demand surges felt by many last fall, and we successfully secured our inventory position for the first quarter. As we discussed in December, due to the congestion and the earlier Chinese New Year, we intentionally pulled inventory forward into Q4, which is reflected in our year-end inventory balance. Congestion is eased abroad, and we feel well positioned to meet customer demand for the spring and summer selling season. We expect our inventory position to normalize later in the year.

Finally, I'd like to share some milestones related to our new Carlisle, Pennsylvania distribution center. We officially opened that facility at the beginning of fiscal 2020. Our automation system tests went very well, and afterwards, we are beginning processing receipts for approximately 30 existing stores. We are also leveraging the site for some of our new store accumulation needs, and I'm especially proud of our best-in-class, highly experienced teams we have in place.

As expected, the team's next priorities are to add a second shift and ramp to serving approximately a 100 stores by the end of Q1 with the end goal of splitting receipt volume evenly between our two distribution centers to maximize container efficiency. We have already leveraged the flexibility that our Carlisle DC offers in terms of utilizing multiple ports of entry for inbound product. We're pleased that the facility is on track and we look forward to ramping operations in the coming weeks.

With that, I'd like to turn the call over to our CFO, Jeff Knudson, who will walk through our fourth quarter and fiscal 2019 performance in more detail and discuss our financial outlook for fiscal 2020. Jeff?

Jeffrey R. Knudson -- Chief Financial Officer

Thank you, Peter, and good morning everyone. I'll begin my prepared remarks with a review of our fourth quarter and fiscal 2019 results and then discuss our outlook for the first quarter and fiscal year 2020. As a reminder, additional information is available in our earnings release, which is posted to our Investor Relations website.

I would also encourage you to review the supplemental information we posted to the site that illustrates our results as if the new lease accounting standard had been in effect during fiscal 2019. Because we will be accounting for fiscal 2020 and future periods under the new standard, this supplemental information will enable you to consider our fiscal 2020 outlook on a comparable basis.

Now onto our fourth quarter results, we delivered net sales growth of 20.6%, 2.1% comparable sales growth, marking our 20th consecutive quarter of positive comps and continued strong performance from our new stores. We ended the quarter on a strong note and we are pleased to have exceeded our top line guidance with broad based strength in both our holiday and non-seasonal categories.

From a profitability standpoint, we delivered fourth quarter pro forma adjusted EPS of $0.47, above the midpoint of our outlook. Gross margin of 33.1% decreased 70 basis points from Q4 last year, due to an adjustment to inventory shrink reserves, which was worth approximately 20 basis points to our full year. Outside of this adjustment, product margin improvement offset incremental occupancy cost from sale leaseback transactions in Q4 as planned.

We delevered adjusted SG&A dollars by 90 basis points to 19.6% of net sales, primarily due to pre-opening expenses related to our new distribution center, which came in lighter than initially expected as well as planned investments in marketing. We grew adjusted operating income 8.4% to $46.3 million and adjusted operating margin contracted 150 basis points to 13.1% due to the factors I just mentioned.

Interest expense of $7.6 million increased due to higher interest rates and increased borrowings on our asset-based lending facility to support our growth. As I've said before, we are laser focused on having an efficient capital structure and improving our free cash flow profile as we scale the business. We continue to evaluate opportunities to ensure we have the right capital structure to meet our needs.

We recognized income tax expense of $7.3 million for the fourth quarter, which includes an immaterial tax benefit from Q4 stock option exercises. Our fourth quarter adjusted tax rate was favorable to expectations at approximately 19.3%. As a reminder, our adjusted metrics exclude both the cost and the tax benefit of stock options related to our IPO.

The fourth quarter capped another strong year of growth for At Home. Fiscal 2019 net sales increased 22.7% to approximately $1.2 billion, driven by nearly 21% new store growth and a 2.7% comp store sales increase, in line with our low-single-digit long-term target. Fiscal 2019, gross margin expanded 80 basis points to 33.1% as product margin expansion exceeded higher occupancy costs from sale leaseback transactions.

Adjusted SG&A delevered 100 basis points to 21.9%, primarily due to strategic investments, in-store labor hours and advertising. Adjusted operating income grew 21.4% and adjusted operating margin contracted slightly to 10.7% of net sales. We recognized a nominal income tax benefit and our fiscal 2019 adjusted effective tax rate of 11.7% reflects $9.2 million of tax benefit from non-IPO related stock option exercises during the year.

Overall, we delivered a 38.3% increase in pro forma adjusted EPS to $1.30. We also grew adjusted EBITDA 22.1%, and in the fiscal year with a 3 times adjusted leverage ratio. We remain committed to reducing our leverage ratio over time as we continue to scale the business.

As you know, we have tremendous white space and a significant brand awareness opportunity. Therefore, we focus on annual outcomes and achieving the multi-year compound annual growth rates outlined in our long term growth algorithm, while continuously reinvesting in our long-term potential. Our fiscal 2020 investment in the second distribution center is a prime example of our focus in action.

Turning to our annual outlook for fiscal 2020, which is consistent with the framework we provided at ICR Conference in January, I would like to provide more detail on a few of the factors influencing the year. First, as we shared on our earnings call in December, we are initially ramping our new DC in a very thoughtful, measured way in the first half of fiscal 2020.

We believe the second DC will be a gross margin headwind of approximately 100 basis points to 110 basis points for the full year or $0.14 to $0.17 of EPS. This estimate includes the related freight benefits that will begin flowing through gross margin in late fiscal 2020 as inventory turns. We will call out the expected and incurred DC headwind, when we report quarterly results. Once fully ramped, we expect the second DC to generate meaningful transportation efficiencies over time.

Second, as we outlined in January, we expect the new lease accounting standard to have a $15 million to $16 million impact to adjusted operating income in fiscal 2020. The supplemental slides we have available on our Investor Relations website illustrate how the standard would have impacted fiscal 2019 by approximately $14 million, if it had been effective this past year. Our outlook discussion on this call assumes a comparable lease-adjusted basis in fiscal year 2019 and 2020. While the standard will reduce our reported earnings, both the underlying cash flows of the business and our analysis of real estate opportunities on a discounted cash flow basis remain unchanged.

And thirdly, in line with our reinvestment philosophy, we will continue to lean into marketing this year, given the positive results we've seen so far and the significant opportunity to drive brand awareness. We funded this investment through our existing model. And while we intend to delever marketing this year, on a lease-adjusted basis, we expect fiscal 2020 adjusted operating margins to be roughly flat, excluding the impact of the second DC.

In terms of our topline outlook, we expect net sales to grow 19% to 21% to a range of $1.39 billion to $1.41 billion, including a full-year comp store sales increase of low-single-digits, both in line with our long-term growth targets. Given the nationwide potential to more than triple our footprint, new stores continue to be the primary driver of our sales growth.

On the heels of the most productive new store class in our history, we plan to open our largest new store class to-date. We expect to open 36 gross and 32 net new stores, representing 18% growth, again in line with our long-term targets. We plan to relocate two stores and closed two stores to elevate our brand position in those markets.

As our fiscal 2020 site opportunities have solidified, we now expect a mix of approximately 15% new builds and 85% second-generation locations, including a handful of purchases. These opportunities combined with the out-performance of our new stores give us great confidence in our fiscal 2020 pipeline and our longer term potential for over 600 stores.

On a lease-adjusted basis, we expect adjusted operating margin contraction of 80 basis points to 100 basis points, driven entirely by 90 basis points to 100 basis points of DC investment. We expect to fund the remaining strategic priorities Lee discussed through the leverage inherent in our model, which has enabled us to reinvest every year in areas like brand awareness and marketing, employee wages and benefits, store labor hours and direct sourcing.

We expect to incur $215 million to $235 million of net capital expenditures in fiscal 2020, including approximately $70 million of sale leaseback proceeds. Our outlook represents a $55 million to $75 million reduction of gross CapEx year-over-year, even as we increase store openings. As Lee mentioned, we are prioritizing efforts to improve our free cash flow profile.

Our fiscal 2020 capital plan incorporates modest improvement associated with these efforts, but there remain significant opportunity to further reduce our capital spend over the next several years. We will continue to update you on our progress as we move through the year.

We are currently assuming $31 million of interest expense and an effective tax rate of approximately 23% before considering the tax impact of certain stock-based compensation events, culminating in $67.5 million to $71 million of pro forma adjusted net income. Based on approximately 66 million diluted weighted average shares outstanding, we expect pro forma adjusted EPS of $1.02 to $1.08.

Within the year, several factors will cause a shift in the contribution of earnings by quarter. Due to the cadence of the DC ramp and the timing of pre-opening expense, as we open new stores earlier, combined with the impact of lapping significant tax benefits from stock option exercises in the first three quarters of fiscal 2019, we do not expect to generate adjusted EPS growth until the fourth quarter of fiscal 2020. We expect to generate more than half of our full year adjusted EPS in Q4.

As it relates to the first quarter, you have already heard from several retailers that prolonged winter weather caused a soft start to fiscal Q1. In the first part of the quarter, our entire footprint experienced colder average temperatures year-over-year. Markets that were less impacted by weather performed significantly better than the more weather affected counterparts. As temperatures in those markets have stabilized, we are seeing demand rebound. We also believe the late Easter, which typically signals the start of spring to our customer, delays our seasonal performance.

While we have seen these trends recover as weather has improved, we expect our first quarter comp sales will be flat to slightly positive. As I mentioned earlier, we continue to expect a low-single-digit annual comp store sales increase in line with the framework we shared in January and our long-term growth algorithm. We expect net sales to be $300 million to $305 million. Our new stores continue to outperform, and we plan to open 11 Q1 stores versus seven last year. From a profit standpoint, there are several factors impacting our adjusted operating margin decline of 540 basis points to 560 basis points on a lease-adjusted basis.

First, we expect the gross margin headwind from the second DC to be the most impactful during Q1 at 150 basis points. In Q2 and Q3, we expect the headwind to be slightly lower with the Q4 adjusted operating headwind moderating further as we cycle the fiscal 2019 preopening costs and SG&A and begin recognizing transportation efficiencies late in the year.

In addition, we are opening new stores earlier year-over-year and therefore expect the timing of pre-opening expenses to delever approximately 70 basis points in Q1. We expect that headwind to reverse in the fourth quarter when substantially all of our fiscal 2020 pipeline is open.

Third, as Lee discussed, we are intentionally leaning into marketing again this year. While we expect to delever this line item every quarter, it will be heaviest in Q1 at approximately 70 basis points. Similarly, occupancy deleverage primarily related to sale leaseback transactions in fiscal years '19 and '20 has a significant impact on gross margin in Q1 that will moderate through the year.

And finally, the timing of non-product cost in gross margin will also be a significant headwind in Q1 that is expected to entirely reverse in the Second through fourth quarters. All-in, we expect pro forma adjusted net income of $2 million to $3 million. And assuming 66 million shares outstanding, our first quarter pro forma adjusted EPS outlook is $0.03 to $0.04.

In closing, we are pleased to have delivered a strong fiscal 2019 with substantial adjusted earnings growth. We are building on this progress and further strengthening our foundation for future growth through the investment agenda we outlined for fiscal 2020. We look forward to executing on this year's strategic initiatives and ultimately on our long-term growth potential.

I'll now turn the call back to Lee for his final remarks.

Lewis L. Bird III -- Chairman of the Board and Chief Executive Officer

Thank you, Jeff. In summary, fiscal 2019 marked another year of strong growth and operational progress for At Home. There remains tremendous opportunity as we execute against our long-term potential of over 600 stores. We expect fiscal 2020 to be another strong year from a top line perspective, in line with our long-term growth targets. To achieve our plans, we will grow our store base by 18% and enter the important California market. We will continue to make strides on the merchandising front, by refining our assortment, improving core processes, and deploying exciting category reinvention. We will lean into marketing and increase our media spend to drive traffic and capitalize on the awareness opportunity that we have.

We remain disciplined with our capital allocation, as we work to significantly improve our free cash flow position and become free cash flow neutral next year. We will test buy-online-pickup-in-store in Q4 with the goal of understanding both the economics of our customer -- the economics and our customer response. And finally, we will ramp our new East Coast DC, positioning us to generate freight efficiencies in fiscal '21 and beyond.

As the management team, we are tightly aligned against delivering on these priorities. Our disciplined investments in the business ensure our long-term success as we continue to strengthen the At Home value proposition. We continue to pursue the long-term targets we laid out at the time of the IPO, which call for low-single-digit comps, high-teen sale growth, and approximately 20% operating income growth and approximately 25% net income growth.

We feel confident in our pipeline of stores, our merchandising plans, and our growing marketing effectiveness and the strides we're making to deliver an even better customer experience.

With that, I'd like to turn you over to our operator, Melissa, who will open up the line for questions, operator?

Questions and Answers:

Operator

Thank you. At this time, we'll be conducting a question-and-answer session. (Operator Instructions) To allow for as many questions as possible this morning, we request that you please ask one question and one follow-up each. Thank you. Our first question comes from the line of Matt McClintock with Barclays. Please proceed with your question.

Matt McClintock -- Barclays -- Analyst

Hi, yes, good morning, everyone. And congrats, Peter.

Peter S. G. Corsa -- President and Chief Operating Officer

Thank you.

Matt McClintock -- Barclays -- Analyst

So Lee, I just wanted to dig into the investments in marketing that you plan to make this year, I believe -- I believe you said that you're going to increase your media and direct mail spend by 50%. How should we think about that in terms -- or the total spend in marketing this year relative to prior years in terms of -- as a percentage of total sales?

And can you remind us the payback that you have historically seen from your increases in marketing dollars over the past several years, because if I recall, you didn't spend any money on marketing just like four or five years ago? Thanks.

Lewis L. Bird III -- Chairman of the Board and Chief Executive Officer

Thanks, Matt. Yes, we're pleased with the marketing progress we've made. We've been putting investment increases in the past four years. We didn't, obviously, spend any money on marketing before when we were Garden Ridge and we launched the At Home brand. That's when we started marketing and we continue to invest against that. We've grown brand awareness significantly this past year, as a result of this 44% increase we had this past year.

We saw where we spend our marketing dollars, significant increases in traffic and response rate for our customers. We are investing again in the long-term potential of this business. We're focus on annual outcomes that way. But when we do the investments, we do testing control. We saw really nice responses in different media mix. We do media mix modeling now too to ensure the effectiveness in that. You should know we measure our effectiveness on two measures. One is traffic obviously, and the second is brand awareness.

We saw significant increases in our brand awareness this past year and we see a huge opportunity. We're still -- our brand awareness tails in comparison to our other competitors. And we found that brand awareness is that builds -- drives traffic over time. And also the last measure we look at from a marketing effectiveness is our new store productivity and that too increased every year as well and last year was a record. So we have confidence in the investments that we're making.

And we also want to continue to focus on not only those measures, but also a loyalty program, which I mentioned earlier had 2.9 million members added to that program. We now have 4.3 million members. So all said, you can tell that we found it has been very effective that investment to drive our performance with five straight years of same-store sales growth; 20 consecutive quarters of same-store sales growth; 19 consecutive quarters of 20% revenue growth or more. That marketing engine is working and building momentum, and we expect that to do that for this year as well.

Matt McClintock -- Barclays -- Analyst

Thanks for that. And as a follow-up question, just a separate topic, you outlined a number of reinventions that you plan to do this year. Can you give us any senses in terms of the timing, where we should expect to see those reinventions in the stores, so we can go in ourselves and look at them? Thanks.

Lewis L. Bird III -- Chairman of the Board and Chief Executive Officer

Sure, they are layering through the year. For example window, which launched in Q1 is in all stores already. Our seasonal assortment for patio and garden is in stores already. So the mix and match furniture complement the sets that we already have. Umbrellas and shades are there, you'll see the umbrella assortment is, I think our best we've ever had, both from a price and quality standpoint. And patio cushions have been improved as well.

Going forward, you'll see lamps and shades continue to be rolled out through the year. Home organization will happen throughout the year as well. So think of Home organization frames. Our everyday greenery is already in the store, the botanical assortment and succulents already there in this greenhouse format and make your own terrarium format as well. That's been a really nice launch for us. And the dinnerware comes in the middle of the year. And also throughout the year, you'll see improvements in endcaps and our focus on key items and that should drive our performance as well.

Matt McClintock -- Barclays -- Analyst

Thanks a lot for the color, best of luck.

Lewis L. Bird III -- Chairman of the Board and Chief Executive Officer

All right, thanks Matt.

Operator

Thank you. Our next question comes from the line of John Heinbockel with Guggenheim Securities. Please proceed with your question.

John Heinbockel -- Guggenheim Securities -- Analyst

So, Lee, when you think about physical expansion and the organization's capacity, where do you think you kind of begin to hit a peak in annual openings. It might have been the idea that both to focus on operational execution and conserve capital. Do we sort of peak out here kind of in the mid-to-high '30s and that's the rate that you'd sustain as opposed to ramping it on a percentage basis?

Lewis L. Bird III -- Chairman of the Board and Chief Executive Officer

That's not the cap. I would say the mid '30s is not the cap. What we focused on this year is opening up our stores more toward the front of the year. We want to have a nice balance between Q1, Q2 and Q3 and not have as many store openings in Q4. So you'll see a significant improvement in overall store weeks, an 18% increase in store count, but store weeks will be even greater than that.

And what I would say is, we have built a model to know exactly what we need to add well before we need it in terms of capability in the organization from a real estate standpoint, construction management standpoint, construction partners, that's all been aligned. We know how to scale it. Our Head of Real Estate Architecture and Construction, Norman Mcleod has been opening up stores his whole life. He was with the YUM! Brands as Head of Construction. He was Head of -- at FedEx Office, opened up over 600 locations worldwide for them. He did their rebranding from Kinko's to FedEx office.

And so, he has been with us for five years now. He did our rebranding. He has done the -- launch of all of our stores. We know what we're doing. What we really want to work on this year was getting the stores toward the front of the year and get a better benefit throughout the year. Unfortunately that has some pre-opening cost that's come to the front of the year. That has also incremental inventory that comes in at the front of the year. We mentioned that in our data release.

So you can see that those numbers are elevated, but it also delivers great outcomes for the whole year and going forward. So we find that we've got the ability, if we can do over 30 stores toward the first three quarters, that would tell you we can do more than that for a full year if we wanted to, we just elected to pull them toward the front of the year.

John Heinbockel -- Guggenheim Securities -- Analyst

Okay. And then secondly, what's your assumption with regard to shrink impact for the full year 2020? And the -- what you saw in the fourth quarter, is there some residual impact at least into the first half of the year or that's sort of run its course?

Jeffrey R. Knudson -- Chief Financial Officer

No, so obviously we guided flat gross margins in Q4 and then we saw the elevated shrink come in late in the quarter as we posted those counts, John. So as we look into our fiscal year '20 guidance with that being a lag metric there -- that is contemplated that there is some residual headwind into fiscal year '20 from that. But it's in our -- contemplated in the guidance we just gave this morning.

Lewis L. Bird III -- Chairman of the Board and Chief Executive Officer

John, you should also know that, no we're not pleased with that slight uptick in shrink it still -- we are still below industry averages, and we continue to keep that a focus in our business.

John Heinbockel -- Guggenheim Securities -- Analyst

Okay, thank you guys.

Lewis L. Bird III -- Chairman of the Board and Chief Executive Officer

Alright, thanks, John.

Operator

Thank you. Our next question comes from line of Simeon Gutman with Morgan Stanley. Please proceed with your question.

Simeon Gutman -- Morgan Stanley -- Analyst

Thanks, good morning. I wanted to ask about the first quarter, you mentioned that in the places where weather has improved it got significantly better. Can you -- I don't know if you can quantify that. But we are against an easy comparison, and so maybe directionally, does significantly better mean above what the run rate of the business should look like or even above that, meaning above low single digits. And then related to it, can you quantify what you think late Easter may -- how it may affect your business?

Peter S. G. Corsa -- President and Chief Operating Officer

What we were going to say is, Simeon, we have 17 districts across our fleet and there were certain districts where although there were colder temperatures there, it wasn't as demonstrative as it was in some of the other districts and their performance was significantly better in those areas where it was least impactful. And that's probably extent that we're going to go. And then we've seen, as weather has improved and trends have improved, the business has rebounded, and we're happy with where we're at right now and that's contemplated in our Q1 guidance.

Lewis L. Bird III -- Chairman of the Board and Chief Executive Officer

And to me, I'd also say that weather evens itself out overtime, so what we said, we are still holding the year. We had that situation last year we had a low comp performance, you mentioned that as an easy compare, we still finished with a 2.7% for the year starting out with a 0.9%.

So we -- and I'd tell you, Q1 has been here now for enough to see that Q1 spring weather is uncertain. It's the -- probably the most uncertain quarter that we have and so we've outlined what that's going to be. We expect low single digit comps as our model over time. We've guided to flat to slightly positive for the quarter. What we have seen is a really nice rebound with weather. And now with late Easter, we've also seen, when you have a late Easter, people think about spring later too and that happened five years ago as well.

And so when we think about our business, we think about it in halves. So you should measure us not just by quarter, but by the half. So let's look at the first half of the year and the second half of the year. So in Q1, it started out slow because of weather. We expect that -- it has rebounded and we expect our sales to continue to keep that momentum through the second quarter.

Simeon Gutman -- Morgan Stanley -- Analyst

Got it, OK. My follow-up is on gross margin, so you gave us -- Jeff gave us a couple of moving pieces and -- but there's a lot of them and I know -- we understand where the operating margin is. But can you help us a little more between gross margin and SG&A for the first quarter and I think there's going to be heightened scrutiny on the gross margin in light of the fourth quarter miss and then the fact that we do have a lot of DC costs running which you've quantified. But given that noise, if there's more granularity, I think it would help -- it would certainly help us out, because I think getting that range appropriate would matter greatly to the trajectory of the story.

Jeffrey R. Knudson -- Chief Financial Officer

Sure. So let's start with the year, Simeon. So we're guiding for gross margins to be down 100 basis points to 120 basis points, which is entirely almost a 100 basis points to 110 basis points related to the second DC, so that's the year. As it relates to the first quarter with some of the moving pieces, obviously the DC 2 costs of 150 basis points, that's a gross margin headwind. The pre-opening and the marketing expenses, although those are impacting operating margins, those are SG&A related, and then the occupancy costs that will moderate as we move through the year and cycle some of the sale leaseback activity that's in gross margin; and then the non-product costs that are impacting gross margins in Q1 that will entirely reverse in Q2 through Q4 and that's also a gross margin geography item as opposed to SG&A.

Simeon Gutman -- Morgan Stanley -- Analyst

And the shrink accrual question to John's question, you've done -- I'm assuming physical inventories happen on a rolling basis the entire chain didn't get done, but your increase in the accrual, the reserve based on what you've seen in the fourth quarter inventory checks?

Jeffrey R. Knudson -- Chief Financial Officer

That's correct.

Simeon Gutman -- Morgan Stanley -- Analyst

Got it, OK. So -- and you think you've appropriately accounted for even a greater run rate or just a run rate that's observed in the fourth quarter?

Jeffrey R. Knudson -- Chief Financial Officer

Just the current run rate.

Simeon Gutman -- Morgan Stanley -- Analyst

Understood. Okay, thanks.

Lewis L. Bird III -- Chairman of the Board and Chief Executive Officer

Thanks, Simeon.

Operator

Thank you. Our next question comes from the line of Jonathan Matuszewski with Jefferies. Please proceed with your questions.

Jonathan Matuszewski -- Jefferies -- Analyst

Great, thanks for taking my questions. First one, just on the store level inventory availability; great to hear about this being rolled out more broadly, could you just share an update on what kind of traction you were seeing as the pilot unfolded? What gave you kind of confidence in terms of rolling it out more broadly? How it was being used in terms of new and existing customers? Any more color there would be helpful? Thanks.

Lewis L. Bird III -- Chairman of the Board and Chief Executive Officer

Sure. Jonathan. Yes, we're thrilled with how this has worked out for us. What we tried to do is always to enable self-help shopping. That's our key mission and one of our key initiatives. And one of the biggest questions that people had when they called in to our customer support line or in our stores was; is this item in stock? And we wanted to address that by having visibility at the store level. So we tested it out over a number of stores in a number of markets.

What we found was call rates went down significantly, request rates went down significantly, and customer feedback was super positive around, is the item in stock? Not only was it in stock, if it wasn't in stock, was it in a nearby store? And they knew exactly which store and that inventory gets updated every five to ten minutes online. And so that's real time.

In fact that's even little bit faster than sometimes our scan guns in the store. So that's been great for our customers. That's how we measure it, with customer satisfaction. We wanted to also see, did it have a detrimental impact to our performance, because it may have dissuaded somebody. If it wasn't in stock, to not come in the store, we didn't see that either. We saw a really nice performance for our business overall, reduced customer complaints. And as a result of that, we rolled it out across the fleet even faster than we originally planned and now it's in all stores in all markets.

Jonathan Matuszewski -- Jefferies -- Analyst

Great, that's helpful. And then California is very early days, but anything you could share in terms of the grand opening there relative to maybe other recent openings in new markets? Any color on -- anything you may be doing differently in this market relative to other markets, maybe as it relates to tailoring the product mix assortment or anything else? Thanks.

Lewis L. Bird III -- Chairman of the Board and Chief Executive Officer

Yes, we're super excited about California, as the market has 80 plus store potential. We've had proof points to get ourselves prepared for that, in Phoenix and Vegas and Salt Lake City and we've done very well in those markets that helped us understand the assortment requirements which -- we carry the same assortment across the country. We wanted to make sure it works on the West as well as the East and Southeast, it did and does. We prepared ourselves for that. We obviously had some requirements around labor laws and product compliance and so we were thoughtful around that.

Peter led that effort for our Company and so as we prepared, we put an experienced district manager in, we hired from the outside who knows the market very well. We brought in our -- one of our best store directors as well, Ryan, who has run -- opened multiple stores the Gilbert, Arizona store, the Prescott store in Arizona as well. So we made sure we had the right team in place and then we are prepared with our DC to handle that as well and it launched nicely.

I would tell you that this is a great location. Well I'm excited about that. Foothills Ranch, that's a growing -- the East Irvine area, if you know, well area is in Southern California. We're excited about the locations we have selected for other California markets. The nice thing about California, there's a lot of density in household incomes. So those stores should perform really nicely for us.

And the nice thing is -- because we prepared ourselves, we know it's the same economic model from a real estate standpoint. We knew what the economics were going in. We've been super selective about it. They all meet our hurdle rates. We don't reduce our requirement because these fall on other location or a place to be and we would expect these stores to perform very well for us and equal to our other stores.

Jonathan Matuszewski -- Jefferies -- Analyst

Great, thanks so much.

Lewis L. Bird III -- Chairman of the Board and Chief Executive Officer

These Jonathan.

Operator

Thank you. Our next question comes from the line of Brad Thomas with KeyBanc Capital Markets. Please proceed with your question.

Brad Thomas -- KeyBanc Capital Markets -- Analyst

Hey thanks, good morning. Want to ask about inventory, you talked about it little bit in the prepared remarks, but just wanted to follow up about how you're feeling about the cleanliness of inventory, given some of the choppiness in sales off late, your ability to play offense this year in 2Q once the weather does turn; and then, where are you thinking inventory level should be at the end of the year?

Lewis L. Bird III -- Chairman of the Board and Chief Executive Officer

Yes, so where we -- we were -- we said on our last call that we knew the inventory -- our inventory position would be elevated relative to where we've historically been at the end of the year. So we do have stores opening earlier, 50% more store openings in the first half of this year. We did plan around the timing with Chinese New Year and then we also wanted to be better positioned for spring and summer. And we brought our patio assortment in earlier to meet customer demand, and so, all of those things were playing into that elevated inventory balance.

As it relates to that cleanliness standpoint, we feel really good about our position. We don't think there's any liability there and we would anticipate, as we move through the year, that that would normalize, and by the time we end the year the situation would be back to normal.

Brad Thomas -- KeyBanc Capital Markets -- Analyst

Got you. So, back up to where inventory is growing more in line with sales.

Lewis L. Bird III -- Chairman of the Board and Chief Executive Officer

The sales growth, that's exactly right.

Jeffrey R. Knudson -- Chief Financial Officer

Yes, we just had a plan to bring that into to deliver the year and it just so happened that it timed out toward the end of last year.

Brad Thomas -- KeyBanc Capital Markets -- Analyst

Great. And then as a follow-up, Lee, in your kind of closing remarks, you talked about a goal of getting the business toward closer to being free cash flow neutral next year, I believe 2020. Can you talk a little bit about the leverage you can pull to get closer to break even from a free cash flow basis?

Lewis L. Bird III -- Chairman of the Board and Chief Executive Officer

Yes, sure. So the biggest thing that we can impact is our capital spend and we alluded to, it's down this year. We are making significant incremental progress this year on that journey to being free cash flow neutral next year, but it's a multi-pronged attack that relates to our capital spend both how we think about new store builds as well as the second-generation opportunities and also a focus on working capital, inclusive of inventory and our payables management, so all of those things will enable us to become free cash flow neutral next year.

Brad Thomas -- KeyBanc Capital Markets -- Analyst

Great, thank you.

Lewis L. Bird III -- Chairman of the Board and Chief Executive Officer

I'd also add -- yes, I'd also add on those, just from a standpoint of -- there is an effort that Jeff and Peter are leading around reducing our capital -- our new store capital intensity, you should know about, and then, accretive new store financing opportunities that we're looking at to actually think about how do we leverage other parties to help us in that effort? And so when we do that, we should be able to reduce the capital required, the cash requirements of our new store growth and deliver a better cash position for us overall.

Jeffrey R. Knudson -- Chief Financial Officer

And then obviously as the business continues to scale and grow earnings growth, will be a contributor to helping us next year as well.

Brad Thomas -- KeyBanc Capital Markets -- Analyst

Got you. Thanks so much.

Lewis L. Bird III -- Chairman of the Board and Chief Executive Officer

Thanks Brad.

Operator

Thank you. Our next question comes from the line of Daniel Hofkin with William Blair. Please proceed with your question.

Daniel Hofkin -- William Blair -- Analyst

Good morning. Guys, just to follow up a little bit on an earlier question, maybe if I could just ask you to summarize, by quarter if possible, your expectations for gross margin, we're talking adjusted gross margin and net margin (ph) s we go through the year and the major things that are affect -- causing that to swing better as we hit later in the year? Thanks.

Lewis L. Bird III -- Chairman of the Board and Chief Executive Officer

Yeah. So we'll start with, again, for the full year, we expect the full year margins to be down a 100 basis points, 120 basis points with a 100 basis points, 110 basis points of that from the second DC. We've guided to operating margins for Q1 and as we think about the puts and takes within gross margins, we obviously well have benefits from product margins as we move through the year and our direct sourcing efforts. We'll also have the annualization of floor loading both -- occupancy will continue to delever as we move through the year, with the sale leaseback transactions from last year as well as the anticipated sale leasebacks this year, and then we also have some elevated freight costs that we've talked about last year from the port congestion and then just overall freight inflation that will flow through. That will be headwinds on the gross margin line. But over the course of the year, we would anticipate the 100 to 120 basis point delevering, mainly driven by the second DC with all those other puts and takes balancing out.

Daniel Hofkin -- William Blair -- Analyst

And how does that flow by -- if you could just give us so 1Q and then 2Q, 3Q, et cetera?

Lewis L. Bird III -- Chairman of the Board and Chief Executive Officer

Yes, we probably won't get into the specifics on Q2 and beyond. But as it relates to Q1, obviously the 150 basis points on the second distribution center is flowing into gross margin. The pre-opening and the marketing expenses that we had talked about are SG&A related items, and then the non-product costs and the occupancy deleverage from the sale leasebacks relate to gross margin. So that's kind of your rough breakdown of the 540 basis points to 560 basis points between margin and SG&A to get to the operating margin guidance.

Daniel Hofkin -- William Blair -- Analyst

Okay, and then the lease headwind within that?

Lewis L. Bird III -- Chairman of the Board and Chief Executive Officer

On the occupancy side?

Daniel Hofkin -- William Blair -- Analyst

Yes.

Lewis L. Bird III -- Chairman of the Board and Chief Executive Officer

Yes, so that's -- that is on a lease-adjusted basis, apples-to-apples year-over-year and the occupancy deleverage from sale leasebacks is elevated from what we've historically seen.

Daniel Hofkin -- William Blair -- Analyst

Okay, thanks very much.

Lewis L. Bird III -- Chairman of the Board and Chief Executive Officer

Alright, thanks, Daniel.

Operator

Thank you. Our next question comes from the line of Zach Fadem with Wells Fargo. Please proceed with your question.

Zachary Fadem -- Wells Fargo Securities -- Analyst

Hey, good morning. So, on the SG&A side, could we talk a little bit about cadence given the pre-open and ad spend stepping up in Q1. Are there any other factors we should keep in mind? And then as we move throughout the year, it looks like you're expecting the Q1 deleverage to shift to leverage at that line perhaps as early as Q2. Could you talk about some of the moving parts there?

Jeffrey R. Knudson -- Chief Financial Officer

Yes. So, as we think about the SG&A drivers, as we move through the year, the biggest on the preopening side, obviously, as we open up stores earlier, you can think about that. That will have some modest deleverage in the middle part of the year and entirely flip in Q4. Marketing, as we said, is 70 basis points in Q1. That will be the -- we expect that to be the highest point of the year. But we will delever that every quarter, as we move through -- move through the year. And on the full year obviously, that'll delever as well.

Zachary Fadem -- Wells Fargo Securities -- Analyst

Okay. And then, Lee, could you talk about the decision to test home delivery? We noticed you started rolling it out with a third party, could you walk us through the thought process, what the response has been thus far? And whether there has been any incremental investments on your end for the initiative?

Lewis L. Bird III -- Chairman of the Board and Chief Executive Officer

Yes, we've been really pleased with our partnership with the third party that has helped us on the delivery side. It's been a faster, more elegant solution for us. It's not integrated into our POS system, because we're still in a test format. But we are rolling it out to more markets. It's still very small. It's interesting, with the take rate on this, our customer is still cost conscious, that's the value of our value proposition. Remember, we have a $15 item average ticket -- I mean average item, and then we got a $55 basket. And then the delivery charge on top of that becomes a bigger number for our customers.

So we find people just figure out very creative ways to get it to their house, and not use a delivery solution. But where they do need delivery, this solution has been fantastic. They do it through an app, they allow -- or they can use it through in-store kiosks, it allows them to be delivered within two to four hours of the time they order. We reserve it at the store for them to pick it up. And it's a really nice solution. It's just, the take rate of that is not that significant.

Zachary Fadem -- Wells Fargo Securities -- Analyst

Got it. Thanks, Lee. Appreciate the time guys.

Lewis L. Bird III -- Chairman of the Board and Chief Executive Officer

Thanks, Zach.

Operator

Thank you. Our next question comes from the line of Chuck Grom with Gordon Haskett. Please proceed with your question.

Chuck Grom -- Gordon Haskett -- Analyst

Hey thanks, good morning. Just on the effort here on direct sourcing going from zero to 10%, is it possible for you guys to quantify how much of a benefit that was for you in 2000 -- your fiscal 2019? And then when you think about going from 10% to 15% this upcoming year, would you expect sort of a similar benefit literally? And then I guess, bigger picture, like why can't you ramp that quicker? If you took it from zero to 10% this year, then why wouldn't it got even greater this upcoming year? Thanks.

Lewis L. Bird III -- Chairman of the Board and Chief Executive Officer

Sure, Chuck. I'll cover that. This is Lee. What I would say is, we're thrilled with our direct sourcing efforts. This is a multi-year effort we said we're going to get to 30% of our -- of our product buys to direct sourcing. And you go from a standing start to 10% at the end of last year was a -- was a big monumental feat for us.

When you do that on an item basis, you'd pick up hundreds of basis points. That's the value of the benefit of it, hundreds of basis points. So going from 10% to 15% in one year is real great progress for us. I would say we're thoughtful about that. We're actually using it as a leverage point with our existing suppliers as well. And when you go direct sourcing, we have to design the product ourselves. So we've had to bring in designers, product development folks to then work and then we have to also create a direct sourcing team that can go directly to factories, identify qualify factories, make sure they can scale the -- remember, we're now a $1 billion. We are not this small shop anymore, so we need scale factory partners. So that takes some efforts and we're going to deliver great quality products for our customer.

So we're thoughtful about that. We've added to the team. We then go back to our supply base and say, this is where we're going. What we've found is it hasn't ramped as quickly as you probably would likely it to, but it's ramping at the rate that we like it to, because our existing supply base has come back with cost saving opportunities for them to actually design, develop it for us, us not to have to then find the factory, and they can do that from an end-to-end standpoint too, but then we can do it all in.

And so we've been getting cost savings from our existing partners. And then, we're also continuing to ramp direct sourcing category by category, factory by factory, and we like the outcomes. And if you go too fast, what we found, because we are an experienced management team, if you go too fast, quality suffers, the customer experience suffers. We don't want that. And so we want to have -- and we also want every year gross margin benefits built into our number year-over-year-over-year and that's what we're seeing with this direct sourcing effort.

Chuck Grom -- Gordon Haskett -- Analyst

That's helpful. Is it possible to quantify what the impact was from last year at all?

Lewis L. Bird III -- Chairman of the Board and Chief Executive Officer

What we've said is a 100 basis point on a per-item basis. You can do some of the math yourself because we went from essentially zero to an exit rate of 10% and we're growing to 15% this year.

Peter S. G. Corsa -- President and Chief Operating Officer

Yeah, and as we've said, with those benefits we continue to reinvest that back in price and quality for the customer and I wouldn't expect that to flow right to the bottom line in the out-years.

Lewis L. Bird III -- Chairman of the Board and Chief Executive Officer

And that's how we keep our price proposition. We're lower than the online players. I mean, some of the outside parties have said we're anywhere from 10% to 30% below online players. And then our -- when we do our own comp shopping, we're still below every else's sales price and so us focused on bringing our prices down, reinvesting that in not only price, but quality that I mentioned, will improve the quality of our product and then it helps fund the advertising that we just announced, and that was a big investment for us. So these gross margin benefits should help us overall deliver a really industry-leading operating margin percent overall that we have.

Chuck Grom -- Gordon Haskett -- Analyst

Understood, and then, just the follow up would be, I mean you talked about the elevated marketing efforts that you have, your ad dollars as a percentage of revenues was around 2.3% in 2016, about 3.1% last year. It sound like they're going to be up 70 basis points in 1Q, probably close to the mid-3% range maybe in 2020. I guess when you just think about the, looking ahead over the next several years, at what point do you feel like you can start to leverage that line item? Is there a point where you brand awareness to hit a certain mark or how do we think about that. Does it always continue to grow or do you start to get some leverage at some point in time?

Lewis L. Bird III -- Chairman of the Board and Chief Executive Officer

Yeah, what I would say is, we've seen benefits of the investment and so our goal is to drive traffic and brand awareness. Both of those are opportunities for us. We see nice traffic growth when we spend money in end markets. We see brand awareness has grown significantly over time. But already we're not even a third of some of the major players in terms of brand awareness in our category. We have so far to go, so many, many years of investment to get there. And I would tell you, we don't even use the whole marketing playbook across all of our store footprint. Some stores don't even get a full complement of marketing support.

So we're going to reinvest every year. It's funded by the model. You should know that, our investment this year digital is still the biggest spend that we're going to have. It's super-efficient to do it that way. We do media mix modeling to make sure that we understand where we spend it. We have a big effort in Instagram and now interest in Facebook and so on. The 50% increase in spend within our media and direct mail. We found great success with direct mail, the LookBook that just launched, gives the customers the ability to view our entire spring offering for example and to double-click into our everyday categories. We're going lean more into TV and what I would say is we are not sure where the end result is because we're not even close to our full potential in getting brand awareness to where it needs to be.

Peter S. G. Corsa -- President and Chief Operating Officer

And the only thing I would add is obviously with us being less than a third of our full potential right now with our opportunistic real estate strategy that it continues to be -- it's inefficient for us with the way we take advantage and capitalize on those real estate opportunities and it will be some time before we're able to start to leverage that as we densify some of our larger markets.

Lewis L. Bird III -- Chairman of the Board and Chief Executive Officer

And Chuck, well I would just conclude with it, it still delivered -- even with that incremental investment, we still delivered industry-leading margins, operating margins. So we can afford this. It's not that we're being reckless with this investment. We're thoughtful about the model. We're thoughtful about our long-term algorithm. We continue to focus on investing to deliver that long term algorithm.

Chuck Grom -- Gordon Haskett -- Analyst

And then I apologize I did hop on late. Just with regards to the first quarter, I'm not sure if you addressed this, but would you say that your trends quarter-to-date are consistent with your guide or are you guys assuming a recovery with the Easter shift and obviously the weather. And then, has Easter historically helped your business when it's later, because some retailers called it out as a positive, some say the opposite. Thank you.

Lewis L. Bird III -- Chairman of the Board and Chief Executive Officer

Yeah. What we mentioned was, when we had weather in the first part of the quarter, the business has rebounded nicely. With a late Easter, we'll obviously going to have a back-end loaded part of our demand there as well that will roll into the second quarter with that Easter shift. And what we're seeing is measure us on the first half because weather evens itself overtime.

Chuck Grom -- Gordon Haskett -- Analyst

Okay, great, thank you very much.

Lewis L. Bird III -- Chairman of the Board and Chief Executive Officer

Thank you, Chuck.

Operator

Thank you, ladies and gentlemen, this does conclude our time allowed for questions. I'll turn the floor back to Mr. Bird for any follow-up.

Lewis L. Bird III -- Chairman of the Board and Chief Executive Officer

Great, Melissa, thank you so much. Thanks everybody for joining us this early morning and for the call. We're excited about the opportunities in front of us. We're pleased with our performance last year. We continues to deliver great outcomes five straight years of same-store sales growth, five straight years of 20% revenue growth, and 20 consecutive quarters of same-store sales growth, 19 consecutive quarters of that 20% revenue growth. We look forward to this year as continuing that momentum. We're going to make some investments to deliver on that. But our long range algorithm remains intact and we look forward to updating you next quarter.

Operator

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Duration: 69 minutes

Call participants:

Bethany Perkins -- Director of Investor Relations

Lewis L. Bird III -- Chairman of the Board and Chief Executive Officer

Peter S. G. Corsa -- President and Chief Operating Officer

Jeffrey R. Knudson -- Chief Financial Officer

Matt McClintock -- Barclays -- Analyst

John Heinbockel -- Guggenheim Securities -- Analyst

Simeon Gutman -- Morgan Stanley -- Analyst

Jonathan Matuszewski -- Jefferies -- Analyst

Brad Thomas -- KeyBanc Capital Markets -- Analyst

Daniel Hofkin -- William Blair -- Analyst

Zachary Fadem -- Wells Fargo Securities -- Analyst

Chuck Grom -- Gordon Haskett -- Analyst

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