Michael Mullican: No doubt, none of these economic cycles look exactly like the other, but you try to draw some parallels from it. 2008, 2009 and 2010 were collectively very strong comp years for the company, and those were some tough years. This is a little bit different cycle and that consumer balance sheets are still relatively healthy. That won’t last for a heck of a lot longer if inflation rates continue to rise and obviously go into recession, if that occurs, we are in a great position to pick up market share because we’re the value player. I think what we’ve shown is our team, our customers and our business are incredibly resilient through a variety of economic cycles.
Daniel Imbro: Great. I appreciate all the color and best of luck.
Operator: Our next question comes from the line of Christopher Horvers with JPMorgan.
Christopher Horvers: It’s Megan Alexander on for Chris. Maybe I just wanted to follow up as well on an earlier question, that 3-year trend of 30% versus 2019. Has that at all improved throughout the quarter in November and into December? You mentioned weather not being helpful. It’s gotten a little bit colder. And then it does seem like there’s a more normal cadence of holiday shopping this year. So I’m just trying to understand, does that get any better especially as you move through Black Friday, which you mentioned was strong?
Kenneth Hicks: Yes. The 30% trend has been pretty consistent in the low to mid-30s for the past — actually all this year. So we have not seen a big shift. The 1 thing I will say is this holiday calendar having lived through it multiple times is 1 that you need to have somewhat of a lead stomach for because we are shifting from, as Michael said, where people last year shopped early because of scarcity, and they’re moving back to a later purchase pattern. So — and we’re in line with that purchase pattern right now with our trends so far this quarter. But I think that trend for this year probably should continue. The first part of next year as Michael said that the economy is still in a lot of turmoil. We’ll continue to be a challenging — will be a challenging time, but we should be able to perform well at the higher base, as Steve talked about and continued to develop the business so that we can start growth at some point in the near future.
Christopher Horvers: Got it. That’s really helpful. And then maybe a follow-up for Michael. How are you thinking about working capital and free cash flow generation for the fourth quarter, one would think based on the seasonality that cash should become a source of funds in the fourth quarter. So how should we think about a minimum cash balance as we think more about the potential for additional share repo in fourth quarter?
Michael Mullican: No. Great question. I think I will have 1 little nitpick before I get going here. We’ve got a business that’s been performing so well, we should generate cash in every quarter, and that hasn’t been the case I think, for a lot of other retailers and certainly us historically. But in the third quarter, which is typically not a source of cash, it was for us, while we were able to invest in the business, correct. Fourth quarter, we should improve on that and grow the cash balance, and then we’ll have to make some decisions like we’ve been saying. There’s no change to our approach. We generated enough cash. We can fund our initiatives and we can take a portfolio approach to capital allocation either through repurchases or potentially been retiring some debt if we thought that was the right thing to do given where interest rates are headed.
Christopher Horvers: Great. Really helpful. Best of luck.
Operator: Our next question comes from the line of Kate Fitzsimons with Wells Fargo.
Kate Fitzsimons: I wanted to switch gears to margins. You raised the full year gross margin outlook. Just as we’re thinking about puts and takes on the gross margin into next year, how should we think about some of the drivers between mix, supply chain, promotions, and then, Michael, just any updated views on maybe the longer-term gross margin opportunity versus that 32.5% to 33% range you’ve spoken to previously, just given how well the business has held on to some of its margin gains?
Steven Lawrence: I’ll take the first part, and then I’m sure Mike will jump in on some later parts. But so far, we’re pretty pleased with our gross margin performance and our ability to hold on to the higher margins we generated over the past couple of years. We attribute a lot of that to just being better planners and managers of the business. That being said, we do expect the margin will decline a little bit versus last year in Q4, which is accounted for in our guidance. That’s based off of — we think it’s going to be a more promotional holiday. We’re already seeing it being more promotional holiday, so we baked that in. But just to be clear, we’re still going to hold on to the vast majority of those gains. And we think those gains are coming from a couple of different places.
We already mentioned the planning and allocation disciplines that we put in place in terms of better management of how we flow goods and allocate goods. We don’t have the inventory overhang that I think a lot of other people out there have. So that certainly is not going to be a pressure for us or a headwind for us. One of the things that’s happened to us during the pandemic was the hard goods business, which has a lower margin profile had become a bigger percent of total. And as that mix starts to normalize more back to a 50-50 soft goods to hard goods, that’s definitely a tailwind for us as well. So those are all probably the tailwinds. Certainly, the supply chain is getting better, but there’s still some disruption in that. And I think that’s something that could be a headwind for us.
I think as business seems to be moving back to more kind of the cadence or trend prepandemic, I think we’re going to see more promotions creeping in the marketplace. So those would certainly be a little bit of a headwind. But we feel really good about our ability to navigate through those and then we’re going to hold on the vast majority of the margin gains we’ve picked up over the past couple of years.
