Operator: Your next question is from the line of Michael Lasser with UBS.
Atul Maheswari : This is Atul Maheswari on for Michael Lasser. Advance has taken a lot of steps over the years to improve its business, yet it seems like the pace of market share losses are now accelerating. Why do you think that is the case? And are some of the factors that are causing the underperformance simply structural in nature and cannot be fixed?
Tom Greco : Well, as we said earlier, we’ve done a pretty deep dive on what drove the underperformance. We performed well right up until the third quarter in terms of our agenda. Our strategy is unique. Our goal is to drive total shareholder return through comp sales and margin expansion and returning excess cash to shareholders, which has worked well for us up until the third quarter. We’re not happy that we didn’t expand margins in the third quarter, but I am very pleased that the team has worked very hard at accelerating growth going forward. And that’s where we’re focused in 2023. The underperformance, we’ve identified a couple of key areas, and that is to get more targeted inventory investment closer to the customer and take some surgical pricing actions. And that will help us get our top line where it needs to be.
Atul Maheswari : Got it. That’s very helpful. And as a follow-up question, I had one on your inventory investments. So you’re looking for inventory investments going forward. At the same time, the inventory growth has outpaced sales growth for a while now. So does that mean that there are certain categories where you have the inventory but simply not the right inventory? And if you could provide color on what categories those are?
Tom Greco : Sure. The focus is in a couple of areas, as I mentioned earlier. We want to make sure that we get these large categories that we’ve transitioned to owned brand over the past couple of years to an on-hand rate that we’re comfortable with. And while we’ve improved over the last year, we’re still not where we need to be in these big categories. So that’s job one. We’re also improving the depth of high-velocity SKUs and getting those closer to the customer; and then, in some cases, adding breadth that’s closer to the customer. So it’s really through our analysis of the Professional channel, how we’re positioned in the market, what’s our assortment rate, what’s our close rate? We’ve done a very deep dive on where we are, and we’re confident that the plans we’re building are going to help us accelerate growth in 2023.
Operator: Your next question is from the line of Zach Fadem with Wells Fargo.
Zachary Fadem : Can you walk through the mechanics around the FX hit in a little more detail? And considering this is primarily a domestic business in terms of your sales, maybe talk through transaction versus translation impact. And how should we think about the Q4 impact and anything lingering into 2023?
Jeff Shepherd: Yes, sure. So first of all, the impact is completely transaction versus translation, and it really comes from two sources. The first and more significant is our — we have a Taiwanese purchasing entity that’s domiciled in Taiwan. And so what it does is essentially purchases inventory and gets it over to us so we can sell it here in the U.S. And what that does is it creates sort of a one side of the exposure because there aren’t any receivables to naturally offset that. So it’s a Taiwanese dollar entity purchasing inventory in currencies including the U.S. dollar. The Taiwanese dollar has weakened substantially in the quarter against the U.S. dollar, and that’s what’s created this exposure which, quite frankly, is not something we’ve seen in the past.
We’ve known we’ve had this exposure forever, but we haven’t seen this level of change between either the Taiwanese dollar or the other impact, which was the Canadian dollar. On the Canadian dollar side, it’s really a similar story. We do purchase in Canada, which is a Canadian dollar functional entity and it’s buying certain inventory in U.S. dollars. The Canadian dollar also weakened against the U.S. dollar. But a similar story, while we do have receivables in Canada, those are all in Canadian dollars, you don’t get that natural hedge. We don’t do any hedging here as an organization, quite frankly, because we haven’t needed to. And so we didn’t anticipate this level of change between the U.S. dollar and those two foreign currencies. That’s what drove to the $0.20 decrease in our EPS in the third quarter.
The easy way to think about the fourth quarter is you can look at the midpoint of EPS between our Q — our August guidance and our current guidance. You’ll see we’re estimating another $0.10 of EPS in the fourth quarter.
Zachary Fadem : Got it. That’s helpful. And then with your Q4 operating margin outlook implying about 130 basis points of expansion, can you walk through the SG&A levers here in a little bit more detail that give you confidence in the sharp year-over-year improvement from here? And then how should we think about SG&A leverage as we move our way through 2023?
