Tony Iskander: Yeah. Hey Chris, it’s Tony. Good to talk to you. We changed the way we estimate excess inventory and as a result, we took a one-time change or charge to our P&L of $119 million. It is not, it’s not relevant to say that it’s part of the capitalized supply chain costs. The capitalized supply chain costs continue, those are in and out as a result of how much inventory by yourself, so this is just a result of our change in estimate.
Chris Bottiglieri: Got you. Okay. That’s really helpful. And then the second, what do you think like the right SG&A growth rate of this business is moving forward. It seems like peers are kind of ramping up their investment in terms of SG&A per store. I think it’s great that you’re reinvesting $50 million of the $150 million, but one on all $150. Like how do you think about reinvestment. It seems like if you’re cutting costs and your peers are accelerating investments, it’s like, you know, I think it’s one of the challenges the business has faced the last five years?
Shane O’Kelly: So I’ll start. Yeah, it’s a good question. I’ll start, I’ll start and ask Tony to comment. We’re not suggesting through this cost cutting that we’re not going to reinvest in the business or not going to invest in the business going forward. This was really around looking at the current state of the business and where we’re spending money and where we were heavy or where we weren’t getting productivity, but we will absolutely be investing for growth in the future, I think that’s a key part of it. And then on SG&A, the way I think about just the retail businesses in general, we want to be creating leverage as we go forward, but Tony, if you have any character on how we think about that, that would be great.
Tony Iskander: Yeah, Chris. So the way to think about it is over the last few years, our SG&A or our cost structure has outpaced, you know, has outgrown our topline. So we did — the actions we took and we’re announcing today are not to stop investing in our stores or in the business. This is to stop doing certain projects or, you know, focus on what’s really the fundamental of the business, so and that’s how we approach this cost reduction program.
Chris Bottiglieri: Got it. That’s all helpful. Thank you for the color.
Operator: Thank you. The next question goes to Steven Forbes of Guggenheim Partners. Steven, please go ahead, your line is open.
Steven Forbes: Good morning, Shane, Tony. Shane, I wanted to revisit the decision to sell Worldpac. Really, if we could just take a step back, Shane, so early on into the 100-day review process, why such urgency and the message and the decision to sell the Worldpac asset. What is the urgency really stemming from?
Shane O’Kelly: Yeah. So first, I don’t want you to think that these are knee-jerk decisions, the benefit of counsel and continuity from our Executive Chair, Gene, also talking with statured leaders in the company in terms of assessing what the right direction is so that perspective doesn’t just come from me being in the business for 60 days, what I do bring in terms of fresh eyes is a validation of that perspective and then a bias for action, and I think that’s really important. One of the things that this company needed to do to reset is to make the decisions that will set us on the trajectory for success going forward. It doesn’t mean I have all the answers, readily admit, it doesn’t mean that in some of these initiatives that we won’t make mistakes and where we do, will correct of course, but clearly as you looked at the performance of the company over time, which I did before I came in, it’s clear that where we were with our status quo activities wasn’t working and so that’s where that comes from.
And we think strategically, going forward at that blended box model is a tenant for our success.
Steven Forbes: And then, I appreciate that, Shane. Just a quick follow-up. I realize you’re not providing financial color on the assets for sale, but I’m not sure if you can maybe help reframe what the remaining assets would be free cash flowing this year, right as we sort of think through the $50 million to $100 million guidance for the full year, what is the core asset free cash flow positive this year?
Shane O’Kelly: Yeah. Since we don’t segment report, we can’t break that out for you. We don’t anticipate an — the sale to happen this year. So the $50 million to $100 million is inclusive of our consolidated financial operations.
Steven Forbes: Thank you.
Operator: Thank you. The next question goes to Seth Basham of Wedbush. Seth, please go ahead, your line is open.
Seth Basham: Thanks a lot. Good morning. My question is around gross margin. If you could please give us more color on the step-down gross margin from last quarter, this quarter, even excluding the inventory charge we saw step-down. I’m just trying to understand the right [indiscernible] your gross margin.
Tony Iskander: Yeah, I’ll take that. So when you — when you look at the — when you exclude the inventory, there’s a couple of key factors. One is we continue to not cover cost with price, cost is what we called out that’s the predominantly the bigger chunk excluding the inventory. We’ve also seen some additional deleverage in our supply chain costs, but the predominant cost structure is really coming from not covering costs. And then the other thing that I’d add to that is really the channel mix as we continue to see our Pro rebound that does have lower margin than our DIY business.
Seth Basham: So on a per unit basis, are you seeing your costs continue to rise. And is that partly due to higher financing costs for your vendors on the supply chain financing program?
Tony Iskander: No, we’re not, it’s not that, it’s — there’s inflationary costs that are already built in, but we are not building an additional price to cover that cost.
