Maksim Rakhlenko: Great. Thanks a lot. Best regards.
Operator: Thank you. Our next question comes from the line of Simeon Gutman with Morgan Stanley. Please proceed with your question.
Jacquelyn Sussman: Hey guys. This is Jackie Sussman on for Simeon. Thanks so much for taking our question. I guess first, the demand comp has been very healthy in the past couple of quarters despite a negative low single-digit actual comp. I guess at what point will demand comps translate into positive actual comps? I guess, along those lines, is the outbound capacity issue getting incrementally better or any [indiscernible]? Thank you.
Dawn Phillipson: Good morning, Jackie. So we talked last quarter about the outbound capacity, in particular around Dallas and how Dallas was a bit less productive than what we had originally planned by this point in time. The good news is that over the past several months, we’ve made some system changes that have really alleviated any kind of delivery constraints that we have with regards to Dallas. Now it doesn’t mean that Dallas is as productive as what we would expect at this point in time. But it does mean that Ohio and North Carolina are compensating based off of some systemic and inventory allocation components that we’re still working through. So that’s the good news there. With regards to the comp, keep in mind that the base for the demand comp and the base for the comp coming out of 2022 are very different.
So if you remember, we pushed through a significant amount of the backlog — the abnormal backlog — last year, which was about $150 million. That was all pretty much driven in the second half. So keep in mind that, that baseline is just going to skew the numbers from a math perspective. But we feel really good about our demand, how our product is resonating, our marketing touch points. So some of this noise in the numbers will shake out as we normalize and kind of lack the normalized backlog number next year.
Jacquelyn Sussman: Got it. Thanks so much. And if I can squeeze in one more. Just on SG&A, I think that came in a lot better than at least what the market was expecting. I guess is there any way — do you adjust anything on the SG&A line intra-quarter based on what you were seeing in the environment? Or were there kind of broader cost reduction efforts done independently of what you were seeing in the quarter for this quarter?
Dawn Phillipson: We’re constantly evaluating our cost structure and it could be anything from timing of new hires to systems deployment changes just based off of operations and how things are flowing. Not necessarily to drive to a specific cost number, but just we’re a dynamic business. Things are changing and can be fluid. So I still feel good about the expenses that we have in place. Some of the systems initiatives will shift just based off of changes in the business, which then accordingly changes how that flows through the P&L from a timing perspective. But in general, we haven’t made any significant SG&A shift relative to what we would have anticipated last quarter or the quarter prior.
Jacquelyn Sussman: Thanks so much.
Dawn Phillipson: You’re welcome.
Operator: Thank you. Our next question comes from the line of Peter Benedict with Baird. Please proceed with your question.
Peter Benedict: Hey good morning everybody. First question is just on gross margin and kind of some of the commentary as we look forward. And you mentioned the response to the price action items. You’ve obviously got a lot of stores opening, so the fixed occupancy costs have been going up. I’m just curious that third quarter level of 40%. Is that kind of a new kind of baseline that we should be thinking about as we look out over the next few quarters? Just that’s my first question.
Dawn Phillipson: Yes. Good morning Peter, we don’t guide to gross margin. I think there’s a lot of things happening in that margin line item. First being the product cost related to the price action SKUs that were received at the higher container cost. That will take a few quarters to kind of work through to get the inventory where we want it to be before we then take any additional price action. Delivery costs, I think, is something that we are actively really investing into. So as we think about the in-home delivery experience, that’s really our last touch point with the client on any particular order. And we want to make sure that, that experience is really seamless and beautiful as we’re entering their home. So accordingly, we’ve hired an SVP of Final-mile.
She joined us about six months ago, and she had some really great ideas and ways to invest that we think will really elevate the client experience. So we’re pleased with the kind of the results that we’re seeing to date on that from a client experience perspective, and we will continue to invest in that side of the business over the next several quarters. And then, of course, the store — the showroom rents as we are opening new showrooms. John mentioned earlier that we have a pretty exciting slate for next year as well. So just keeping in mind that those expenses start to roll in up to 12 months prior to any top line benefit. So it’s a little bit of a moving target as you think about the showrooms that are opening today with all those expenses.
A lot of them are in California. And so those are heavier rent expenses, and we will start to see some nice top line come in on those over the next several quarters. But then we do have additional showrooms next year that we’ll be rolling in. So I guess those are just some of the kind of puts and takes that I would encourage you to think about.
Peter Benedict: Yes, okay thank you. And then just a question on kind of CapEx and cash. The CapEx plan for the year was taken down a little bit. Just I’m not sure what was driving that. Maybe you could help us understand that. And then you’re kind of at the end of this quarter at probably over 20% of your market cap is in cash, a good position to be in. But just curious, is there a point in time where you kind of look at the cash balance and say, is there something we want to do with this? Or just curious your thoughts on that front. Thank you.
Dawn Phillipson: So CapEx reductions are really just timing related as we think about showrooms, opening showroom spend and the timing of which as we’re working through when we take possession of 2024 locations and when we start spending on those. So it’s really just timing. There’s no change in strategy. So as we look out to next year, it’s just a flow between years. And then with regards to the cash balance, we are focused on reinvesting back into the business for growth. We have a ton of white space opportunity. We have a lot of opportunity beyond showroom expansion as well. John mentioned the trade program, which we’re looking at how we could really kind of dig in there and build that business and grow that opportunity. So I would say more to come on that, but we internally are having a lot of discussions on what is the best use of that capital to drive a nice return for the organization.
Peter Benedict: Great. Thanks so much. Goodluck.
Dawn Phillipson: Thank you.
Operator: Thank you. Our next question comes from the line of Jeremy Hamblin with Craig-Hallum. Please proceed with your question.
