If you look out in the industry, we’re seeing brands start their Black Friday promos in October of this year, so it’s definitely happening there. So I think you can expect to see that earlier conversation about promo around the Black Friday weekend, similar to what we did last year. But we are not expecting to accelerate our promotions and are actually decreasing a little bit from what we did last year.
Peter Keith: Okay. Thank you. And I guess my second question would be to Dawn. And Dawn, I know you’re not a company that guides quarterly, but we came back into an implied Q4 guide, you’ve even detailed that in the press release. So the heart of my question is just the margin decline in Q4. It seems like it’s going to get worse in Q4 than it was in Q3, and that’s without the $10 million terrible donation. The demand trends are great, but there’s just a lot of noise in your margins right now. So I was wondering if you could just maybe just take a step back for everyone and help to highlight the brush strokes of what’s pressuring margin. And is the margin decline in Q4 ideally sort of the trough with the declines. And as we get through some of these timing dynamics that the margin decline should be less meaningful in the quarters to come for 2024.
Dawn Phillipson: Yes, good morning Peter. So keep in mind that from a margin first, from a margin rate perspective, last year had a significant impact, and we saw some really nice leverage on the backlog delivery. So artificially inflated just from a timing perspective, when we’re looking at the comparative. As we look forward over the next several quarters, years and think about what’s going to be impacting the business. In the near term, certainly, the price actions in June that we took, those will continue to have an impact as we’re rightsizing the inventory and kind of clearing through the end-of-life inventory. Showroom occupancy certainly will continue to persist as we think about the strong opening cadence that we have for next year that we’re really excited about, which will have — long term, it’s the right thing for the business to do and we’ll have benefit.
It’s just timing related there as well. And then we’ve always said that we expect margin expansion, but it may not be entirely linear for us. So as we think about all of the areas of the business that we’re reinvesting back into, we’re really taking our time to make sure that as we’re scaling the organization from $1 billion to $2 billion and beyond that we can grow it more efficiently. In the near term, that does cause some compression. So we talked a little bit about the in-home delivery experience and how we’re trying to elevate that. Over time, that’s going to have a great, great impact on the business as you think about just the word of mouth, that brand awareness component. As we think about within SG&A, as we think about the investments that we’re making in the business to really drive the back office, which often isn’t as exciting to talk about as product and showrooms, but it’s very important to us.
So as we’re thinking about our warehouse management system that’s deployed in our North Carolina facility this year, as we’re looking to deploy that in first quarter next year in our Ohio facility, there’s always — any time we deploy a system like that, there will be a little bit of noise in the top line. If you think about for a warehouse management system, you have to close the facility for a few days to do the inventory conversion and just some of these systemic components. We’re also working on our planning software, which is going to be vastly critical for us as we think about inventory allocation and making sure that we can drive efficiencies in line haul expense and moving products, very heavy, very bulky, very large products through the network.
We’re also in the process of deploying our manufacturing ERP, which is going to be really critical to give us great visibility to our operations there from a bill of materials perspective from just a process perspective. So lots of really great things. But in the near term, these will compress margins. We do expect expansion longer term, though, and we’re really excited as we continue to grow that top line, what that’s going to look like from a financial perspective. But we’re trying to give ourselves a little bit of breathing room to do the right things for the organization, the right things for the client. And long-term, it’s going to be, I think, really great for the organization as a whole.
Peter Keith: Okay. Just to round that out, and I appreciate all the growth investments, but you did mention two big timing dynamics with backlog and you get five new stores coming in. So again, as Q4, potentially the worst of the year-on-year declines to the best of your visibility on sales trends?
Dawn Phillipson: We haven’t guided to anything for 2024 yet. So I don’t want to kind of get out over my feet there. But certainly, the math would indicate that the year-over-year component would be quite significant in the fourth quarter.
Peter Keith: Okay, alright. Sounds good. Thanks guys.
Dawn Phillipson: Thanks, Peter.
Operator: Thank you. Our next question comes from the line of Philip Blee with William Blair. Please proceed with your question.
Phillip Blee: Hi everyone. Thank you. Given the big year ahead for new showrooms and refreshes, can you maybe speak a bit about the changes you’ve made to them over the past several years that have had a direct benefit on productivity versus pre pandemic levels, maybe from a physical location, but also inside experience? And then should we expect rent per square foot to continue to accelerate quite a bit on these higher profile locations being opened? Thank you.
John Reed: Sure. I can talk about the renovations and how it’s working. Yes, we — four years ago, we had dramatically changed the looks of our stores. We made them a lot more user-friendly just a lot more emotionally driven that when folks walk in, they love all the furnishings, the way we’ve designed things. We put in design studios, we put in fireplace rooms, things that just warm up the store quite a bit. So as we’ve been doing that, as I think we mentioned, as leases come up, we will decide do we want to keep the store and renovate it, do we want to move the store. In either case, normally, we will renovate a store when a lease comes up, if we do decide to keep it, if not, we’ll move it. But we see an impact in not only customer sales, but also our clients tending to come back again and again and up on the web and order more.
So it’s been a nice, nice change. I think we have a lot of product — a lot of renovations and moves coming up this past year and a lot more, I think, believe, in 2024. So it’s a very good thing. And it just elevates our brand to a point where the product just looks better. And when it looks better, the clients tend to buy it. So it really sets us apart from the competition as well. We think the way our stores look is really, really enticing and we hear it all the time. And certainly, new stores when people walk into them, they’re kind of blown away because they’ve never seen anything like it. And we’ll hear that for truly years to come in all our stores as new clients come into them. So it’s been a very, very good thing.
Dawn Phillipson: And just from a kind of tactical perspective, in our filings, we do not break out showroom rent versus other leases. So that rent number, that lease number that you’re seeing in there is for everything from computers to rent to distribution center. So keep that in mind now from a kind of operational strategic perspective. We are opening showrooms that are a bit more expensive from a rent perspective. We do believe that those showrooms will have a higher top line, though. So we’re looking at the opportunities very holistically from an investment perspective.
