Bath & Body Works, Inc. (NYSE:BBWI) Q3 2023 Earnings Call Transcript

Bath & Body Works, Inc. (NYSE:BBWI) Q3 2023 Earnings Call Transcript November 16, 2023

Bath & Body Works, Inc. beats earnings expectations. Reported EPS is $0.48, expectations were $0.36.

Operator: Good morning. My name is Paul, and I will be your conference operator today. At this time, I would like to welcome everyone to the Bath & Body Works Third Quarter 2023 Earnings Conference Call. Please be advised that today’s conference is being recorded. [Operator Instructions] I will now turn the call over to Ms. Heather Hollander, Vice President, Investor Relations at Bath & Body Works. Heather, you may begin.

Heather Hollander: Good morning, and welcome to Bath & Body Works’ third quarter 2023 earnings conference call. Today’s call may contain forward-looking statements related to future events and expectations. Please refer to this morning’s press release and the risk factors in Bath & Body Works’ 2022 Form 10-K for factors that could cause the actual results to differ materially from these forward-looking statements. Today’s call contains certain non-GAAP financial measures. Please refer to this morning’s press release and supplemental materials for important disclosures regarding such measures, including reconciliations to the most comparable GAAP financial measure. Joining me on the call today are Gina Boswell, Chief Executive Officer; Julie Rosen, President, Retail; and Eva Boratto, Chief Financial Officer. I’ll now turn the call over to Gina.

Gina Boswell: Thank you, Heather, and good morning, everyone. Thank you for joining us today. I’ll start this morning with a review of our third quarter results, then discuss our view of the fourth quarter, provide some initial perspectives on fiscal year 2024, and discuss the progress our team has made in executing our strategy. Before we begin, I’d like to thank our teams who continue to deliver on our initiatives and commitments and control what we can control. Now for the results. Third quarter net sales were in line with the higher end of our expectations, declining 2.6% compared to the prior year, and representing 100 basis points of sequential improvement versus the second quarter. The team delivered strong merchandise margin improvement and continued benefits from our cost optimization initiatives.

In fact, our year-over-year merchandise margin rate increased 200 basis points in the third quarter, and we generated flat AURs, or average unit retails, in line with our plan. From a category perspective in the third quarter, sales of soaps and wallflowers increased versus the prior year. Body care sales were flat, and candles and sanitizers declined, as expected. While we continue to see post-pandemic normalization in candles and sanitizers, we held unit share in candles and gained unit share in sanitizers year-to-date. Throughout the third quarter, we continue to demonstrate the strength of our seasonal merchandising and exceptional innovation capabilities. We were pleased with our Halloween results, delivering a 5% sales increase over last year’s event.

Our team remained focused on delivering newness, with elevated single fragrance launches such as Luminous. Our men’s business continued to outperform, and customers responded positively to the addition of men’s grooming to our product line. We’re leaning into this growth opportunity with new marketing programs to drive increased awareness and customer acquisition. Consistent with the trend of fragrance from head to toe, customers responded well to our launch of fragrant haircare, now in approximately 30% of our US stores. Finally, the limited launches of laundry and our new expanded lip collection also performed well, which Julie will discuss in a moment. Turning to sales, year-over-year trends improved at the beginning of the quarter, with roughly flat sales in August, driven by strong Halloween performance.

Sales then softened in September and October as the macroeconomic environment pressured consumer demand we lapped the national launch of our loyalty program last year. Although we experienced positive traffic growth overall for the quarter, traffic softened in September, in line with mall and off-mall traffic. Additionally, as expected, we continue to see the customer carefully managing their spending, which pressured basket size and conversion. Based on what we are seeing with the cautious consumer and continued market declines in two of our categories, we anticipate a continuation of softer topline trends in the fourth quarter, and we are lowering our topline guidance for the full year. We are also raising the midpoint of our diluted earnings per share guidance to reflect merchandise margin outperformance and the benefits of our capital deployment in the third quarter.

Eva will provide more details in a moment. I also want to take the opportunity to provide some early views on 2024. We continue to invest and focus on building capabilities to better serve our customer and drive profitable growth. Keeping in mind where we are in the implementation process for our strategic initiatives, as well as the current macro environment and continued industry level category pressure, we see a path to positive sales growth in the second half of 2024. Of course, we’ll continue to focus on driving efficiency in our business throughout 2024 as well. Looking out longer term as we execute our strategy and scale initial benefits from all the great work the team is doing, we are increasingly confident in our ability to achieve our sales and operating margin targets.

Turning now to some of the progress we’re making. We continue to focus on our five key growth drivers. First, elevating the brand through innovation and upgrades. Second, extending our reach through new category adjacencies and international growth. Third, deepening customer engagement through our loyalty program, enhanced technology, and more personalization. Fourth, enabling a seamless omnichannel experience. And finally, enhancing operational excellence to drive efficiency. Julie will speak to our progress in brand elevation and extending our reach, but first I’d like to expand on the other three. As we work to better engage with our customer, we have a tremendous opportunity to leverage sharper tools and more targeted marketing to attract new customers and increase spend and share of wallet with our existing customers.

We are building technology capabilities to implement a more personalized, targeted approach to marketing and promotions rooted in data analytics and customer segmentation. Through this work, we plan to acquire new customers and increase spend by incenting trial of new product, increasing cross-channel and cross-category shopping, growing basket size, and driving incremental trips. This year, we’ve also increased our testing capacity to allow for greater agility. With our technology separation from Victoria’s Secret substantially complete, we began testing personalized emails in the third quarter, which allowed us to adjust email timing and offers to meet the customer mindset while reducing reliance on broad-based promotions such as direct mail.

As we sharpen our approach to promotions and customize offers to the individual customer, we plan to drive incremental sales at a higher margin. For example, in the third quarter, we shifted a portion of our direct mail spend toward new customer acquisition via digital marketing channels, and we’re already seeing positive results. Our loyalty program is another critical tool for engaging with our customers and meeting them where they are. In August, we anniversaried the national launch of our loyalty program. Since the launch, we’ve had industry-leading enrollment speed. We have nearly 41 million members, and loyalty sales represent approximately three quarters of our US sales since the national launch. Though our speed of enrollment has been impressive and we continue to grow our loyalty member base, we are still only in the early stages of leveraging the program and driving member engagement.

We increased engagement this quarter by offering our first loyalty member appreciation days with early access to exclusive shopping events and offers, and testing loyalty accelerators, starting with a double points stay designed to move customers closer to reward redemption, which drives higher customer value. As we test more loyalty benefits in the future, such as tiering and flexible rewards, we are confident in our ability to deepen customer engagement and increase both sales and merchandise margin. Next, we are enabling a seamless omnichannel experience. Though we have a strong profitable digital business, we have a significant opportunity to drive future growth by moving from a largely transactional website and app, to more personalized, experiential, and integrated platforms.

By adding personalized landing pages, immersive content, and product recommendations, we plan to drive higher sales, more discovery, and larger baskets. In the third quarter, we added personalized product recommendations based on shopping behavior and a customized header to welcome recognized users by name and highlight their loyalty account balances. We also implemented a customer retention pilot powered by machine learning, which drove 7% greater retention for the targeted audience. To target customers who were inactive or who had abandoned their carts, we tested new retention and win back offers, which increased sales. Importantly, beauty and personal care customers value a seamless omnichannel experience. By reducing friction throughout the customer journey from browse to shop to purchase and offering convenient options like buy online pickup in store, or BOPIS, as well as Instacart and buy now pay later, we can convert more single channel customers to dual channel customers, which on average increases spend threefold.

Focus orders increased approximately 50% in the third quarter versus last year, as customers continue to opt for convenience. When picking up their order, approximately 30% of BOPIS customers made an additional purchase in-store, a testament to the power of the omnichannel model. This quarter, we also added social proofing batches on our website, highlighting trending and bestselling products, as well as those products with limited supply. Given our customers’ strong desire to obtain their preferred fragrances, we knew that alerting them to decreasing availability would incent them to lock in a purchase. Having implemented these initiatives to improve our omnichannel experience, digital conversion, inclusive of BOPIS, increased 4% in the third quarter versus the second quarter.

Finally, we are enhancing operational excellence and efficiency through $200 million of planned annual cost savings across the company. We are on track to deliver approximately $150 million of those savings in 2023, and Eva will share additional details in a moment. As I touched on earlier, the customer has been cautious in managing their spending amidst macroeconomic pressure, but we are still driving positive traffic and customers are responding to newness, innovation, and our compelling seasonal events. We are taking action to deliver innovation and build the capabilities that will allow us to drive long-term profitable growth even amidst external pressures. As we enter the critical holiday season, we are well positioned with a clean inventory position, a compelling product assortment, gifts at a variety of price points, a transportive store experience, and stores that are staffed and ready to serve, and an omnichannel model that allows customers to shop whenever and however they want.

Bath & Body Works has a strong foundation with leading market share, top brand awareness and a competitive advantage in our vertically integrated supply chain, which allows us to respond quickly to changing trends. We have a healthy balance sheet, strong free cash flow generation, and balanced capital allocation plans. Despite what remains a challenging macroeconomic environment, the initial results we’re seeing from the implementation of our strategic initiatives, gives us even more confidence in our ability to reach our $10 billion sales target and deliver industry-leading operating income margins of 20% over time. I’d like to conclude by saying a big thank you to our outstanding partners and teams, especially our store and distribution center associates during this busy holiday season.

They do a terrific job delivering a great experience to our customers, and dedicating themselves to executing on our strategic initiatives. With that, I’ll turn the call over to Julie.

Julie Rosen: Thank you, Gina. I’d like to go a level deeper in reviewing the results and trends in the third quarter, and provide an update on the progress we’re making in elevating our brand and extending our reach to accelerate growth. As Gina mentioned, we started the third quarter with a strong Halloween, with event sales increasing 5% over last year’s event. We positioned our Halloween assortment at the front of our stores for the first time to give it additional prominence. We also expanded customer favorites like Vampire Blood into more categories, and offered new, elevated accessories that met the customer mindset. Notably, our higher priced premium accessories, such as the Carriage Luminary priced at $99.95, and the Wallflower Carriage Heater priced at $39.95, were especially popular and sold out quickly.

The third quarter is also the time of the year when customers turn to us for our iconic fall fragrances, which are always a favorite. The customer responded well to top fragrances such as leaves, pumpkin pecan waffles, and sweater weather, in multiple forms and packaging. Turning to category performance, soaps, including our new formulation made without paraben, sulfates, or dyes, performed well in the third quarter, posting low single-digit growth. Additionally, we rolled out foaming hand soap refills and recyclable paper cartons to all US stores in July, allowing customers to conveniently refill and reuse their soap containers. Body care sales were flat for the quarter. The category continues to be supported by growth in fine fragrance mist, as well as our men’s business, which posted a high single-digit sales increase this quarter, and remains one of our fastest-growing product lines as we add new forms and merchandising ideas.

We launched men’s grooming last quarter, adding face and beard before Father’s Day, followed by hair and shave in September. The new products have performed well, with a positive customer response, as Gina noted. We continue to be very excited about the growth of our men’s business, as it is introducing new customers to our brand and attracting the attention of younger customers. We’re also infusing newness into the collection, with our latest single fragrance launch, Woodlands. Despite strong year-to-date growth, our men’s offering has relatively low awareness amongst consumers. We see a significant opportunity to drive increased awareness and additional growth in this $12 billion market, and we have multiple marketing campaigns planned to showcase our compelling assortment and acquire new customers.

Wallflowers also performed well in the third quarter, posting low single-digit growth, driven by strong fall fragrant selling and increased AUR. Candles and sanitizers both declined versus last year, as expected, driven by continued industrywide post-pandemic normalization trends. We remain a market leader in both candles and sanitizers, and we have held unit share in candles and gained unit share in sanitizers year-to-date, even as the categories experience pressure at the industry level. Turning to our strategic initiatives, I’d like to provide some detail on how we’re making progress in elevating our brand and extending our reach to accelerate growth. This quarter, we continued to deliver innovation and elevation in product and merchandising.

For our latest single fragrance product, Luminous, we positioned the launch at the front of the shop in October. This was an intentional earlier move in the calendar to meet the customer mindset and better align with the industry. Luminous has elevated bold gift-worthy packaging, perfect for the holiday season. As we work to extend our reach, we’re leveraging our core strengths in fragrance and innovation, to expand into adjacent categories, including fragrant laundry, lip, and haircare. In the third quarter, we had a limited launch of our laundry line and many of our bestselling fragrances across 10 stores and online. Laundry has attracted new customers to the brand, and the feedback has been overwhelmingly positive, with customers noting that our laundry detergent is an exciting new way to add another layer of their favorite scent to their daily routine.

We are testing and optimizing the product to prepare for expansion next spring. Lip products have attracted new younger customers to our brand, and represents an opportunity to expand our customer base. To capture this opportunity, we have relaunched our in-store assortment and the visual presentation of our lip products across a limited number of stores. The new ritual-based assortment and presentation, posted triple-digit sales lists compared to our previous lip offering, and we plan to complete the rollout of this fixture and expanded assortment to all North American stores by the fall of 2024. Additionally, our fragrant haircare line, now in 560 stores, continues to exceed our expectations. We plan to complete the North American rollout in the spring of 2024.

We’re particularly excited about this line’s ability to attract a new customer to Bath & Body Works, considering that 14% of fragrant haircare customers are new to our brand. We’re also committed to extending our reach internationally, and continue to explore opportunities to build on the success of our asset-light profitable franchise model. As we look ahead to the fourth quarter, this is always an exciting time of the year, and we have a mix of returning holiday favorites and new giftable offerings. Our theme for the holiday season is storybook. The concept is threaded throughout the stores and online channels, providing a magical and sensory-filled journey for customers. As an affordable luxury brand, we have gifts at all price points. As we further expand our loyalty program and introduce compelling new product assortments, we’re confident we will continue to deepen our relationships with our existing customers and attract new customers to our brand.

In closing, I’d like to thank our teams for delivering an outstanding experience to our customers and for their work to position us well for the upcoming holiday season. And with that, I’ll turn it over to Eva.

Eva Boratto: Thank you, Julie, and good morning, everyone. Today, I’ll start by reviewing our third quarter financial results. Then I’ll provide an overview of our fourth quarter and fiscal year 2023 guidance, as well as some initial perspective on 2024. Starting with third quarter results, we reported adjusted diluted earnings per share of $0.48, exceeding our guidance of $0.30 to $0.40 per diluted share. Our adjusted results exclude the $12 million pretax gain on the early extinguishment of debt associated with the repurchases in the third quarter. We are pleased with our ability to leverage both gross profit and SG&A this quarter. EPS also benefited from interest expense favorability associated with the repurchase and retirement of debt.

Net sales for the third quarter were $1.6 billion, in line with the high end of our expectations. The year-over-year decline of 2.6% was driven by a decrease in both average dollar sale and transactions. AURs were flat in the quarter, as expected. In US and Canadian stores, third quarter net sales totaled $1.2 billion, a decrease of approximately 1% versus the prior year. Third quarter direct net sales were $317 million, a decrease of 8% compared to last year. Adjusted for BOPIS, direct demand decreased 5% in the third quarter. As a reminder, BOPIS sales are recognized as store sales, and we completed the BOPIS rollout to US stores in the first quarter of 2023. International net sales were $77 million, and declined 5% versus last year. On a year-to-date basis, international net sales increased 1%.

As a reminder, there are two components to our international net sales, royalties collected from franchise retail sales and wholesaler revenue generated by the product we sell to our franchise partners. Our total international systemwide retail sales, again, posted double-digit growth in the third quarter. However, wholesaler revenue declined as our partners manage their inventory levels. Also, since the conflicts began in the Middle East in October, sales for certain franchise partners have been pressured. We continue to monitor the event and consumer sentiment in the region and support our partners accordingly. Third quarter gross profit rate increased 140 basis points compared to prior year, a sequential improvement of 230 basis points from second quarter.

This represents our first gross profit rate expansion in nine quarters. Merchandise margin rate improved 200 basis points year-over-year, driven by $40 million of deflation benefits, lower product costs, and reduced transportation costs. The margin expansion was partially offset by continued investments in product formulation and packaging innovation. Improvements in merchandise margin were also partially offset by buying and occupancy expense deleverage, primarily due to lower sales and increased occupancy expense from new store growth. Total third quarter SG&A leveraged by 20 basis points versus last year, and represented a sequential improvement of 220 basis points from the second quarter. SG&A leverage was driven by the benefits of our cost optimization initiatives, as well as approximately $10 million of marketing and technology investments shifting to the fourth quarter.

Our cost optimization work across both gross profit and SG&A, delivered benefits of approximately $45 million in the quarter. Taking all of this into consideration, third quarter total operating income was $221 million, or 14.1% of net sales. Turning to the balance sheet, we repurchased 174 million senior notes principle for $161 million in the quarter. We remain disciplined with inventory management, and ended third quarter with total inventory dollars down 5% compared to last year. Heading into the holiday season, our inventory levels are well positioned. Now, turning to real estate, our overall portfolio, the majority of which is off-mall, remains very healthy, with 99% of the fleet profitable and stores significantly outperforming pre-pandemic levels.

We made additional progress increasing our off-mall penetration, opening 25 new off-mall North American stores, and permanently closing six mall stores in the quarter. And internationally, our partners opened 16 new stores in the third quarter, ending the quarter with 458 stores. Moving to our financial guidance, we are providing 2023 guidance with comparisons to 2022. As a reminder, fiscal 2023 includes a 53rd week. So, the fourth quarter of fiscal 2023 will consist of 14 weeks. The impact of the 53rd week reflected in our guidance is estimated at approximately $85 million of sales and $0.05 of earnings per diluted share. And our guidance excludes the impact of any future debt or share repurchase activity. Now, for the fourth quarter, we expect sales to decline 1% to 5%, reflecting continued soft consumer spending and post-pandemic category normalization across the industry.

The company is very adept at quickly reading and reacting, and we will leverage our vertically integrated supply chain and outstanding agility to chase demand and maximize sales. We remain focused on enhancing our operational excellence and efficiency, and plan to deliver approximately $50 million in cost savings in the fourth quarter. Approximately 35% of the savings are related to reduced transportation expense, with the remainder coming from other elements of our program, including efficiency in store labor and selling productivity as we better align staffing hours to traffic, reduced expense as we optimize our call center, home office expense efficiency, and decreased indirect spend. Fourth quarter gross profit rate is expected to be approximately 44%, as we continue to expect about 100 basis points of year-over-year merchandise margin rate improvement.

Our fourth quarter includes approximately $55 million of deflation benefits, as well as efficiencies produced by our cost optimization work. We anticipate these benefits will be partially offset by investments in formulation and packaging upgrades to reinforce our competitive position. We expect roughly flat buying and occupancy expense as a percent of sales in the fourth quarter, as we realize the benefits of our new direct to consumer fulfillment center ramping. Our fourth quarter guidance assumes an SG&A rate of approximately 22%, with deleverage driven by higher marketing spending as we activate new programs to drive customer acquisition, and technology investment to drive future growth. As a reminder, approximately $10 million of marketing and technology spending shifted from the third quarter to the fourth quarter.

We expect non-operating expense of approximately $75 million, reflecting interest expense favorability from debt repurchases through the end of the third quarter. We are forecasting an effective tax rate of approximately 26%, and weighted average diluted shares outstanding of approximately $228 million. For the fourth quarter, our earnings per diluted share guidance is $1.70 to $1.90. Turning to our full-year outlook, I’ll highlight the revisions to our previous guidance. We are now forecasting sales declines of 2.5% to 4% versus prior year. We now expect full-year adjusted net non-operating expense of approximately $290 million, and weighted average diluted shares outstanding of approximately $229 million. We are revising our adjusted earnings per diluted share guidance for fiscal year 2023 to $2.90 to $3.10, increasing the midpoint of our guidance.

Additionally, we anticipate ending the year with slightly elevated inventory levels compared to the prior year, as we prepare to expand new product launches to additional stores. We continue to expect free cash flow of $675 million to $725 million in fiscal year 2023. Looking at capital allocations, our first priority is investing in the business to drive profitable growth. We are also committed to returning excess cash to shareholders. In the first nine months of the year, we paid $137 million in dividends, and plan to continue paying an annual dividend of $0.80 per share, with an intention to increase the dividend over time as earnings increase. In the third quarter, we repurchased 1.4 million shares for $50 million in the open market. In addition to returning cash to shareholders, we are committed to returning to our target leverage ratio of approximately 2.5 times adjusted gross debt to EBITDA over time.

We ended fiscal 2022 with a leverage ratio of 3.1, and through the third quarter of this year, we have repurchased $373 million of principal amount of our senior notes in the open market. We will continue to take a balanced approach to capital allocations, considering options such as additional debt and share repurchases. Now, I’d like to take a moment to build on Gina’s earlier comments regarding our initial perspective on fiscal 2024. We expect that the softer macroeconomic backdrop and category normalization trends will continue into the year. At the same time, we are building capabilities and launching products designed to drive customer, acquisition, sales growth, and operating income margin expansion, even amidst modest macroeconomic pressure and category normalization.

As you know, we began testing many of these strategic initiatives in the third quarter, and we plan to scale them through the first half of the year. Our personalized marketing and loyalty programs will build through the year, which we expect will drive improvements in customer retention and acquisition. We also plan to drive growth through our product adjacencies, including building greater awareness of our men’s line and extending the rollout of fragrant haircare, laundry, and lip. Fragrance is top of mind for customers, and we are leaning into our position as a fragrance market leader with this portfolio expansion. As these capabilities are fully implemented and benefits billed throughout 2024, we see a path to positive sales growth in the second half of the year.

We also expect operating income margin to be supported by continued input costs, deflation, and the benefits of our cost optimization work. In conclusion, we remain focused on building capabilities to drive future growth, successfully expanding our product offering, delivering efficiencies in the business, and managing through a dynamic environment with agility. We are well positioned as we approach the upcoming holidays, and look forward to serving our customers during this important season. At this time, we’d be happy to take your questions, and I’ll turn it over to Heather for Q&A.

Heather Hollander: Thanks, Eva. For our Q&A session, we ask that participants limit their responses to one question and one follow-up. We’ll now move to the Q&A session. Operator?

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Q&A Session

Operator: [Operator Instructions] Thank you. Our first question is from Simeon Siegel With BMO Capital Markets. Please proceed with your question.

Simeon Siegel: Thanks. Good morning, everyone. Nice quarter. Hope you and your families are okay during these challenging times. So, how are you guys thinking about the timeline for the post-pandemic candle normalization, because that’s an interesting point. So, just any thought on how close we are to that healthy reset. And then for my follow-up, if I can, just really nice job on the gross margins. Maybe run through a bit more why the fourth quarter gross margin wouldn’t see a similar or even a higher benefit, just given increasing deflation benefits, better expected B&O, the extra week, and the general trajectory you’re on. So, just thinking through that gross margin a bit. Thank you.

Gina Boswell: Good morning, Simeon, it’s Gina. Thank you for the question. I would like to first go to Julie to talk about the category normalization reset, and then we will flip to Eva for the gross margin benefits in the fourth quarter.

Julie Rosen: Good morning, Simeon. I hope you and your family are well too. As far as the candle normalization, I really cannot circle a date on the calendar for you, and in fact, no one can. That being said, I just want you to know that we are innovating in these categories. We are still the market leader as we hold our dominant market share in candles, and we gained market share in sanitizers year-to-date, and we are also working very hard to diversify our sales mix.

Eva Boratto: Great. So, now let’s take the gross margin question, Simeon. And we are quite pleased with our continued progress in delivering strong and improving gross margins. A couple of things that I’ll highlight, in the fourth quarter, we expect about $55 million of deflation to benefit our merchandise margin rate, and we’ll continue to invest in our formulation and packaging upgrades. Overall, we continue to expect merchandise margin to expand about 100 basis points, and we expect to have flat AURs in the quarter. On a positive, in the fourth quarter, we’re expecting roughly flat buying an occupancy as we scale our new customer fulfillment center and that ramp, and recognizing we’re not improving as much as third quarter. As you can appreciate, the fourth quarter is a big quarter for us. There’s a lot of volatility, given the holiday season, and we’ll continue to pull on all the levers we can to drive our gross margins.

Simeon Siegel: Great. Thanks so much. Best of luck for the rest of the year and the holiday season.

Heather Hollander: Thanks, Simeon. Next question, please.

Operator: Thank you. Our next question is from Alex Straton with Morgan Stanley. Please proceed with your question.

Alex Straton: Perfect. Thanks a lot for taking the question. I wanted to start with just the sales outlook for next year. I know you guys have had a couple of years of post-COVID reversion. You’re talking about that back half timeline to returning to growth. So, can we just go through kind of what gives you confidence in that happening at that time period, or what’s underpinning that? And then my second question is just on the long-term EBIT margin target. You provided that nice bridge earlier this year on the 2019 to 2022 dynamics. I’m wondering if you can kind of walk us through where we’re at this year and then kind of the puts and takes to get back to that 20% over time, and if you have a timeline. Thanks a lot.

Gina Boswell: Good morning. Thank you, Alex, for the question. I will be happy to take the first part about the sales inflection, and then ask Eva to give color on the long-term sort of EBIT margin. As you know, and we commented in our remarks, we are facing softer consumer trends. So, in September, we saw the traffic pressure for the first time this year as the macro environment impacted our customer. And while October traffic was positive, the growth was lower than what we had seen year-to-date through August. So, we have softer positive traffic. So, through the year, we’ve seen consistently that the customer’s been carefully managing their spending, and that has pressured basket size and conversion. And then, as Julie just commented, we continue to have the industry level category normalization that impacts our candles and sanitizers business.

So, we do expect those dynamics to continue into 2024. But at the same time, you asked about the confidence level about when that would inflect. And while we can’t circle a date either, we are building capabilities, and we’re launching products that are designed to drive the customer acquisition and the sales growth, as well as the operating income margin expansion, even amidst that modest macro pressure and category normalization that we could expect. As you know, we began testing many of the strategic initiatives in the third quarter once we completed our separation from Victoria’s Secret 11 weeks ago, and we’re very pleased with what we see. We expect those will drive improvements over time and build and compound in customer retention and acquisition.