Heather Hollander: Thanks, Gabby. Next question, please.
Operator: Thank you. Our next question is from Lorraine Hutchinson with Bank of America. Please proceed with your question.
Lorraine Hutchinson: Thank you. Good morning. I was hoping you could provide some initial views on free cash flow drivers for next year, if you’d expect it to be similar to this year’s $675 million to $725 million, or if there are any puts and takes to that number, and then how you expect to use that cash.
Gina Boswell: Thank you, Lorraine. Nice to hear from you. I will ask Eva to provide color on that.
Eva Boratto: Great. Lorraine, I would just reiterate what you said. This company generates a significant amount of cash. There is nothing unusual this year that I would call out that would be one-time in nature. Our capital, I would expect our CapEx to be generally in line with what we’ve spent in the past, $300 million to $350 million. And we continue to look for opportunities to generate cash, drive growth and generate cash and work the balance sheet. So, I will have more to say on our guidance on our Q4 call, but there’s nothing to draw out. I would just add, we evaluate the best ways to return capital to shareholders.
Lorraine Hutchinson: Thank you.
Heather Hollander: Thanks. Next question, please.
Operator: Thank you. Our next question is from Adrienne Yih with Barclays. Please proceed with your question.
Adrienne Yih: Yes. Thank you very much for taking my question. You have a great read and react promotional strategy, and it’s been very effective, seemingly, throughout the year-to-date period. When we think about the average unit retail and the merchandise margin, not a lot was spoken about the product margin itself and kind of recapture on promos. So, that seems to still be on the table for 2024. If you could talk about that, that would be fantastic. Thank you.
Gina Boswell: Thank you, Adrienne. I’ll take that question. Might go to Julie as well. Our view on AUR, you’re absolutely right. We have a read and react approach, and this quarter is a perfect example of that. So, based on what we saw, we expected flat AUR. We delivered that. Our agile model allows us to flex. And so, we were pleased to optimize topline and bottom-line while not being more promotional than prior year. So, that’s certainly how we look at it. From a product margin perspective, I don’t know if there’s anything further that, Julie, you wanted to comment on.
Julie Rosen: I mean, I would just say that we constantly are balancing the need to keep engagement and traffic strong, with our desire to obviously increase price. And this – to your point, our agile operating model really allows us to increase or decrease our promotional levels in a meaningful way. And we have a robust testing agenda that we’re always testing for the best outcomes.
Gina Boswell: And we always work on the cost side of the equation, as you think about margins. And we spoke to the deflation that we expect in fourth quarter, as well as our cost reduction initiatives to help drive improved margins.
Adrienne Yih: Okay. Fantastic. Thanks very much and best of luck.
Heather Hollander: Thanks, Adrienne. Next question, please.
Operator: Thank you. Our next question is from Mark Altschwager with Baird. Please proceed with your question.
Mark Altschwager: Good morning. Thanks for taking the question. I guess just another one on promotions. I know you’ve been doing a lot of personalization tests. Hoping you could share a little bit more there. What’s working? What are the key learnings? And is there any indication you have that the reduction in direct mail is a factor that contributed to the softening traffic and basket size trend? Thanks, and I have a follow-up on margin.
Gina Boswell: Thank you for the question, Mark. We are always testing, and some of the things that we talked about in our agile model on AURs, I think speaks to that. The tests that we have that I alluded to are some of the things we’re doing from a loyalty perspective. We’re seeing lots of data that suggests that when we customize offers and when we provide triggers and things, we can actually use the data and insights from the loyalty to better sharpen and optimize. But to your specific question on direct mail, it did not. We think that is offsetting with loyalty, frankly. And so, we don’t expect that that was going to be a driver on our September traffic.
Eva Boratto: And Gina, if I could just add one thing. As you think about our loyalty program, if we move a customer from redeeming one reward to more than two in a year, they more than double their spending in the store. So, there’s a tremendous amount of opportunity ahead of us as we test and learn, as Gina said, to drive value.
Gina Boswell: Yes. I should say, the loyalty platform is going to be, today, for sure, with all the enrollment speed, but as we push engagement even further, levering the tools that we’ve just been implementing, frankly in the last 11 weeks, we see the spend, the engagement, the retention, the trips, being a nice way to address the promo optimization as well. So, you’re absolutely right. Thank you, Eva, for the comments on what redemption truly does to drive customer annual spend.
Mark Altschwager: Very helpful. Thank you. And just following up on gross margin, you’re guiding Q4 buying in occupancy leverage flat, and that’s with sales down, I guess, 1% to 5%. Do you expect continued efficiencies there next year, or how should we be thinking about the leverage point on buying in occupancy for 2024? Thank you.
Gina Boswell: Thank you. Mark, for the second part of that question. I think we do have a big quarter ahead of us. So, we’re not really speaking specifically to 2024, but I’m not sure on B&O if there’s anything you’d like to add, Eva.
