Best Buy Co., Inc. (NYSE:BBY) Q3 2024 Earnings Call Transcript

Best Buy Co., Inc. (NYSE:BBY) Q3 2024 Earnings Call Transcript November 21, 2023

Best Buy Co., Inc. beats earnings expectations. Reported EPS is $1.29, expectations were $1.19.

Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Best Buy’s Third Quarter Fiscal 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this call is being recorded for playback and will be available for — by approximately 1:00 P.M Eastern Time today. [Operator Instructions] I will now turn the conference call over to Mollie O’Brien, Vice-President of Investor Relations.

Mollie O’Brien: Thank you, and good morning, everyone. Joining me on the call today are Corie Barry, our CEO, and Matt Bilunas, our CFO. During the call today, we will be discussing both GAAP and non-GAAP financial measures, a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures and an explanation of why these financial measures are useful can be found in this morning’s earnings release, which is available on our website, investors.bestbuy.com. Some of the statements we will make today are considered forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. These statements may address the financial condition, business initiatives, growth plans, investments and expected performance of the company and are subject to risks and uncertainties that could cause actual results to differ materially from such forward-looking statements.

Please refer to the company’s current earnings release and our most recent 10-K and subsequent 10-Qs for more information on these risks and uncertainties. The company undertakes no obligation to update or revise any forward-looking statements to reflect events or circumstances that may arise after the date of this call. I will now turn the call over to Corie.

Corie Barry: Good morning, everyone, and thank you for joining us. For the third quarter, we are reporting better-than-expected profitability on slightly softer-than-expected revenue. Specifically, we are reporting a comparable sales decline of 6.9%, which is slightly below our outlook for the quarter as consumer demand softened through the quarter. At the same time, we expanded our Q3 gross profit rate 90 basis points from last year due to profitability improvements in our membership program and better product margins. We also lowered our SG&A expense compared to last year as we tightly controlled expenses and adjusted our labor expense rate with sales fluctuations. During the quarter, we grew our paid membership base and drove meaningful improvements in customer satisfaction scores across many of our service offerings, including in-home delivery, in-store services and remote support.

Our Q3 results demonstrate our ongoing strong operational execution as we navigate through the sales pressure our industry has been experiencing for the past several quarters. The sales pressure is due to many factors, including the pandemic pull-forward of tech purchases, the shift back into services outside the home like travel and entertainment and inflation. In the more recent macro-environment, consumer demand has been even more uneven and difficult to predict. Based on the sales trends in Q3 and so far in November, we believe it is prudent to lower our revenue outlook for Q4. But despite the lowered sales outlook, the midpoint of our annual EPS guidance is now slightly higher than the midpoint of our original guidance as we entered the year.

I want to thank our associates for their resilience and relentless focus on our customers. I continue to be so very proud of the way our teams are managing the business today and preparing for our future. Now, I would like to provide more color on our Q3 performance and holiday plans before passing the call off to Matt for the financial details on the quarter and our outlook. We continue to strategically manage our promotional plan and we’re price-competitive in an environment, where consumers are very deal-focused and making spend tradeoffs right for their budget. Consumers are looking for value, and from an industry themes’ perspective, we are seeing some trade-down in the television category, but not as much trade-down in other categories.

As a result, and as expected, the goal of industry promotions and discounts were above last year and pre-pandemic fiscal ’20. Similar to the first half of the year, during Q3, our purchasing customers were relatively consistent in terms of demographics versus last year. As a reminder, we over-index with higher-income consumers, compared to the general population. And we saw the percent of revenue categorized as premium and the percent of purchases over $1,000 remain constant versus last year. We have largely maintained our year-to-date industry share in our Circana, formerly NPD-tracked categories. Against this backdrop, our focus on deepening relationships with customers remains crucial. Our membership program delivered another quarter of growth and improved profitability versus last year.

The Q3 contribution to the enterprise operating income rate was larger-than-expected due to the combination of a lower cost to serve and higher paid in-home installation services. For the full year of fiscal ’24, we now expect our three-tiered membership program to contribute approximately 35 basis points of Enterprise year-over-year operating income rate expansion. It is still early since we introduced material changes in June, but there are a number of insights I would like to share. One, we continue to increase our paid membership base and now have 6.6 million members. This compares to 5.8 million at the start of the year. During the third quarter, we signed up approximately 35% more new paid members compared to the third quarter of last year, driven by the addition of the new Tier and buoyed by back-to-school and October’s member month events.

Two, our paid members continue to interact with the brand and shop more frequently compared to non-members, which is the goal of any membership program. Three, and though it is early and we have not yet lapped the new programs, retention rates are outperforming expectations. Four, My Best Buy Total, which is the evolution of our prior Total tech offer, continues to resonate more strongly in our physical store setting. As a reminder, this tier is $179.99 per year and includes Geek Squad 24/7 tech support via in-store, remote, phone or chat on all your electronics no matter where you purchase them. It also includes up to two years of product protection, including AppleCare Plus on most new Best Buy purchases and includes all the benefits of My Best Buy Plus.

And five, our My Best Buy Plus tier is resonating more with the digital customers and appeals to a broader set of customer segments. This is the new tier for customers who want value and access. For $49.99 per year, customers get exclusive prices and access to highly anticipated product releases. They also get free two-day shipping and an extended 60-day return and exchange window on most products. We are still early in the process and are testing different promotional offers to determine what resonates most with consumers as well as continuously improving the digital experience to make it even easier to find deals and benefits. Of course, we also have a free membership tier that enables free shipping for everyone, a great differentiator, especially in the holiday season.

During the quarter, we continued to evolve our omnichannel capabilities to support our strategy and make it easy and enjoyable for consumers to get the best tech and premier expert consultation and service when they want it through our online store and in-home experiences. Last month, we introduced Best Buy Drops, which is a new experience only available through the Best Buy app. It gives customers the opportunity to access product releases, limited edition items, launches and deals from a variety of categories. There are multiple drops nearly every week, and they’re only available in limited quantities. We are encouraged by the early results as Best Buy Drops is driving both incremental customer app downloads and higher frequency of app visits.

We have also seen growth in sales from customers who are getting help from our virtual sales associates. These interactions, which can be via phone, chat or our virtual store, drive much higher conversion rates and average order values than our general dot.com levels. This quarter, we had 140,000 customer interactions by a video chat with associates, specifically out of our virtual store locations. As a reminder, this is a physical store in one of our distribution centers with merchandising and products that are staffed with dedicated associates and no physical customers. We also teamed up with live shopping platform Talk Shop Live, to test a series of online shopping events this month, starring our virtual sales associates. These events feature products from some of our newer categories like beauty and wellness as well as new tech and unique products.

Our physical store portfolio is one of our key assets, and the role of our stores is to provide customers with differentiated experiences, services and multichannel fulfillment. At the same time, we need some stores to be more cost and capital efficient to operate. As a reminder, while almost one-third of our domestic sales are online, 43% of those sales were picked up in one of our stores by customers in Q3. And most customers shop us in multiple channels. Consistent with our normal cadence, we have largely completed the changes to our store portfolio for the year, so we can focus on the holiday season with minimal disruption to our physical stores. As we think about next year with the current economic backdrop, we plan to spend more of our capital expenditures refreshing a greater number of our stores and less on large-scale remodels.

As such, we have three priorities for our US store fleet in the near term. Number one, we are refreshing our stores with a particular focus on improving enlivening the merchandising presentation given the shift to digital shopping and corresponding lower need to hold as much inventory on the shopping floor. For example, this year, in all our stores, we installed new premium end caps in partnership with key vendors that improve the merchandising in the center of the store. This year, we installed up to 10 of these new end caps per store or roughly one-third of our end caps per store and plan to add more next year as we work to upgrade these crucial locations in our stores. In addition, this year, we rightsized our traditional gaming spaces in roughly half of our stores to allow for the expansion of growing categories like PC gaming and newer offerings such as Greenworks cordless power tools, wellness products like the Oura ring, Epson short throw projectors, e-bikes and scooters and Lovesac home furnishing products.

While small, we are seeing promising results in some of these new categories with meaningful market share growth. And as always, we continue to work closely with our vendor partners to add experiences to our stores. For example, LEGO and Therabody invested in new shop-in-shops in all our 35,000 square foot experience stores. In addition, and as you would expect, many of our premium partners are continuously updating their in-store spaces to reflect their latest innovations. We will continue this work next year in all our stores, rightsizing a number of categories to ensure we are leveraging the space in the center of our stores in the most exciting, relevant and efficient way possible. Our second priority is to keep investing in formats we know drive returns.

This year, we implemented 8 large format 35,000 square foot experienced store remodels for a total of 54 and will end the year with 23 outlet stores. At this point in time, we plan to implement a minimal number of remodels and outlets next year. And the third priority is to open a few smaller footprint stores to keep testing our hypothesis at physical points of presence matter, and we need less selling square footage and more fulfillment and inventory holding space. In addition, we plan to open a few smaller stores in outstate markets to test the impact of adding new locations and geographies where we have no prior physical presence and our omnichannel sales penetration is low. At the same time, we also continue to close existing traditional stores as a result of our rigorous review of stores as their leases come up for renewal.

This year, we have closed 24 stores. Over the past five years, we have closed approximately 100 Best Buy stores, which is a 10% decline in store count during that time frame. And we expect to close roughly 15 to 20 stores per year in the near term. We have been enhancing our supply chain network to support these footprint changes and deliver speed, predictability and choice to our customers. For example, we have worked to optimize our ship-from-store hub footprint to maintain substantial coverage for faster offers and take shipping volume pressure off the majority of the stores to allow them to focus on in-store and pickup experiences. Additionally, we are optimizing our shipping locations to enhance our efficiency and effectiveness while still delivering with speed.

And as a result, in Q3, we had the lowest ship from store volume as a percent of total since well before the pandemic, with approximately 62% of e-commerce small packages delivered to customers from automated distribution centers. We also continued to augment our own supply chain through other partners and launched Best Buy on DoorDash marketplace, offering our second scheduled parcel delivery option in addition to Instacart Marketplace. As we have discussed previously, we have made strategic structural changes to our store operating model over the past few years to adjust to the shifts we have seen in customer shopping behavior and our corresponding operational needs. These changes provide more flexibility and have allowed us to flex labor hours with the fluctuations in customer sales, shopping preferences like curbside and traffic.

As a result, we kept our labor rates steady as a percent of revenue, even as our sales have declined over the past several quarters. As you can imagine, there is a delicate balance to maintain while we adjust our store operating model as the expert service our associates provide customers is a core competitive advantage. We keep a very close watch on our customer satisfaction trends to make sure we are not negatively impacting the customer experience. Broadly, I am proud that the team is doing this work while driving higher purchasing customer NPS for associate availability, product availability and pricing. We are also committed, of course, to providing a great employee experience through training opportunities and benefits. As we mentioned last quarter, we have now led thousands of our sales associates through a certification process focused on our foundational retail excellence.

We are also leveraging technology in our stores more than ever to continue to elevate our customer and employee experiences in more cost-effective ways. A great example is our app built for employees called Solution Sidekick, that provides a guided selling experience consistent across departments, channels and locations. Our employees have embraced solution Sidekick and we can see higher customer NPS when our employees are utilizing the app in their interactions with customers. We are gratified that our employee retention rates continue to outperform the retail industry, particularly in key leadership roles, the vast majority of which we hire internally. Our average tenure, excluding our seasonal workforce, for field employees is just under five years, and our general manager tenure is almost 16 years.

This is crucial as we can directly tie tenured experience and training certifications to NPS improvement over time. We have also seen a strong pool of applicants for new associates to supplement our store teams this holiday season. As you all have likely noticed, the holiday shopping season has begun. Since we are preparing for a customer who is very deal focused, we expect shopping patterns will look even more similar to historical holiday periods than they did last year with customer shopping activity concentrated on Black Friday week, Cyber Monday and the last two weeks of December. From an inventory perspective, we expect to have strong product availability across categories this year. We will continue to manage inventory strategically to maximize our ability to flex with customer demand.

We are excited about the promotions and deals we have planned for all customers and budgets, including special promotions and early access to deals for our My Best Buy Plus and My Best Buy Total members. We have curated gift list to help everyone find the perfect gift. We also introduced a new resource on bestbuy.com and the Best Buy app called Yes Best Buy Sells That, where customers can find the latest in tech and gifting, like pet tech, baby tech or electric vehicle chargers, all the way to unique products, some shoppers may not know we sell like skin treatments, toys for all ages and electric outdoor power equipment. For added ease of shopping and peace of mind, we’ve extended both our store hours and our product return policy for the holiday season.

And this year, for the first time, we also extended that our shoppers can connect directly with one of our virtual sales experts to get help with their holiday shopping. We’re also offering free next-day delivery on thousands of items in addition to convenience store and curbside pickup options. Most orders placed on bestbuy.com or through the Best Buy app are ready for store pickup within one hour. Same-day delivery is also available on most products for a small fee. From a merchandising perspective, we’re excited for shoppers to see new innovation in a variety of categories, including AI-powered devices like Microsoft CoPilot and Windows 11 computers, the latest in virtual and mixed reality with Meta Quest 3 or Ray-Ban Meta Smart Glasses, immersive audio with Bose Quiet Comfort ultra-headphones and more, and we can help our holiday shoppers take advantage of this new innovation through our trade-in program, which gives the customer value for their old technology.

In addition to great deals for our flagship categories like computing, home theater and gaming, that feature our unique ability to showcase higher-end technologies at great value, we also have an expanded assortment of new and growing categories, including e-transportation, health and wellness and outdoor living. Our e-transportation assortment has more options for people of all ages and skill levels. We have twice as many outdoor cooking brands compared to last year and more than 5,000 health and wellness products, including a lineup of fitness, recovery, beauty, skin care, baby tech and more. As you can likely hear, we are very excited to provide customers an amazing experience this holiday season. Of course, the macro environment remains uncertain with some tailwinds and increasingly more headwinds, all contributing uneven impacts on consumers.

The job market remains strong and upper income and older demographics, in particular, continue to benefit from excess savings. Overarchingly, the consumer is still spending. But as we have said before, they are making careful choices and trade-offs right for their households. Given the sustained inflationary pressure on the basics, like food, fuel and lodging and the ongoing preference towards services spending, like restaurants, concert tickets indications. Additional indicators have continued to soften, including declining consumer confidence increasing debt and waning savings, and we saw sales trends soften as we move through the quarter. This environment continues to make it challenging to predict shopping behavior even during the most exciting time of the year.

While we are lowering our Q4 sales outlook, we have a wide range to allow for a number of scenarios and the mid- to high end of the range reflects sequential improvement. As we discussed on our last call, there are several factors supporting our belief that our Q4 year-over-year comparable sales can improve. We expect home theater year-over-year performance to improve as we expect to be better positioned with inventory across all price points and budgets than last year. We are starting to see signs of stabilization in our TV units as they grew in Q2 and Q3 and are expected to grow in Q4. We expect performance in our computing category to improve as we build on our position of strength in the premium assortment. Notebook units were flat compared to last year in Q2, down as expected in Q3 and expected to be up slightly in Q4 and we expect to see continued growth in the gaming category as inventory is more readily available and there are strong new software titles.

In summary, while the macro and industry backdrop continues to drive volatility, we have a proven track record of navigating well through dynamic and challenging environments, and we will continue to adjust as the macro conditions evolve. And we remain incredibly confident about our future opportunities. After two years of declines, we believe the consumer electronics industry should see more stabilization next year and possibly growth in the back half of the year. While our existing product categories have slightly different timing nuances, we believe they are poised for growth in the coming years, benefiting from a materially larger installed base and the ongoing desire and need to replace technology as it ages. Much of this replacement is spurred by innovation, and in addition, we continue to see several macro trends that should drive opportunities in our business over time, including cloud, augmented reality, expansion of broadband access and, of course, generative AI, where we know our vendor partners are working behind the scenes to create consumer products that optimize this material technology advancement.

Our purpose to enrich lives through technology is more relevant today than ever. We’re the largest CE specialty retailer. We continue to hold one-third of the market share in both the US computing and television industries and we can commercialize new technology for customers like no one else. With that, I would like to turn the call over to Matt for more details on our third quarter results our fiscal ’24 outlook.

Matt Bilunas: Good morning, everyone. Let me start by sharing details on our third quarter results. Enterprise revenue of $9.8 billion declined 6.9% on a comparable basis. Our non-GAAP operating income rate of 3.8% declined 10 basis points compared to last year. Non-GAAP SG&A dollars were $57 million lower than last year, and it increased approximately 100 basis points as a percentage of revenue. Partially offsetting the higher SG&A rate was a 90 basis point improvement in our gross profit rate. Compared to last year, our non-GAAP diluted earnings per share decreased 6.5% to $1.29. When viewing our performance compared to our expectations, we did not see the sequential improvement versus the second quarter that our third quarter outlook assumed.

From an enterprise comparable sales phasing perspective, August decline of approximately 6% was our best performing month, with September down 7% and October down 8%. Although our sales were below plan, our non-GAAP operating income rate exceeded our outlook by approximately 40 basis points, which was driven by lower SG&A. The lower-than-expected SG&A was largely driven by tighter expense management in areas such as store payroll and advertising expense as we adjusted plans to account for sales trends. Our gross profit rate was essentially flat to our expectations. Lastly, approximately $20 million of vendor funding qualified to be recognized as an offset to SG&A while our outlook assumed it would have been a reduction of cost of sales. We anticipate similar recognition of this funding in Q4 in the range of $15 million to $20 million.

Next, I will walk through the details of our third quarter results compared to last year. In our Domestic segment, revenue decreased 8.2% to $9 billion, driven by a comparable sales decline of 7.3%. From a category standpoint, the largest contributors to the comparable sales decline in the quarter were appliances, computing, home theater and mobile phones, which were partially offset by growth in gaming. From an organic perspective, the overall blended average selling price of our products was essentially flat to last year, which is a slight improvement relative to the past few quarters. In our International segment, revenue decreased 3.4% to $760 million. This decrease was driven by a comparable sales decline of 1.9% and a negative impact of foreign exchange rates.

Our Domestic gross profit rate increased 100 basis points to 22.9%. The higher gross profit rate was driven by the following. First, improvement from our membership offerings, which included a higher gross profit rate in our services category. Second, our product margin rates improved versus last year, including a higher level of vendor-supported promotions and the benefit from optimization efforts across multiple areas. And third, lower supply chain costs. Before moving on, I would like to give some additional context on the profit sharing revenue from our credit card arrangement, which performed better than we expected in the third quarter. On a year-over-year basis, the profit share has been approximately flat from a dollar perspective over the course of the year, which has resulted in a slightly positive impact to our gross profit rate.

In the fourth quarter, we expect the profit share to come in better than we had expected and once again be very similar to last year from a dollar perspective. As we look to next year, we expect the credit card profit share to be a pressure to our gross profit rate. At this point in time, we expect this pressure to be offset by continued financial improvement from our membership offerings. Moving to SG&A. Our Domestic non-GAAP SG&A declined $58 million with the primary drivers being lower store payroll costs and reduced advertising, which were partially offset by higher incentive compensation. Next, let me touch on our inventory balance. Similar to last year at this time, we continue to feel good about our overall inventory position as well as the health of our inventory.

Our quarter-end inventory balance was approximately 4% higher than last year’s comparable period. As we noted during last year’s third quarter earnings call, approximately $600 million of inventory receipts came in a few days later than we had expected, moving from October into November. Adjusting for that timing shift, this year’s ending inventory balance would have been approximately 4% lower than last year’s targeted ending balance. Year-to-date, we’ve returned a total of $873 million to shareholders through dividends of $603 million and share repurchases of $270 million. We now expect share repurchases of approximately $350 million for the year. Let me next share more color on our outlook for the year, starting with our thoughts on the fourth quarter.

From a top line perspective, we now expect our fourth quarter comparable sales to be down in the range of 3% to 7%. Our Enterprise comparable sales through the first three weeks of November are near the low end of the fourth quarter range. On the profitability side, we expect our fourth quarter non-GAAP operating income rate to be in the range of 4.7% to 5%, which compares to a rate of 4.8% last year. Our fourth quarter gross profit rate is expected to improve versus last year by approximately 30 basis points. Although favorable to last year, the year-over-year improvement is less than the 90 basis points of expansion we reported for the third quarter. From a sequential standpoint, there are three main items I would highlight that are expected to reduce the rate expansion in the fourth quarter relative to the third quarter.

First, although it is still a benefit compared to last year, the changes to our membership offering are less impactful in the larger holiday quarter. Second, product margin rates are expected to be closer to flat to last year in the fourth quarter compared to a benefit in the third quarter. And third, we expect supply chain cost to be a slight pressure in the fourth quarter versus a benefit in the third quarter. From an SG&A standpoint, when comparing to last year, we expect our fourth quarter SG&A as a percentage of sales to be more favorable than our year-to-date trends, which is due in part to the impact of the extra week this year. The range of SG&A implied in the fourth quarter incorporates our normal course of actions to adjust variable expenses under the different revenue scenarios as well as adjustments to incentive compensation align with our expected financial outcomes.

As a reminder, we expect the extra week to add approximately $700 million of revenue, which is excluded from our comparable sales and $100 million in SG&A, we still expect it to benefit our full year non-GAAP operating income rate by approximately 10 basis points. Let me provide more details on our full year guidance, which incorporates the color I just shared on the fourth quarter. We now expect the following. Enterprise revenue in the range of $43.1 billion to $43.7 billion, Enterprise comparable sales to decline 6% to 7.5%, Enterprise non-GAAP operating income rate in the range of 4% to 4.1%, non-GAAP diluted earnings per share of $6 to $6.30, non-GAAP effective income tax rate of approximately 24%, and lastly, our interest income is still expected to exceed interest expense this year.

Our full year gross profit and SG&A working assumptions remain very similar to what we shared last quarter. And some of the key callouts are the following. We still expect our gross profit rate to improve by approximately 60 basis points compared to fiscal ’23. A large driver of the gross profit rate improvement is expected to come from our membership offerings, which includes a higher gross profit rate in our services category. Our membership offerings are now expected to provide approximately 35 basis points of improvement. At the midpoint of our guidance, we expect SG&A as a percentage of sales to increase by approximately 95 basis points compared to last year. We expect higher incentive compensation as we lapped up very low levels last year.

The high end of our guidance now assumes incentive compensation increases by approximately $140 million compared to fiscal ’23. I will now turn the call over to the operator for questions.

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Q&A Session

Operator: Thank you. [Operator Instructions] Your first question comes from the line of Simeon Gutman of Morgan Stanley. Your line is open.

Simeon Gutman: Good morning, everyone. I wanted to ask a question, as we get into the fourth quarter, it looks like we’ll have negative comps, and it will be the third year in a row. As you step back, I think there’s logic to this massive pull forward and there is a larger installed base. There should be a replacement cycle. But I wanted to kind of question that. And if it throws any water on this, if there’s something else happening here, maybe there is a lack of newness. You mentioned that you didn’t lose much share, but thinking about market share as well, but thinking about the cycles and whether we’re not — whether we could be in just a negative industry cycle for a little bit longer.

Corie Barry: Thanks for the question, Simeon. I think we have a few things going on to your point. So if you think about the comments that I had in the macro section, you’ve got a variety of stacked issues happening. One is absolutely you had pull forward throughout the pandemic. Two is you also have this kind of sustained inflation. And again, it’s sustained inflation on the basics that we’ve been talking about food, fuel and lodging. And so that’s pulling people. We also talked about the fact that a lot of spend right now is geared towards the more service type of things like concerts, like trips. Everywhere you look, people are taking more and more vacations. And so you have all of this kind of shift of spend that’s happening.

I think secondarily, as it relates specifically to the holiday time frame, the other interesting thing is people have also been buying CE a little bit more steadily throughout the year. If you think about CE as more of a need-based item, not just that kind of giftable item, and so I think there’s also just been a little bit of a shift in where people are spending. But I think broadly, what we’re seeing reflected right now is the kind of culmination of not just pull forward, but all of these other factors that we’re seeing from the consumer as they make those trade-offs. And we’ve been using the words uneven for probably six quarters now, and I think that is what you’re seeing in the variety of results from consumers and where they’re choosing to spend their dollars.

Simeon Gutman: Maybe the quick follow-up is the Q4, I guess, you’re running at the low end. Does it get better because the comparison gets better? Or you’re hopeful around how the big holiday sales end up playing out?

Matt Bilunas: Yeah. I think the comparison certainly gets better. As you think about last year, we were about 3% lower than FY ’20 levels. This year, we’re lower against FY ’20, but the sequential is better in Q4. I think there’s still a lot of optimism for holiday. I think there’s a lot of great holiday promotions and events. And I think we’re trying to temper any expectation on holiday just with the pragmatic view of where the consumer is at right now. And I think you commented on the share. I think we actually — we say largely held share because it’s really hard to actually get a good meaningful number on share, but we feel good about our share position as we go into the holiday period.

Simeon Gutman: Okay. Thanks. Happy Thanksgiving. Good luck.

Operator: Your next question comes from the line of Chris Horvers of JPMorgan. Your line is open.

Chris Horvers: Thanks, and good morning. So, thanks for the commentary around the credit card headwind that you’re thinking about next year being offset by the membership. Can you talk about implicitly what you’re assuming as a headwind in that comment, there’s a lot of speculation. There’s a lot of numbers getting thrown around in the market. And so I just want to try to understand what you’re implicitly assuming? And then in addition, what are the other big puts and takes in gross margin as you think about 2024, as you think about initiative spending as well as your health efforts?

Matt Bilunas: Sure. Thanks for the question. For credit card next year, I mean, obviously, there’s a number of scenarios we’re trying to understand as you think about next year. So we’re not really guiding next year now. But when we think about the credit card, that pressure that we expect to see, we believe, will largely be offset by benefits we might see from the membership program and services category expanding a bit more from a gross property perspective. The factors within the credit card, one of the biggest things we’re trying to understand is just where do net credit losses go. They’re — at the moment, they’re pretty close to where they were pre-pandemic. They were very low levels during the pandemic. And so we’ve been seeing them grow a little bit.