Anthony Chukumba: Got it. Okay, that’s helpful. And then just in terms of the — I guess, the five points that you guys laid out in terms of this — I don’t recall necessarily a turnaround plan, but just tweaks to your existing plan. What should we expect in terms of the timing for rolling out all those initiatives? Like when do you — like what’s kind of phasing of that or when do you expect that all to be completed?
Bruce Thorn: Hey, Anthony, Bruce here. It’s in progress, it’s been in progress, bargains and treasures. We’ve — like we said in our opening remarks, we’ve leaned into that heavily. We grew the bargains and treasures penetration 90% or the purchasing procurement of bargains 90% over last year Q3 and sequentially the Q2 160% and that increasing as we go into fourth quarter and free up that open to buy with our better inventory management. So that is going ongoing right now and the signage and the ticketing is in process that ticketing will be rolling out here shortly. The comparable ticketing and the better signage will be rolling out, as well as the more honed promotions and crisp promotions that truly drive the value differentiations.
The stores we continue to grow the stores, albeit at a slower rate. We’re projecting a lower amount of stores at this time than what we’re seeing in the previous releases. But that’s just because of the economic times. We think as we get better with that we’ll accelerate back into and we’ve got a very good team to do that. But the focus is on rural stores and the home categories where we excel in and outpace the competition. Omnichannel, we continue to invest in. We’re doing it right now. We just added PayPal, Apple Pay, we’re removing friction, our conversion rates never been better through the holiday season than it is right now with the things we’re doing. We’re focusing on the productivity and the profitability growth, not just growth at any cost.
So it’s ongoing as well. And once again, the driving productivity quite frankly, we’ve been taking our costs ever since Jonathan and I joined the company and we think that’s the best way to fuel our growth. So all of this is in progress, I think the biggest thing is that the penetration of bargains is going to grow significantly in €˜23. And the reason for that is we’re able to find clean, good quality bargains augment our assortment. It’s exactly what the customer wants, and we’ve got a great new Chief Merchant and Margarita who comes from the off-price world to help develop the muscle we already have to play harder in this area and compete. And we’ve got a great new Chief Marketing Officer and John to really make sure the customers understand the compelling value we have for her.
Anthony Chukumba: Got it. That’s very helpful color. Good luck with holiday selling season.
Bruce Thorn: Appreciate it.
Operator: Our next question is from the line of Jason Haas with Bank of America. Please proceed with your questions.
Jason Haas: Hey, good morning and thanks for taking my questions. So just curious to get a better sense of how closeouts are performing. I imagine that they’re up over year just because you’re increasing the penetration. But I’m curious what the sell through looks like on those? Some of the pushback that we hear is even if you’re able to bring in closeouts and more opening price point items. The consumer is just not buying these discretionary categories, so I’m curious to know what you’re seeing so far and if that that’s been true or if the has been good on those?
Bruce Thorn: Hi, Jason. I’ll take this and Jonathan can add to it. I think the key thing that we’ve done with the leadership of Margarita and John is to know before we buy in price when it comes down to closeouts and bargains. And I think we’ve done a really nice job in being circumspect about that. You really need to know, how you’re going to sell these products before you buy them, that’s the biggest thing. And then you need to be able to display them in a way that she understands the value and we’ve seen that. I’ll give you a perfect example, we had a higher place for sale, just a great deal with margin accretive points last quarter that we’re selling for (ph) and the comparables were much higher than that. And the good problem to have was that the customers are complaining that we didn’t have anymore.
And so that’s what success looks like, that’s the urgency, that’s the delight, that’s the excitement and that’s how we win. And so I consider our focus on bargains to be a margin accretive strategy. It will be and it’s really starting with the end in mind the customers, setting the prices right, buying the amount that makes sense and then selling through it and leaving them hungry for more.
Jason Haas: That’s great to hear. And then as a follow-up question, I was curious if there’s anything that’s happened this year that changes how you’re thinking about the long-term. I think you have targets out therefore, I believe it was low single-digit comps and getting back to an operating margin closer to like 6% to 6% range. I imagine that we’ll take time to get back there, but I’m curious if there’s just been any sort of change to that sort of framework?
Jonathan Ramsden: Hey, Jason. Yes, I’ll take that one and good morning. Yes, fundamentally, our long-term view is unchanged. We think there are some near-term factors that are clearly significantly weighing on that, that will abate over time and we believe in our model and its ability to produce those, kind of, margins and returns over time. And again, don’t underestimate the impact of things like freight, which we’ve talked about being 400 basis points to 500 basis points drag on our operating margins when you combine both the gross margin and the SG&A impact. We’ve had this extraordinary impact of promotions and markdowns this year, due to the excess inventory position that we and many others fan ourselves in. So those things we expect to abate significantly starting in ’23, and then there’s the impact of all the other things that we’re doing that go back to the 5 points that Bruce talked about and beyond those in terms of driving our margins higher over time.
Jason Haas: And if I could squeeze in one more for Jonathan, just curious on the new ABL, is there a covenant on that, that we should be thinking of? And I’m curious where the leverage ratio sits now in relation to that covenant?
Jonathan Ramsden: There’s a spring fixed charge covenant, which kicks in if our excess availability gets to a pretty low level. But generally no, we don’t have the same covenants that we had in the prior revolving credit agreement.
Jason Haas: Got it. Thank you.
Operator: Thank you. Our next question is from the line of Brad Thomas with KeyBanc Capital Markets. Please proceed with your questions.
Brad Thomas: Hi, good morning. Thanks for taking my questions. A couple of follow-ups just on the merchandising changes that you talked about, Bruce. I was wondering if you could just help quantify a little bit more how much you think the assortment needs to change versus what you normally do in a given year. But again, I think some of the initiatives seem like they make a lot of sense in the current environment we’re in. Just trying to gauge how unusual this level of change is for you? Thanks.
Bruce Thorn: That’s a good question, Brad. You know, the — we’ve been through a roller coaster ride in retail over the last few years. And I would tell you that the movement that has happened in pricing to the consumer as a result of the pandemic and inflation is much more dramatic than what we’re doing here in terms of honing our assortment to exactly what she needs. So the movement to bargains, while that’s an increase — substantial increase from where we are today, it is a good methodical increase for what she wants. The cleanup of essentials, she’ll actually — I would expect her to be welcoming that, because it will have more solutions and also once again her shopping experience we’ll be enhanced by all the bargains and treasures we’ll be able to have.
So the movements that we’re talking about, while they’ll make us much more competitive, it’s not like a total turnaround, it’s not like we’re turning around and saying we’re going to become a grocery store, because that’s where she is shopping. We don’t have the ability to do that, that’s not where we win. It’s a consistent shop. We’re going to hone that. But where we win is going to be in the home categories having those opening price points right, having the bargain penetration she expects from us and in a leaner more solution-oriented essentials assortment. So I don’t want you to lead this conversation and think that we’re having a massive pivot on these items. We’re not, we’re just leaning into what we know through our customer research she’s looking at.
And quite frankly, it’s going to be a much more welcomed change than what she faced during the pandemic.
