And we also expect some easing pressure on the low-end consumer as we go through the year as well. So by the end of the year, we made sure to put this in the prepared remarks. By the end of the year, we feel like we should be at or near our long-term comp algorithm.
Michael Baker: Yeah. Okay, appreciate the caller. Thank you.
Bob Eddy: Thanks, Mike.
Operator: Our next question comes from Oliver Chen from Cowen. Your line is now open. Please go ahead.
Oliver Chen: Hi, Bob and Laura. As we think about what’s ahead with the merchandise margin opportunity, what’s underlying the cost management opportunity, and also what you see with the own brands helping the merchandise margins and this quarter on the merchandise margins, that headwind, which has left some detail on us that relates to anything going forward. Follow-up is on your articulation on reorganizational functions and centralization. I was curious about why this was the right time for that and how it will help your business in terms of customer centricity, et cetera. Thank you.
Bob Eddy: Yeah, thanks, Oliver. Maybe I’ll take a shot, and Laura and Bill can fill in. I guess spend time thinking about gross margins, you really kind of three things to think about that impacted Q4 and that will impact next year and a few years in front of us. First is our ability to field the right assortment and the margin profile that that provides. For those that have been following the story for a while, we have this muscle built. We used to call it CPI. Now it’s probably a more wholesome assortment-driven process we call CMP, category management process. And that’s along the lines of what we talked about in the prepared remarks around coffee, making sure that we take these categories that might have cost opportunity, margin opportunity and making sure that we carry the right assortment and the right — make the right investments in our value proposition and balance out the margin.
That’s a particularly strong effort at this point, the merchandising team and our analytics team have done fantastic work that will benefit us in the next year. Own brands you mentioned, that’s been a continuing growth effort for us now over 25% of our business with 30 in our sites. Obviously, that comes at a tremendous value to our members with savings for them, and it comes with loyalty for us and arguably better margins somewhere near 1,000 basis points better margins when you compare a typical own brands item against a typical national brand equivalent. So as we continue to grow that that should provide opportunity for margin rate growth. And then the third thing is co-brand, right? We saw some pressure in the last year on margin rate and frankly, on comps the way that the accounting works.
From the first year of the co-brand program, that will continue until that lapse. So the first part of this year, this New Year, we expect to be pressured a little bit from a margin rate perspective. And that’s continuing investment in the business, right? As I talked about earlier, we take all of the — we decided to take all the flows from the deal and put it into the value prop. And that’s what grew us from zero to 1.5 million cardholders, and that’s what we expect to grow us to 2.5 million or 3 million cardholders in the future. So that’s really what we think. We do think a margin rate will grow for the next year as we talked about. And it really should be CMPs and own brands offset by some co-brand pressure in the beginning of the year.
Anything else, Laura, on that one?
Laura Felice: No. I think the only thing I’d pile on related to the co-brand card is despite that margin pressure that Bob just talked about, as we step back and look at the program, we are incredibly proud of what we accomplished this year during the transition, the new members we brought into the card product, and the long-term prospects for the program with Capital One as our partner.
Bob Eddy: Yeah. We didn’t make the decision to move based on economics. We made it based on member service and our ability to grow the program. And if you talk to our members, if you talked about general managers out in the field, we are very confident that our members are having a much better service experience with capital on a much better overall experience with the value prop, and that will yield benefits going forward. Your follow-up on the reorganization that we put forward. I think the best way to think about this is we’ve just finished five years of tremendous growth going through COVID and post-COVID. And we didn’t say no to a lot of investments in those years. And so it’s the right time for me and for our team to really look at the next five years and make sure that we were putting our bets in the right places.
And a lot of that was in our Club Support Center here at our headquarters, trying to make sure that after years of adding headcount that we have it in the right places for the go forward. And so that yielded this effort that added a bunch of jobs, changed a bunch of jobs, and unfortunately, removed some jobs. But we’re really confident in the long term of our business, if you can’t tell, I’d just say that for effect. And we just wanted to make sure that our underlying administrative structure serves all of the different investments and initiatives that we have going forward.
Oliver Chen: Thanks, Bob and Laura. Best regards.
Bob Eddy: Thanks.
Laura Felice: Thanks.
Operator: Our next question comes from Ed Kelly from Wells Fargo. Your line is now open. Please go ahead.
Ed Kelly: Hi, everyone. Good morning. I wanted to ask about SG&A. As we think about Q4, if you could quantify or maybe help frame the incentive comp benefit, I guess, in Q4? And then I guess as we move through ’24, should we think about more normalized operating expense growth, I guess, how do you think about the comp needed to leverage, I guess? And as it pertains to that, CapEx over the last couple of years have risen pretty good, and D&A was up quite a bit in Q4. I’m kind of curious as to how we should be thinking about D&A growth over ’24 as well related to this.
