We haven’t called those out specifically in much detail, but that is putting some pressure on us this year in Q3. And so the other thing is the wage pressure. I mean the wage rates in the tight labor market is something that we’ve been working through also. And so while nothing we call out on a regular basis, that’s something that we’re dealing with. And I think as we get into next year, we continue to open new stores, and we’ll be able to kind of work those through the system a little bit more evenly than what we saw this last year and even the year before, as we’ve called out. I think last year, in the first half of the year, we saw tremendous leverage when it came to wage rate and marketing because we weren’t able to keep up enough to support the sales that were in there.
So it’s a great question. It’s something that we’re very focused on, expense control and keeping the SG&A rate down as much as possible, and we’re going to continue to focus on that. But there are some inflationary and wage pressures that are operating this year.
Jeremy Hamblin: Would you be able to elaborate? Can you give us a sense for where hourly wage rates are up on a year-over-year basis and then again versus three years ago, pre-COVID?
Jim Watkins: Yes, I don’t have that number. Yes, I don’t have that number available to share on this call.
Operator: Our next question comes from the line of Mitch Kummetz with Seaport Research. Please proceed with your question.
Mitchel Kummetz: Yes, thanks for taking my questions. Let’s start with Jim Watkins. Looking at the gross margin guide for Q4, I think you said 35.7%. So that’s down, I think, 310 bps year-over-year. But if I compare that to pre-COVID Q4 ’19, it’s up like 280 bps. And if I ex out the freight, it’s up like something like 570 bps over that four-year period? I was hoping you could maybe just sort of parse out that increase by kind of the main components. I mean how much of that is just leveraging the occupancy versus what you’ve picked up in exclusive brands versus anything else? I’m just trying to better understand like how structural that, gross margin gain over the four-year period?
Jim Watkins: Yes, I think the big piece of that is the merchandise margin, particularly if you exclude freight. And I’d refer you back to the ICR deck where we kind of – have a depiction of what that merchandise margin rate looked like over the last several years. Over five years, it’s up 400 basis points and 640 basis points if you exclude the freight. And so that’s driving a lot of that gross margin expansion that you’re talking about there.
Mitchel Kummetz: And how structural do you feel that merch margin improvement is? Can you maybe speak to some of the strategies that have driven that increase?
Jim Watkins: Yes – great question. We think it’s very structural, with the exception of the freight, which is going to go away, which will help our merch margin going forward. Again, Jim alluded to it earlier in his remarks that from a promotional standpoint. And you know us well Mitch, that we’re not a promotion driven business. We have some promotions throughout the year, but it’s more of a handful of styles that are on promotion. And we’ll continue to find ways to increase our merchandise margin via exclusive brand penetration growth. And Jim talked about some of the product and the expansion we’ve seen earlier and the team that is working on developing the product as a first rate team. We’ll continue to roll out product that’s compelling to our customers.
