Matthew Boss: Great. That’s great color. Thanks again. Best of luck.
Jim Watkins: Thanks, Matt.
Jim Conroy: Thanks, Matt.
Operator: Thank you. Your next question comes from the line of Steven Zaccone with Citi. Please proceed with your question.
Steven Zaccone: Great. Good afternoon. Thanks for taking my question. I wanted to follow up on Matt’s question and maybe drill down on the preliminary commentary you gave about fiscal ’25. You gave some details there, but I was curious how you think about the potential recovery in same-store sales, do you see that being transaction-driven? How do you think about that happening by category? Do you need the discretionary business to get a bit better? Any sort of commentary you gave would be appreciated.
Jim Watkins: Sure. Yes, as we look to — on the same-store sales guide for the year, again, it’s a little early for us to guide that’s why we’re not providing a lot of commentary around that. As far as the recovery goes, if we look at the components, the average unit retail — I think a lot of the big price increases are behind us, low-single-digit increase in AUR is probably the way I think about that, and so any recovery that we see as we get into next year, we would expect to be transaction based in nature.
Steven Zaccone: And from a category perspective, does it — I guess from a discretionary standpoint that’s been the most challenged category, do you think that needs to stabilize or could we start to see that improve at some point, how do you think about that?
Jim Conroy: I think it’s a good question. I think the Ladies’ businesses, which in an abbreviated way, we call all discretionary, which isn’t completely true, but that business has been a drag on recent same-store sales, and we’d like that to get back to even just flat, so it’s less of a drag. We do think that business has some unique challenges simply in the sense that we’re cycling just giant numbers, 100% comp in the Ladies business a couple of years ago. So that — if that can get back to low-single-digit declines or flat, that would help the overall math of course. What we’d really like to see though is, we — when we look at our third quarter, the declines were broad-based, so ladies was worse, but most of the other businesses also were down on a comp basis.
So going forward, I do think there is some optimism that our core customer is relatively healthy and is mostly employed. I think they are feeling the impacts of inflation still, and I think there is an overall concern around the economy, maybe geopolitical factors, et cetera. So I think there is a tendency to push off spending, but I don’t think there’s any endemic challenges with the health of our customer. So as we look into fiscal ’25, I think there is a possibility that we’ll get back to positive comps over the next few quarters.
Steven Zaccone: Okay. Thanks for the detail.
Operator: Thank you. Our next question comes from the line of Max Rakhlenko with TD Cowen. Please proceed with your question.
Max Rakhlenko: Great. Thanks a lot. Jim, just curious if you could actually elaborate on that last comment, just any color on when you think comps could flip positive as the underlying trends do appear to be improving, and then compares will ease pretty meaningfully, sequentially over the next couple of months.
Jim Conroy: Max, I wish I could give you a date among the quarter, it’s very difficult to predict comps going forward and I recognize that’s very important to the folks on this call. What we can predict with a fairly high degree of certainty is we’re going to open 50 or 60 stores next year. They’re going to do $3 million or more. We think we still have the opportunity to grow merchandise margin. We still are by far the biggest company in the industry. So while I can’t give you a specific day or timing for reversion to positive same-store sales growth, nearly everything else in the business is just operating extraordinarily well. So we’ll manage our inventory levels based on the same-store sales trends that we’re currently facing.
We are able to continue to grow merchandise margin even at a negative same-store sales environment. We don’t — we haven’t built up a tremendous amount of clearance markdowns. So we’re managing through the current sales trend, I think, extremely well. And for the folks that work for the company, we all recognize that we’ve had sort of a once in a lifetime uptick in sales a couple of years ago and to give back just a small portion of it really hasn’t bothered the company. And again, I recognize that the folks on the call buy and sell the stock based on the most recent quarter same-store sales, that may not give you a lot of comfort, but overall, the company is still pretty darn healthy.
Max Rakhlenko: Got it. That’s helpful. And then just on the new store economics, is it fair to assume that you now view $3 million as potentially trough level? And then just any color on dispersion between maybe some of the faster and slower ramping stores? And then just within that if we are closer to the bottom, how are you thinking that the new store waterfall could look like ahead?
Jim Conroy: So there’s a few things embedded in that question. The new stores and the new store volumes are just — every bit of it is a homerun success, right? So, historically, we would think a new store would open at $1.7 million and payback in three years and that was a great growth vehicle for us and we were happy about it and Wall Street was happy about it. To some degree, we’ve been a victim of our success because we spiked that number up to $3.5 million and now it’s $3.3 million. I don’t view that as a bottom, it could go down, it could go up from there, what I do know is it’s a 60% cash-on-cash return, which is double what we had promised when we first went public and we’ll continue to open stores in a very accelerated way.
