In terms of the new store waterfall, if the stores we’re opening at $1.7 million, we would really want them to start growing into an average store volume over time and get up to $3 million someday, but they’re not, they’re opening at double that. And while we’d love the waterfall to start right away, I’ll circle back to my comment a minute ago, to some degree we’re a victim of our own success, where they’re opening up at extremely strong volumes, and in their first year, the ones that just turned comp or comping kind of in line with the company’s trend, one of the reasons for that — if you want to think about a category by category is, oftentimes, our new stores have outsized success on the ladies side of the business when they open and because of the ladies business is under pressure from a bit of a fashion cycle, we think that’s one of the reasons why we’re not seeing the waterfall.
Once again, recognizing that Wall Street does tend to be extremely focused on same-store sales, we’re actually not that worried about that. We’re getting more volume faster and a higher return on capital than we ever expected we could and if we give a little bit of that back in the second year that time, I mean, I suppose we could do something to constrain the first year sales, so we go back to the waterfall, but I don’t think we have plans to do that.
Max Rakhlenko: I appreciate that color. Thanks a lot, guys.
Jim Conroy: Of course. Thanks, Max.
Operator: Thank you. Our next question comes from the line of Jason Haas with Bank of America. Please proceed with your question.
Jason Haas: Hi, good afternoon, and thanks for taking my questions. I was curious if you could provide some color on how you thought through the comp guidance for fiscal 4Q since it does seem to imply a deceleration through the quarter on a two-year stack basis, and I’m especially curious about it because you talked about January being impacted by weather.
Jim Watkins: Sure. Yes, Jason, so in guiding the fourth quarter, we follow the same approach we’ve been using all year, which is to apply the historical seasonality of the business for the most recent sales. And while it hasn’t been perfect, this has been a much better predictor of the business than looking at a two or a three-year stack. And in this case, we use the recent non-holiday sales, so really October, November, and January, and applied the historical seasonality of the business. And when we talk about using the historical seasonality, in this case, we’ve tried to exclude the COVID noise and looked at last year, the year before, and then two of the pre-COVID years, and kind of blended out how the flow of those sales rolled out from the month of January, and that’s what we used to project out the rest of the quarter.
Interestingly enough, when you use just the January’s business and exclude October, November and roll that forward to February and March, you get to almost an identical answer in the guide. So, we’ve continued to look at it based off kind of the recent business and historical seasonality and it kicks out a number and oftentimes it’s not what you would expect when looking at a multi-year trend, but it’s been a little bit more reliable.
Jason Haas: Got it. That’s helpful. And then as a follow-up, I was curious if you could give us your sourcing exposure to China since there is some talk about potential for more tariffs coming in, so I’m curious how that would impact you and the industry overall.
Jim Conroy: Yes, generally speaking, rough numbers, about half of what we sell comes from China, about 25% from Mexico, and the balance coming from the U.S. and other countries.
Jason Haas: Got it. That’s helpful. Thank you.
Jim Watkins: I would add to Jim’s comment, we’ve lived through a tariff environment before and it didn’t really impact us, and we certainly would prefer that doesn’t come back to us. That said, it certainly doesn’t make us uniquely less competitive in the industry. We could actually construct an argument that it makes us more competitive because we’re the biggest player. We have exclusive brands that are margin drivers, et cetera. So it’s something we’re watching and being cognizant of, but I don’t think it’s really keeping us awake at night either.
Jason Haas: Got it. Thank you. That makes sense.
Jim Conroy: Thanks, Jason.
Operator: Thank you. Our next question comes from the line of Dylan Carden with William Blair. Please proceed with your question.
Dylan Carden: Thanks a lot. Just anticipation that those comments on private label penetration flat to down in the fourth quarter might raise some eyebrows, any more color you can add there? It sounds like you’re anticipating back to growth next year, but anything there would be helpful.
Jim Conroy: Sure. I wouldn’t worry really at all about the exclusive brand, it’s not — it’s not weaker brands or bad product, it’s the result of arithmetic essentially. So our businesses are penetrated at different levels and our ladies businesses are penetrated the highest with exclusive brands because those are a smaller portion of our sales in this quarter because they’re comping down more. It’s taking the exclusive brand penetration down with it. We’re facing 300 basis points of headwind in penetration simply due to the composition of the business. So, if we were — if said differently, if the composition of sales didn’t change in the quarter, we would have seen — we’d be projecting growth for this particular quarter in Exclusive brands.
