But of course, this kind of growth takes a while to absorb and integrate. It will take time for this team to become as effective as it can be as effective as it needs to be. Between 2021 and 2022, as I said in the script, there’s been a huge shift in the consumer’s frame of reference for value. With all the newness that I just described, we didn’t respond to that shift as rapidly or as aggressively as we should have. That’s disappointing, but probably not surprising. I think it reflects our stage of development. But let me sort of look further — let me look ahead. I think that it’s important to note that the major growth spurt in merchandising capability is now behind us. We’ll continue to add where we need to or opportunistically where we see really great talent.
But we’re not going to be adding merchant headcount if anything like the same pace as we have over the last three years. The focus going forward is going to be to drive greater efficiency and value from the investment that we’ve already made. Just to bring this to life a little bit more compared with 2019, we now have much greater off-price merchant expertise, more experienced leadership, stronger vendor coverage, and much greater buying resources especially targeting our highest opportunity growth businesses. So I feel like we’ve built a huge asset and I’ve got no doubt that this asset is going to drive significant growth in sales and earnings over the next few years.
Lorraine Hutchinson: Thanks and then for Kristin, can you walk us through the puts and takes on your margins in Q3, supply chain costs were a little higher than we had expected, so can you help us understand why they’re still elevated and then what the path to recapturing at least a portion of the supply chain deleverage looks like?
Kristin Wolfe: Sure. Lorraine, thanks for the question. I’ll walk through the puts and takes on Q3. From a gross margin standpoint, we came in about where we expected. Merchandise margin was down 90 basis points and freight lower by 70 basis points, came in largely in line with what we were expecting. SG&A did come in lower than we had planned due to strong expense control, but as you have noted, we did incur higher-than-expected supply chain costs. These were offset in the context of our guidance with that lower SG&A, but it was higher. So let me walk you through the key factors on supply chain. It’s a bit of a good news, bad news story. The good news is we were able to accelerate releases of great values from reserve. Michael mentioned it in his prepared remarks, but I think it bears repeating, reserve inventory went from 52% of total inventory at the end of the second quarter and then down to 31% of total inventory at the third quarter.
The other good news is that we were able to secure a more highly desirable branded closeout buys. These buys are typically messier, they’re more labor-intensive, less efficient to work through the distribution centers. So those are sort of the good news items. The bad news, of course, is that all these drove higher supply chain expenses. But as I mentioned with Ike’s question, we should see improvement in the fourth quarter, again, with that receipt pull forward, lapping the higher incentives, but also with the productivity and automation initiatives were continuing, which will continue into 2023.
Lorraine Hutchinson: Thank you.
Operator: Our next question comes from John Kernan from Cowen. Please go ahead. Your line is open.
