John Kernan: Good morning Michael, Kristin, and David. Michael, I have a question about the low-income customer. Clearly, this customer has been under inflationary pressures this year. How long do you think it will take before their spending levels begin to recover and until that happens, do you think it’s going to be difficult to drive your historical levels of comps and sales? Then I have a quick follow-up for Kristin.
Michael O’Sullivan: Good morning John. When we look at our core customer demographics, we index as much lower income, much more ethnic, younger, and larger family size than most other retailers. These are, I think, the very consumers that have been disproportionately hurt by the higher cost of living this year. And like other income groups, these demographics don’t have savings to draw from. But I could say, we love this customer. These shoppers have driven the growth of bricks-and-mortar value retail over many years. It may take a while, but this customer is going to recover and over the long term, it’s a very attractive and growing customer base. As we look forward to 2023, we anticipate that this low-income customer will continue to be pressured economically.
Our optimism around 2023 is not predicated on a sudden bounce back by this customer group. We think that constrained spending levels by lower-income customers will still be a headwind for us in 2023, but just less of a headwind than it was in 2022. So our optimism about 2023 is driven by other factors, specifically, a greater focus on value by other income groups and therefore, more trade down traffic; less of an inventory overhang and therefore, lower promotions, especially in mass retail; an improving expense environment, especially for contracted freight; and lastly, of course, better execution by us as we lap our own mistakes from this year.
John Kernan: Maybe just a final question here for Kristin or David, can you give us some color on your cash levels and free cash flow, how might the cash flow profile impact your ability to continue share repurchases given the cash balances moderated year-over-year?
David Glick: This is David. Good morning John, I’ll take the one. Thanks for the question. Just as a reminder, our approach to our capital structure is to maintain a conservative and flexible balance sheet to fund our growth. We want to have adequate liquidity to manage through different economic scenarios and of course, we want to deploy excess cash in the most accretive way possible for our shareholders. Now 2022 was a really unusual year from a cash flow perspective, particularly as it related to working capital. That was a substantial use of cash. Why, we really rebuilt our inventory levels, especially our reserve inventory, which we’ve talked about on this call. In addition, we continue to invest in our growth with over $500 million in forecasted CAPEX this year.
And we still repurchased stock, having bought back approximately $250 million in shares year-to-date, and we also paid down about $65 million of debt earlier this year. So as a result of the actions that I just walked you through, in addition to lower EBITDA levels, our excess cash balance has certainly moderated from 2021 levels. That said, if you look at our balance sheet at the end of the third quarter, we had nearly $1.3 billion in liquidity, including $429 million in cash, which we would expect to build seasonally as we go through Q4. But given the challenging operating environment, we would expect a more modest pace of buybacks going forward, perhaps more similar to our activity that you saw in Q3. But we’re going to remain flexible in our approach and react to the environment appropriately.
