The outlook remains very uncertain, and we want to take a prudent approach to how we manage our balance sheet. But as we look forward to 2023 from a cash flow perspective, it is important to recognize that we do not expect working capital to be the drag that it was in 2022. As Michael talked about earlier in his prepared remarks, we are optimistic that EBITDA can begin to recover in 2023 so we should be able to generate sufficient free cash flow to not only support the growth of our business and maintain adequate liquidity, but return excess cash to shareholders probably at a similar pace as we did in Q3. And how we deploy that excess cash, that’s always a function of what we view as the most accretive avenue for our shareholders. Now all of this depends on our results and of course, the environment we’re operating in.
But at a high level, that’s how we’re thinking about our cash flow.
John Kernan: Great, Happy Thanksgiving, and best of luck.
Michael O’Sullivan: Thank you John. Thank you.
Operator: Our next question comes from Alex Stratton from Morgan Stanley. Please go ahead. Your line is open.
Alexandra Straton: Great. Thanks for taking my question. This one is probably best for Michael. Wondering if we’ve seen across off-price this year, is that the price gap to the full price channel has certainly compressed given the significant promotions and discounting. But now that players like Walmart and Target seem more clean on apparel inventory, perhaps that’s an opportunity for next year and even into the fourth quarter. But I guess, at the same time, some of the more specialty retailers continue to have high inventories heading into the fourth quarter. So there’s obviously some puts and takes. I’m just wondering how do you think about that value gap dynamic as it relates to Burlington in both the fourth quarter and then into next year? Thanks.
Michael O’Sullivan: Yeah, good morning Alex. Yes, I think the way that you have described it in terms of the value gap, that’s something we watch very closely. I would say looking back over this year, I think our value differentiation, I mean we — what drives our sales is when we offer great value compared with other retailers. I would say our value differentiation got very compressed in Q2 into early Q3. And that was driven by significant promotional activity and we didn’t respond to it soon enough. And I feel like the — a big part of the pivot that we made in late August was to take actions to restore that value differentiation by doing all the things I described in the prepared remarks. So as we go into Q4, we feel better about our value differentiation versus other retailers.
But I guess two things, one is, it’s not a one-and-done exercise. I think we need to continue, and there’s much more I think we can do to drive even better in front of the customer. So our merchants, our planners, our operators are very, very focused on those additional steps we can take. And then secondly, I would say that I agree with your point, it seems like inventory levels in the mass channels have improved significantly, that they’re now much more rational than they were in the middle of the year. But in specialty, I think there’s still a lot of inventory. So we don’t know what to expect in Q4 in terms of promotions. We think, certainly, in terms of the mass channels, it should be better. but there’s still plenty of inventory out there.
So we think Q4 could be quite promotional. And we feel like we have factored that in appropriately to our guidance.
