There are some businesses where we’ve done really well year-to-date. Some of our center core businesses, some of our home categories have shown very strong performance. We’ve delivered great value in these businesses and the customers responded we planned and managed those businesses cautiously and then we chased and that worked really well. There are other categories where performance has not been as strong. In some of those underperforming areas, we may have over planned sales. So we bought into certain styles and fashions. But then the trend shifted and because we’d over-plan sales, it was difficult for us to react. Now those types of mistakes will happen, especially in fashion businesses where the trend can shift quickly. But the bottom line is that we need to plan cautiously and be much more agile and I’m pretty confident — I’m very confident that in those businesses, we’re going to perform a lot better in 2024.
That’s also why I’m very excited about the new merchandising 2.0 process and tools that we’ve rolled out this year. They’re really going to help us be more nimble, more agile and they’re really going to make a difference over time. Let me move on and talk about improvements and changes that we’ve made in other areas, operational areas. Earlier on this call, Kristin discussed some of the work that we’ve been doing in supply chain to drive efficiency and flexibility. So I’m going to focus just a few comments on stores. There are some aspects of store operations where we’ve made huge progress in the last few years. In particular, stores receive and move merchandise much faster now than they’ve ever done before. There’s a lot more emphasis on getting fresh receipts out to the sales floor.
And that matters, it’s really helped us to drive inventory turns and it’s really contributed to the lower markdowns we’ve been able to achieve. Now part of that is stores have also gotten much more nimble at flexing the sales floor based upon receipts. We flex up businesses that are doing well. We checked down businesses that are not. Now there are other aspects of store performance where we know we can do a lot better, speed of checkout, sales floor recovery, asset protection, scheduling staff, payroll allocation Burlington 2.0 is not just about buying great merchandise. It’s also about delivering those great values and a neat, clean and controlled environment. We’ve strengthened our leadership team in stores. I’m really excited about the team that we have.
We’ve already begun to see some improvement, but I think that we have a lot more opportunity ahead of us, a lot more to come.
John Kernan : All right. Just a follow-up for Kristin. Can you walk us through the gross margin and SG&A puts and takes for Q3 and also the Q4 implied guidance?
Kristin Wolfe : Sure. John, overall, for Q3, we’re pleased with the EBIT margin performance in the quarter, increasing 210 basis points over last year. That’s after excluding those Bed Bath & Beyond expenses. And as I shared in the prepared remarks, merchandise margin was the primary driver here, increasing 150 basis points. This was really due to lower markdowns, followed by freight, which leveraged 50 basis points and these line items came in largely as we expected. SG&A also came in about what we expected 10 basis points higher than last year, primarily due to the investments we made in store payroll. Now excluding the approximately $10 million of Bed Bath & Beyond worth about 40 basis points in SG&A. In Q3, the upside in our EBIT margin versus our guidance was primarily driven by product sourcing costs coming in a bit lower than we had planned.
Now as far as Q4 is concerned, directionally, the margin dynamics will be similar to Q3. We expect merchant margins to be up as well as continued freight leverage. However, we do expect this gross margin leverage to be partially offset by SG&A deleverage due to 2 factors: one, investment in store payroll as we did in the third quarter. And then secondly, the fact that we are up against an incentive comp accrual reversal that benefited the fourth quarter last year by about 50 basis points.
Operator: Your next question comes from the line of Alex Straton from Morgan Stanley.
Alex Straton : Congrats on a great quarter. My first one, I think, is for really Kristin, can you perhaps break down the drivers of comp growth in the quarter, maybe by traffic, basket, et cetera? And then I have a quick follow-up.
Kristin Wolfe : Sure. Alex. The third quarter comp was driven by an increase in both traffic and conversion, which translates, of course, to our comp being driven by an increase in the number of transactions. We did see higher units per transaction, but this was largely offset by lower AURs. As a result, our average transaction size was flattish. I would add here that this is a familiar pattern. We’ve seen all year. Our comp year-to-date has consistently been driven by higher traffic and conversion, i.e., the number of transactions and this is a trend that we’ve seen pretty much across the off-price sector.
Alex Straton : That’s super helpful. Can you also provide commentary on your inventory levels exiting the quarter?
