It hurt our sales, especially in Q3, I would say. Thirdly, in 2022 there was some huge shifts in the types of merchandise that the customer was interested in buying, and across our business, we didn’t do a good enough job reacting and responding to those trends and those shifts. Those were the three big buckets of mistakes that we think we made last year, and to answer your question on a tactical level, I would say yes, we believe those issues are behind us. We worked to correct the inventory and the receipt issues that we ran into last year, and we significantly sharpened our values and we shifted our assortment into the categories that we believe the customer is most interested in buying, and I think all of those changes paid off and really contributed to our stronger trend in the fourth quarter.
I do want to just go a little bit further, though, in answering your question and just take a step back and maybe put those mistakes, if you like, in a bigger strategic context. I talked a little bit about this on our call in November. I think it’s important to understand that over the last few years, we’ve been doing a lot to transform our business, in particular we’ve invested heavily to strengthen our merchandising capabilities. Since 2019, we’ve hired or promoted tremendous talent and we’ve developed and we’re rolling out many, many new tools and processes for our merchants. Our buying team is now about 50% bigger in terms of headcount than it was in 2019. We know that merchandising is how you win in off-price, so we’ve assembled all the key ingredients – very experienced off-price merchant leadership, tremendous buying talent, improved buying and planning processes and new tools, training and reports.
We’ve moved very fast – we had to, we’re playing catch-up. Now, as they gel, those investments in my view are going to drive our growth and success over the next few years, but I have to acknowledge the mistakes we made in 2022 demonstrate that this is a work in process. I’m pleased that we corrected our mistakes and turned around our performance towards year-end, but we really need to be able to move faster and with greater consistency than we did last year.
Jesse Sobelson: Okay, great. Thanks for the detail there. My second question is for Kristin. Can you provide any more detail on the margin puts and takes for Q4, for example what impact did incentive comp have on the quarter? Thank you.
Kristin Wolfe: Good morning Jesse, thanks for the question. Overall, we’re pleased with our fourth quarter results, particularly the improvement in our comp store sales trend and that momentum that built during the quarter and continued into February. But as you noted, the flow-through on those incremental sales was not as strong as is typical for us, and that was primarily due to higher supply chain expenses. At a high level, our gross margin was pretty much where we expected as you look at the combination of 130 basis points of freight improvement more than offsetting slightly lower merchandise margins, which was driven by higher markdowns as we moved to sharpen values, as Michael noted. Product sourcing cost did de-lever somewhat more than we expected, which was primarily due to 60 basis points of supply chain de-leverage.
Now on adjusted SG&A, that leverage – 50 basis points – and excluding the incentive comp adjustment, the adjusted SG&A rate would have been flat to the fourth quarter last year, which is still fairly strong expense control given the negative comp in the quarter.
Jesse Sobelson: Great.
Operator: Our next question comes from the line of Lorraine Hutchinson from Bank of America. Please proceed.
