Sumit Singh: Not need to, we will choose to reinvest. The answer is yes to both. Yes, some of that will flow to the bottom line. So we will drive leverage as a result of these actions, which we will quantify more when we talk to you about 2024 guidance. And we will also prudently invest back in what we consider A-list priorities for the company that are poised for new customer acquisition and growth in the future.
Steven Zaccone: Okay. Thanks. See you next week.
Operator: Our next question comes from Brian Fitzgerald with Wells Fargo. Please proceed.
Brian Fitzgerald: Thanks. Maybe two broader ones. What are you seeing in the broader pet household market in the U.S. and Canada. Are there differences between the two? What about shelters and rescue adoption levels, bring backs, any color on the market for pet households? And then can you give us an update on your advertising initiatives and what you’re seeing and doing there? Thank you.
Sumit Singh: Brian, lots of questions. Let’s unpack them one by one. Broader pet household markets in U.S. and Canada, I talked about customer behavior through the holiday period, which is the most recent period that we were playing through. Similar participation rates, Canadian customers love the brand, the customer centricity, delivery experience, overall proposition, a lot of experiences of tech resonating very loudly there. So we’re happy to see that. Differences that we’re seeing slightly higher population or mix of cat relative to dog or as a result, we’re going to see obviously slightly lower AOEs. Not a surprise, this is something that we knew going in studying the Canadian market. We’re happy to see the mix that is playing through right now as we ramp — continue to ramp up premium assortment that push us through from Q4 into Q1.
We’re going to see that premium mix jump even more. Also not a surprise. So overall, I would say broadly, and just so you know, we haven’t yet turned on marketing in Canada. We’re playing through some basic cold start marketing, as you would expect a start up to do. And so we’re essentially actively learning the market as we do in a humble and curious manner. But we’re poised to receive the signals, and we like the signals that we’re receiving right now. Number two, any — trends. Adoptions are down 16% year-over-year. Relinquishments are down 3% year-over-year. So what that tells you is that broader trends of pet adoptions being down hasn’t reversed at the same time. Fewer pets were returned back to shelters to the tune of 3%. So overall, the trend hasn’t broadly reversed.
What else? Updates on advertising initiatives. We are pleased with the ramp. We have essentially released more supply. Our commitment was to start ramping this up in the back half of this year, and we’ve ramped up credibly. In fact, the gross margin, strong performance that we are seeing. We didn’t actively put this in the script, it’s a combination of — the discipline from the team and execution and the two line items that are playing through our contribution of ads, as well as our work through supply chain into logistics, where we’re seeing a better benefit come through. So overall, we’re happy suppliers. We’re out in front to suppliers now as we get down into annual vendor negotiations. We’re having good conversations listening to the right type of feedback, and we’re poised to ramp this up in 2024.
Brian Fitzgerald: Got it. Thank you. Appreciate it.
Sumit Singh: No problem. Thank you.
Operator: Our next question comes from Steve Forbes of Guggenheim. Please proceed.
Steven Forbes: Good morning. Sumit, Stacy. Sumit, I wanted to start on pharmacy sales. You mentioned achieving $1 billion on an LTM basis. So it’s sort of a two-part question. One, what was the growth rate during the quarter in sort of any context around gross margin benefit from that mix in isolation? And then two, I know, Sumit, we’ve talked in the past about the share of pharmacy within your pharmacy customer base. What does that $1 billion represent in terms of share?
Sumit Singh: Yes. Steve, nice to hear from you. We will satisfy more of your curiosity next week when we see you at Investor Day. In terms of mix and gross margin, we — obviously, pharmacy delivers premium gross margins, as we’ve said in the past. And essentially, what we saw in Q3 is pharmacy overdelivering through gross margin, offsetting all of the decline that we saw from the higher-margin hard goods businesses, which are obviously slower given the discretionary pressures that we’re seeing. So for now, I’ll give you — I’ll leave you with that qualitative commentary. And in terms of presenting CAGRs and growth rates and share positions, we will talk about that more next week.
Steven Forbes: Okay. And then maybe just a quick follow-up, right? I think we noticed some shipping threshold changes during the quarter. I don’t know if you can maybe just help frame to the group here. Why did you test lower threshold, what drove you to that decision? And what does those learnings informed you about that part of the value proposition in the current backdrop?
Sumit Singh: Yes. It’s all — it’s — I like your framing, right? What did you learn? Because it is all part of our continuous test and learn in how to add more value from the platform into the customer. And there are a couple of ways you can add value. You can price discount brands transactionally. And that, to us, sometimes becomes brand dilutive and you don’t really drive recurring sort of behavior shifts. The other one is testing or lowering barriers for customers. And so in this particular way, we’re testing it shipping across certain categories or certain merge classes or certain segments of customers is a barrier in how we essentially pass value directly back to the customer without — while at the same time, protecting our vendor partner brands that we’ve so proudly built on our platform.
