Chris Horvers: Thanks. Good morning. Just wanted to follow up on the cadence question. So, you mentioned House of Sports in addition to momentum. So, can you maybe parse down a little bit more the comp cadence. Is House of Sports in the comp and maybe talk about what you saw over the season.
Navdeep Gupta: Yes, Chris, we saw positive comps across all the months of our quarter. And yes, to answer your question, House of Sport is in the comp base because this is a relocation of an existing store, or it’s just a remodel of an existing location. And the seven of the ones that were opened here in Q2 were a remodel of our earlier Field & Stream combo locations.
Chris Horvers: Understood. And then as it relates to the shrink, I’m not sure if this was touched on earlier, but it was a third of the impact to the gross margin or the merchandise margin in the second quarter. Was there an accrual in the first quarter? Just as we try to parse out what the back half actually looks like, given that you’re expecting strength to be a 50-basis point impact for the year?
Navdeep Gupta: Yes, no, Chris, it’s a good question. Yes, there was an incremental accrual that we had at the end of Q1 as well. However, when the physical inventoried our store ahead of the back-to-school season, that’s where the elevated level off shrink became clear to us, and we could actually quantify that. We had been seeing the number of incidents go up, but quantification of that gets done as part of the physical inventory process. So, yes, there was a headwind in Q1 and there was a catch up that you saw in Q2 and the full-year expectations of 50 basis points, you should be able to quantify based on the tail of Q1, Q2, as well as the back half expectations, which are elevated compared to where we finished in Q2.
Chris Horvers: Meaning that the impact in the second half is bigger than what you accrued for in the second quarter.
Navdeep Gupta: Yes, we are expecting some level of elevated levels of shrink to continue, just being conservative and being prudent about this potential risk that we continue to see elevate.
Chris Horvers: Got it. Thank you so much.
Operator: Your next question comes from the line of John Kernan from TD Cowen. Please go ahead. Your line is open.
John Kernan: Yes, good morning. Thanks for taking my question. I have a couple here. Lauren, just on the topic of shrink, what do you think the long-term solution to this is across the sector, and do you think you’re at an appropriate level of reserves as we go into next year, given what you’re currently seeing?
Lauren Hobart: Yes, John, as you know, shrink is an industry level problem. It’s actually – it’s a problem for our entire country, and it’s something that we all need to work together on with our partners, with our trade organizations, and with our government honestly to continue to address the shrink issue. We’ve all seen the stories and it’s quite alarming what’s going on. So, yes, we believe we have appropriately reserved at this point. To Navdeep’s point, we’ve been conservative as we go into the back half, but we are going to fight to the extent we can to keep our teammates, our athletes, and our stores safe, and that’s with increased security, with lockup cameras and working with local law enforcement and with our industry partners.
John Kernan: Understood. Thank you. And then, Navdeep, I think you said SG&A at the midpoint of the new guidance is 200 basis points of deleverage. What’s changed in your thinking around SG&A as we get into the back half of the year and as you got through Q2? The comp guidance obviously didn’t change much so, but there is – it does feel like there’s more deleverage going on at this point. So, maybe can you talk to that?
Navdeep Gupta: Yes, John, I would say there’s no change in our thinking from an SG&A perspective. This is what we contemplated and actually quite frankly, guided at the beginning of the year, that we expected SG&A to deleverage. And if you look at the back half deleverage of slightly over 200 basis points, it’s actually in line with the deleverage that you saw in the first half of this year. This goes back to what Lauren talked about and what Ed has said about. We have such a significant opportunity ahead of us in terms of these growth opportunities and the investment that is required. And no different than what we guided in CapEx. The investments that we are making in our business are for driving the long-term sales and profitability growth, whether it is the technology talent, whether it is the talent within our stores and the service that we can provide, as well as making prudent investments in Game Changer platform.
Those are all the examples. And so, coming back to your question, our expectations continue to be in line with our previous guidance, that this is going to be an area where we’ll continue to invest. I’ll foreshadow and I know this would be a question, we expect our 2024 growth in SG&A to moderate from this point, but 2023 is right in line with our expectations.
John Kernan: Very helpful. Thank you.
Operator: Thank you. Your next question comes from the line of Warren Cheng from Evercore ISI. Please go ahead. Your line is open.
Warren Cheng: Hey, good morning. I just wanted to clarify the delta between how much you missed your 2Q margin expectations and what you’re baking in for second half headwinds incremental to three months ago. Can you just clarify the buckets that were unique to 2Q versus the ones that you’re carrying forward into the second half?
Navdeep Gupta: Yes, Warren, I would say that the buckets are pretty much the same versus our original expectations. Like Lauren called out, the biggest surprise against our expectation was the elevated levels of shrink that became apparent to us when we physically inventoried the store. And we have assumed – like I said, we have assumed that this trend is not going to update here with the physical inventory results. So, we have baked in some elevated level of shrink in our back half expectation. And the second driver was the decisive action that we took to keep our inventory clean. The examples we gave of the outdoor, and we have assumed some of this moderation, some of this activity in the back half expectation as well to continue to keep our inventory fresh and well positioned because the assortment that we have in our House of Sport location and our next-gen 50k is different and is elevated, and we want to make sure we are continuously keeping our inventory clean to be able to bring in the innovation and the right assortment to be able to fuel the growth in these locations.
