Operator: The next question comes from the line of Kate McShane with Goldman Sachs.
Katharine McShane: I’m just trying to reconcile what one of your vendors said with regards to the amount of inventory that they had in transit. And I wondered if there was any risk of further late deliveries over the next quarter or two that you might have to manage as a result?
Lauren Hobart: Kate, thank you. Yes, we are working very closely with our vendor partners. We’ve got a great flow of product right now, and everything has been factored into our guidance, which we’re feeling really, really good about.
Operator: Our next question comes from Paul Lejuez with Citi.
Paul Lejuez: Maybe you could frame for us the amount of excess inventory that you had to clear through in 3Q, how that compares to what you think you have to clear through in 4Q. Any help you can provide on the merchandise margin side. And I guess just related to the clearance, I’m curious if as you picked up the promotional cadence, if you saw a lift in sales? Was it a traffic and sales driver during the quarter?
Navdeep Gupta: Paul, I think there are two questions there. In terms of the quantification of the clearance inventory, I would say it was not a material portion of our driver of the sales in the third quarter. What we saw and like Lauren alluded to, we saw the gain in our comp sales come more from the transaction growth and the AUR increase. And AUR increase also came from kind of the high heat and the highly allocated assortment that we have. In terms of the potential markdown risk for fourth quarter, much of the inventory that had been moved into clearance was activated and quickly moved through in third quarter. There is some pockets of inventory here in fourth quarter, which we will continue to address. However, all of that has been contemplated in our fourth quarter guidance. And with this guidance that we have given, we are very confident that we’ll be able to maintain a meaningful gain in our merch margins compared to 2019.
Operator: Our next question comes from Christopher Horvers with JPMorgan.
Christopher Horvers: Can you dig in a little bit on the gross margin side? The 438 basis points, does that include the mix benefit if footwear and apparel did really well relative to other categories? And then as you think about the freight line, how are you thinking about freight costs? Were they still a pressure year-over-year? Is there any sort of capitalized inventory costs that will flow through on a delayed basis as we look over the coming quarters?
Navdeep Gupta: Yes, Chris, in terms of the mix, there was probably a small benefit, but it wasn’t material to call that out, and that’s the reason it was not included. In terms of the freight costs, yes, we are seeing that the freight costs have continued to come down and have come down since the beginning of this year, but still not down versus — when you compare it to 2019. In terms of the flow of the product, yes, it will take some time that cost will — or the benefit of this reduced cost will be realized into 2023.
Christopher Horvers: And then as a follow-up, you mentioned trying to be prudent and conservative around the guidance in the fourth quarter. You are degrading your sort of 3-year CAGR growth relative to 2019. I guess, can you talk about what informs that point of view? I know there’s some normalized and seasonality that’s occurring as we speak sort of end of October through November, are you extrapolating the sort of the current trend of the business to arrive at the implied 4Q comp? Or are you — is there — what degree of conservatism is baked in?
