Matthew Boss: Great. Best of luck.
Jill Timm: Thank you.
Operator: And your next question comes from the line of Dana Telsey from Telsey Group. Your line is open.
Dana Telsey: Hi. Good morning, everyone.
Tom Kingsbury: Good morning.
Dana Telsey: As you think about — hi — as you think about what’s happening with shrink out there, what are you seeing in your stores and has it — is there — what investments are you making to deter shrink? And then Tom, you mentioned about potential new stores. What are you thinking about in new stores, whether it’s size, location, and how you thinking about that in a store opening or a closing program? And lastly, you talked about the home category and that opportunity. How do you see that opportunity with branded versus private label and the impact on margins? Thank you.
Jill Timm: Okay. I’ll start with shrink. I mean, I think, Dana, shrink is definitely a retail industry problem. And it’s definitely something that we — we’ve called out in the last two quarters, has weighed in on our margins. We expect it to continue to remain a headwind in the second half, but we have put a lot of efforts in place really to prioritize the safety of our associates and our customers. But we’ve taken different measures. We are cabling product to fixtures. We’re going to just testers within beauty. We have more attendance in the fitting room. We have more presence in the front of store, so we’re doing everything we can to mitigate shrink, but really prioritizing the safety of our associates and customers. But I think until — it’s really just — it’s going to be a retail problem until we see a bigger step up I think legislatively, so it’s something we’ve planned for and have put in our expectations.
Tom Kingsbury: I’ll talk about the stores. We’re looking at it very, very thoughtfully in terms of how we should expand. We’re really just begun the analysis. And obviously in later earnings calls we’ll share more. But one thing we know we’re going to do is we’re going to open smaller stores. The biggest store will open going forward. It’s 55,000 square feet. We’ll be adding probably a lot of 35,000 square feet. And we’re — but we’re still developing the seed points where we can have additional stores. Again, that analysis is being done now. But mostly we’re really looking at the size of the stores and we’re looking at the cost of the stores. And we’re looking at how we effectively can and add some additional stores, but we’re going to do it with a lot of analysis behind it.
As far as the home goes, I think there’s opportunities both in brands and in private label. Maybe a little bit more in brands because of the fact that we want to chase product and we’ve already do — we’re already doing that. And going into the market and buying the product in real-time. As far as margin goes, I think it could be home decor is higher margin business. So the more we go after that, I think it could be a positive to the gross margin overall. But again, it’s — a lot of chase is going to happen in this business because we want to be able to react in real-time.
Dana Telsey: Thank you.
Operator: And your next question comes from line of Blake Anderson from Jefferies. Your line is open.
Blake Anderson: Hi. Good morning. Wanted to dig in a bit on Sephora. You had an impressive result there. Can you talk about the acceleration in the comp up to greater than 20%? What’s driving that in terms of new customers versus transactions or basket? And then for the newer stores, are they still performing on a similar trajectory? And lastly, any beauty categories to call out that were stronger? Thank you.
Jill Timm: So I think, obviously, Sephora has been a great performance for us. We continue to see it accelerate and I think it’s just the fact that we’re now getting those customers to come back repeatedly in terms of their replenishment. So we continue to see an acceleration in that. I would say newer stores are performing actually better. We’re smarter I think on the assortment as we open these stores. So when we opened our first 200, we learned what our customer wanted, maybe relative to what Sephora had opened their stores with. So now we’re getting smarter on how we’re actually bringing those forward and really being able to be smarter on opening. But then even with replenishment, we’re getting better in terms of how we’re replenishing.
So I think we feel great with how the new stores are opening and the existing stores are performing. So you can see they continue to accelerate on that. We do continue to bring new customers in. They’re younger, they’re more diverse. So I think that’s a big opportunity that we talked about in terms of getting them to cross shop through the store. I think a lot of the areas that we indicated were white space for us, particularly impulse, gifting and home decor, it’s a quick add into the basket. So as we’re able to have a stronger presence of that in our store, we can take advantage of that new store and those extra steps coming in, in terms of that. Top selling brands, we talked about it, were Sol de Janeiro as well as the Sephora Collection, which is an opening price point, but then Charlotte Tilbury, which is a really high price point.
So we’re seeing that customer shop across all of the areas. And then I’d be remiss to talk, not talk about, we have men’s brands, which is something you don’t see in a Sephora store and we’re seeing Clinique for men. Jack Black performing incredibly well there as well. So I just think we continue to learn. We continue to bring in new customers and we just have an opportunity to convert those customers into our loyalty program and getting them to shop. We are seeing those customer shop two times more often than our existing customer. So really we’re going to have an opportunity to build on that as we build the assortment that Tom has indicated throughout this call.
Tom Kingsbury: Yeah. And I think the other thing that’s pretty exciting about it is the smaller format store, which we brought in five — where we set up five and they’ve done very well. So it gives us the confidence that we can have Sephora in all of our stores.
Blake Anderson: That’s super helpful. And Jill, could you remind us how much expense is in each of the quarters this year for the new Sephora stores? I was just trying to figure out the impact to quarterly SG&A.
Jill Timm: Yeah. I think really the biggest thing in Q3, the increase is going to be — we have 50 stores opening in August that are full-size shops and 45 small shops that are opening in October. The Q2 numbers were up against Q2 numbers last year, so there wasn’t a huge amount of increase from that perspective. So I would just say the step up in Q3 will be mainly those investments. We’re also putting in our self-checkout in Q3, which has expense related to it in about 250 stores. We continue to see wage pressure, which you’ve seen throughout the year, which is a build on that as well. And then I think, we benefited in Q2 more than we had expected with the inventory reduction. So inventory being down 14%. We had said we were going to work in the mid single digit range, so obviously that benefit our SG&A because we had less store payroll and less logistics costs to move those units.
