Ike Boruchow: Hi. Thanks for taking the question. Harmit, two follow-ups on the margin guidance to reach. Just the — I understand the big gross margin downtick in 3Q because of these pricing actions. Maybe I’m not understanding clearly, but why does that then flip in the fourth quarter and become much more favorable, whether it’s year-over-year versus 2019? Like why are the gross margins improving once we get out of Q3 due to these pricing initiatives? And then just can you clarify that the SG&A up mid-single digits year-over-year in the back half? Is that what you said? Because that seems a little heavy to kind of get to the guidance that you’re giving. So I just wanted to make sure I’m understanding that. Thanks.
Harmit Singh: Yes. The — on the gross margin and why should it flip in Q4, because Q4, we will see the full impact of the lower COGS. That’s the big switch. In Q3, we still have inventory that we’re going to carry over into Q3. What we really did to manage inventory, because our inventory is largely core, Ike, we didn’t have to dramatically mark it down. We just cut future receipts to match demand. And that’s why in Q3, we still have some of the whole inventory that we’re selling in and then the new inventory and new prices in Q4 that is behind us. And so, it’s largely — and that’s why you see the big delta in pricing. From that perspective, the pricing is largely similar. It started — we take pricing about a month from now, about 30 days.
So you’ll see a little bit of impact in Q3 and a little more in Q4, but it’s largely the COGS piece that is making the difference. Our second half gross margins, I think, are going to be north of 56%. We’ll end the year [with another] (ph) 56%. And relative to 2019 is still 300 basis points in H2 better. And I think we were asked this question in 2021 by some of you, because we were seeing margins improve 400 basis points relative to 2019, and I’ve estimated that point of time was probably two-thirds stakes longer term. One third, it probably goes over time because we were not promoting inventories, they are very clean, et cetera. And that’s bearing out in this fashion. At that time, it’s difficult to predict commodity prices. That was a huge headwind in the first half is becoming a tailwind in the second half and cotton futures, at least at this point of time, look at similar levels for 2024.
So that stays then, that’s a bit of a tailwind in 2024.
Ike Boruchow: And the SG&A in the back half?
Harmit Singh: The SG&A for the — for quarter three, we think mid-single digit, quarter four low single digit, H2, low to mid-single digit, on a full year mid-single digit. That’s how we’re thinking about it at this stage. We still are opening stores, Ike. I mean that’s really driving a big chunk of it. I think we opened on a net basis 20-odd stores in the first half, in the second half, it’s 50, 60 stores. So that’s really driving most of the SG&A, which is really setting up DTC for the long term. But as I mentioned earlier, discretionary costs, et cetera, et cetera, are fairly tight at this stage.
Ike Boruchow: Great. Thank you.
Harmit Singh: Thank you.
Operator: Thank you. Our next question comes from the line of Jim Duffy of Stifel. Your question please, Jim.
Jim Duffy: Thank you for taking my questions. More from me on the U.S. consumer environment, but a little more focus on perspective from your stores and DTC. How would you characterize your current promotional backdrop? And Harmit, what’s assumed in the outlook for the second half with respect to promotions? And I’m also curious if you could speak to consumer activity in your U.S. stores in DTC. Are you seeing slowing trends and price resistance from this consumer as well? Are they buying full price? Or is volume driven by promotion? Thank you.
