And so why should we think about gross margins coming down so much sequentially? Maybe I’ll start with that and then I have a follow-up.
Chuck Boynton: Yes, Erik, really, really good question. And so first of all, this past — in the last few quarters, we brought our inventory down significantly. When you bring this inventory number down, you release reserves. So there are some benefits that we’ve seen quarter-over-quarter, the last couple of quarters, quite frankly, on bringing inventory levels down. Those are kind of more one-time in nature. What is durable, the great work that our operations team has done to reduce product costs. That has been a real, real benefit overall to the company and that is durable. That we’ll see those benefits throughout next year. So, I thank our team, Prakash and his team did such a great job on product costs. Shipping and logistics, that was a real tailwind, better than we had expected.
Now that’s reversing. So if you look at what’s happening now with shipping rates, they’re going back up again, fairly material on the ocean. We also expect because of these disruptions to have to do more air. And while we don’t want to, we don’t want stock outs, we have a customer-first mentality. The first thing is take care of the customer. So we will eat some margin to take care of customer satisfaction. So, air shipping, higher ocean rates, that’s just a reality of where things are right now from a shipping standpoint. Is that transitory? Is that going to last throughout the year? I can’t predict. But that is a headwind going into Q4. And then the overall leverage that you mentioned, that’s just straight math. And if you have a peak quarter to trough quarter, there is an impact.
If you look at the impact, you said last year, you saw margin expansion. That was primarily because of a fairly poor Q3 last year. So that was a I think that we over discounted and drove less volume in Q3 a year ago. And our global commercial teams just really executed so well this past quarter in pricing discipline. And Erik, we had talked about that on the last few calls, we were set up with our retailers and e-tailers. We had really gone through the promotional plans and the account planning and our teams on the ground just landed such a great quarter from a promotional standpoint. So I think that 38% to 40% gross margin, if you do the math and you deduct what is the range for Q4, it’s roughly 38% to 40%. Mid-point to high-end is doable.
At the low-end, it’d be more air shipping. So I think we’re set up for a really strong fiscal Q4. But these uncertainties on the freight and logistics side are what gives us kind of pause at this point in time.
Erik Woodring: Okay. Very fair. And then I don’t know if this is properly posed to you or to Hanneke, but you bought back more stock this quarter than I think any quarter over the last 10 years. You also reduced CapEx relative to your prior expectations. So are you guys maybe signaling a change in your capital allocation priorities? And why not as you’re kind of striving to get back to growth, realize the macro is a big factor here. But maybe why not utilize the excess cash you generated to lean into CapEx and whether that’s more product launches or better expansion or whatever it might be. But why not kind of lean into that CapEx to maybe help get you back to that kind of target growth range a little easier, faster, however you might think about it? And that’s it for me.
Chuck Boynton: That’s a really good question there. I’ll talk in a little more detail, Hanneke, and maybe you want to talk about our capital allocation strategy at a higher level. First of all, on CapEx, I would not read into that. CapEx itself at this point is down, but don’t read into that. That’s just operating discipline. We are very, very focused on driving efficiency and spend. We will invest for growth. Growth is our top priority. It’s how we invest in our capital allocation model. And then overall, if you think of the buybacks, we set — in the beginning of the quarter, we saw the cash numbers improving, getting better and better and better. And so what we did is we decided to increase the buyback given how great of a cash quarter we had.
We generated $443 million of operating cash flow, one of our best quarters ever. And when we saw that data coming in, we decided to increase the buybacks to return more capital to shareholders. But don’t read into the CapEx spending because it will go back up next year. We’ve done very little M&A. We have invested heavily in the business. We will definitely invest and prioritize investments in technology to drive long-term growth. So don’t read into the CapEx reduction as being a — we’re pulling back. We are focused on driving growth. It’s really more operational discipline. Hanneke, do you want to talk about the high-level capital allocation strategy?
Hanneke Faber : Yes, sure. And let me first just confirm what you just said. I mean, we will make the right CapEx investments into the future. And we’re looking at those for next year right now. So don’t take this as we’re pulling back on CapEx. In terms of our long-term capital allocation strategy, that really hasn’t changed at the top of the list, paying a good dividend. Number two, M&A when the right thing comes along, we are definitely always looking, and then only number three, returning cash to shareholders in the form of buybacks.
Nate Melihercik: Our next question is from Juergen Wagner at Stifel.
Juergen Wagner : Hanneke, my first question would be to you. Now that you are 60 days at Logitech, can you say or can you share already some thoughts, what needs to be addressed or what you need to do differently? And as a follow-up, you mentioned M&A as the second priority. When would you be in a position to become more active again?
Hanneke Faber : Juergen, thank you. Very nice to meet you. I’m 60 days in. So it’s a little early to say anything about anything. And so I’ll say upfront, we have an Investor Day planned for May, where we’ll come out with much more detail. But I’ll give you a few first impressions. This is a really good company would be my top line impression. We’re really well positioned for future growth with the spaces that the portfolio is in. So hybrid work, gaming and video conferencing, all are good places, good neighborhoods to play in. Then we have fantastic and I’ve been so impressed as I’ve onboarded with our product, our engineering and our design capabilities. That allows us to innovate, and that will allow us to win going forward.
Another few things that I’ve been impressed with is the brand, a really solid global brand. But that also brings me to an opportunity. We probably have a opportunity to make that brand truly iconic, take it from good to great, if you will. And then finally, a nice mix of B2B and B2C. We touched on that earlier. And the last thing would be this company really is a sustainability pioneer in tech, which is great to see and something we’ll definitely — we’ll want to continue to be. So I would say, all of those things we’ll want to keep and cherish and leverage to drive growth going forward. There probably are a few things I would change as well, but it may be too early to talk about those right now. And when it comes to M&A, again, details much too early, but an important part of our capital allocation strategy.
