Zach Fadem: So following up on the SG&A dollar question, as you’ve been able to take out a couple of hundred million of SG&A in both Q1 and Q2, and while Q3 was basically flat, it looks like your Q4 SG&A embeds a pretty notable step-up in trend, even excluding the extra week. So can you just help me understand the puts and takes on the SG&A line in a little bit more detail and perhaps talk through the impact of the efficiency initiatives? And then also to what extent you’re able to flex up and down labor with the lower volumes today.
Marvin Ellison: So, Zach, I’ll take the first part of that, and then I’ll let Brendan and maybe, Joe, provide some additional detail. So for us, I think the key thing to understand is, we have what we call PPI perpetual productivity improvement initiatives. And we’re going to go into some level of detail on how this has become more cultural process across the whole company at the investor conference next week. But specific to your question, we still believe that we have technology investments that we can make in the store environment specifically to where we can continue to drive SG&A leverage while improving customer service. But it’s easier to drive SG&A leverage, if you’re just pulling payroll out indiscriminately. But what Joe and his team has done, we’ve actually improved leverage in the store from an expansion and payable standpoint and concurrently drove up customer service.
And that’s the key. And that’s really all about technology investments. So, we think that there’s still additional initiatives on our project road map that will continue to give us those benefits. I’ll let Brandon take the more financial part of your question and then if Joe can add something else about payroll and how we can adjust it rather quickly relative to the demands that we’re seeing from the consumers in our stores.
Brandon Sink: Yes, Zach, this is Brandon. The only thing I would add implied our SG&A is expected to lever in Q4. And just as a reminder, we are cycling an incentive payout from 2021 in Q4. But I would just add to what Marvin said, continuing to drive substantial PPI initiatives store tech modernization, front-end transformation, managing back office spend. So we’re really proud of the progress that we’ve made, as we mentioned earlier, expecting to significantly outperform from an EBIT standpoint even in declining sales for the full year. And we’ll tell you more about what we have in store 2023 in December.
Marvin Ellison: And Zach, I’m going to let Joe talk about the activity-based model that drives our payroll system in the stores. So you can get a sense that we just don’t have a blanket approach. We generate payroll based on a number of transactions and footsteps, and we think that’s the best way to look at it. So Joe, you can expound on that.
Joe McFarland: Yes. And so thanks, Marvin. What I’d tell you is with our labor system that we have implemented in the last few years, this is really detailed, is down to by store, by department, by day, by time of day, in addition, as you think back in the last several years, our 60-40 initiatives to align the associates with customers and then the tasking activities. We’ve gone through a series of steps that continued pay go-forward dividends for us. And we have a lot of confidence in our ability to navigate to continue with the large investments we’ve been making. I think in 2023 will be a transformative year for us from an IT system standpoint and the ease of what we’re doing.
Zach Fadem: Got it. Appreciate all the color there. And then, Marvin, you’ve mentioned in the past about 2/3 of your business is tied to repair and maintenance activity. And then the remaining 1/3 of your business, to what extent would you say those sales are tied to housing turnover or home price appreciation? And then considering the slowing in these housing metrics, how do you characterize the current demand environment for repair and maintenance activity, which is more stable and recurring versus sales that are perhaps more discretionary or bigger ticket in nature.
Marvin Ellison: I guess it’s a fair question. What I will tell you is that we’re seeing strength in both areas. So obviously, when you see 19% growth in Pro, 10 consecutive quarters of double-digit Pro growth, then that tells you that there’s big ticket projects going on that are remodel in nature, but are also what I would call upgrade in nature. We talked about trading up in place, and that is a phenomenon that we’re seeing because the $1.5 million to $2 million shortage of homes in the high interest rate environment is just incentivizing homeowners to keep their low fixed rate and modify their existing home. And so because of that, you’re seeing a combination of older homes getting the maintenance and repair to falls in that 2/3.
But then you see the other 1/3 to simply upgrading and improving the environment, a new kitchen, finishing the basement, a new bathroom, et cetera. And so, we’re seeing a combination of all of those things. And as Bill walked through the different merchandising department of performance, you can see it embedded in all of those different results.
Operator: The next question comes from the line of Jonathan Matuszewski with Jefferies. Please proceed with your question.
Jonathan Matuszewski: Great. My first question is on inventory. It looks like the inventory sales spread widened a bit sequentially in 3Q. From our store checks, it looks like your in-stock positions are the best they’ve been in years. So is it safe to say that the majority of that inventory increase year-over-year is tied to average unit cost? And on that topic, how should we think about inventory levels tracking at the end of 4Q? That’s my first question.
Brandon Sink: Yes. Jonathan, this is Brandon. So I would say inventory overall, we feel, is in a really solid position. Balance is up 19% and driven exclusively by product cost inflation and freight units are flat. As you mentioned, our in-stock rates continue to improve across all of our categories. We’re continuing to make investments in Pro specifically in those high demand SKUs, we feel like we got the right levels to support the expected demand that we see for Q4 and into ’23. And in reference to Q4, we do expect the inventory to build over with early ordering, I think for springs consistent compared to pre-pandemic levels. We are seeing a bit of unpredictability in the supply chain due to the zero-COVID policy in China.
But just also as a reminder, when we look at our seasonal businesses, specifically, we do start setting South and Deep South in Q4, and then we’re also maneuvering around Chinese New Year, which is the latter part of January. So it’s going to be critical that we’re in stock for spring, and we’re making those decisions based on lead times and supplier health across each of our categories.
Jonathan Matuszewski: That’s really helpful. And then a quick big picture question on Pro for you, Marvin. Lowe continues to have great traction there. It looks like the multiyear comp held up this quarter at 36%. So when you think about the recent share gains with the Pro, curious if the drivers have evolved at all. If you could talk through how much new Pro customer acquisition has been driving Pro sales versus greater wallet share from existing Pros? That would be great, and whether you’re seeing any change in those two drivers?
