Michael Lasser: Understood. Thank you. My follow-up is on the gross margin outlook for this year. What’s a realistic expectation, especially as the consumer environment gets a little tougher. The consumer may shop or want to shop a bit more on promotion. And how are you thinking about the private label credit card contribution to the overall P&L this year? Thank you.
Brandon Sink: Yes, Michael, I’ll talk about the guide as it relates to margins. So very focused next year on delivering operating margin expansion, and that’s on flat to slightly negative comps. As you mentioned, the gross margin, we are expecting that to be roughly flat in 2023. And there’s a few different puts and takes that we’re managing on the headwind side, continued rollout and expansion of our supply chain, and specifically market delivery. We’re going to continue to see mix pressure from our Pro strategic initiative investments. The flip side, a number of productivity efforts. You mentioned private brand penetration, also lower commodity and transportation costs and then continued benefit from our pricing initiatives.
So the large part of the leverage is going to come from SG&A and continued PPI productivity efforts that you’ve heard called out from the team. So that’s sort of the formula as we look at margins and flow through next year. And, Bill, I don’t know if there’s anything else you want to add on private brands and some of the momentum that we’re seeing there?
Bill Boltz: Well, Brandon, and for Michael, what we talked about in December, private brands certainly gives us an opportunity in categories where a national brand isn’t relevant. Private brands carry a better margin. They offer the consumer some additional choices. As it relates to promotional activity, we want to continue to offer the customers value, but we’re not adding new promotions for 2023.
Michael Lasser: That’s helpful. And just to clarify, I was referring to the private label credit card that was a drag on the gross margin in the fourth quarter.
Brandon Sink: Yes. Got it, Michael. So, yes, drag in Q4, mainly given the interest rate environment that we’re seeing. But as we turn into 2023, again, a number of puts and takes, but we feel like the bulk of that for the most part has been absorbed, and we have that factored into ’23.
Michael Lasser: Thanks, very much.
Brandon Sink: Thank you.
Operator: Next question comes from the line of Greg Melich with Evercore ISI. Please proceed with your question.
Greg Melich: Hi. I’ll start with a follow-up on that last question before I get to mine. On other gross margin puts and takes, shrink was also I think a headwind in the fourth quarter. Could you just quantify that and give us your expectations for that into ’23?
Brandon Sink: Yes. So sure, Greg. On shrink, in particular, it was a bit of a pressure point, a bit worse than expected. It’s been approximately 30 basis point pressure. We saw that Q3 and Q4, largely driven by what we’re seeing more broadly in retail with organized crime, but again, as we turn and look at ’23 that pressure largely absorbed in 2022. We feel like we got great efforts within the team and the organization in terms of what we’re doing to protect against shrink, and I’ll maybe let Joe call that out.
Joe McFarland: So, thanks for the question. And listen, we’re really pleased with the asset protection team. The entire industry has pressure from ORC. Our asset protection team has rolled out some new innovative things for safety, for shrink, and so we see the outlook good.
Greg Melich: Great. And then I guess, my key question was on the traffic and inflation and how that sort of comes in through the year. So, if you think about the cadence through the year, it sounds like, first quarter is below the range, second quarter is above the range. Should we assume the second half is better than the first half or worse than the first half or in line?
