And as we mentioned, beauty is a category that’s grown across every single nameplate. So, we feel strongly about all of our growth vectors. But in answering fully your question, I think the growth opportunity for the Macy’s brand requires us to dig deeper into the assortments and making sure that we eliminate redundancy and we improve variety, making sure that people find the brands they’re looking for, as well as the level of exclusivity that comes from our private brand assortment. And the final piece I would say is the team is highly focused on improving the customer experience, physically and digitally, doing those things that are necessary to create a more seamless and easier omnichannel experience.
Adrian Mitchell: Matt, good morning. Just going through a few points that you raised. The first is, we have a discerning customer across all income tiers. They’re being quite choiceful about how they think about experiences versus discretionary goods. And so, we continue to be thoughtful about focusing on the things that we can control to deliver a positive experience for our customers. The reality is, in the macro environment, we continue to remain cautious, as we spoke about earlier in our opening remarks. We do believe that there continues to be pressure within the macro environment. So, we will continue to remain cautious. To your third dimension around EBITDA margins as we think about next year, the first thing that we would emphasize is what Tony spoke to, which is our top priority is profitable growth.
And that profitable growth is about low-single digit growth beginning next year, and we remain confident in that. The kinds of things that we’re controlling is our balance sheet, the operating disciplines that you’ve seen from us around inventory management and expense management, the quality of execution on our fundamentals within our core business, and we continue to see that our five growth vectors remain on track. Now, as it relates to low-double digit EBITDA, it remains our aspiration longer term. Now, as we look on the horizon in the near term, we see several factors worsening and difficult to offset, again, in the near term. And as we spoke about earlier in the call, credit card revenues, shortage, and asset gains are all the type of things that are at the top of our list.
So, look, as we think about credit card revenues, we’ve experienced higher aged balances across all delinquency levels, which just lead to increased bad debt impact in our credit card. And as you know, there’s still an open question about the legislative ruling on limiting late fees, which is something that we’ll have to quantify the potential impacts of if that ruling comes to fruition. Shortage, as you know, has been an industry-wide opportunity. It has been at elevated levels for multiple years. Shortage, for us, for the second year in a row will be at record levels. Now, we continue to put mitigation strategies in place to address that, but these mitigation strategies will likely take time to effectuate. And then obviously, with regards to real estate, the industry is really challenged right now with higher interest rates, higher cap rates, and higher hurdle rates.
We do have confidence in our real estate, but we will be patient on our ability to monetize those assets. So, when you look at the confluence of all these different factors, our ability to achieve low-double digit EBITDA in the near term may be more challenging. But as we progress through the year and we focus on our expense management initiatives and the growth initiatives that Tony referenced, we’ll share more in the near future.
Matthew Boss: Great color and best of luck.
Adrian Mitchell: Thank you.
Operator: Thank you. The next question is coming from Brooke Roach of Goldman Sachs. Please go ahead.
Brooke Roach: Good morning and thank you for taking our question. Adrian, I was hoping you could help us understand the potential levers that you have for additional improvement in margin rate should the consumer dynamic backdrop worsen into the back half of the year. How are you thinking about merchandise margins and promotional backdrops, and what are the incremental opportunities in SG&A expense beyond what you’ve already identified?
Adrian Mitchell: Absolutely. Thanks very much for raising the question, Brooke, and good morning to you. As we think about gross margin, the disciplines that you’ve seen from us are pretty key, and that’s really around strong execution on the customer experience and healthy inventory management. Now, we’ve talked a lot about inventory management from the perspective of the volume of inventory, which allows us to limit our markdowns, the composition of inventory that allows us to support full price sell-through, as well as the freshness of inventory to have the relevant content for our customers to shop from us versus the competition. We’ll continue to be very thoughtful about executing on those, but you’ve seen us pretty consistently execute on the gross margin side over time.
The one thing I would call out as we think about gross margin for the balance of the year is we’ve done something a little bit different this year with shortage. So, this year, we actually had a midyear shortage — midyear inventory count, which gave us greater confidence and visibility into shortage trends for the year. So, we did recognize some shortage in Q2. We will recognize some shortage in Q3 and Q4, which is different from what we’ve done in prior years, which is to recognize it all in the fourth quarter. So, we are very thoughtful about how we’re thinking about the margin rate going through the balance of the year. We’re excited about the composition of inventory. We’re excited about all the initiatives that Jeff and Tony spoke to, but we also are cautious in terms of making sure that we have the capacity to respond to growth opportunities and to absorb any potential promotions that we may need to do to move through the business in the fall season.
