Bob Drbul: Adrian, just a couple of questions on — if you could talk more about the credit card business, and I think it was better than expected, sort of what you’re seeing, what came in better than expected, I think bad debt expense. But if you could maybe just address some of the factors there and how you’re thinking about it sort of into Q4, but even more probably if you can give us some more color around the expectations into ’23, that would be helpful.
Adrian Mitchell: Yes, absolutely. So as we think about credit card going into Q4, what you’ll see as a rate of sale is a seasonal adjustment. So we do have a lot of nonloyal customers that do come into our system in the fourth quarter. So they tend to use a variety of tenders to be on our proprietary credit card. So as a rate of sale, you’ll actually see that soften in the fourth quarter, which is just a seasonal adjustment. As we think about the credit card business in the near term and in the longer term, there are really 2 factors that we think about. The first factor is around bad debt. What we’ve seen is that bad debt levels have remained lower than expected for a prolonged period of time that drove very healthy credit card revenues this year and last year, but we do see evidence of that beginning to unwind as we’re seeing more kind of payment opportunities and delinquency opportunities emerge.
So we do feel that they will begin to be a more progressive reversion back on bad debt. The second lever we look at is just the usage. And what we’re seeing is very healthy usage on the co-brand side as well as higher usage on the broader proprietary credit card within our nameplate and within our network. And so last year, as you can imagine, there’s a lot of stimulus in the market. So there’s a lot of cash payments and debit payments. But really, credit card is back. And so a lot of people are using their credit card, they’re building larger balances, and that’s really driven the health of our credit card business through the pandemic year-to-date, and we project that to be healthy into the fourth quarter, as you see from our guide.
Operator: We will take our next question from Gaby Carbone from Deutsche Bank. Your line is open. Please go ahead.
Gaby Carbone: Congratulations on the nice results. So you’ve made a real improvement on your balance sheet over the past year. Just wondering if you can speak to how you’re thinking about debt paydown and leverage along with your capital allocation priorities moving ahead.
Adrian Mitchell: We follow a very disciplined capital allocation strategy. And the first and most important thing is to make sure that we have a healthy balance sheet. So looking at controlling inventories, very key to that, as well as debt is an important part of that. We have committed coming into this year that, on an annual basis, we’ll have a leverage ratio below 2x on an adjusted basis. And so we’re very committed to that. And we’re certainly looking at a variety of things as it relates to debt pay down. The second thing, though, which is really important is investing in the business. We believe that the highest return for our shareholders is investing in high-return initiatives that drives profitable growth over the near, medium and long term.
So really important for us to make sure that we’re investing in those initiatives. And then the third piece is really returning capital back to our shareholders. in the form of a predictable dividend and modest dividend, but also with excess cash being able to do share repurchases. As it relates to debt paydown, we’re constantly looking at a lot of options and a lot of different scenarios. We do have the liquidity and the capacity right now. We don’t have any material debt maturities for 4.5 to 5 years. So we’re already in a very healthy position, but debt paydown is always an option that we look at.
