Michael Kessler: Okay, thanks. And a follow-up on the supply chain cost, the distribution transportation backdrop. It is easy. You mentioned that. Can you size up, I guess, when we might begin to see some of those benefits roll through the P&L, as far as you guys move to more contracts in the last year given the volatility? Is that something that we would expect beyond just the lapping of kind of artificially lower cost this year beyond that, just the actual reduction in or the easing in the background how that might play out in €˜23 or is that more of a €˜24 dynamic?
John Swygert: Yes. I think we’re definitely seeing some easing in the supply chain cost. But with regards to the overall — and we did obviously see a pretty large improvement in the gross margin from Q2 to Q3. It was about 600 basis points in supply chain. So we started to see the easing relatively speaking, take place in the Q3 period. I think Q4 is just — it’s a moderate easing and then the big is going to happen in Qs one and two of next year. But I still think we’re operating at an elevated supply chain cost at this point in time just because all the investments we had to make in wages in the four walls. So there’s still going to be an elevated component there and supply chain costs aren’t back down to where they were pre-COVID. So we all have a little bit of elevation there that I think is more permanent in nature that we’ve got to get a little bit better on the merch margin to offset it.
Eric van der Valk: Yes. I think, Michael, in terms of how we’re structured on the international transportation side, we very much like how we’re structured. It’s been favorable for this contract season and we like that the market is a little more favorable as well, a lot more favorable when you compare year-over-year. So the stars are aligning real well moving into 2023 in terms of our business strategy.
Michael Kessler: Thank you.
Operator: Our next question comes from Robert Friedner with JPMorgan. Your line is open.
Matt Boss: Great. It’s Matt Boss at JPMorgan. So John comps —
John Swygert: Hey, Matt.
Matt Boss: Hey, so comps in the third quarter on a three-year geometric stack, turn negative. Fourth quarter guidance calls for a similar trend. I guess, what exactly, if you could maybe help us is the bridge from today’s negative trend line, and we have seen sequential improvement broadly with closeout inventory versus positive comps next year. Is it traffic would improve? Is it something with ticket, do we need macro to improve? Just struggling with the bridge between the three-year Geometric negative in 3Q, guided negative in 4Q and then positive comps for next year with it seems like closeout inventory having improved.
John Swygert: Yes. Matt, the closeout inventory and the closeout opportunities definitely have improved. I think the macro backdrop we don’t have the timing on yet is when does the trade down start to outpace the trade out of the lower income consumer. So I do believe that, that’s absolutely coming. I can’t tell you if it’s coming here at the end of Q4, if it’s coming in Q1 of next year. But I do — we have seen some of it start, but I don’t know exactly when it’s going to kick in. We are positioned to capitalize on it. And I believe we’re right on the cusp from our perspective. We definitely have seen some improvement in the trends from Black Friday forward. So we’re optimistic that we’re starting to see some breakthrough. But obviously, we’re not going to get ahead of ourselves at this point in time, we want to see some true numbers come out. And I think we’re there. I think we’ll get there, and I think we’ll be there soon.
Matt Boss: Okay. And then just a follow-up on expenses, so implied SG&A rate in the — seems to be high 20s this year. How best to think about maybe puts and takes with SG&A wages and investments as we think about next year?
John Swygert: Yes. SG&A definitely is under pressure, Matt, and has been our historical, call it, 25%, 25.3%, 25.5% is definitely something I don’t think we get back to at this point in time. I’m looking more probably 26%-ish in the SG&A front €˜23 going forward. Maybe a tad bit higher, but not much, but it’s definitely — I think we’ll do better than this year with what we’re looking at. So it’s just the pressures we’re dealing with on the wage front and utility costs or something we have to absorb and deal with.
Matt Boss: Great. Best of luck.
John Swygert: Thank you.
Operator: Our next question comes from Paul Lejuez with Citi. Your line is open.
Paul Lejuez: Hey, thanks guys. You mentioned the 39% gross margin for next year is where you think you might shake out. But I’m kind of curious how you think about the promotional environment that you’ll be playing in €˜23 versus what you’re playing in today and how you think about the sales gross margin trade-off just from a high-level perspective, I guess, implicit in that 39% gross margin, you’ve got to have some sort of comp assumption. Curious what you think that is? And just what happens? How do you react if the environment gets more promotional? Do you look to preserve margins or drive sales? Thanks.
John Swygert: Yes. Paul, we’re obviously — the way we price and the way we go to market is we price below all the fancy stores in a pretty big way. So the promotional activity doesn’t make us change to impact our margin, as I explained earlier with regards to even toys. We’re shifting the timing of markdowns. I don’t think we’re shifting the increase of overall markdown rate because we’re already priced strong, and we’re just clearing more inventory earlier than later. I don’t think 2023 is going to be as promotional as this year has been but we’ll be prepared for it if it does happen, and we price off of the market. So if the market is being promotional, we’re going to be focused on that, and our merchants are going to go to market with knowing that there is still very active and we’re going to price below that.
So we’re always in everyday value. We don’t play the high-low game, obviously, and we give them the best price upfront and that builds the loyalty with the customer. So I think that the value wins in the way we run our business.
Paul Lejuez: Got it. Then just one follow-up on me. You guys marketed that fancy store buy, which you talked about. I think it was part of the reason that gross margins fell a bit short in the second quarter, but I’m curious if that buy has performed, as well as you had anticipated? And how much of the benefit on the margin side was the third quarter event versus the fourth quarter event?
John Swygert: Yes. The overall deal performed well. We’re very pleased with the deal and we’re excited how it performed. And as I said earlier, it’s not the MLB all. There’s a lot of deals we have in our pipeline and a lot of departments that performed very, very well outside of these categories. But the deal was strong, definitely impacted the margin in Q3. And obviously, it has opportunities to impact the margin in Q4. So as I said a few minutes ago, is the shortfall in the margin in Q4 is not related to the merch margins. It’s all sitting in supply chain and deleveraging fixed costs. So the margin, I think, is in good shape, and we feel we’re in a good position here.
