Ron Coughlin: Thanks for the question, Seth. So let me bifurcate. We didn’t provide indication of where we’re taking pricing. What we find is food is a traffic driver, similar to the grocery model and that can drag supplies. There are certain categories that are price perception defining within supplies, which is why we’re encouraged by the fact that we have lower costs flowing through and lower freight costs coming through. And those categories are strategic in terms of creating a price perception which then contribute to traffic.
Seth Basham: Okay. That’s helpful. And then the decision to remove Fancy Feast previously and the Supplies Perk program, can you give us some context there?
Ron Coughlin: On Fancy Feast, we took a decision back in 2018 around artificial ingredients, the Fancy Feast products that are brought into our stores today have been reformulated and have eliminated all artificials, which is a really positive thing. It’s a win for Nestle, it’s a win for us and a win for our customers. We’re really excited about it. And Fancy Feast is absolutely a great traffic driver.
Brian LaRose: Yeah. And on the Supplies Perk program, Seth, we tend to pulse in and out of those programs based on our expectations for elasticity and demand. And so that was not dormant for very long, and we tend — we just made the decision to pulse back in.
Seth Basham: Thank you.
Ron Coughlin: Thanks, Seth.
Operator: Our next question comes from Michael Lasser from UBS. Please go ahead with your question.
Michael Lasser: Good morning. Thanks a lot for taking my question. So Petco’s adjusted EBITDA margin for this year is now expected to be around 200 basis points below the level it was in 2019. As you diagnose why that is, what’s changed though at the business to drive such significant margin compression? How much of it relates to external factors like increased competition? And how does all of this inform your view of what the company’s long-term EBITDA margin outlook is?
Brian LaRose: Yeah. Thanks for the question, Michael. So the change from 2019 is primarily related to the cyclical pressure that we have in the discretionary business. That pressure has a direct impact on gross margin, that gross margin impact has a direct impact on adjusted EBITDA. We’re confident that, that cyclical impact will stabilize. When that stabilizes, coupled with our cost actions, we’re confident that gross margin will stabilize. We do have $150 million of cost actions in play to help return EBITDA to profitable growth in the future. If you look at the impact on gross margin as well, I’ll remind you that services sits — labor for services sits in cost of sales. If you take services out of our model in the quarter, our gross margin would actually have been a little bit over 41%. So as services has grown materially from 2019, up 17% again in Q2, that has an impact on rate on the gross margin line.
Ron Coughlin: It’s really a story of discretionary. And given that’s our highest profit category, the cyclical pressure of discretionary on the P&L.
Michael Lasser: Okay. My follow-up question is on the comp outlook, especially as you head into the holiday. What are you assuming as your base case for 3Q, 4Q comps, especially given the uncertain macroeconomic environment, and what would drive upside and what would drive downside to those comp expectations?
Brian LaRose: Yeah, I’m not going to get into the quarters, Michael, but I’ll tell you that we felt like the revenue — maintaining the revenue guide was the most appropriate thing to do given some of that uncertainty. We’d expect that services would continue to be strong. We’re happy with our consumables performance this quarter, up 7%, but that discretionary category remains under pressure. So if you look at the back half of the year, that would imply, as somebody asked earlier is somewhat of a deceleration in comp. We felt like that was the best guide based on what we know today.
Michael Lasser: Thank you very much and good luck.
Ron Coughlin: Thank you.
