Paul Lejuez: Got it. And then just a follow-up. On the merch margin, I think you mentioned freight is a big driver but can you talk about pure merch margin outside of freight? Just IMUs, markdowns, what the out-the-door merch margin was on a pure product basis?
Adam Orvos: Yes, Paul. I won’t go through a component by component but merch margin in addition to the ocean freight benefit but if you back ocean freight out of it, we were better than last year as we anniversary the markdowns that we took last year. So third quarter last year was kind of our peak quarter for incremental markdowns last year.
Operator: And the next question comes from the line of Lorraine Hutchinson with Bank of America.
Lorraine Hutchinson: What were the drivers of Dd’s improved sales trends during the quarter? And is that now running in line with Ross?
Michael Hartshorn: Sure, Lorraine. As Dd’s — as we said, also improved and were relatively in line with performance at Ross. We believe the improved performance here like it is at Ross is the customers responding to the broad assortment of values throughout the stores. And I’d also add easing inflation certainly doesn’t hurt this customer.
Lorraine Hutchinson: And then any update on shrink from your recent physical inventory?
Adam Orvos: Yes. Lorraine, in third quarter — so we took our second physical inventory over the year in third quarter and trued up those results, the results were in line with our expectations and in line with last year.
Operator: [Operator Instructions] The next question comes from the line of John Kernan with TD Cowen.
John Kernan: Excellent. Nice job in 3Q. Barbara, your buyers are obviously doing a great job passing on value to the consumer. I’m wondering how initial markup trends are as we — as you focus on value?
Barbara Rentler: Well, obviously, we’re not going to talk about but IMU. But I think as the merchants are in the market and they are really looking for compelling deals, they obviously have metrics that they should hit and I would say that they do that. But if there’s a really unbelievable deal, we’re going to price it the way we think we need to price it. Our strategy now is really to continue to deliver value. And so again, they have metrics, everyone is hitting their metrics but that’s the focus. What is the right price, what is the right value to drive the customer into the store to gain market share. So that’s the hit that everyone does.
John Kernan: Understood. And Adam, when you look at the model, what do you think is the line item in either COGS or SG&A that has the most potential for improvement if you maintain the 3% to 4% same-store sales going forward?
Adam Orvos: We’re just getting into the — we’re working our way through the planning process. We’ll come back and talk at the end of the year and kind of frame up how we see the go forward at that point in time. I think just to give you some generalities, I feel like we’ve recaptured most of the ocean freight at this point. When we look at container rates now are very similar to where they were in 2019. So we think by the end of the year, we’ll capture all that benefit. On the domestic side of freight, we’ve recaptured some but certainly not at 2019 levels, given the elevated fuel cost and elevated driver wages since 2019. So pushing very hard on the other components. We’ll come back and tell you more about the puts and takes at the end of the year.
Operator: And the next question comes from the line of Chuck Grom with Gordon Haskett.
Chuck Grom: Congratulations. Can you provide color on the trend of basket size and the composition between AUR and UPT this quarter and if you see that changing going forward over the next few quarters?
Michael Hartshorn: Sure. And as we said, traffic was the primary driver of the 5% comp. Average basket was up just slightly as an increase in the units per transaction was partially offset by slightly lower average unit retails. And if we think about it going forward, we’d like to be driven by traffic but we don’t plan our business around the components. We plan the business on offering the best value. And if we get traffic and a basket size increase, that’s great for the business.
Operator: And the next question comes from the line of Brooke Roach with Goldman Sachs.
Brooke Roach: I was hoping you could discuss the puts and takes behind your SG&A growth now that we’ve moved through the periods of elevated incentive comp investment this summer. How should we be thinking about the growth of that line item going forward? And in particular, can you elaborate on what you’re seeing in terms of store wage rate inflation?
Adam Orvos: Brooke, this is Adam. Yes. So store wage, as we said in the comments, they’ll continue to put pressure on us. That’s largely driven by minimum wage changes that we need to take in the marketplace. But I would say overall on SG&A, the biggest moving part this year has been incentive comp, right? So as you’ll remember, very little incentive comp last year. And not only did we have to reset the bar this year but we’re obviously outperforming our financial plan. So that’s the biggest kind of volatility in the SG&A line.
Michael Hartshorn: I’ll just add on the wage front. I mean, generally speaking, wages have stabilized throughout the stores and the DCs and any increases we’re seeing are really driven by minimum wages. On SG&A going forward, I think we’d expect that we’d be able to lever between the 3 and 4 comp as we have in the past.
Operator: And the next question comes from the line of Michael Binetti with Evercore.
