Operator: Our next question is from Oliver Chen from TD Cowen. Please go ahead.
Oliver Chen: Hi. Thank you very much. We were curious about the promotional environment that you’re seeing in terms of the landscape and how that’s interplaying with how you’re thinking about pricing? Also, as we look forward, do you expect volatility in traffic? Just curious about underlying trends there. And then finally, as we model inventory, I would love views on how you’re planning inventory relative to sales. Thank you very much.
Denise Paulonis: Good morning, Oliver. So I’ll start with the point on promotional landscape. It remains pretty consistent with how we described it last quarter. Value remains important for both our Sally customers and our BSG stylists. On the BSG stylist point, we actually see a little bit higher promotional activity in play, consistent with what we saw last quarter as compared to last year. And a lot of that is that we do see a bit of unit demand pull-through when that promotional activity happens. So we have had that built into our model, like I said, nothing particularly outsized in terms of trend, but we do see the stylists there respond a bit better to promotion. On the Sally side, I would call it a bit steady-Eddie. At the end of the day, customers are just being frugal overall with their dollars.
So with or without a promotion, we don’t see meaningful changes in traffic coming into the store. And in turn, we are moderating that and ensuring that we’re doing the right thing that will drive value for us overall. I think importantly, in light of the landscape out there on both sides of the business, you can expect that we’ll remain conservative on pricing. The good news is, we’re seeing fewer price increases come through for our vendors as commodity costs and other things have moderated. But importantly, we look right now and would not expect to be flowing through any significant increases that would drive AUR in the near term in light of the macro environment. So not much different than what we saw last quarter, but certainly a very value-oriented consumer on both sides of our business today.
In terms of volatility and traffic, we definitely see — we saw volatility in the quarter, but I’d call it moderate volatility up and down. I think we’ve been seeing that now since inflation really started to pick up, which we’re now probably six quarters into seeing that impact, where when people need to come to buy for need, for an event, for something like that, you’re going to see a little bit more strength. And then in the down periods, a little bit less traffic come through. We’ll expect to see that, but it’s not wild swings. It’s just customers really tailoring their purchase habits as aligned with needs. So and then your final question was on inventory, I’ll kick that one over to Marlo.
Marlo Cormier: Thank you. Yes, inventory, we expect it to run really in the $1 billion range. As you look at the quarterly cadence, fairly level loaded, a little bit of build as we kind of progress into the year and then drop back down into the $1 billion range. One thing to keep in mind on inventory, we are on a weighted average cost method. So we’ve got a bit of a lag to those vendor price increases that we had seen previously. Those are still making their way through the process. But we continue to maintain improved levels of unit inventory. Our units are down. So where you see their level or increases, that’s all due to the vendor cost increases, making their way through the system. We are hitting our unit weeks of supply targets and our in-stock levels are at really healthy levels.
Oliver Chen: Thank you very much. One follow-up. One of your competitive advantages of the company is your own brand portfolio. What are highlights of opportunities you see there for innovation and change? Thanks a lot.
Denise Paulonis: Yes, spot on. We’re very excited about the own-brand portfolio. Of late, the biggest change that we have made was the launch of bondbar and the extension of bondbar from care into color. We’re seeing good customer response there with a very modern brand bringing in new customers when we get that out there in front of them. Innovation come forward is going to follow a similar track of being very aligned with maybe younger consumer trends around desire for more natural products free from products. So it can be good for the environment spaces, where we think we can play there, particularly on the care side. And we’ll talk about that as all things about how you can be more mindful as you shop coming through. You’ll also see us continue to expand things like Ion into sunscreen for your hair and places, where people are looking once again for more solutions orientation that you’ll see us push on as well.
So I’d really focus on the dial-up on kind of mindful natural items coming through, as well as continued expansion of our bondbar business and then problem-solving tied to our Ion brand.
Oliver Chen: Thank you. Very helpful. Best regards.
Operator: Thank you. And the last question in queue is from Linda Bolton-Weiser from DA Davidson. Please go ahead.
Linda Bolton-Weiser: Yes, hi. Thank you. I was just curious about you’ve been talking about your experimentation in pilot studies with these other store concepts. And I was wondering if you could quantify the costs related to those pilot tests in this fiscal year. And then sorry if I missed it, but did you give any more color about your plans to expand the value concept, like in FY ’25, do you think you will open more of those stores? Thank you.
Denise Paulonis: Yes. I appreciate the question. When I think about the concept initiatives that we’re piloting right now, I’d really focus on two key areas. One is the Studio by Sally concept and then the other is our value initiative with Happy Beauty Co. So I’ll start a bit with Happy Beauty Co or maybe I’ll back up one step. You first asked about financial impact this year. It’s quite modest financial impact for what we’ve stood up this year, both in the remodel or relocation cost of opening the studio stores or in the case of Happy Beauty, it’s 10 stores that we put into play last year and this year is really about operating them. So no material impact to the bottom line from either initiative this year. But if I look at the opportunity set, Happy Beauty Co, we have 10 stores up and running.
We’ve been gaining traction in the first six months since our launch, and we’re continuing to build awareness and traffic. And with 10 stores, we’re really doing that grassroots social media coming through. We were very pleased with what we saw through the holiday season. We thought that the brand was very well positioned for gifting, and that’s what we saw, and our teams executed quite well. We’re seeing ticket over $25 and UPT around 5. December and the holiday shopping weeks, we saw stronger performance than that, supporting that idea that it’s gifting. So we’re carrying through those learnings as we consider additional openings. More to come on future calls about a path there, but we remain excited about the potential and believe that if we see some of the metrics continue to perform as they could perform, we could be pushing an opportunity for over 500 stores over the long-term, where the real start of that expansion would be going into next year, rather than meaningfully more this year.
