As I think we’ve mentioned, 30% of our BrandsMart sales are financed through our private label credit card, and this quarter, we’re beginning to see lower approval rates from the higher tier lenders above us, which should benefit BrandsMart leasing over time. Now on the Aaron’s business, we’re not necessarily seeing a pickup in application volume, but we are seeing a slight mix shift to higher income, higher credit consumers. And again, we continue to believe if there is a trade down that’s coupled with an increase in general demand, whether that be through a replacement cycle or otherwise, that will be a tailwind for the business. And the cost transformation initiatives and the modernization of our competitive positioning will benefit us.
Operator: Our next question comes from Bobby Griffin from Raymond James. Bobby your line is now open. Please go ahead.
Bobby Griffin : Good morning guys. Thanks for taking my questions. I guess first from me, I guess on the Aaron side of the business, just curious kind of what you kind of think for 4Q and what’s implied in the lease portfolio? It looks like we are making progress on it. It’s declining but declining a little bit less. Do you think we’ve kind of hit the bottom now in the lease portfolio size where 4Q we’re used to kind of think 4Q holiday, you usually see sequential expansion here in the portfolio? Do you think that’s still a possibility this year given some of the demand pressures?
Kelly Wall: So, I think what we’ve said on prior calls is that, with the kind of continued pressure on demand and the corresponding revenue written into the portfolio through the course of this year. We are expecting that year-over-year, we’re going to end 2023 with a lower lease portfolio size. As we think about Q4 specifically, which you asked about, you’re right. Normally, we would see an increase going from Q3 to Q4, and we do expect that again this year. Again, it’s to be seen as we go through November and December just how much of a bounce back we get, but based upon the comps that we saw last year and then what we’re seeing here today, we would expect an increase sequentially. One thing I do want to remind you though as we go into 2024, and Steve and Douglas both talked about this, we’ve talked about this last few quarters, is that kind of the overall in the lease portfolio, what we’ve seen quarter-to-quarter is lower demand than what we had been anticipating and that trend has continued.
And we’ve been able to offset that with less churn out of the portfolio. So again, we’ve talked about improvement in write-offs. That’s helped with the portfolio. We’ve also seen customers paying out their leases earlier or less often, right, than they would, their early payouts are less frequent than what they’ve been in the past. And so, as a result, again, churn is lower, while demand written in is also lower. And the net benefit has been a slightly better performance in lease portfolio size than what we expected quarter-to-quarter. As we move into to next year, the impact that that has is as we do start to see demand normalize, which we’d expect at some point, or we start to see the benefit of the trade-down that Douglas talked about. The benefiting revenue and earnings from that will lag.
So as demand has continued to be solved, pushing out kind of that growth in the top line and bottom line that we would’ve been expecting earlier in the year as we go into next year. So hopefully that gives you some color on both Q4 and some insight as to how we’re starting to think about next year, which again, we’ll provide you a lot more detail on 2024 on our next earnings call.
Bobby Griffin: Okay. Yes. And Kelly, that’s helpful. And just to take that maybe one step further to make sure I’m capturing it. It probably sets up for the first half of next year from an EVA perspective, see some type of year-over-year pressure. Is that the correct read-through from your comments?
Kelly Wall: That’s correct.
