Richard Dickson: I’ll start by saying that there’s really no denying the strength of Old Navy. This is the number two apparel brand in the U.S. We’ve got an incredibly impressive footprint with over 1,200 stores. And we’ve got a very strong brand proposition delivering on fun, fashion and value for the whole family. We were really encouraged to see the progress that we made this quarter with the brand. And the result of the learnings that we applied from a more muted first half is really what’s delivering. Specifically, we focused on a dedicated women’s marketing campaign. We included on-trend product, and it drove positive momentum and market share gains. We also spent a lot of time in the quarter improving our site execution, online marketing included in that, and have designed a much more pointed, compelling, creative point of view with value messaging.
I encourage you to go online and take a look as we’ve been tracking the brand. I think you’ll see that come across. That being said, we have work to do, and we need to continue to execute with consistency. As we look forward to the holiday, we’re going to offer a really balanced product range from, of course, Jingle Jammies to party and active. But I really do believe the brand is ready to compete. We’ve got a high quality inventory composition. We’re concentrated on creating great value presentations with great style. And look, as I noted, we are encouraged, but we’re focused on continuous improvement at Old Navy, and really for all of our brands as we look to reinvigorate our brands. So one quarter, very well done, incredible team execution, but consistency will be the name of the game.
Katrina O’Connell: And then, Ike, on your credit question, it’s a good one. We don’t disclose our credit card income, but to tell you we are actively monitoring the consumer environment, and that includes the inflationary cost pressures that are on either discretionary spending or on consumer credit. Maybe what I would say is the credit card income trends that we’re seeing today are all fully contemplated in the outlook we provided today. And of note, the biggest impact to date has been the change in interest rates, which has impacted the cost of funds. And that impact is already in the outlook we just provided. And then, as it relates to loss rates, we’re obviously looking at those carefully. We’re still better than pre-pandemic levels.
And I would add that our file is pretty high quality. We don’t have significant subprime exposure. So, maybe all of that helps you to understand that. We are watching it carefully, but the credit outlook that we see is embedded in the outlook we provided today.
Operator: Our next question comes from Matthew Boss with JPMorgan. Please go ahead.
Matthew Boss: So Richard, on the missteps at Athleta that you cited, maybe what’s the timeline you see for stabilization when you look at that brand today? Help us to think about changes across the assortment and marketing messaging, again, relative to today. And then, Katrina, with inventory down more than 20%, just help us to think about constraints to recapturing the material headwinds tied to discounting a year ago, in the fourth quarter?
Richard Dickson: So thank you, Matthew. And specifically, look, Athleta had a disappointing quarter. It struggled recently, and the third quarter comps were very disappointing. We have begun the reset of the brand. We knew that we needed to make leadership changes in order to create a differential outcome for this powerful brand. As you know, Chris Blakeslee joined us about 90 — maybe one or two days ago, and has orchestrated appropriate changes, which we feel confident will get the brand back on track. We’re going to be progressing each quarter. We know that a full brand reset will require a more comprehensive approach. It will take more time. It is early. I can’t quite commit to a time line at this point. What I can tell you is we are confident and excited about the long-term potential of the Athleta brand.
That’s the number five brand in the U.S. women’s active segment, which is one of the largest segments in the industry. It’s got a clear and distinctive brand positioning rooted in the power of she, which is so authentic and highly differentiated as a platform. And we know that we’re lapping significant promotions and markdowns from last year, a dynamic that we expect to continue at least into the fourth quarter. But we are confident that the work that we’re doing, specifically on product has a more distinct narrative around performance based narrative measures, and we’ve also begun to refresh store presentations. The brand’s website also, I encourage you to take a look at, really pulls the Athleta’s focus back to its performance roots and of course the power of she platform.
So look, these are early days. We’re seeing early indications that customers are responding, but there is more work to do.
Katrina O’Connell: And then, Matt, on the inventory side of things and discounting, I think in third quarter, we were pleased to be able to deliver 160 basis points of margin recovery in — the margin related to discounting, which came from much less discounting than we had prior year. I think what I would say is there’s two things. First, as we said that we have brands performing at different levels right now. So, we have Old Navy and Gap that are really showing early signs of recovery, and we have a little bit of a longer recovery time line for Banana and Athleta. And so certainly, those are things to consider when thinking about margin recovery. And then, in addition to that, we are navigating a very interesting consumer environment, as we said, that has mixed consumer performance.
And so we want to remain disciplined about also providing great value to our consumers. And so, we’re also remaining prudent about that balance between inventory is down, but also being able to recover gross margins, and offer discounts.
