Ernie Herrman: Yes, I didn’t mean for you to.
Scott Goldenberg: Yes. So, I’ll hit a bit on the technical side there. I think — when we look back since the beginning of the year and what we did in the last — in August is that our retails have largely, as we’ve said for the last couple of quarters, has been unchanged. So not because we’re raising retails anymore or anything less than what we thought it’s really — they basically what we thought has happened. The cost increases have been have come through. They haven’t been changing dramatically, and our retails have raised up slightly above the cost, but haven’t — we haven’t done that any more than what we have thought. What has changed over the last couple of quarters and when we changed our forecast last quarter is that the — we’re buying better, the marketplace, as we said, was absolutely loaded and we’ve actually been buying better.
Some of this — and again, is — the freight is largely coming in where we want a little timing between the third and fourth quarter. Markdowns came in slightly higher, but again on our forecast, but it’s largely we’re actually buying better than what we thought not a retail increase more than what we thought. So — and again, we would expect the same thing in the fourth quarter to have a strong merchandise margin by — and with better overall markon. So, that’s about all I have to say on merchandise margin.
Ernie Herrman: Yes. I’ll just jump in, Matt. I think Scott’s saying really it’s been a two-pronged effort in terms of buying the goods better and retailing. The retailing continues. But I think the new news is that we are buying better based on the market environment than I think we had even anticipated back a couple of months ago. Although that’s where I think anything you’d read about the availability in that, creating more inventory out there for models of business like us to take advantage of that — that part is turning out to be true, so.
Scott Goldenberg: Yes. And we’ve also been helped out as we thought it would because we saw the apparel getting better as we move through the back half of the year. And last year, it was all about having a significantly higher home contribution. We’re kind of back to where we were from the apparel home contribution at the end of this third quarter where we were back in fiscal ’20. So, it’s almost been a 6%, 7% change in the apparel home contribution, which certainly has benefited us a bit on just from a mix point of view on the average retail.
Operator: Our next question now is from Brooke Roach.
Brooke Roach: Ernie, I wanted to follow up on a few of the high level guardrails that you provided into next year and calendar 2024. As you contemplate that low single-digit comp sales increase that you’ve suggested next year, are there any puts and takes that we should be contemplating by major banner? And do you expect this to be led by a sequential increase in traffic, or will this be a balanced traffic and ticket driver as a result of ongoing pricing strategy and better branded availability in the stores?
Ernie Herrman: Awesome, those are good high-level questions. I think the first one on the single-digit comp. Hard to — first of all, hard for us to call today on how much will be from traffic or ticket. We’re being very conservative on our traffic expectations based on what’s going on, but I think it’s probably going to be a combination. But it is a little early for us to kind of step out and make a call on that. And your first part of the question is, I think, how much does it vary by — does it vary by banner. And right now, our initial thinking is it’s in a pretty narrow bandwidth by banner. They’re all going to be planned fairly similarly within a couple of points, I would say. This is not different than this past year.
And the volatility of what’s around us is making it a little challenging for us to kind of Scott and his team, myself with all the SEVPs who try to figure out what’s our best guess. But who could forecast some of the things that have happened even this year, where sales are not where we had projected. Having said that, we’ve been able to execute in a different manner and pull off some things that I think strategically are going to benefit us on the long term. The flexibility of our model, but the team that we have executing that flex. We’ve executed — I believe the team has executed really well. So again, I have to be a little vague on that because we’re not sure. The only thing I can tell you is right now, our initial thinking on our banners is, they’ll be in a pretty narrow bandwidth all planned fairly similarly.
Operator: Our next question is from Paul Lejuez.
Paul Lejuez: I just want to go back to the markon benefit that you spoke about. You said that it helped in 3Q. I think it’s been helping you. But maybe, Scott, can you frame the benefit that you saw in 3Q versus prior quarters? Also how are you thinking about markon in 4Q relative to what you’ve been seeing? And then, also just curious about the expenses, just the nature of the expenses that shifted out of 3Q and into 4Q, what were those? If you could just give any detail there? Thanks.
Scott Goldenberg: Yes. We’re not going into the detail just due to the timing of multitude of items, some related to inventory, flow and the related costs and/or expenses or how they get capitalized between one quarter and another. So, that’s really all to say on that. In terms of the margin, if you look at it on a three-year basis on our markon, similar levels of — it’s largely going to be driven by strong markon, whether it’s on a three-year basis or a two-year basis, and nothing really much more to add there. It can’t break it down because there’s tens of thousands of items. So, it’s a combination of some retail and better buying and it’s hard to parse out exactly what goes to which, but it’s a combination of the both. Certainly, again, as we’ve talked about over the course of the last 6, 7 quarters having a slightly higher average retail helps on the expense lines, whether it’s in the freight, stores and DC, and that’s a good chunk of some of the benefit we’ve been getting as well.
Paul Lejuez: Got it. If I could just pivot one other the direction, Ernie. Just there’s some concerns, just macro concerns out there over in Europe. I’m curious how you feel the business is positioned over there to take advantage of maybe consumers looking for value, maybe what you’re seeing over there from a promotional perspective and competitive positioning of the business.
Ernie Herrman: Yes. Paul, great question. We talk about this all the time. And the environment there is at a different level of challenging. From here, it’s even more serious, and you have the market drops by retailer there or even more significant than they are here. Our sales have been below our expectations there. But what we do is we look at our sales performance against the retail market, and we have been trending basically 500 to 1,000 basis points ahead of the competition there. So, we don’t like our — the way the consumer is getting hit there and affecting us. But relatively speaking, we are actually gaining significant market share there. So, our outlook there is over the next year or two to continue to gain more market share and take advantage as things level off there.
And we’re staying extremely liquid and demanding the same type of — looking for the same type of healthy terms and model execution that we do here. Being a little patient with the environment — can’t control. We can’t control the traffic. We can measure there and we do the footfall going into our stores, and that has been off, not the conversion of when they’re in our stores. So, the good news is when the customer is in our store, they’re very happy with the mix they find, and they are buying at a conversion rate very similar to before. So that’s not the issue. The issue is footfall is off. And — but it’s off less for us than it is for the competition. So, Scott.
