Dylan Carden: Great. And as for next year, I know it’s early, but just sort of thinking through seasonality, there’s a lot of moving pieces as it relates to consignment versus product. Just anything to call out as far as revenue trends, margin inflection sort of a back half inflection?
Sean Sobers: Yes. I mean, I think at least – Dylan, it’s Sean. I would say at least as you go through gross margin throughout the year with the consignment shift, you should start to see kind of improving gross margins on a quarterly basis, certainly year-over-year. So those should improve. I think that’s – and the seasonality is going to be fairly similar other than we’re creating a little bit of a muted headwind on the revenue side as we move to the consignment model, both in kind of the rest of the U.S. related to RaaS, and then as Europe really picks it up and starts to transition the consignment.
Dylan Carden: Got it. And then as far as kind of the capacity utilization of your new distribution capacity, where are you there and how has that maybe showing up in the model?
James Reinhart: I mean no real change from the last call. I mean, we continue to have strong ability to kind of expand into DC07 in Dallas. But I think as the business has continued to turn a product even faster, I mean, I think our CapEx needs are pushed out even further. So I think we’re in great shape, Dylan, on a utilization basis and plenty of room for growth in those facilities.
Sean Sobers: Yes. I think we’re very confident we don’t need that CapEx until 2026 of the earliest.
Dylan Carden: And I guess I meant more from a margin perspective. Have you sort of grown into that more so incrementally from the sort of third quarter or second quarter rather, and sort of how is that showing up in margin?
James Reinhart: Yes. There’s a little bit of that as we’ve moved some of the logistic network around. So we’re now consolidating orders more efficiently than we were before. So yes, Dylan, definitely some of that is starting to come through in Q3, but you should see some of those tailwinds continue into 2024. And you know, I think the U.S. gross margin should continue to expand incrementally as we move through 2024.
Dylan Carden: Okay. Thanks, guys.
James Reinhart: Yes.
Operator: Thank you. And your next question comes from the line of Edward Yruma from Piper Sandler. Please go ahead.
Edward Yruma: Hey guys, good afternoon. Thanks for taking the questions. I guess first, on the promotional environment, given the rough kind of outline you gave for 2024 guidance, should we assume that the promotional environment persists or is that embedded within that 2024 kind of thought process? And then as a follow-up, there have been some, I guess, newly public peers that are starting to expand in resale. Are you seeing any kind of incremental competitive pressures when some of these physical doors open locations? Thank you.
James Reinhart: Hey, Ed. Yes, I mean, we’re not seeing any, like – at least as far as we can see in our data, any incremental pressure from other resale players. I mean, really what we’re seeing is as it sort of got through the back to school season and into this early holiday season where October was very promotional, we really had two paths. And like one path was to be less promotional and sort of drive margin expansion, but we thought really active buyers is the name in the game. And so it was a better strategy to provide a little bit more discounts a little bit more on the promotional side to both drive active buyer growth and continued engagement. So that has really been the plan and we expect the environment to continue to be promotional in 2024.
And I think our numbers reflect that, but there’s nothing right now that we’re seeing that makes us have any fear that 2024 is going to get worse. It’s just about being smart with customer engagement. And if you think about what we did in Q3, we were promotional in Q3 in the U.S. and the business was EBITDA breakeven and free cash flow positive. So that strategy is a winning one. What really we’re focused on is the consignment transition in Europe, because that’s really the headwind for us in Q4, and I think that’ll be the work to be done in 2024 is how do we transition that business as efficiently as possible.
