Kurt Barton: Yeah, Michael, this is Kurt. Gross margin has certainly been not only a high point for this quarter, this year, but to your point, what we’ve been able to accomplish, leveraging our scale and size in the last years has been a real testament to the team. I’ll give you a few examples of why we believe this is a sustainable gross margin, and most of it is around the structural nature of it. As you think ahead, I’ll first acknowledge, as we continue to grow in CUE and take market share, it puts a little bit of pressure from product mix. And we’ve been cycling and absorbing those gross margin expansions with higher pressure from CUE mix in the past few years, more than we would see going forward. Supply chain benefits have really been one of the top two areas of gross margin expansion.
And we’ve seen and come off some of the highest supply chain costs. We’ve absorbed some of the inefficiencies in the robust, fast growth period. So the supply chain costs, declining transportation costs, improvement in the reduced miles from new distribution centers are all structural. And as you think about transportation costs, you think about it as in this particular time, we are still in an environment where transportation costs, both domestic and import, are higher than the pre-pandemic levels. I’m not saying that we expect to revert back to pre-pandemic norms, but I think the important thing is that we’re not coming off of a new extreme low, but yet coming off of some of the highs. And then the second most impactful piece of gross margin is the structural sustained difference of coming off promotionals that were embedded into our normal programs and really leveraging EDLP and Neighbor’s Clubs.
So the biggest drivers are structural. We expect to be able to change those. And the benefit that our fast team has driven in our production, not only in sales, but the funding from our vendors is structurally in there as well. So we anticipate to be able to have continued gross margin expansion. And even next year, as you think about seasonal, it may be able to bounce back and that has higher margins. So we have a lot of expectations on our ability to sustain and even expand gross margin for those reasons.
Michael Lasser : Got you. My follow-up question is you provided some initial observations on next year. Macro is going to be tough, we’ll see what happens with the weather, less inflation benefit. So in light of all those comments, how low can your comp be and you still maintain flat overall EPS next year versus this year?
Kurt Barton: Yeah. I’ll take that one. I mean, I’d have to just go to this is still very early in our planning cycle. This business has been resilient in regards to our ability to maintain our comp sales. It’s so much of a needs based core business in there that we are planning for some uncertainty. There are some headwinds on the consumer, but we got strong strategic initiatives. We’re lapping some difficult challenges from the seasonal business. And we can be nimble, but I’m just not going to try to predict or go down a path of what level of comps or how low it could be because this business has a track record. In 30 years we’ve had one year of negative comps and it was ever so slightly. And we’re confident in our ability to produce strong sales performance.
Hal Lawton: And the only thing that I would add is.
Michael Lasser : Thank you very much.
Hal Lawton: Hey Michael, the only thing I would add is, Kurt’s prepared remarks talked about our commitment to our long-term operating margin guidance, inclusive of next year. I’d also add, we see a lot of opportunities for continued operating expense control next year, namely as Kurt mentioned, freight and a number of other levers. And I think we’ve demonstrated this year that we have a number of levers that we can pull to continue to support the underlying profitability of the business, and also can control what we can control. We certainly don’t see an outlook next year as you implied, as potential for negative decline in EPS. I mean, if you look at the underlying strength of our business, whether it’s in consumer, our number of shoppers in our stores, our customer satisfaction, our market share gains, all those sorts of things, we’ve never been more confident in the underlying foundation of our business.
