Dave Kimbell: Yes. Won’t break out exact percentages. Again, to reiterate, it’s in 200 stores. We’re really pleased with it, a strong assortment across a number of the very best brands in Luxury. Chanel, Dior, NATASHA DENONA, HOURGLASS, an extension of Chanel with Chanel Numero Un, Lancome, Absolute , now Pat McGrath. A Luxury fragrance business with brands like YSL and Tom Ford and Viktor&Rolf. So we won’t get into exact percentages, but it is an important part of our overall strategy. We know there’s growth in the Luxury side of the business. We’ve been in Luxury for a while, but now with this expanded residence, it is a contributor to our total comp. We’re excited about the addition of Pat McGrath and we’ll continue to innovate and evolve and find ways to drive further growth down the road. So, yes, we think it’s — we know it’s contributing to our growth and we’re excited about our guest response to an expanded luxury experience.
Anthony Chukumba: Thank you.
Operator: Thank you. Our next question is from Christopher Horvers with JPMorgan. Please proceed with your question.
Christopher Horvers: Thanks. Good evening. A layered gross margin question. So how did shrink in the promotional environment play out in the second quarter relative to your expectations? Have you changed any of your expectations around those line items in the back half? And do you expect any improvement perhaps in the shrink line? And then Scott, could you remind us of the price cost headwind that we faced in the third quarter? Because I know that was pretty significant last year. Thank you.
Scott Settersten: Sure, Chris. So, yes, versus — we did say, again, versus our expectations for the quarter, we’re very happy with the overall financial results we were able to deliver. So breaking it down a little bit more, I’d say merchandise margin was better than what we expected and so that speaks partially to the promotional lever that people are focused on here. So again, generally better than what we expected, so we can lean in and lean out. That’s one of the great strengths of our business, being able to have real-time information and be able to take quick action and be agile. I’d say shrink generally directionally about the same as what we saw in the first quarter. As we look out to the rest of the year, we don’t really — we’re not anticipating a significant turn in expectations there.
We expect it to be tough the rest of the way. And we’ll say maybe the fourth quarter may be slightly less negative than it was early part of the year because remember, last year in the fourth quarter was the first time we really called out and quantified what the shrink impact was, so we did have a little bit of a catch-up there. Over — and then fixed — store fixed costs we talked about, that was stronger than what we — going in expectation because sales were a bit stronger than what we thought. And then channel mix overall helped us as well. As we look to think about gross margin the second half of the year, I’d say the drivers, the headwinds are consistent with what we’ve seen in the first half of 2023. Again, we’re taking a prudent approach as we always do with our guidance, and we’ll work hard to do better than that.
Christopher Horvers: And then the price cost in 3Q?
Scott Settersten: Yes. So there was — we — third quarter last year is where we saw a significant step-up in the pricing increases across the portfolio, and really, the margin benefit started really rolling through in the second quarter and into the back half of the year. So this is really the toughest anniversary point in the year is ahead of us right now, and that’s why we’re calling out third quarter. Third quarter is kind of peak on a number of different fronts. Again, every year is a little unique, but the third quarter now, we’ve got a little bit of delays in some of our project work, which is shifting back some of our IT expense into the third quarter. And a lot of that flows through SG&A, so we’ll see more pressure there than we saw earlier in the year, and then likewise, with gross margin.
And a little — more moderate sales growth expectations, coupled with cycling over the margin benefits last year from the price increases step up in the back half of the year, putting more pressure on third quarter than maybe some would expect. But again, by the time we get in the fourth quarter and get back to focusing on sales in the holiday, we expect that to bounce back in a healthy manner.
Christopher Horvers: Got it. Thank you.
Operator: Our next question is from Adrienne Yih with Barclays. Please proceed with your question.
Adrienne Yih: Great. Thank you very much. Scott, I’m going to stay on that topic with the third quarter. If I’m not mistaken, it seems like about $10 million to $12 million of the SG&A spend perhaps is moving into the third quarter. And if we have a little bit more gross margin pressure, does that imply that EPS could be down sort of high single-digit range? Just wondering if I’m in the right ballpark.
Scott Settersten: Yes. We don’t want to — into quantifying it specifically, Adrienne. But I’d say directionally, you’re in the right zip code. So yes, on the SG&A side, that’s roughly the shift back into the third quarter on some of the IT spend. And yes, operating margin is going to be down meaningfully versus what we saw earlier this year, and that’s going to result in negative EPS growth year-over-year for the third quarter.
Adrienne Yih: Super helpful. And then to just follow through with the SG&A. So can you help us walk through the phases? I know there’s four phases of Project SOAR and all of the other investments. It seems like you’re running sort of dual structures perhaps on some of the DCs and then the website or, let’s call it, 1/3 or half of the year. How should we think about that rolling off? Because a lot of this kind of redundancy will go away next year. I know you’re not giving guidance, but just to help us shape sort of what SG&A growth looks like last next year? Because it seems like it comes down a lot on the consensus. I just want to make sure we have that correct in our mind. Thank you.
Kecia Steelman: Adrienne, I’ll start, and then I’ll kick it over to Scott. So yes, we’re in the middle of an ambitious transformational agenda. That’s for sure. And part of this is really positioning all parts of the organization for our future efforts, and now we’re really pleased with how our progress is working. But anyone who’s taken on this large scale of a project, we definitely have timing shifts that happen because we want to make sure that while we’re staying forward, progressing and moving, we are really limited in our distraction and our disruption for our guests and also for our associates. So we’ve adopted a few of our time lines and have shifted a couple of the projects from Q2 into Q3, and we might even see some shifting from Q3 into Q4, but we’re still on track to spend the $60 million to $70 million incremental to the prior year.
