So I would look forward in the second half of next year, but we’ll give you more of that specific guidance in the numbers as we get into looking into 2024. As far as where it will hit, the majority of it will come through the Acima segment. The Rent-A-Center segment will benefit from some of the general-purpose credit card, but all of the private label credit card on the retail side will come through the Acima segment.
Operator: Our next question comes from John Rowan with Janney Montgomery Scott.
John Rowan : Just one quick question for me, and I apologize if you covered this earlier. I had to hop off for a second, but I believe that you guys said that there was a slight reduction in credit quality of applicants for the quarter, and I’m just trying to remember if that foots or it doesn’t foot with prior comments about the quality of applicants coming in at the top of the funnel indicating whether or not there was a trade down, because if I’m remembering correctly that was part of the call there that were seeing better front applicants at the top of the funnel. And so we do believe we’re seeing trade down. Can you just help me understand the comments today versus prior comments?
Fahmi Karam : So the comment around weaker profiles was really related to the Acceptance Now business and seeing some of that softness that we mentioned previously on and isolated to those retailers and those merchants really around the furniture side. But generally speaking, if you look at our third-party scores, they’re still elevated year-over-year. Mitch mentioned it earlier in the call, but we did see a run-up in those third-party scores at the beginning of the year. It’s probably, I would say stabilized over the last few months. But the consumer is very resilient. They’re still under pressure. Inflation is still very high. The discretionary spending is still very limited and tough out there. But generally speaking, at the top of the funnel, we’re seeing better scores and hopefully that continues as people above us continue to tighten.
It could be a nice tailwind for us in 2024. It’s not in any of our guidance that we’ve given to date but could be out there for us if it continues to come in at the top end of our apps.
Mitchell Fadel : And just a little more color on what Fahmi was just explaining where that’s the, we are referring to the legacy Acceptance Now business a little weaker coming in, and it’s mostly because more of the business with those retailers is coming from e-comm and they’re doing a lot more furniture. A couple of them are doing a lot more furniture online, getting the orders generated online and we’re seeing some weakness in the customer coming through there. And one of the reasons we’re hurrying, and by early next year, we’ll have everybody converted over the Acima platform is because it does a better job from an e-comm standpoint. You haven’t heard us talking over the years about the legacy business that we want to get it to a different underwriting level quite as much as you’ve heard it today, but it’s really because that e-comm business is growing over there and we’re excited about the benefit by getting it over to the Acima side because it can do a better job identifying the risk in those people.
So that’s really what it was all about, just seeing outside and really one level down from the A Now legacy business is the e-comm is, where the weaker stuff’s coming through. And we’ll have that over on the Acima side and some of our partners by the end of this year, but all of them by early next year.
Operator: Our next question comes from Alex Fuhrman with Craig-Hallum Capital Group.
Alex Fuhrman : Hey guys, just quickly for me, there’s been a lot of talk about trade down in terms of credit. Curious if you’re seeing your customers trading down just in terms of what they’re buying in your stores and with your partners on the Acima side as well. Are you starting to see people making smaller purchases or gravitating away from name brands at all?
Mitchell Fadel : No, we really aren’t. We’re not really seeing that. You’re are getting here a little more about that probably at retail than when you think about small weekly payments that a lease offers or monthly payments for that matter. But when you think about a 55-inch TV at Rent-A-Center being $20 a week and the 75-inch TV being $26 a week, and those are close, so those aren’t exact numbers, but $6 difference a week, you won’t see much trade down. Now maybe a retailer that one of the TVs is a $1,000 and the other one’s $500, they’ll see trade down. But when you have the low weekly payments, you can return at any time. So if you get in over your head, you could in fact not just return it, you could switch to the smaller one. If you need the $20 TV instead of the $26 one, you could exchange it for the smaller ones. So there’s not much reason for trade down with our lower weekly payments as compared to traditional retail.
Operator: Our next question is comes from Carla Casella with JP Morgan.
Carla Casella: You gave some guidance on free cash flow. Can you just talk about some of the components of the working capital or specifically more the merchandise purchases that you’ll have to make much of that? Is that driving the full difference in your free cash flow? And how should we think about that as we roll into ’24?
Fahmi Karam : It’s a little bit hard to hear you, but I think it was a free cash flow question. And yes, we did end up lowering our guidance for the year slightly this quarter compared to last quarter, but very much in line with where were earlier in the year. And I think it’s a positive story from a standpoint of GMV has come in higher than what we had initially thought and ramping up nicely in the fourth quarter. And same with the Rent-A-Center side of the business of replenishing that inventory for the holiday push. And so we expect that to continue to be a draw on free cash flow next year as well as we look into continuing to grow on both of the segments. So coming off of 2022 with a heavy free cash flow year coming in with that year with a really big portfolio, with comps down at Acima at 20% we were able to generate a lot of free cash flow in 2022.
Still very strong in 2023 but we’re starting to see that growth in the second half of the year that we kind of predicted and that should continue into 2024 so we’ll get to more of a normalized level this year and then into growth mode into next year. So expectation is that it will continue to be very strong but probably a little bit less than ’24 than we had in ’23.
Carla Casella: And then the active merchant locations, you mentioned you continue to add a different additional locations. Have you said the percentage growth overall you see in those in fourth quarter or next year?
