Bracken Darrell: Yes. Let me try to answer that one, and then Matt can also help. We — it’s essentially tapping in two steps. The first one was this quarter. The last quarter, the second one will be in the next quarter. And our — what we’re really doing is pulling kind of the icons that are not selling that inventory is too high in the channel. So we’re pulling that back out or they’re returning it, and then we’re opening up basically an open to buy for the product that is selling. So it’s really just cleaning out the channel. You want to add anything about that, Matt?
Matt Puckett: I mean, Jim, you’re right, there’s a little bit of an inventory impact when you bring back returns or accrue for returns in this case. I think in most cases, the product is still kind of flowing and the work is happening, but you’re accruing for returns, which has an inventory implication in that entry. That’s in the number. I think overall, we’ve just been able to aggressively sell through excess inventories, again, in our own outlet stores, in particular, as well as leveraging, in some cases, the off-price channel within the wholesale space. Working aggressively to pull back on buys, which we said all along, we’re working to do and probably been a little bit conservative in some of our planning in terms of that may ultimately play out, so a little bit of favorability there as well.
James Duffy: Understood. Thank you.
Bracken Darrell: Yes. I’ll give you a quick example of the impact it’s had. I had over the holidays, we had several people tell me they couldn’t get — couldn’t buy new school product because it wasn’t available in their sizes yet. The inventory is overstocked inside the channel. This was before we started doing this reset, so this should clean that up.
Operator: Our next question comes from the line of Jay Sole with UBS. Please proceed with your question.
Bracken Darrell: Hi, Jay.
Jay Sole: Hi, Bracken. Thanks much for taking the question. Matt can you sort of help? I have two questions. The first question is, Bracken, you talked about promoting two people and you’re recent teams, how far are you along from having the teams really — the go-forward team really full. So in other words, like how many more months your core you expect to be working on this before you feel like, okay, the team is in place now it’s about executing? And then maybe for Matt, on the free cash flow guidance, it sounds like there’s probably some a little bit less net income than you expected before, but more from inventory and it sounds like there’s some other asset sales that are impacting that. If you could just sort of give us like the pieces in qualitative terms, just say help us do a little math on how the free cash flow guidance is same? That would be helpful. Thank you.
Bracken Darrell: That’s a hard question to answer. I would say we’ve made a lot of changes already. So our team has evolved forward quite a bit. The structure of the company now has changed quite a bit. Our operating model, all those things are rolling aggressively forward. And as we enter Q4, especially as we move into the beginning of next fiscal year, I think it will be very far along in terms of having an organization that I think is really poised to win in this turnaround. So I’d say we’re pretty far along Jay, and I’m excited about it. I really feel like we have a team that can — is here to win. And I think you we roll forward a couple of months and we’ll be there.
Matt Puckett: Yes, Jay, I think how you described it is probably fair a little bit tougher this quarter than what we anticipated. We talked about that relative to the Outdoor segment from a revenue standpoint, but better on the inventory line. I think there’s a lot in free cash flow there, right? And when you look at the year-to-go period, the biggest levers are on the balance sheet, not on the P&L, right? And as you think about not only inventory, but accounts receivable, all the liabilities, et cetera, CapEx, honestly, the sales of assets, I wouldn’t suggest that’s free cash flow necessary. We’re not counting it that way, kind of below that line, so that’s not really in the number. But we’re still in line for the $600 million, a few puts and takes, but we really encouraged by the inventory, I think, particularly great to see where we are at the end of the third quarter ahead of schedule.
Bracken Darrell: If I could just go back to your first question, Jay, maybe use the question to make a comment about how fast we’re moving on the org side. We have — since I’ve been here, we have a new head of people, so CHRO, new Head of Commercial, which is an internal promotion. We’ll have a new head of design within — by the end of the fiscal — by the beginning of the next fiscal year. That’s kind of agreed to. Matt will be leaving, so we’ll have a new CFO at some point early in the next year. We have a new Head of Timberland. We’ll have a new Head of Vans. So we’ve actually changed a lot – we will have changed a lot of the team here and promoted a lot of people in this company during that time frame. So I’m really excited about the team we have in place, and I think it’s going to get stronger and stronger.
Jay Sole: Okay. Thank you so much.
Bracken Darrell: Okay. Thanks Jay.
Operator: Our next question comes from the line of Dana Telsey with Telsey Advisory Group. Please proceed with your question.
Bracken Darrell: Hi, Dana.
Dana Telsey: Hi, Bracken. As you think about the DTC channel, which you talk about is more improved than what you’re seeing out of wholesale, how does it differ by digital and DTC what are your plans for each brand on the physical store side? And are there any — is there any color by brand performance differentiation in the DTC channel? Thank you.
Bracken Darrell: I’d say everybody — every brand has a sizable DTC e-com and not every — not every brand has a sizable footprint in bricks-and-mortar, and it really varies around the world. In the — I’ll start with Vans, Vans has a very large, especially U.S.-based bricks-and-mortar business as well as an online business. A lot of people may not realize that we’re one of the most developed DTC businesses. Our North America business one of the most developed DTC businesses in all of footwear and apparel. I mean we’re something like 60% of our total business is DTC in the U.S., maybe even higher than that. So it’s very developed. I don’t expect that to changed dramatically one way or the other. I imagine the e-com will grow and the bricks-and-mortar will shrink relative to each other.
And hopefully, wholesale will begin to grow relative to the brick our own bricks-and-mortar. So I would expect that. The North Face, you have a great DTC business that can be even bigger. It’s mostly e-com in the U.S. We have very little of our own stores, relatively speaking, in the U.S. And that’s kind of true in Europe. But in that case, we’re adding more stores in Europe, probably going to be in the U.S., I think, if I have my facts right. And I would think that will continue and I’m going to keep holding APAC out for a second. Timberland has a very developed DTC bricks-and-mortar business in Europe and very, very little in the U.S., which is one of the things that we struggle with here in the U.S., big business, all wholesale, less control.
I don’t think we have any plans to change that. But I would say, generally speaking, all those businesses are going to have a larger and larger e-com business. It’s a core part of our strategy.
Dana Telsey: Got it. And then just on the CapEx side for this year, any changes to CapEx and how you’re thinking about it going forward?
Bracken Darrell: No, I don’t think we have a significant plan to alter the way we’re thinking about CapEx. We don’t have a big investment plan in CapEx, at least not an abnormal.
Matt Puckett: Most of our CapEx moving forward will be related to DTC, honestly, Dana. We’ll be continuing to support the expansion where it makes sense and the brands that have expansion opportunities in The North Face is one, Supreme is one for sure and kind of the ongoing refreshment of those stores. Infrastructure-wise, nothing significant planned and obviously, we’re working aggressively to kind of reduce our footprint in many cases, it’s kind of the opposite.
Dana Telsey: Thank you and best of luck, Matt.
Matt Puckett: Thanks, Dana.
