Simeon Siegel: Perfect. Yes, I thought the AUR being healthy was the interesting point in light of all of the commentary. That’s just what I was asking about.
Martin Waters: Yes. Thanks for the clarification.
Operator: Thank you. Our next question comes from Alex Straton with Morgan Stanley. Your line is open.
Alex Straton: I wanted to focus kind of on some of the supply chain challenges. I know Victoria’s is known for its — react strategy. That’s really been an advantage in the past but has been pretty impaired over the last year. So is that contributing to some of the sales pressure? Or how should we think about that? And maybe where does it stand in terms of the progress to being fully back to the read and react advantage? Or when do you think that normalizes?
Martin Waters: Yes, happy to take that. Thanks, Alex. We don’t think about the supply chain being impaired, to be honest. We feel like we performed very well during COVID in a very difficult competitive environment in base of supply. We got the goods that we needed. We had to pay a bit more for them because of the freight challenges, but we’ve got more than our fair share of what was available in the base of supply. So we feel that we did very well during that COVID period. As it relates to the current period where supply chain pressures are really behind us, TJ mentioned there was some cost in the third quarter that starts to go away during the fourth quarter. So the cost is substantially behind us, and the difficulty of the supply chain is substantially behind us.
Where it really bites is in our ability to enter a new season open. And I’ve said previously that when the business is at its best, we would start the fall season about 60% bought and about 40% open. We didn’t get quite back to that level this fall. We were more like 70%, bought, 30% open. But we don’t get to spend that 30% is open because with the economic outlook, the way that it is, and sales being pressured, it would be unwise to spend those open dollars. So we’re more like 80-20, 80% committed, 20% open. When does it get back to completely normal? I would guess, towards the middle of the year, we would expect to be at full capacity on read and react. There is no structural change in the base of supply or the way that we do business that indicates that it won’t do.
So it’s just a question of us being very careful in the way that we place our orders and the amount of commitment that we make and being agile in our ability to switch out of boats and into airplanes if something is checking faster than we anticipated it to do. So I hope that gives you a bit more color on the question. In broad outline, I would say we would expect ’23 to be substantially normalized from a supply chain perspective.
Alex Straton: Great. That sounds like a nice tailwind for next year. Maybe just taking a step back, one more for me, that’s a bigger picture. Can you just walk us through kind of the puts and takes around kind of that high single-digit margin this year on an EBIT level and how you see the path to kind of that mid-teens longer-term target from here?
TJ Johnson: Yes. I think, Alex, just the Investor Day, we kind of stepped through this. And from our view, nothing’s really changed in the last six weeks. So we’ve maintained our guidance for the current year from an operating income and rate perspective. So if you think about, take the high end of the range, just to keep the math simple at 9%, what we talked about in terms of the path to 15%, the first — the next percent of 9% plus 1%, the plus 1% is really where we’re focused on strengthening the core. That’s the best at bras, that’s North America, that’s growing the intimate share, that’s growing Beauty share, that’s starting to mix a little lighter on the apparel side, those initiatives that we talked about at the Investor Day.
The next two points, so nine plus one, plus two, the next two points is really the igniting growth pillar. That looks like international growth, which happened in the third quarter, and we feel very good about the outlook for fourth quarter in 2023. It looks like new business development, whether it’s new partners, new channels of distribution, et cetera, or all of the above. It looks like continuing to focus on Store of the Future, growing the store base from a Store of the future perspective, renovating stores into the Store of the Future format that is well on track, and we’re pleased with the results to date. And then the last three points, so nine plus one, plus two, plus three equals 15. The last three points is the $250 million of efficiency opportunity and that transforming the foundation bucket.
I spoke about that earlier. That looks like cost of goods sold opportunity, modernizing the Company from an efficiency standpoint in terms of people and processes and then also indirect procurement. So nothing’s really changed in the past from 8% or 9% here in the current year that mid-teens from an initiative perspective or anything different strategically. I do think it’s important to note, Martin mentioned it in his prepared remarks, something that is new and different that we are waiting on approval for — from an HSR perspective is the announcement of the acquisition of the Adore Me. We’ll have more to say about that when that happens. But clearly, that’s a growth opportunity for the business and a transforming opportunity for the business that was originally contemplated at the Investor Day.
