Q3 2024 Ross Stores Inc Earnings Call
Speaker Change: Good afternoon and welcome to the Raw Stores third quarter 2024 earnings release conference call. The call will begin with prepared comments by management, followed by a question and answer session.
Speaker Change: If anyone should require operator assistance during the conference, please press star zero on your telephone keypad.
Speaker Change: Before we get started, on behalf of Raw Stores, I would like to note that the comments made on this call will contain forward-looking statements regarding expectations about future growth and financial results, including sales and earnings forecasts, new store openings, and other matters that are based on the company's current forecast of aspects of its future business.
Speaker Change: These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from historical performance or current expectations.
Speaker Change: Risk factors are included in today's press release and the company's fiscal 2023 Form 10-K and fiscal 2024 Form 10-Qs and 8-Ks on file with the SEC. And now I'd like to turn the call over to Barbara Rentler, Chief Executive Officer.
Barbara Rentler: Good afternoon. Joining me in our call today are Michael Hawkshorn, Group President and Chief Operating Officer, Adam Orvos, Executive Vice President and Chief Financial Officer, and Connie Cowe, Group Vice President, Investor Relations.
Barbara Rentler: Before we get started, on behalf of our board and the entire company, we are excited to welcome Jim Conroy to Ross Storrs as CEO-Elect next month. Following a two-month transition, Jim will assume the CEO role on February 2, 2025.
Barbara Rentler: Jim is a talented and proven retail executive with a demonstrated track record of developing and leading successful management teams and creating tremendous value for shareholders.
Barbara Rentler: As I previously announced, I will move into an advisory role at the beginning of fiscal 2025 and will support Jim and our other Senior Executives on merchandising-related strategies through March of 2027.
Barbara Rentler: Now let's turn to our earnings results. As noted in today's press release, we are disappointed with our third quarter sales results as business slowed from the solid gains we reported in the first half of 2024.
Barbara Rentler: Although our low to moderate income customers continue to face persistently high costs and necessities pressuring the discretionary spending, we believe we should have better executed some of our merchandising initiatives.
Barbara Rentler: In addition, we estimate a combination of severe weather during the quarter from Hurricane Helene and Milton, along with unseasonably warm temperatures, also negatively impacted comps by about 1%.
Barbara Rentler: Despite the below plan sales results, earnings were ahead of our expectations.
Barbara Rentler: Operating margin for the quarter was up 75 basis points to 11.9 percent versus 11.2 percent last year, as lower incentives, freight, and distribution costs more than offset the planned decline in merchandise margin.
Barbara Rentler: Earnings per share for the 13 weeks ended November 2, 2024 for $1.48 compared to earnings per share of $1.33 last year.
Barbara Rentler: Net income for the period rose to $489 million versus $447 million in the prior year period.
Barbara Rentler: For the first nine months, earnings per share were $4.53 on net earnings of $1.5 billion compared to $3.74 per share on net income of $1.3 billion for the same period last year.
Barbara Rentler: Sales for the year-to-date period grew to $15.2 billion, with comparable store sales up 3% over last year.
Barbara Rentler: For the third quarter at Ross, cosmetics, accessories, and children's were the strongest merchandise areas, while California and Texas were the best performing regions.
Barbara Rentler: Similar to the second quarter, DeeDee's Discount's strong value of fashion offerings continues to resonate with its shoppers, with Tom's gains exceeding Ross's results.
Barbara Rentler: At quarter end, total consolidated inventories were up 9% versus last year, while average store inventories were up 1%.
Barbara Rentler: Faculty merchandise represented 38% of total inventories compared to 39% last year.
Barbara Rentler: During the third quarter, we also completed our expansion program for 2024 with the addition of 43 new Ross and 4 DDs discount stores.
Barbara Rentler: For the year, we added a total of 89 locations comprised of 75 Roths and 14 Deeds.
Barbara Rentler: We plan to close and or relocate seven locations in the fourth quarter and expect to end the year with 1,831 raw stores and 354 DDs discount locations.
Speaker Change: Now, Adam will provide further details on our 3rd quarter results and 4th quarter guidance.
Adam Orvos: Thank you, Barbara. As previously stated, comparable store sales rose 1% in the quarter. Operating margin increased 75 basis points to 11.9%.
Adam Orvos: Cost of goods sold improved by 70 basis points in the quarter.
Adam Orvos: Buying levered by 65 basis points, mainly due to lower incentives, while distribution and domestic freight costs declined by 50 and 40 basis points respectively.
Adam Orvos: Occupancy rose by 25 basis points while merchandise margin decreased by 60 basis points.
Adam Orvos: SG&A costs for the period improved by five basis points, primarily due to lower incentive costs.
Adam Orvos: During the third quarter, we repurchased 1.8 million shares of common stock for an aggregate cost of $262 million.
Adam Orvos: We remain on track to buy back a total of $1.05 billion in stock for the year.
Now let's discuss our fourth quarter guidance.
Adam Orvos: For the 13 weeks ending February 1st, 2025, we continue to project comparable store sales to increase 2 to 3 percent.
Adam Orvos: Earnings per share for the fourth quarter are planned to be in the range of $1.57 to $1.64 compared to $1.82 in the fourth quarter of 2023.
Adam Orvos: This guidance range includes an unfavorable impact of approximately $0.03 per share, primarily from the timing of pack-away related expenses that benefited the third quarter.
Adam Orvos: Based on our year-to-date results and our fourth quarter forecast, earnings per share for the 52 weeks ending February 1st, 2025, are now expected to be in the range of $6.10 to $6.17 versus $5.56 last year.
Adam Orvos: As a reminder, last year's fourth quarter and full year results included an extra week that benefited earnings by approximately 20 cents.
Adam Orvos: Total sales are projected to decline one to three percent. As a reminder, last year's extra week contributed 308 million dollars to sales.
Adam Orvos: We expect operating margin to be in the range of 11.2 to 11.5% versus 12.4% last year.
Adam Orvos: Last year's fourth quarter included an 80 basis point benefit from the extra week.
Adam Orvos: This outlook reflects lower merchandise margin as we continue to increase the penetration of quality branded merchandise, partially offset by lower incentive and freight expenses.
Net interest income is estimated to be about $35 million.
Adam Orvos: And weighted average diluted shares outstanding are projected to be about 329 million.
Barbara Rentler: Now I'll turn the call back to Barbara for closing comments.
Thank you, Adam.
Barbara Rentler: To sum up, we believe we have opportunities to improve our merchandise execution and remain confident that our ongoing focus and commitment to delivering the most compelling values possible will best position our company for profitable growth over the near and long term. At this point, we'd like to open up the call and respond to any questions you might have.
Speaker Change: Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press the star key followed by 1 on your telephone keypad. A confirmation tone will indicate that your line is in the queue. You may press star 2 to remove a question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Speaker Change: In order to give everyone a chance to ask a question, we ask that you limit yourself to one question only. Thank you. One moment please while we poll for questions.
Speaker Change: And the first question comes from the line of Matthew Boss with J.P. Morgan. Please proceed with your question.
Matthew Boss: Great, thanks. So Barbara, could you elaborate maybe on the opportunities to improve merchandising execution that you cited?
Matthew Boss: Any assortment changes for holiday or just your confidence in two to three comps for the fourth quarter? And then Adam, as we think about gross margin, maybe just gross margin relative to plan, especially on the merchandise margin side in the third quarter, and any differences in drivers as we think about fourth quarter puts and takes relative to the third?
Sure, Matt. So first, opportunities to changes in the assortment.
Matthew Boss: I think we had some execution issues in a couple of businesses that we've identified and that we think we can correct. Didn't probably move as quickly as we should have in some things, where there were some, I would say, shifts.
Matthew Boss: in the world from a product perspective. So I feel like that's an opportunity and we missed some volume there.
Matthew Boss: And also, as we continue to iterate on our brand strategy and keep improving the brand strategy, listening to the customer and making those changes. So that continues. In terms of the fourth quarter and the acceleration and guiding to two to three,
You know as you get into the fourth quarter
Matthew Boss: you know those businesses accessories have been strengths for us so as we go into that into that period we're going to some of our strongest businesses and also you know gifting last year in a lot of our home world was very good and we're building on that.
Matthew Boss: So, I feel like those businesses, you know, should do well.
during the period. They're doing well now.
Matthew Boss: And, you know, that gives us the confidence on the two to three and again, we'll continue to iterate on our other strategies in the remainder of the box and where we had some execution issues. We are in the process of, you know, fixing them and obviously, you know, we had some weather issues and in Q3 that, you know.
Matthew Boss: Who knows what will happen from a weather perspective across the country for any of us, but we also had some of that.
Speaker Change: And Matt, on your question on Q3 and Q4, I would, I'd probably start with merchandise margin.
Speaker Change: and I mentioned a decline by 60 basis points in Q3. Now that result benefited from better than expected strength results as we completed our physical inventory process and trued up our results.
and Q3.
Speaker Change: And then looking forward to Q4, probably an uptick in pressure for merchandise margin as we continue to push to offer more brands that are sharply priced to deliver the strong value proposition that we want for our customers in the holiday season.
Speaker Change: would expect that to be comparable. Distribution costs, again, were another source of strength for us. We mentioned the pack-away shift that we have to take into account, so that was worth three cents.
That will put pressure on us in Q4. Incentives...
Speaker Change: both on both sides will continue to be favorable. We would expect in fourth quarter as we're again up against a 2023 where we were outperforming in a significant way.
Speaker Change: And then lastly, obviously, we have the 53rd week impact that we talked about.
Speaker Change: And the next question comes from the line of Mark Altschwager with Baird. Please proceed with your question.
Speaker Change: Thank you for taking my question. Barbara, you're going to be passing the reins here in a few months but remaining in an advisory role. Maybe speak a little bit more to your areas of focus as you transition your responsibilities.
Speaker Change: Relatedly, merchant team still seems to be in the early innings of this value strategy or brand strategy iterating there. I guess, any changes to expect there or could anything change there with the new leadership? Thank you.
is really the key to our market share gain.
Speaker Change: I don't foresee that, but it will continue to iterate, and that's really where I will spend my time. Obviously, Jim is a very seasoned...
CEO.
and he compliments the strengths that we have.
Speaker Change: in Merchandising and our Operational Team, so I feel like Jim is a great add.
Speaker Change: and you know the team it'll be a good combination together and my role be to make sure that you know merchandising continues going forward and that Jim gets transitioned.
appropriately.
Thank you. Best of luck over holiday.
Speaker Change: And the next question comes from the line of Paul Leshway with Citigroup. Please proceed with your question.
Speaker Change: recognizable brands and how quick you can fix those issues. And Adam, any quantification of that shrink benefit, how much it helped the merch margin line, and then also curious if you could talk about the performance of some of your initial store openings in the Northeast, thanks.
The execution, the execution issues are.
Speaker Change: I would say merchandise mixed issues, not so much on the brand thing. However, you know, the brand strategy, we keep iterating on that and keep listening to the customers. We keep making changes.
as we go.
Speaker Change: So obviously, you know, as we started this in the beginning, I said each business is at different points at the starting point to where we are now. And so, you know, we keep.
keep responding to what the customer is telling us.
Speaker Change: So I would say that across the board, we'll continue to do, and just some things were just, you know...
execution issues.
which we can fix.
Speaker Change: Paul, it's Michael Hartshorne. On the shrink, we don't break out shrink separately. What I would say is we, and you know this covering us from over the years, is we completed our physical inventory in the in the third quarter.
Speaker Change: We had assumed that shrink was going to be worse for a couple reasons. One, just the external landscape, but also the increased number of brands in the store. So what that meant is we accrued more going up to physical inventory.
Speaker Change: And so we took a benefit, a larger benefit, in Q3 that helped even margin.
Speaker Change: not only versus what we guided but versus last year. For the year though shrink looks like it's going to be about flat to 2023 again with the upside in the in the third quarter.
Speaker Change: Your last question, Paul, was on the Northeast. It's too early to comment on the overall store productivity, but we are pleased with what we've seen thus far.
Speaker Change: And the next question comes from the line of Lorraine Hutchinson with Bank of America. Please proceed with your question.
Speaker Change: Thank you, good afternoon. As the branded strategy continues to evolve, do you view this as a multi-year merchandise margin headwind and are there other offsets that you're working on to ease some of this pressure in 2025 and beyond?
Speaker Change: Lorraine, our expectation is over time that as we build our brand relationships and as we learn what works best with our customer that over time it would be earnings accretion.
And we'd expect slight improvements of margins over time.
Thank you.
Speaker Change: And the next question comes from the line of Chuck Grom with Gordon Haskett. Please proceed with your question.
Speaker Change: Thanks. Good afternoon and congrats on your upcoming retirement, Barbara. Can you talk about the cadence of sales throughout the quarter and then also the composition of the comp between traffic and ticket and then if you could double click on ticket between UBT and AUR. Thank you.
Speaker Change: Sure, on the cadence during the quarter, comps were strongest early in the quarter as the weather became more difficult gradually as we moved through the quarter We did see improvements in sell-throughs and markets when the weather became more seasonable
Speaker Change: As we said in the commentary, the comps were driven by traffic. The other components of comp were relatively neutral.
Speaker Change: And the next question comes from the line of Simeon Siegel with BMO Capital Markets. Please proceed with your question.
Speaker Change: Thanks. Hi, everyone. Good afternoon. Can you dig in a little bit more to the brand strategy pivot? I guess just first, maybe to contextualize, how meaningful is the shift within the mix? Maybe as the early reception, just curious if you're seeing learnings from or feedback from vendors or consumers, and then maybe just following up on Lorraine's, just recognizing the merch margin pressure now. I'm just wondering, ultimately, with better brands.
Speaker Change: Do you think you get to raise price there to fix that margin pressure if so long does it take and before maybe the customers can accept those higher price points at the stronger value? Thank you.
Acceptance, I'll say, of all branches.
Speaker Change: you know, in many of these businesses, these are not major brand shifts, right? And so I just want to, you know, emphasize, you know, that the brand shift is good, better, best.
All kinds of values and pricings, moderate and above.
Speaker Change: And so, in some businesses, the brand shifts weren't that great because they were already at the, I would say, appropriate level that the customer was responding to and really liked. And so we didn't do it. In other areas, we felt like we needed to make bolder moves.
Speaker Change: And ladies, we felt like we needed to make all the moves that we have. And so we're at, again, we're at different journeys and different acceptance levels by the customer based on what the product is and the area that it is. So it's not just, um...
Speaker Change: a straight line that I could say, hey, this is where we are completely on the journey. Some places we feel that we're there, and in other places we feel like we have a long road to go. We have a ways to go in figuring out exactly what it is she wants.
Speaker Change: And that really tends to be more and more in our ladies' business. And as you know, ladies' is a tougher business.
Speaker Change: And so we're learning, merchants are shifting as the customer is voting, and we want to get that right mix of, you know, the right brands that you like.
Speaker Change: and a mix of good, better, best at the level that she enjoys. And we want to just make sure in the entire thing that we're giving compelling values there, particularly in ladies, as ladies is a tough business always compared to other parts of apparel.
it so I think that's a would you
Speaker Change: I'm sorry, so would you expect AUR to naturally progress higher through this or is it not that meaningful?
No, not necessarily. It's not an AUR strategy.
Speaker Change: It's really a brand and value strategy, so we're not going in and saying we want to raise RAUR by X.
Speaker Change: We're putting out different brands at different, you know different levels in a good better best and then
Speaker Change: and it's seeking its own level with customers. We can see what they would say like more than others and making adjustments as we go.
Speaker Change: It's just that some businesses didn't have to make it as big a move, perhaps, because the lady assistants had to make. But it's not an AOR strategy. It's a value strategy at All Brands here, so that we're addressing all the customer base, right? So we have customers
Speaker Change: who like every price point, and we want to make sure that we fine-tune that so that we can consider, that we can still
Speaker Change: give that treasure hunt experience to all customers in the store.
Speaker Change: So, you know, it's a, you know, it's a learning and an adjustment as we go. And we think that ladies will continue to improve as time goes on. And some other businesses are, again, some are tweaks and some are bigger moves. And the merchant team is very, very on this and we are very focused on value.
Speaker Change: Because delivering compelling values is really the single most important thing we need to do for our future and for our market share gains.
Great, thanks very much. Good luck for all of you.
Speaker Change: And the next question comes from the line of Adrian Yee with Barclays. Please proceed with your question.
Adrian Yee: Good afternoon and Barbara, congratulations on your retirement, your upcoming retirement as well.
Speaker Change: So just to sort of like, sorry, another question on this. Have you, have you given any color on?
Speaker Change: What the kind of brand penetration or the tweaking that you've done like how much tweaking is it?
Speaker Change: you know, mid-single-digit percent of the assortment. And I know it's going to be very, very hard to kind of do that on a global basis.
Speaker Change: but any color there on the amount more in brands. And then Michael.
Speaker Change: or Adam perhaps if you can help give us some color on
Speaker Change: for the differential and I guess it'll be different per brand what the differential to kind of the current
Merck's Margin is.
Speaker Change: So, if we do have kind of merge margin pressure, is the offset to come from leverage from just, you know, gaining, you know, higher than a historical kind of one to two comp? Is that the, how we should think about it? Thank you.
Speaker Change: I'll start with your last question first. It's Michael. How we see our operating margins going forward, obviously we, you know, we have a model over time driven partly by
Speaker Change: new store growth, comp growth, which has historically been in the three to four percent range.
Speaker Change: and some operating margin improvement in the middle and in our share buyback.
Speaker Change: We have initiatives throughout the company, whether it's technology investments, whether it's cost control.
Speaker Change: to be able to offset any impact to merchant margins. As I said though earlier, over the longer term,
Speaker Change: We believe that we can grow merchant margins from this base, based on our vendor relationships as this gains traction and also as we learn more about what the customer wants.
And in terms of the penetrations, I mean, you know,
Speaker Change: That's right. It's hard to do. You're right. You can't do it at you can't do it at a global level it's different by business and So it's hard to do that. I think that's the thing, you know If we started this whole brand thing, you know And and as I sit back and we've been talking about we've been talking about friends. We always had random
Speaker Change: Well, what we realized is that in some getting surveys and feedback and everything, in some areas we needed more. What more is?
Speaker Change: You know it's something that you can't I can't pick a number and say hey This is what we're going to march to because the customer has to decide what that is I think the most important thing for us to recognize and for everyone to recognize is that we're responding to what she's saying
Right and so and then making changes to it
It's hard to just pick a, it can't pick percent.
Speaker Change: In some areas, you know, if we were talking about an area like shoes.
Speaker Change: We are highly branded, we are highly branded, you know, there weren't so many, so many changes. So it just, it depends what it is. I can't, I can't give you one.
Speaker Change: one number. And the other thing, it will seek its own level. And we'll know when we've got to, like in some businesses where we feel like we are where we want to be, you know, in some of those businesses we'll know. We'll know by deterrence, we'll know by the markdown, we'll know by how quickly the merchandise is moving through the store and, you know,
Speaker Change: I think that's really the way to go, which is why it's kind of hard to just quantify, here's where we're going, because the biggest mistake we can make would be picking a number and just kind of really...
Speaker Change: forging forward to a very large number that maybe is incorrect. So we started out with a number to begin, and we keep iterating again on what she's.
Speaker Change: what she's telling us. And that can be different by by products and it can be different by where I am in in some of our businesses.
for classifications.
Speaker Change: And the next question comes from the line of Brooke Roach with Goldman Sachs. Please proceed with your question.
Good afternoon, thank you for taking our question.
Speaker Change: Barbara, can you comment on what you're seeing in the macro backdrop for the Ross Stores consumer? Outside of the weather events that we saw this quarter, have you seen any change in the way that the consumer is engaging with the brand?
Speaker Change: And then as a follow-up, it sounds like DeeDee's is still outperforming the Ross Stores banner. What insights are you gleaning from that regarding your low-income consumer, or is that an execution differential? Thank you.
Speaker Change: It's Michael Artson. I'll start with the DDs. First, it potentially is the DDs group and merchants have done a very nice job and we're happy with the adjustments.
we've been able to make in the DeeDee's chain.
Speaker Change: They've been able to improve our value and fashion offerings, and it's resonated very well with the customer and DeeDee's outcome for us for the quarter.
Speaker Change: One bright other bright spot for Deedee's is the newer markets where we slowed growth have improved but we need to see given that their sales volume started at levels below our expectations we'll need to see sustained growth there before we ramp up new store growth in some of those newer markets.
Speaker Change: Give me give me more flavor around what what you want as you're saying the customer engaging with the brand.
Speaker Change: You're just saying that... Is there any change in the macro or consumer engagement with your business as we've moved through the early holiday season outside of the weather events?
Speaker Change: You mean just as the customer, now that weather is gone, is the business improving and is the customer out shopping again? Yes.
Speaker Change: I think I think when you know I think if we went through this third quarter you know I think you know it started the third quarter started off strong then weather came and then obviously as Michael said before as the weather changed by region we watched the consumer come back so part of it is part of it is weather and then you know you know there's a lot of shifts going on as holidays coming earlier this year so I think part of it is just that and I
Speaker Change: You know, an earlier Christmas I think might change a little bit of the dynamics of how the customer is going to shop.
Speaker Change: You know, it's been a long time since we've had Christmas a week for so but yet coming coming out of the out of the weather The customer did did come back
Speaker Change: Brooke, from just a customer basis on whether an income basis or age basis, we have not, we did not in Q3, we haven't seen over time a significant shift on that basis either.
Speaker Change: And the next question comes from the line of Alex Strayton with Morgan Stanley. Please proceed with your question.
Alex Strayton: Perfect, thanks so much. I just wanted to focus on the fourth quarter guidance. Is it correct that the outlook hasn't changed much from last time we spoke except for the the pack away shift?
or have some pieces of them that are moved.
Alex Strayton: And then just on the comp acceleration that you're still embedding, should I just assume that that's reflective of what you're seeing quarter-to-date or what gives you the confidence there?
Speaker Change: On the guidance it hasn't changed. The only thing that's changed is Prakoway. On the guidance itself, first, the unfavorable weather had a negative impact on the third quarter that we're not expecting in the. [inaudible] We're not expecting that. We're not expecting that.
Speaker Change: fourth quarter. We'll see how it plays out. As Barbara mentioned earlier, as we move into the fourth quarter, many of our merchandise areas that have been performing well are important fourth quarter and holiday businesses.
Speaker Change: And the next question comes from the line of Michael Benetti with Evercore. Please proceed with your question.
Hey guys, congrats on a nice quarter.
Speaker Change: This is a really big margin beat for a one comp, guys. Is there any near-term change in the leverage point we should think about, or could you help us contextualize what you think?
Speaker Change: This in this quarter would not repeat if in a theoretical if we saw one comp again and then on the brand a good strategy
Michael, on the first piece.
Speaker Change: Our EPSB, you know, we talked about merchandising, merchandise margin coming in better than expected related to strength. I would say we also felt good about just our overall, you know, cost management within the quarter. So multiple parts of the P&L benefiting. Now does that change our leverage point? No. We still think three to four percent comp growth is the right place.
Speaker Change: for us to leverage. The shrink is obviously a one-time piece, right? Because we true up in third quarter as we always do and then of course the pack away is one time in nature.
Speaker Change: So I think the only other moving part that we haven't talked about we EPS benefited by higher Interest income that you know that what embedded in our guidance is some pressure You know assuming further rate cuts the balance of the year
Speaker Change: Michael, we don't, our leverage point hasn't hasn't changed. As Adam said, we had a lot of one-timers in the in the quarter. Looking forward and even longer term, the leverage point is is pretty constant between three and four percent.
Speaker Change: And the next question comes from the line of Dana Telsey with the Telsey Advisory Group. Please proceed with your question.
Dana Telsey: Hi, good afternoon, everyone. As you think about the implementation potentially of tariffs going forward, how do you think of your assortment and pricing relative to the tariffs that may come into place and remind us of what happened last time?
And then when you think about...
Dana Telsey: and some of the changes in management like with DDs, any holes to fill or with this branded strategy, is anything shifting within DDs also, given the improved results that we've seen there? Thank you.
Dana, on the terrace, where we'll be, are closely monitoring...
Speaker Change: any developments there. I'm sure everybody across the industry is doing so. It's too early to say what the potential impact could be on us and the rest of retail. Our focus in the case of a tariff increase would to...
Speaker Change: be to maintain a pricing umbrella versus traditional retailers and offer the best values to the customer. We will not be a leader in raising prices.
Speaker Change: And in terms of DDs, DDs has their strategy in place that they've been working on and that'll just continue.
Speaker Change: So there won't be any other new strategies or additional changes. They'll just be building upon their successes.
Speaker Change: And the next question comes in the line of Ike Boruchow with Wells Fargo. Please proceed with your question.
Speaker Change: Hey, guys. Adam, sorry if I missed it, but can you give us maybe an update on freight in the fourth quarter, and then maybe just high-level State of the Union, domestic, and ocean into next year? Just how we should expect that line item to kind of progress based on what you have in front of you right now.
Speaker Change: Yeah, Ike, on the domestic side, so 40 basis points of...
Speaker Change: of improvement in Q3, probably expect something similar in Q4. It's been tracking pretty consistently all year. On the ocean side, it was a negligible impact in the quarter. You know, in the short term, we would expect that. Obviously, we're watching some of the potential disruptions.
Speaker Change: you know, watching for the resolution of the strike issue that would impact the East Coast ports and the Gulf ports. So we're watching all those things, but with what we know right now, don't see that as anything other than neutral.
Speaker Change: And then we'll have to see as, you know, we'll come back and talk to you at the beginning of the year on how we see 25 and beyond and once we get into the bidding process for next year.
Speaker Change: And the next question comes from the line of Jay Soule with UBS. Please proceed with your question.
Jay Soule: Great. Thank you, Barbara. I'm just wondering if there was anything related to inventory availability or just timing of buying that sort of contributed to some of the issues for an execution that you decided that impacted Q3. Thank you.
Speaker Change: Well in terms of inventory availability, you know, it's favorable. Again, some businesses have more availability than others. In terms of the impact of buying to Q3, I'm not sure I understand what you mean Jay, by that.
Jay Soule: Just just that we have that we were buying or just or does that contribute to the quote of performance? I'm not sure which won't be to answer. [inaudible]
Speaker Change: Right, but perhaps, like, did you buy too much inventory too soon, not leave enough open to buy? Did you sort of...
Speaker Change: No, I don't think that was part of the issue, and in fact, in seasonal businesses, you know, we leave money open, you know, things like Alder or whatever, because, you know, history would tell us that
Speaker Change: that you know you don't know how it's going to start and so we leave the merchants leave liquidity so that we don't get caught with that so no I don't think it has to do I don't think it has to do with the speed of what we bought or you know I think it's just
Speaker Change: Some of the choices we made or didn't make and but it has nothing to do with that
Speaker Change: And the next question comes from the line of Marnie Shapiro with Retail Tracker. Please proceed with your question.
Marnie Shapiro: Hey guys, thanks. Congratulations on the hire and Barbara, you will be missed.
Marnie Shapiro: I have a quick question for you. The dollar stores collectively have been under a lot of pressure and have made announcements that they're closing a lot of stores.
Marnie Shapiro: compete with them in similar areas? Is there an opportunity as they close stores? If you've seen some of those stores close already, and you've seen the customer for certain items shift over to you, if you could just frame that a little bit because it's obviously a big retail conversation.
Speaker Change: Yeah, I don't have the exact number of stores. Obviously, smaller footprint, a lot more consumables than what we have in DDs.
Speaker Change: So, I would say it's hard to see any impact, very different merchandise mix.
Speaker Change: So could there be some upside? Potentially, but given what's in the box, I don't see it as a huge upside.
Speaker Change: It's really consumable, Marni. That's really, their business is so big and DD's does a business in consumables, but I think that's the, I think in what they have in there, I think that's probably, to Michael's point, that's probably the biggest overlap slash potential opportunity.
Speaker Change: And the next question comes from the line of Anisha Sherman with Bernstein. Please proceed with your question.
Speaker Change: Thank you for taking my question. Barbara, if I can ask a follow-up on the brand strategy. So you talked about good, better, best.
Speaker Change: Are you seeing any differences in the performance of the good versus the best in terms of sell-through and velocity?
Speaker Change: And then a follow-up on the weather comment, you said the weather impact to comp was about 1%. As we've come out of some of the weather issues, have you seen the comp run rate in those impacted stores improve by about that magnitude coming out of the back half of the quarter? Thank you.
Speaker Change: On the weather, yes we did and I said previously we did see improvements in sell-throughs in markets where weather became more seasonable within Q3.
Speaker Change: And then on a good, better, best, you know, we turn goods overall very quickly in the store.
Speaker Change: The overall turn on apparel is very fast. So, I think when we own, I would put it this way, when we own the right goods at the right value, it all turns very quickly.
Speaker Change: If we own the wrong good, it doesn't turn as quickly.
So, but overall, the entire box.
Speaker Change: You know, we turn, we drive receipts. It's our mission is to drive receipts.
Speaker Change: And the next question comes from the line of John Kernan with TD Cowan. Please proceed with your question.
John Kernan: Excellent thanks for taking my question. Maybe just to go back on the real estate theme.
whether it's raw stores, DDs, your competitors, and TJX,
John Kernan: two, three, five years. How is the real estate availability for raw stores and across really regionally northeast, west, southeast, all countries there? What's your view on the overall availability outlook and the quality of real estate for our first retailer now?
John Kernan: Sure, John. I'd say overall we feel good about what we have in, you know, the real estate landscape and we have a healthy pipeline.
Speaker Change: For the next couple of years, I would say, you know, real estate is tight. There's not a lot of
Speaker Change: and for us there's increased interest from other retails and the types of real estates that we typically prefer. That said, you know, we have a very strong team that has a methodical process of developing a healthy real estate pipeline to support our growth plans over the next number of years.
Speaker Change: And the final question comes from the line of Laura Champagne with Loop Capital Markets. Please proceed with your question.
Speaker Change: or responsibility set and also Barbara to the extent that you're comfortable talking about it I think this is a pretty insular industry especially as you move up the ranks why is now a good time to bring someone in from outside off-price from a smaller company?
Speaker Change: Okay, so, responsibilities, you know, reporting to him will be two...
One 25-year-plus veteran and the other 30-year-plus veteran.
Speaker Change: So I think from a virtual perspective and tenure and below that level
Speaker Change: The group, the average tenure is around 20 years below them. So I feel like I think that's fine. I actually think it's good. I think so. He's got a very strong bench below him that understands off price and, you know.
Speaker Change: Yeah, I mean, I'm very comfortable that the mix is good and actually I think Jim compliments some of the talent that we have in the organization.
Speaker Change: In terms of timing, a year and a half ago, in June of 23, we announced internally, externally, that I was going to step down. And the agreement was, that with the board, that if we found the right person, looking internally, externally, the whole thing, when we found the right person,
Speaker Change: And that, to me, is in the handoff. That's critical, right? So, I do. I think Jim is the right person. And so, and, you know, obviously, there's a lot of tenurant loss of people who've been here a long time. Not only me, but Michael and Norman. You know, there's a lot of people here who've been here a long time. So...
Speaker Change: and Jim will learn the business. It had nothing to do with, you know, we have our brand strategy. You find the right person, Laura, I mean, you know, when it's right, it's right and Jim is the right person.
Speaker Change: And so that really was a decision, and I was part of that decision, so I feel good about it. And clearly, we're going to make sure that Jim is successful, because we have him pretty surrounded by true off-pricers and veterans who have been doing it.
Speaker Change: I'm getting older as I'm saying this to you, for years and years and years, but that's really, that's really what we've done. And that's really, that's really why the timing kind of, you know, is earlier, but I.
Speaker Change: Again, when you find the right person, I'm sure you've all done searches, everyone on this call, when you find the right person, you really have to, you know.
Speaker Change: really have to jump on, I'm going to say jump on the opportunity being an off-pricer, right? So, you know, everything is opportunistic and so I think the timing is, is, is, you know, good for the company and he'll be supported all along the way.
Speaker Change: And ladies and gentlemen, at this time there are no further questions and I would like to turn the floor back over to Barbara Rentler for any closing comments.
Barbara Rentler: Thank you for joining us today and I hope everybody has a happy holiday.
Speaker Change: And ladies and gentlemen, that does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
And I'm Barbara Rentler. Hota waka waka whak more.
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