Earnings Transcript for GPS - Q3 Fiscal Year 2023

Operator: Good afternoon, ladies and gentlemen. My name is Brianna, and I will be your conference operator today. I would like to welcome everyone to The Gap, Inc. Third Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] I would now like to introduce your host, Emily Gacka, Director of Investor Relations.

Emily Gacka: Good afternoon, everyone. Welcome to Gap Inc.’s third quarter fiscal 2023 earnings conference call. Before we begin, I’d like to remind you that the information made available on this conference call contains forward-looking statements that are subject to risks that could cause our actual results to be materially different. For information on factors that could cause our actual results to differ materially from any forward-looking statements as well as the description and reconciliation of any financial measures not consistent with generally accepted accounting principles, please refer to the cautionary statements contained in our latest earnings press release. The risk factors described in the Company’s annual report on Form 10-K filed with the Securities and Exchange Commission on March 14, 2023 and any subsequent filings with the Securities and Exchange Commission, all of which are available on gapinc.com. These forward-looking statements are based on information as of today, November 16, 2023, and we assume no obligation to publicly update or revise our forward-looking statements. Joining me on the call today are Chief Executive Officer, Richard Dickson; and Chief Financial Officer, Katrina O’Connell. With that, I’ll turn the call over to Richard.

Richard Dickson: Thank you for joining our third quarter earnings call. In the nearly three months since I joined Gap Inc. as CEO, I’ve hit the ground running, immersing myself in the business, assessing brands and functions, and meeting people in every corner of the Company. I’ve met many of our customers and employees, visiting stores across the country. I’ve also met with many of you, our shareholders, to hear your views and understand your perspectives, and all of this has been incredibly insightful. Today, I’ll share my initial observations and priorities. Then, I’ll hand it off to Katrina, who will walk you through more detailed financial results, before we take questions. The four areas I’ll discuss today are

Katrina O’Connell: Thank you, Richard. We’re pleased to report third quarter results ahead of our prior expectations, gaining market share despite overall declines in the apparel market. We remain focused on the discipline we’ve created around margin recovery, expense actions, inventory management, and maintaining a strong balance sheet. As Richard noted, our operational and financial rigor will be foundational as we turn our attention to the reinvigoration and relevance of our storied and important brands. Let me start with some highlights of our third quarter financial performance before going into more detail. Net sales down 7% and comparable sales of minus 2% drove market share gains in a challenged apparel market and exceeded our prior expectations with recovery at Old Navy and consistent execution at Gap brand. Old Navy drove a positive 1% comp with strength in women’s and kids and baby during back to school, meaningful improvement from the first half, resulting in market share gains. Gap brand showed underlying strength in performance with women’s resonating as the brand lapped the last quarter of the Yeezy product sales last year, with only a negative 1% comp for the quarter. We drove 260 basis points of adjusted gross margin expansion, resulting from assortments that resonated with customers, which combined with well-managed inventories, led to improved promotional activity. Margins also benefited from the beginnings of lower commodity costs. We delivered on our SG&A expectations of $1.3 billion despite sales above our prior guidance, all of which resulted in the Q3 adjusted operating margin of 6.8%, a 290 basis-point improvement versus last year. Inventories were down 22% year-over-year and remain well-controlled, driving better profitability and working capital. We ended with $1.4 billion of cash on the balance sheet, up 99% to last year, and we are pleased to have repaid our asset-based line of credit as we previewed. Year-to-date free cash flow is $544 million and we are maintaining our competitive dividend, an important part of returning cash to shareholders. Let me now turn to our third quarter results. Net sales of $3.8 billion decreased 7% versus last year, with comparable sales down 2%. As a reminder, the sale of Gap China last year had about a $70 million or 2-point negative impact to Gap Inc. total net sales growth. Let me now provide sales results by brand. Starting with Old Navy. Net sales in the third quarter were $2.13 billion, down 1% to last year. Comparable brand sales were up 1%. For the third quarter in a row, Old Navy gained market share, an encouraging early proof point that work to improve both product assortment and brand messaging are driving results on the path to unlocking Old Navy’s potential. Turning to Gap brand. Gap brand total sales of $887 million were down 15% versus last year. Excluding the estimated negative impact to sales of 7 points related to the sale of Gap China and 2 points due to the shutdown of Yeezy Gap, net sales were down 6% versus last year. Comparable sales were down 1%, and we believe signs of progress in building momentum at Gap are beginning to emerge. Banana Republic third quarter sales of $460 million declined 11% versus last year. Comparable sales were down 8%. As Richard noted in his prepared remarks, Banana Republic has made progress in elevating the brand aesthetic and product offering. However, evolution takes time, and we know that there is work to be done to evaluate how to best engage and retain the premium customer. Athleta sales of $279 million declined 18% from the prior year. Comparable sales were down 19%, as we lapped elevated discount levels, while we work to reset the brand for the long term. We will continue to lap elevated discounting that took place last year for at least the fourth quarter. Now, turning to gross margin in the quarter. Gross margin was 41.3%, an increase of 390 basis points versus last year’s reported gross margin. Compared to last year’s adjusted rate, gross margin expanded 260 basis points. Merchandise margin expanded approximately 340 basis points versus last year’s adjusted rate in the quarter, driven by approximately 180 basis points of leverage from improved commodity costs and lower air utilization, with the remaining 160 basis points of leverage, primarily driven by improved promotional activity, enabled by our better inventory position and stronger assortments. This was better than our expectations, particularly as Old Navy and Gap outperformed in the quarter. Rent, occupancy and depreciation declined on a nominal dollar basis versus last year. As a percentage of sales, ROD deleveraged 80 basis points, better than previously expected, given the stronger sales. Now let me turn to SG&A. Reported SG&A of $1.3 billion includes approximately $5 million in restructuring charges. On an adjusted basis, SG&A declined 7% compared to last year, as a result of our organizational changes and other cost actions. As a percent of sales, adjusted SG&A of 34.5% improved 30 basis points versus last year’s adjusted rate. Reported operating income was $250 million. Adjusted operating income, which excludes restructuring charges, was $255 million in the quarter, up $99 million versus last year. Adjusted operating margin improved 290 basis points from last year to 6.8% in the quarter, driven primarily by the improvement in adjusted gross margin. Third quarter net interest was flat, as interest expense was offset by higher earned interest on cash deposits, which we expect to continue in the fourth quarter. Our third quarter tax rate of 13% included a benefit from the impact of foreign operations. Reported EPS was $0.58. Adjusted EPS, which excludes restructuring charges, was $0.59. Share count ended at 371 million. Turning to balance sheet and cash flow, starting with inventory. Ending inventories declined 22% in the third quarter versus last year. We will maintain this inventory discipline, utilizing our responsive levers to chase trends and continue to expect that we will end the year with inventories down roughly 15% from the prior year. Quarter-end cash and equivalents were $1.4 billion, an increase of 99% from the prior year. Year-to-date net cash from operating activities was $832 million, driven primarily by lower inventory levels. Capital expenditures were $288 million. We are pleased to have generated free cash flow of $544 million year-to-date. We remain committed to delivering an attractive quarterly dividend as a core component of total shareholder returns. During the quarter, we paid a dividend of $0.15 per share. On November 7, 2023, our Board approved maintaining that $0.15 dividend for the fourth quarter of fiscal 2023. And finally, we’re pleased to have paid down the remaining $150 million balance and are now undrawn on our asset based line of credit. Now, turning to our outlook for the remainder of fiscal 2023. Starting with sales, the following factors are considered in our outlook

Operator: Thank you. [Operator Instructions] Our first question comes from Adrienne Yih with Barclays. Please go ahead.

Adrienne Yih: So, Richard, here’s a question I have for you. I get where the brands are pretty well established or maybe Banana, Athleta. But the one that really, for 20 years, has sort of wandered, I would say, like, kind of moving up, moving down is Gap. But, you’ve been there a 100 days or three months or so, can you give your sort of like initial kind of feeling on what Gap stands for? And how do you corral sort of the entire Gap for an organization to get to that 10-point target? And then, for Katrina, are your inventory turns back to pre-pandemic levels? If you are going to end the year at down 15%, can you structurally comp all year, just by turning faster? Is that how we should think about that? Thank you very much.

Richard Dickson: And I do appreciate the question specifically on the Gap brand, which really is an incredible heritage brand in our portfolio, let alone a heritage brand in pop culture. And really to understand where we are with Gap, you really need to unpack all of the puts and takes. We’ve taken serious steps to meaningfully change the health of Gap brand. And over time, this has created what we believe is a much healthier core from which we’re now enabled to really reinvigorate the brand and grow. We strategically moved to a more profitable model, and we took action to optimize the retail footprint, and we’ve closed hundreds of stores. We’ve moved to a capital-light, international franchise model and partnered with our China and European markets. We’ve also been growing our online presence, but we recognize that we have been not as prominent on top of key trends, and we need to market our core categories in a much more relevant and meaningful way. This is going to take time. The third quarter results do provide some really early proof points that our healthy core is showing signs of strength. We are going to continue to build upon this, as we reignite the brand. As we talked about and as you call out, the reignition of a brand when we sum it up, stands for relevance and revenue. And each one of our brands is in a different place of reinvigoration, but the methodology to reinvigorate our brands is similar. And in Gap’s case, we are really building upon defining a stronger, more crisp identity, working on trend right product assortments with a very clear point of view, that will deliver not just on the needs but also on wants. Our merchandising presentations have already improved in our stores. They are starting to deliver great storytelling that excites our customers with a real edited point of view. If you go online today and if you’ve been tracking our brand, you will see a much more definitive, creatively consistent marketing story in our online experience. So, our storytelling is going to be much more prominent. And we are going to start to really infuse Gap in the cultural conversation. So stay tuned and keep watching all the touch points as we continue to reinvigorate the brand.

Katrina O’Connell: And then, Adrienne, as it relates to inventory, if we end down 15 at the end of this year, that translates to being down about 6% to 2019. So, I would say, we are back to having reasonable inventory levels for the Company. And, as I said in my remarks, our goal will be to remain very disciplined on inventory. I think, we continue to see that that enables us to grow gross margins through lower promotions, but it also allows us to utilize our responsive levers to chase trends closer into consumer demand, which also allows us to be more relevant and also allows us to then achieve higher gross margins. So, we’ll see where the inventories land for next year, but overall that inventory discipline will remain. And I think chasing trends through inventory responsiveness will be the lever that helps us turn faster.

Operator: Our next question comes from Ike Boruchow with Wells Fargo. Please go ahead.

Ike Boruchow: I guess, one for Richard and then a follow-up for Katrina, if that’s okay. So, Richard, so, you guys as a company now posted your first positive comp at Old Navy in a few years. So without being overly specific on the fourth quarter or next year in regards to guidance. Can you say at a high level, do you feel that the business has really turned a corner strategically? Do you believe this is back to a positively comping share-taking business, once again, as you look forward? And then the follow-up for Katrina. On the credit side, there’s been a lot of questions, in retail, on credit and delinquencies going up. Can you just give us some context on how you think about the potential headwinds to margins from here maybe? I don’t know if you would be comfortable giving us what credit income was as a percent of sales in ‘19, where it’s planned to be at the end of this year, or how much margin pressure should we expect if credit trends were to fully revert to ‘19? Just something that would give us a little understanding of what that potential mean reversion could look like to the margins next year would be really helpful. Thank you.

Richard Dickson: I’ll start by saying that there’s really no denying the strength of Old Navy. This is the number two apparel brand in the U.S. We’ve got an incredibly impressive footprint with over 1,200 stores. And we’ve got a very strong brand proposition delivering on fun, fashion and value for the whole family. We were really encouraged to see the progress that we made this quarter with the brand. And the result of the learnings that we applied from a more muted first half is really what’s delivering. Specifically, we focused on a dedicated women’s marketing campaign. We included on-trend product, and it drove positive momentum and market share gains. We also spent a lot of time in the quarter improving our site execution, online marketing included in that, and have designed a much more pointed, compelling, creative point of view with value messaging. I encourage you to go online and take a look as we’ve been tracking the brand. I think you’ll see that come across. That being said, we have work to do, and we need to continue to execute with consistency. As we look forward to the holiday, we’re going to offer a really balanced product range from, of course, Jingle Jammies to party and active. But I really do believe the brand is ready to compete. We’ve got a high quality inventory composition. We’re concentrated on creating great value presentations with great style. And look, as I noted, we are encouraged, but we’re focused on continuous improvement at Old Navy, and really for all of our brands as we look to reinvigorate our brands. So one quarter, very well done, incredible team execution, but consistency will be the name of the game.

Katrina O’Connell: And then, Ike, on your credit question, it’s a good one. We don’t disclose our credit card income, but to tell you we are actively monitoring the consumer environment, and that includes the inflationary cost pressures that are on either discretionary spending or on consumer credit. Maybe what I would say is the credit card income trends that we’re seeing today are all fully contemplated in the outlook we provided today. And of note, the biggest impact to date has been the change in interest rates, which has impacted the cost of funds. And that impact is already in the outlook we just provided. And then, as it relates to loss rates, we’re obviously looking at those carefully. We’re still better than pre-pandemic levels. And I would add that our file is pretty high quality. We don’t have significant subprime exposure. So, maybe all of that helps you to understand that. We are watching it carefully, but the credit outlook that we see is embedded in the outlook we provided today.

Operator: Our next question comes from Matthew Boss with JPMorgan. Please go ahead.

Matthew Boss: So Richard, on the missteps at Athleta that you cited, maybe what’s the timeline you see for stabilization when you look at that brand today? Help us to think about changes across the assortment and marketing messaging, again, relative to today. And then, Katrina, with inventory down more than 20%, just help us to think about constraints to recapturing the material headwinds tied to discounting a year ago, in the fourth quarter?

Richard Dickson: So thank you, Matthew. And specifically, look, Athleta had a disappointing quarter. It struggled recently, and the third quarter comps were very disappointing. We have begun the reset of the brand. We knew that we needed to make leadership changes in order to create a differential outcome for this powerful brand. As you know, Chris Blakeslee joined us about 90 -- maybe one or two days ago, and has orchestrated appropriate changes, which we feel confident will get the brand back on track. We’re going to be progressing each quarter. We know that a full brand reset will require a more comprehensive approach. It will take more time. It is early. I can’t quite commit to a time line at this point. What I can tell you is we are confident and excited about the long-term potential of the Athleta brand. That’s the number five brand in the U.S. women’s active segment, which is one of the largest segments in the industry. It’s got a clear and distinctive brand positioning rooted in the power of she, which is so authentic and highly differentiated as a platform. And we know that we’re lapping significant promotions and markdowns from last year, a dynamic that we expect to continue at least into the fourth quarter. But we are confident that the work that we’re doing, specifically on product has a more distinct narrative around performance based narrative measures, and we’ve also begun to refresh store presentations. The brand’s website also, I encourage you to take a look at, really pulls the Athleta’s focus back to its performance roots and of course the power of she platform. So look, these are early days. We’re seeing early indications that customers are responding, but there is more work to do.

Katrina O’Connell: And then, Matt, on the inventory side of things and discounting, I think in third quarter, we were pleased to be able to deliver 160 basis points of margin recovery in -- the margin related to discounting, which came from much less discounting than we had prior year. I think what I would say is there’s two things. First, as we said that we have brands performing at different levels right now. So, we have Old Navy and Gap that are really showing early signs of recovery, and we have a little bit of a longer recovery time line for Banana and Athleta. And so certainly, those are things to consider when thinking about margin recovery. And then, in addition to that, we are navigating a very interesting consumer environment, as we said, that has mixed consumer performance. And so we want to remain disciplined about also providing great value to our consumers. And so, we’re also remaining prudent about that balance between inventory is down, but also being able to recover gross margins, and offer discounts.

Operator: Our next question comes from Brooke Roach with Goldman Sachs. Please go ahead.

Brooke Roach: Good afternoon and thank you for taking our question. The Company has made a lot of progress this year on recovering gross margin and driving expense discipline. Can you elaborate on the opportunity to drive further margin expansion beyond this year? And provide your thoughts on how best to balance reinvesting those wins back into the brands to drive the strategic initiatives you’ve outlined today versus flowing those through to the bottom line.

Katrina O’Connell: Sure. Brooke, I think as you say, we’ve really developed financial and operational rigor to control the controllables. And as you say, this has really showed up, both in gross margins this year with our inventory levels down, which has led to fewer promotions, the discipline around air freight and the commodity recovery in the second half. As I think about the future, we are going to remain committed to healthy gross margins and well-controlled inventories. We are also going to remain committed to the discipline that we have around SG&A, and ensuring that we have that level of inventory -- or excuse me, rigor around that as well. That’s going to enable us to really turn to the brand reinvigoration that Richard articulated that is a big priority for the company, as we aspire to return to consistent profitable revenue growth over time. So, more to come when we provide an outlook. But that discipline around the middle of the P&L, we believe is really critical so that we can really have the room to focus then on the reinvigoration of our brands.

Richard Dickson: And Brooke, I’ll just add that none of the expansion on margin and the disciplines that Katrina mentioned, compromise the integrity of the reinvigoration plan, by no means. So, I think what we are experiencing right now is that we are demonstrating the discipline of operating in financial rigor that is actually enabling the focus on the reinvigoration plan.

Operator: Our next question comes from Michael Binetti with Evercore ISI. Please go ahead.

Michael Binetti: Hey, guys. Congrats on a really great quarter out of the gate here, Richard. Can I ask you -- I guess, from time-to-time, you have been willing to share where Old Navy margins are. I don’t know that we want to get into that now in much detail, but it seems like the right time to ask, if you could help us with a little bit of perspective there, as that business shifts back to positive comps, surprisingly in the quarter, pleasantly surprisingly. And then, I guess, I would ask on Athleta for a minute. I hear you on the long time frame and on the fourth quarter sales, but we did see quite a bit on sale. I mean, that banner in the quarter, seemed like a fairly heavy purchase to get a lot of inventory out. I would assume that that’s going to be -- even though the sales are down, that’s going to be a positive contributor to merch margin here, as we get into the holiday. And then maybe just your outlook on the promotional outlook for the holiday here. We heard your thought on the promos being flat to last year, but maybe just a hint what we’re going to see as we watch the promotional environment through the holiday.

Richard Dickson: Michael, we don’t provide Old Navy margins or margins for our portfolio. But jumping to the Athleta question. Look, as I said before, we did have a disappointing quarter. Comps down 19% is not where we want to be. That being said, we had significant promotions and markdowns that we took proactively from last year to this year, to clean up the assortment that had product misfires and marketing misfires and retail execution. This dynamic, we do expect to continue at least into the fourth quarter. As you go into the stores and you look online, you will already see a more distinctive narrative in both product and brand messaging. As you go into our stores, you’re going to see a much more delineated refreshed store presentation. The markdown assortment will get less and less as we move through it. But ultimately, we will be lapping a bit of challenge here on the misfires in product. I will say that we are seeing early indications, as I mentioned, that what we are rolling out in terms of new product, customers are responding. The work that we’ve done in marketing very quickly and the displays that we’re seeing in our digital dialogue are also encouraging, but we do have more work to do. And as I said before, out of our portfolio, this is a brand that’s operating in one of the most exciting segments in the industry, the performance segment is incredibly rich with opportunity. And while we are a number five player, we’ve got enormous potential to continue to grow this brand.

Katrina O’Connell: And then, I think, Michael, you asked about the overall promotional outlook for the holiday season. We were really pleased to enter with inventories down 22%. I think that shows discipline around controlling the inventories. We think that inventory is fresh and has good product offerings for the customer. I think what you saw in the outlook we provided was that we’re planning for our promotions to be relatively flat year-over-year. And, honestly, we want to make sure that we’re mindful of the somewhat choppy environment that we’re heading into for the fourth quarter with the consumer still feeling pressures. And so, our top priority will be about executing well for holiday and offering the right price-value equation for our customer.

Operator: Our next question comes from Lorraine Hutchinson with Bank of America. Please go ahead.

Lorraine Hutchinson: Katrina, I wanted to follow-up on Ike’s question on credit income. Would the CFPB proposal on late fees have a material effect on your operating income?

Katrina O’Connell: Well, Lorraine, I know there’s been a lot of speculation on that and sort of - we have nothing to quantify specifically at this time. At this point, I think 2024 will be the earliest impact of that, and we’re working with Barclays, who’s our credit partner on ways to mitigate the potential impact. So we’ll provide more of an update when we know more about the timing of that regulatory impact.

Lorraine Hutchinson: And then, as commodity costs go your way, is this something that you’d expect to pass through to the bottom line, or are there investments that you’ll make in product in any of the brands that might offset that?

Katrina O’Connell: I think at this point, that’s sort of a product by product discussion. I would say, universally, we don’t have plans to reinvest substantially the product cost back into the product. I’m sure, in certain brands and places where we think the customer will appreciate it, we might do that. But overall, I think just as we’ve been doing in the back half of this year, you’re seeing that with the recovery in commodity cost that’s leading to expanded gross margins. So I think it’s logical that that will likely continue.

Operator: Our next question comes from Dana Telsey with Telsey Advisory Group. Please go ahead.

Dana Telsey: With the improvement that you’ve seen in Old Navy and the focus on restoring growth to Athleta and to Banana Republic, are there any learnings from what you’ve done so far at Old Navy that harkens to Banana Republic and even Gap or the other divisions that can accelerate that turn? Thank you.

Richard Dickson: Yes. Dana, thank you for the question and the compliment on the quarter. What I would tell you is, when I speak about brand reinvigoration, I mentioned the two words that we drive from that are relevance and revenue. Each one of our brands is in a different stage of reinvigoration process. But ultimately, when I think about reinvigoration, it’s really strengthening each brand’s positioning statement and identities and purpose. In the case of Old Navy, as we’ve talked about, fun, family, fashion, and value. And I think even as an example, again, I encourage you to go online. You’ll see that crisp identity start to come through. It has to be about trend right product assortment with a clear point of view, that -- I talk about delivering beyond just needs, but also deliver wants, interesting pieces, interesting segments, how we can create and amplify big ideas. We’re going to consistently deliver merchandising presentations that tell stories with our product that excites our customers when they see it online and when they see it in our stores. And we’ll work on better and more engaging omnichannel experiences with clear and compelling pricing strategies, and again, encouraging in the early reads on some of the work that we’ve done reflected in our online presence and in our stores around a much more compelling and surgical price strategy. And last but not least, as we talk about, innovating through marketing campaigns that speak to cultural conversations, create it consistently and execute all of these touch points and interaction with excellence. You can’t do one or two of these and think we’ve got a reinvigoration on our hand. You’ve really go to work in harmony and do all of these. And so, while I’m very pleased with some of the progress that we’re making, in particular brands like Old Navy and Gap, we do have work to do across the portfolio, following this reinvigoration road map, and we will be updating you quarter-to-quarter on how we’re doing.

Operator: Our next question comes from Mark Altschwager with Baird. Please go ahead.

Mark Altschwager: I was hoping you could help us better understand or unpack the drivers of the improvement at Old Navy this quarter, down 6 to plus 1, really an impressive inflection in this backdrop. It did seem to be well ahead of your internal plans for the quarter. Was that just conservatism at the time you were guiding, or was there a bigger shift in product acceptance with the fall product that that you weren’t anticipating?

Richard Dickson: Yes. Thanks for the question. I think it’s important to note, we’ve been seeing market share gains in Old Navy every quarter this year. And certainly, we are very pleased with the progress that we’ve made in the third quarter. It’s important also to note that these are the results of learnings that we’ve applied from a more muted first half. I mentioned the dedicated women’s marketing campaign with on-trend product, and I think that shows the deliberate intent of when we market with conviction and we associate that with great trend product, and we carry through that message through online execution and in-store merchandising. These are muscles that we are going to be strengthening, and we saw it drove positive momentum and market share gains. And so, when we look at the continuation of that reinvigoration process, we will continue to improve our site execution, work on our marketing with compelling, creative and value messaging. Again sharp price points that express great style and great value are resonating. And we continue to believe that, we’ve got the right progress and momentum, but we need to continue to deliver that consistently. And so, as we look to the back half, you are going to see a really balanced product range with offerings like Jingle Jammies and party and active, and ultimately, a high quality inventory composition that will drive to a successful year-end for Old Navy.

Mark Altschwager: That’s great. And thank you for the color there. Maybe just to follow up, I mean, the message on SG&A this year has really been about cost savings and efficiencies. What does marketing look like at Old Navy? Is that up year over year? And what do you think -- how do you think about the right time line to really lean into marketing, at the Old Navy brand, given the momentum that you are seeing?

Richard Dickson: Thanks for the question. We don’t share the specifics of our brand marketing investments. What I would tell you however is we do a lot of marketing that could be more effective. And part of our operating and financial discipline applies to our marketing and media effectiveness. And you will be seeing a lot more, if you will, creative, consistent, bold narrative breakthrough marketing, that will drive conversion and compelling customer reactions in our omnichannel presentation, but it doesn’t necessarily mean that we are going to be spending more. It’s about being more effective with what we spend. Over the years, I’d argue that our marketing execution has been very, very tactical. And in some cases, on some brands, we’ve lost relevance and a narrative edge. But when you look at our company history, we have legendary marketing. And I am very confident that we will again, it is a critical part of our reinvigoration work. And you will continue to see more effective brand presentations and communications throughout the quarters to come.

Operator: Our last question will come from the line of Alex Straton with Morgan Stanley. Please go ahead.

Alex Straton: Perfect. Thanks for taking the question, and congrats on a nice quarter. I wanted to ask a couple of follow-ups. One just on the Old Navy. I don’t think that you called out men’s as a point of strength. So I am just wondering what’s going on there, and what would you attribute it to? And then second, maybe Richard for you, you’ve been speaking about this importance of having trend right product and assortments really across the banners. Can you just speak to, like, what type of tactics or strategies you use to implement that across the organization? Thanks a lot.

Richard Dickson: So, first off, thanks for the callout on men’s. In fact, men’s had a weaker first half, and we’ve been seeing the trend actually improved in the third quarter and I think it will continue to find some strength in the back half here. When you look at, what we talk about in terms of trend right products, I think that we’ve done a good job and arguably a very good job with providing what we call the needs. And in that case, it’s providing great basics. And what we have to do a better job of is creating the wants. And that’s where sort of the interest comes as a fashion brand, complementing our assortments with interesting, various different ways that we could leverage trend. Currently, we see trends like cozy, the sweater category working. And so, how we really prominently merchandise that in storytelling that brings, that to the highlight of a consumer experience becomes an important part of the trend presentation. The color red is trending currently, and we’re starting to react and respond in real time to make sure that we edit our assortment, both presentation wise and merchandising, to feature where we do have the color red. We’re seeing occasion work, fabrications, shine, sequin, velvet, and satin. So, you’re going to start to see reacting and responding in real time to what we see happening in the marketplace. And that may be in the kind of here and now as reaction and responsiveness. But as we look to the future, being more pronounced, driving more design and insight into our product narratives and thought process upfront is going to be part of where we head and reinvigoration for our brands. And in this business, absolutely, product is hero, and we’re spending a lot of time ensuring that we have exceptional product with exceptional value and exceptional quality. We’ve got work to do, but I’m encouraged by early stage development.

Operator: Thank you. We’ve reached the end of the question-and-answer session. That does conclude our conference call. You may now disconnect.