We’ve got strong offerings of new brands and a really strong private label business that customers resonate with. So, we’ve got some new things coming in a combination of all those things. We feel like the guidance we gave is thoughtful and encompasses both an upside and the downside scenario. And we’re just going to read the situation and react as we go much I’ve been done all year.
Michael Mullican: Yes. And going back to a year ago, there was, I think, a number of retailers weren’t happy with their inventory positions at that time, and we certainly more than we’re able to hold our own based on the strength of our inventory management. Reiterating what Steve said, we’re in an environment where we certainly believe that value will be more important in the future than it is today than it was a year ago, and we think we’re the best positioned to benefit from that.
Steve Lawrence: At the risk of tripling up, our units are down 5% on a per store basis. We feel like we’ve really leaned into this inventory management thing. And we’ve been doing it consistently.
Operator: Thank you. Our next question comes from the line of Robbie Ohmes with Bank of America. Please proceed with your question.
Alex Perry: This is Alex Perry on for Robbie. Just first, could you give us some more color on how back-to-school is shaping up? Has the July momentum that you’ve seen sort of continued? And then I think the high end implies same-store acceleration in the back half. Is that based on the trends you’re currently seeing? And then what are sort of the buckets that were driving acceleration in the back half? And then also, I think you’re lapping an Astros win as well. Can you just remind us how much of a headwind that could be to same-store sales, if that’s not repeated?
Steve Lawrence: Lot wrapped up in that question. We’ll do our best to tackle it. As we said before, we don’t give inter-quarter guidance. That being said, our back-to-school is earlier than a lot of other people. So our back-to-school really starts kind of in the back half of July. We already told you July was the best performing quarter or our best month of the quarter for us. A lot of those trends that we saw happen at the end of July carried into August in terms of strength in key back-to-school areas like youth apparel, footwear, backpacks hydration, all those things were really strong for back-to-school for us. That being said, we still have a lot of the quarter ahead of us. We’ve talked about how we’ve seen the customer shop during those key appointment-time periods.
But once you get pass back to school. Right now, we have kind of a kickoff the tailgating hunting season then we go into a little bit of a lull in the latter part of the quarter until we get to the holiday shopping time period. So we certainly got that modeled into our forecast. In terms of the Astros, we are up against Astros win. I hope you’re not counting the Astros out yet. We’re tied for first place, I think, at this point in time. And we also, by the way, have the Ranger still in this as well as braces, I think, are still in the hunt. So we’ve got a lot of teams still in the hunt. And that’s one of the kind of the fun things about the license business is that there’s always something that happens, right? And while we certainly try to take those out of our forecast, we know that if we do get one of those teams to get into the world series and when the world series, that would be upside to what we’re forecasting.
Michael Mullican: And Alex, one more thing on the license business, we’re not odds makers and we don’t take the field and play the game. We like when the local teams win, but we don’t really plan for that. No matter how strong, we think the seasons that they may have can be. So anything there that’s beneficial to us is beneficial to the forecast.
Steve Lawrence: And then back to kind of the remainder of your question, the things we’ve talked about on the call that we think give us a belief that business is — our forecast is achievable as the focus on value that we have, leaning into the newness that we have, the new store initiatives where we’ve got somewhere between 14, 15 stores this year. We should have another 11, 12 open up in the back half of the year. That’s going to be a tailwind for us. We start to anniversary some of the new store openings from last year. They start falling into the comps. So, there’s a lot of different things that give us a belief that our forecast is pretty solid for the back half of the year.
Michael Mullican: I just want to say the forecast that we put out there, although non-comp, it includes 13 to 14 total new stores in this year.
Alex Perry: Perfect. That’s all really helpful. And then just on margins to follow up there. I think the high end of the guidance implies year-over-year increases in the back half what would sort of be the buckets of drivers there for 2H gross margin improvement? Maybe just give us some color in terms of how you’re thinking about shrink versus freight versus the promo environment.
Carl Ford: Yes. I mean the 34% to 34.4% annual actually represents a little bit of a give back from what we’ve had last year. It’s still in that same general range. It’s up 500 basis points to pre-pandemic. I think the three buckets that you saw this quarter, merch margins, shrink and freight are going to be the main players. We’re not going to throw anything new etch in the third quarter or the fourth quarter. We started seeing shrink start to turn last year beginning in the third quarter. We were up 40 basis points in the third quarter of FY ’22 to the previous year. So, Michael talking about taking those year-round physical inventories, we kind of got ahead of this a little bit. I’m not saying it’s the environment is going to change, but we had already baked some of that into our accrual rate.
With that being said, the second quarter was up 37%, approximately 40 basis points. From a merch margin standpoint, I think it begins and ends with inventory management, and just providing the customer with value options on stuff that they really want. And freight, as I previously stated, I think that’s going to be a tailwind for fall. So that’s what’s embedded within the guidance.
Steve Lawrence: Yes, just I would reiterate that point. We get this question every quarter around margin. And when you look back and you think about where we are as a company, I think we — a couple of times we said it, we’re a different company than we were pre-pandemic. We’re sustaining right now at about 27% where we were in ’19 from a sales perspective. The margin is about 500 basis points higher. And that’s really built on the back of a lot of really strong meaningful operational changes that we’ve made to the business in terms of how we buy and allocate our regular price and markdown optimization work we do, the better size profiling we do in getting the right goods to the right stores. We also think that mix should benefit us as the soft goods business starts to be kind of normalized and become a bigger percentage of the business that provides a gross margin tailwind.
Private brand becoming a bigger percentage of the business provides margin tailwind. So we feel like we’ve made the right moves long term to structurally improve the margin. Promotions are going to be what they’re going to be. And we certainly participate in promotions during those time periods. But at our core, or an everyday value retailer we talked about on a previous call that roughly 75% of our sales come from regular price, which is driven by our value pricing, right? So, promotions are out there. They’re certainly going to be what they’re going to be. We feel like we’ve got the planned appropriately. But we feel like the strength of the margin is structural and foundational we’re going to hold on to it.
Operator: Our next question comes from the line of Anthony Chukumba with Loop Capital. Please proceed with your question.
