The fixed cost deleverage associated with the sales is the issue right now. We remain committed to those strategic investments, and we’re flexing in a healthy way in our variable. And our customers is telling us they’re still happy with our performance.
Michael Lasser: Okay. Have a good holiday. Thank you so much.
Carl Ford: Thank you.
Operator: Our next question is from Will Gaertner with Wells Fargo. Please proceed with your question.
Frederick Gaertner: Hey, guys. Thanks for taking my questions. Just wanted to touch on, first, the lower free cash flow assumption. It looks like you’ve cut it by $100 million, reduced CapEx by $25 million, reduced PBT by $38 million. Can you elaborate on that reduction?
Carl Ford: Yeah, absolutely. From a free cash flow standpoint, your $100 million at the low is correct. The bulk of that is the reduction in the overall net sales on the low end. There are some timing things that come into play associated with year-end, and that made up the balance of it. Will, I do just want to reinforce, if you look at our Q3 cash flow from operations, we’re up 13% to last year on down 6.4% sales. Year-to-date, on sales down 6%, cash flow from operations is down 2.6%. We really feel good about our cash flow as a rate of sales. On the investing side, on what we’re committed to, it’s new stores, it’s omnichannel, it’s customer data, and it’s supply chain. We think done well. We will have no regrets investing into those four initiatives.
So inventory management stays really good. You cannot manage your cash flow without that. We’re really proud of our merchants in the open-to-buy process. But the leading causes for the decline are really sales top line in nature and then just some year-end timing stuff.
Frederick Gaertner: That’s great. And just one more for me. Just can you — I know you hit on this a little bit, but this customer data platform, what benefits are you beginning to see? What benefits are you expecting to see? And how does this — I know you talked about the benefit in comps. But will this also benefit merch margins and if so, how?
Steve Lawrence: Yeah. I’ll take that one. So how we’ve likened this before is in the past, we had pretty blunt instruments to understand what was going on with our customer file. We had data in a bunch of different places. We couldn’t always tell same customer shopping us online and in store. So we installed our new customer data platform in the second quarter. And now, what we have is a holistic view of our customer. We started doing some preliminary work around segmentation. And so, now what we can actually see is we’re looking at it on a weekly, monthly, quarterly basis is movement even within segments. So in some cases, we can see certain cohorts within a certain segment maybe spending a little bit less per trip, or we can see other cohorts maybe shopping less frequently.
And so, what we started testing is different triggers to get them to react differently. So what I talked about on the call was we had one test with some of our best customers who — maybe their spend was down a little bit year-to-date, to try to incent them to up-spend. In another case, we had some customers who were shopping a little less frequently. And the goal was to get them to make one extra trip. And in both those cases, they’re small cases — use cases at first with our tests, but we saw an uplift in sales and we saw the behavior that we triggered with promotion continue after the promotion. So longer term, what we would see is this can be a much more robust tool for us to use across all of our different customer segments. From a margin perspective, I think what it’s going to do is it’s going to make us a lot more precise and targeted with our markdowns versus having broad-based promotions.
I think you’re going to see a continued pull-back on that and more focused, targeted promotions that are individualized to the customers. So I’m not sure there’s a huge margin uplift from it, but we do think there’s an offset by pulling back on company-wide promotions to fund those targeted promotions.
Frederick Gaertner: Got it. Thank you. Good luck [indiscernible] during holiday guys.
Steve Lawrence: Thank you.
Operator: Our next question is from Robbie Ohmes with Bank of America. Please proceed with your question.
Unidentified Participant: Hi. This is Mattie Chick (ph) on for Robbie Ohmes. Thanks for taking our questions. Just first, can you talk about how Black Friday looked compared to your expectations? You said one of your strongest ever. Are there any categories to call out that performed well for Black Friday? And are you expecting holiday to be concentrated around the big buying events like Black Friday, Cyber Monday? Thanks.
Steve Lawrence: Yeah. So I’m not going to get too granular in terms of category performance. What I will tell you, and I said this in the prepared remarks, is what this year feels like is kind of a return to kind of pre-pandemic shopping patterns. We saw the customer, as we came in October and early November, moderate spending and wait for the discounts. And then, as I said on the call, the event was one of our best events we’ve ever run. So that can give you a sense of how good it was. That being said, there’s still a lot of time before Christmas. And so, we’re excited about the momentum that came out of that event and that we’ve seen continue into the early part of this week. But it’s way too early to make the call. We still got about three weeks before Christmas.
And as you know, this year, there’s one extra day between Thanksgiving and Christmas. That gives us one extra weekend. And so, we do expect at some point, there will be a little bit of a lull that creeps in after we get past this week. And we expect that last week to be really strong. So, yes, we think that the behavior we’ve seen happen all year of the customer aggregating their shopping around these key moments will continue. Fortunately, we’ve got the biggest moment of the year ahead of us, and I think we’ve really prepared ourselves for this. Our inventory is in the best shape it’s been in all year. We’ve really been thoughtful about how we’ve constructed our promotional cadence and our marketing cadence. And I think we’re really well prepped to have a great holiday season and to take advantage of the customer who’s willing to be out there and shop.
