Best Buy Co., Inc. (NYSE:BBY) Q3 2023 Earnings Call Transcript

Best Buy Co., Inc. (NYSE:BBY) Q3 2023 Earnings Call Transcript November 22, 2022

Best Buy Co., Inc. beats earnings expectations. Reported EPS is $1.38, expectations were $1.03.

Operator: Hello and welcome to the Best Buy Q3 Full Year 2023 Earnings Call. My name is Laura and I will be your coordinator for today’s event. Please note this call is being recorded. I will now hand you over to your host, Mollie O’Brien, to begin today’s conference. Thank you.

Mollie O’Brien: Thank you and good morning everyone. Joining me on the call today are Corie Barry, our CEO; and Matt Bilunas, our CFO. During the call today, we will be discussing both GAAP and non-GAAP financial measures. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures and an explanation of why these non-GAAP financial measures are useful can be found in this morning’s earnings release, which is available on our website, investors.bestbuy.com. Some of the statements we will make today are considered forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. These statements may address the financial condition, business initiatives, growth plans, investments and expected performance of the company and are subject to risks and uncertainties that could cause actual results to differ materially from such forward-looking statements.

Please refer to the company’s current earnings release and our most recent 10-K and subsequent 10-Qs for more information on these risks and uncertainties. The company undertakes no obligation to update or revise any forward-looking statements to reflect events or circumstances that may arise after the date of this call. I will now turn the call over to Corie.

Corie Barry: Good morning, everyone and thank you for joining us. I am proud of our team’s execution and their relentless focus on providing amazing service to our customers during what is clearly a challenged environment for our industry. Customers have high expectations regarding service and we were pleased to see NPS improvements across many areas of our business as we continue to focus on creating differentiated experiences that customers will love into the future. Today, we are reporting Q3 financial results that are ahead of our expectations. Throughout the quarter, we were committed to balancing our near-term response to current conditions and managing well what is in our control while also advancing our strategic initiatives and investing in areas important for our long-term growth.

Our comparable sales were down 10.4% on a year-over-year basis. This represents 8% revenue growth over the third quarter of pre-pandemic fiscal €˜20, which was consistent with the growth compared to fiscal €˜20 that we saw last quarter. As expected, our non-GAAP operating income rate declined compared to last year due to the increased promotional environment for consumer electronics, the investments in our growth initiatives and SG&A deleverage from the lower revenue. Our non-GAAP earnings per share, was up 22% versus pre-pandemic fiscal €˜20. We continue to manage our inventory effectively. Our inventory at the end of Q3 was down almost 15% from the third quarter of last year. This is more than our Q3 sales decline and projected Q4 sales due to a few factors.

First, from a timing perspective, some receipts came in a few days later than expected and arrived just after the quarter closed. Additionally, due to supply constraints last year, we focused on bringing inventory in earlier to secure it for holiday. So October of last year ended with an unusually high level of inventory. For additional context, this year’s $600 million in receipts moved from October into the first two weeks of November. This shift equates to about 8% of our inventory. The promotional environment continues to be considerably more intense than last year. Like Q2, the level of promotionality in Q3 was similar to pre-pandemic levels and in some areas was even more promotional as the industry works through excess inventory in the channel as well as response to softer customer demand.

From a merchandising perspective, we saw year-over-year sales declines across most product categories. Consistent with the first half of the year, the largest impacts to our enterprise comparable sales came from computing and home theater. Compared to Q3 of fiscal €˜20, our computing revenue remains 23% higher and our appliances revenue remains 37% higher. Our blended average selling price, or ASP, in Q3 was down slightly on a year-over-year basis. ASPs will likely continue to be lower on a year-over-year basis as promotional activity that was largely absent during much of the pandemic has returned. Compared to fiscal €˜20, ASPs continue to be higher and we believe they will likely remain higher going forward. This is due to two factors that have been driving ASPs higher for years and accelerated during the pandemic.

First, category mix. We have driven material growth and mixed more into products like large appliances and large TVs, which carry high ASPs. Second, within categories, customers have mixed into premium products at higher price points. I would like to pause here for a moment and talk about what we are seeing as it relates to consumer behavior. As I step back at the highest macro level across retail, each customer is making trade-offs, especially with the significant impact of inflation on the basics like food, fuel and lodging. This disproportionately impacts lower income consumers as a much larger proportion of their spend is on those basics. Across consumers, we can also see that savings are being drawn down and credit usage is going up and value clearly matters to everyone.

During Q3, we continue to see more interest in sales events geared at exceptional value. As a result, there is no one way to describe all customers and we have repeatedly referred to the impacts of the current macro environment on consumers as uneven and unsettled. As it relates to our results as a specialty CE retailer, we saw relatively consistent behavior from our purchasing customers in Q3. Our demographic mix is basically steady versus last year and pre-pandemic. Our blended mix of premium product is higher, both units and dollars than last year and pre-pandemic. Within some specific categories, we can see some cohorts of customers trading down, but it is not aggregating into an overall impact. While sales are down in our signature categories as we lap the strong growth of the pandemic years, our initiative to expand our presence in adjacent categories is driving sales growth.

While still small overall, we are driving sales growth in e-bikes and outdoor living categories as we expand to more stores in addition to our online assortment. Outdoor furniture, in particular, is demonstrating strong growth driven by new showrooms for our Yardbird assortment, including in our Best Buy stores and new standalone showrooms. From a health and wellness perspective, we launched over-the-counter hearing aids last month in almost 300 stores and online, including a new online hearing assessment tool. Volume is still relatively low, but the Q3 sales growth rate exceeded our expectations and demonstrates that customers see Best Buy as a relevant provider of these products. As you have all likely noticed, the holiday shopping season has begun and now more than ever, our customer seemed to bring joy back into their holiday celebration.

Like we said in our last earnings call, we expect shopping patterns will look more similar to historical holiday periods than what we have seen in the last 2 years. Specifically, we expect there will be more customer shopping activity concentrated on Black Friday week, Cyber Monday, and the two weeks leading up to December 25. Our results so far in October and the first 2 weeks of November have come in largely as expected and support this view thus far. From an inventory perspective, we have approached holiday strategically, placing bets in areas that require a longer lead time and taking a more flexible approach in other areas. We believe this gives us more room to invest and partner with vendors to changes in demand to provide additional sales opportunities.

I would also stress that while November typically represents the largest influx of inventory in Q4, we will continue to receive inventory every week throughout the holiday season to replenish inventory levels. While aligning inventory levels with uncertain and evolving customer demand is always challenging, we are well positioned and feel confident we will be able to react quickly to changes we may see in customer demand. From a labor standpoint, we have seen a strong pool of applicants for seasonal associates to supplement our store team. This combined with our investments in wages over the past few years and comparably low turnover that remains close to pre-pandemic levels means we are ready to provide our customers the great service they expect to find in our stores.

We are excited about the promotions and deals we have planned for all our customers, including special promotions available to Totaltech and MyBestBuy members. We have curated gift list with inspiration for all from family members to foodies and content creators to gamers. For additives of shopping and peace of mind, we have extended both our store hours and our product return policy for the holiday season. We are also offering free next day delivery on thousands of items in addition to our convenience store and curbside pickup options. We feel confident heading into what could be an uneven holiday season and we have tailored our offerings to delight our customers whatever their budget. Strategically, as we look ahead, we are positioning ourselves to lead the way in the future of retailing.

This is a future where the customer is in control and expect seamless experiences across all touch points. It is becoming more evident every quarter that the pandemic-induced shopping behavior changes are sticky and that our digital penetration of domestic sales will likely remain above 30%. For the first 9 months of the year, our online sales as a percentage of domestic revenue were 31%, nearly twice as high as pre-pandemic. We expect that penetration rate to begin to increase again over time as it did pre-pandemic. Additionally, customer demand for other virtual interactions has remained elevated and we have seen strong and sustained sales growth from our investments in chat, phone and video sales experiences this year. Of course, that also means that almost 70% of customers are shopping in our stores and customers representing 42% of our online sales pickup their products at our stores.

As such, it is imperative we continue to invest in our stores and elevate our unique experiences. One way we are doing that is with our 35,000 square foot experience store remodel. We remain excited about these as we continue to see positive results from our longer running Houston and Charlotte remodels, including stronger sales, increased customer penetration and higher net promoter scores. These stores highlight broader assortment, including the opportunity to showcase the new categories I referenced earlier and really bring them to life. The remodels also include premium home theater and premium appliances, more space for consultations and services and expanded fulfillment capabilities like larger warehouses, in-store and curbside pickup and 24/7 lockers.

Additionally, as you would expect, they all include the very best, most up-to-date vendor experiences showcasing premium merchandising and specialized labor. While market conditions have created a tough environment for delivering remodels, our incredible and dedicated team was able to deliver 42 of them by Black Friday. We plan to provide a broader update on our store portfolio refresh strategy at year end. We are also leveraging technology in our stores more than ever to continue to elevate our customer and employee experiences in more cost effective ways. For example, we have introduced a new app for our associates called Solution SideKick that provides a guided selling experience consistent across departments, channels and location. With the app, associates interacting with the customer can see the customers’ profile in the moment, including historical purchases and active memberships.

As the associate starts an order with product recommendations, the app automatically calculates total tax savings for existing and prospective members and recommends additional product solutions. Importantly, if a customer isn’t ready to buy in the moment, associates can send the product recommendations and a recap of the conversation to the customer via e-mail, text or QR code so they can purchase later at their convenience. It is early, but we are very encouraged by the ramping employee adoption of the app and the higher revenue per transaction we are seeing when associates leverage Solution Sidekick. We are also leveraging our investment in electronic sign labels to provide a better and more efficient experience for customers who want to buy a product that is locked up or not readily available on the shelf.

We have added new functionality that allows the customer to scan the QR code with their phone’s camera and push a button notifying they are ready to purchase. This sends the store associate an instant and prioritized notification to pick the product and have it ready at pickup. We also took a much more digital approach when building out the experience for our 5,000 square foot store pilot we opened in Charlotte over the summer, highly leveraging these digital tools. Similar to the U.S., we are evolving our model in Canada as well and continue to see better-than-expected financial results there. We have been piloting initiatives there, including technology subscription, online marketplace, a market-focused test and small store formats. This expands our testing and innovation capabilities and provides opportunities to learn from their experiences when they are able to iterate faster and are further along in their pilots.

We are excited to be able to innovate and leverage learnings on both sides of the border. Turning to membership, our Best Buy Totaltech offering is a very important initiative to drive deeper relationships with our customers. Last month, we passed the 1 year anniversary of our national launch and we are pleased to report that Totaltech is driving the member behavior we envision. Members are engaging more frequently with us and shifting their share of wallet to Best Buy. Additionally, members continue to rate our experiences higher. Our net promoter score from Totaltech members remain considerably higher than non-members. Nearly half of the new members joining the program in the past year were either new or lapsed customers reinforcing that the value of Totaltech resonates beyond our existing loyal customers.

Very early retention data shows renewal rates running largely in line with our original expectations. Totaltech is a comprehensive membership with wide appeal across demographics. For example, younger generations and those with children utilize more of our newer warranty and member pricing benefits and older generations utilize more of our enhanced services and support benefit. Our associates continue to love the program since it clearly provides value to every single customer and simplifies the sales interaction. While we are encouraged by the results in the first full year, we will continue to iterate based on the macro environment and what is most relevant to our customers. As we said last quarter, we have been encouraged with the pace at which we have been acquiring new customers, considering the uniqueness of the offer, the macro environment and the decline in our product sales.

Nevertheless, these factors have resulted in a lower member count than our original expectations. Last quarter, we enhanced our in-store point-of-sale tools to better assist our team in showcasing the value of Totaltech to potential new members. And the early results continue to be positive. We are also activating on ways to continue to improve acquisition through our digital channel. From an optimization perspective, we will evolve the program in ways that also reduce our cost to serve. We have now lapped the financial pressure from the initial investment impact and anticipate the program to have a neutral impact on Q4 from a year-over-year perspective. Over time, we expect the program to contribute to operating income rate expansion as the program continues to build and we iterate on the offering.

In the current economic environment, many consumers are facing increasing financial constraints. We believe we are well positioned to meet customers’ needs in this environment. In addition to creating key promotional moments, offering competitive prices, repairing and supporting existing products and scaling our Best Buy outlets, we offer multiple financing options to improve affordability. These include our co-branded Citibank credit card, lease-to-own program, buy now pay later options and most recently, our exclusive upgrades plus program for Apple Mac books. Upgrade+ powered by Citizens Pay is a brand-new program that allows customers to acquire MAC laptops and related accessories for a low monthly fee. After 3 years, they can easily turn in their old laptop and upgrade to the latest tech while they continue paying a low monthly fee.

We can then refurbish this old laptop and offer it to a new customer through our outlet stores or digital platforms. This partnership with Apple is a great example of how we work with our vendors in unique ways to commercialize and showcase their technology innovation while also offering unique value and confidence to our customers. In a different example of a unique vendor partnership, we have started a pilot in the homebuilder space through a collaboration with Whirlpool and one of the top homebuilders in the U.S. to provide and install everything from connected doorbells and thermostats to large appliances. Though early, we have delivered 5 roughly 45 markets for the homebuilder, which is giving us great insight for how we maybe able to expand the pilot.

Based on what we have learned, we see this model as an opportunity to partner with numerous other homebuilders to provide them similar or expanded solutions based on our capability. Before closing and turning the call over to Matt, I would like to provide a few updates on our commitment to our employees and the communities we serve. The Best Buy Foundation’s team tech centers are providing access, inspiration and opportunity for young people in the communities that need it most. We continue to expand the program with 52 team tech centers open across the country, including opening our 19 team tech center in the Twin Cities, our hometown. We also remain committed to creating an environment where all employees feel engaged and have access to specialized benefits and resources.

We are proud to have women leaders at the highest levels of our company and believe it reflects our commitment to support our employees and their. This year, we are honored to rank #15 on Forbes 2022 list of the world’s top female-friendly company, which recognizes companies that support women professionally and personally. Similarly, we were honored to be named as one of Forbes 2022 America’s Best Employers for Veterans, our first time on that list. In summary, I am proud of our nimble execution this quarter and this year. Our teams have been navigating well through an incredibly dynamic environment and I want to thank them for their ingenuity, drive and commitment to our customers. There is, of course, ongoing macro uncertainty. And as we head through the holiday and into next year, we believe it will continue to be an uneven backdrop.

Indicators remain unusually varied. The job market remains strong, consumer spending continues, and inflation appears to be slowing a bit, but savings are starting to erode. Consumer confidence is low. The housing market is cooling and inflation remains a particular concern on the basics like food, fuel and lodging, all of which have a profound and sustained impact. As you would expect, we are planning for multiple scenarios given the very unsettled and uneven consumer response to these varied indicators. We are adjusting our cost structure as we respond to current and potential future conditions. We are also making strategic decisions and trade-offs to continue to advance our initiatives. We are doubling down on our ability to lead the future of omnichannel retailer and capitalize on opportunities as the industry moves through this downturn and eventually returns to growth again.

We are as confident and excited about our future as ever. Technology demand over the past few years has resulted in a larger installed base, and customers will want and need to replace and upgrade their tech devices, particularly as we near the 3-year mark since the start of the pandemic. At the same time, our technology vendor partners will continue to innovate and drive excitement and demand. We are the leading technology solutions provider for the home, a home increasingly dependent on all this technology working together and evolving over time. We are uniquely positioned to inspire and help customers with all aspects of their technology from deciding what to purchase, to installing it and getting the most out of it, all the way to helping when it’s not working.

We leverage our specialized Geek Squad agents, our expert sales associates and consultants, experienced merchants and sophisticated supply chain to deliver experiences no one else can in customers’ homes, virtually, digitally and in our stores. I will now turn the call over to Matt for more details on our third quarter financials and fourth quarter outlook.

See also 15 Most Hated Companies in the US and 30 Wealthiest Families in the World.

Matt Bilunas: Good morning, everyone. Hopefully, you’re able to view our press release this morning with our detailed financial results. Before I get into the details specific to our third quarter, I would like to step back and provide some context on how our financials have evolved since the start of the pandemic. As you are all aware, the past couple of years have come with varying levels of financial performance related to the pandemic impacts. There have been quarters where our stores were closed when promotions were nearly nonexistent, in quarters with higher and lower incentive compensation, just to name a few. We also saw record levels of demand as people were spending more time in their homes and receiving government stimulus benefits.

And now we are living through the pressures as we lap those periods. However, what has remained consistent over the past few years is the increased penetration of digital sales, which, as Corie mentioned, has nearly doubled since the start of the pandemic. As a result, over the past couple of years, we have modified our store operating model, highlighted new store formats and rolled out a new membership offering. To better understand the financial impacts of all this change, I want to briefly give context on the decline in this year’s non-GAAP operating rate outlook compared to pre-pandemic fiscal €˜20 full year rate of 4.9%. First, our core domestic non-GAAP operating income rate has slightly improved as we have made structural changes in support of our increased digital sales mix, the reductions we have made in store payroll expenses largely offset increased parcel and inflationary supply chain costs as well as our increased technology investments that are designed to support a more digital shopping experience.

Over the same time horizon, our core product margin rates have remained relatively unchanged. In addition, we have also improved the profitability of our International segment, which included the exit of our operations in Mexico. Second, the investments we’ve made in Totaltech Best Buy Health and our retail store remodels represents approximately 130 basis points of non-GAAP operating income rate contraction. As we have shared in the past, these initiatives come with near-term pressure, but we expect they will improve our profitability in the future. Third, this year’s financial performance has benefited from lower incentive compensation when compared to fiscal €˜20. As we reset performance targets at the start of next year, this is not a structural benefit.

This highlights how we have been adjusting our cost structure to navigate the dramatic changes in our business while balancing the need to invest in our initiatives. Let me now transition to third quarter results. Enterprise revenue of $10.6 billion declined 10.4% on a comparable basis and our non-GAAP operating income rate of 3.9% compared to 5.8% last year. A gross profit rate decline of approximately 150 basis points was the primary driver of the lower operating income rate. Our non-GAAP SG&A expenses were $188 million lower than last year, but were 40 basis points unfavorable as a percentage of revenue. Compared to last year, our non-GAAP diluted earnings per share of $1.38 compared to $2.08 last year. A lower share count resulted in a $0.13 per share benefit on a year-over-year basis.

While our results were down to last year, our performance was ahead of our expectations we shared in our last earnings call. From a profitability standpoint, better-than-expected results were largely driven by disciplined expense management that resulted in favorable SG&A expense, both from a dollar and rate perspective. The favorable SG&A was partially offset by slightly lower gross profit rate which was primarily the result of more promotional environment than we expected. Next, I will walk through the details of our third quarter results compared to last year before providing insights into how we are thinking about the fourth quarter. In our Domestic segment, revenue decreased 10.8% to $9.8 billion, driven by a comparable sales decline of 10.5%.

From a monthly phasing standpoint, October’s year-over-year comparable sales decline of 15% was the largest decline while September was our best-performing month. Conversely, when comparing to the pre-pandemic fiscal €˜20 comparable period, October had the most growth, while holiday shopping was more prevalent this October compared to pre-pandemic fiscal €˜20, it was lower than last year, when there was more of an urgency for consumers to get products early due to supply chain fears. In our International segment, revenue decreased 14.9% of $787 million. This decrease was driven by a comparable sales decline of 9.3% in Canada and a negative impact of 408 basis points from unfavorable foreign currency exchange rates. Turning now to gross profit.

our enterprise rate declined 150 basis points to 22%. Our domestic gross profit rate also declined 150 basis points, with the primary drivers consistent with expectations as well as the past two quarters. These drivers include: one, lower product margins, which were primarily due to increased promotions; two, lower services margins rates, including pressure from Totaltech; and three, the impact of higher supply chain costs. These items were partially offset by higher profit sharing revenue from the company’s credit card arrangement. As a reminder, the gross profit rate pressure from Totaltech primarily relates to the incremental customer benefits and the associated costs compared to our previous Totaltech support offer. As Corie shared, we fully lapped last year’s national rollout in October.

As a result, the approximately 60 basis points headwind to last year from lower services margin rates was a sequential improvement from the past two quarters. Moving next to SG&A, as I stated earlier, our enterprise non-GAAP SG&A decreased $188 million while increasing 40 basis points as a percentage of sales. Within the domestic segment, the primary drivers were lower incentive compensation and reduced store payroll costs. Incentive compensation was favorable to last year by approximately $100 million this quarter and $365 million year-to-date. Our store payroll expense, which excludes the impact from incentive compensation, was favorable to last year, both in dollars and as a percentage of sales. International SG&A was $150 million, decreased $21 million while increasing 60 basis points as a percentage of sales.

The decrease was primarily driven by lower incentive compensation expense and the favorable impact of foreign exchange rates. On a non-GAAP basis, our effective tax rate was 23.8% versus 25% last year. For the full year, we now expect our non-GAAP effective tax rate to be approximately 21% versus our previous guidance of approximately 23%. The lower outlook for the full year is primarily due to discrete tax matters in the fourth quarter. Year-to-date, we have returned over $1 billion to shareholders through dividends of $595 million and share repurchases of $455 million. We paused share repurchases during the second quarter and recently resumed repurchasing shares in early November. We now expect to spend a total of approximately $1 billion in share repurchases this fiscal year.

We are committed to being a premium dividend payer based on our current planning assumptions for fiscal €˜23, our quarterly dividend of $0.88 per share will fall outside of our stated payout ratio target of 35% to 45% of non-GAAP net income. We view the target as a long-term in nature and do not plan to reduce the dividend should fall outside the range in any 1 year. From a capital expenditure standpoint, we still expect to spend approximately $1 billion during the year. As we shared last quarter, the makeup of our capital expenditures looks a little different than last year with store-related investments representing a larger portion of our overall spending. Technology and digital capital are planned similar in terms of dollars versus last year, but its mix of overall capital spending is closer to 55% versus 75% last year.

Next, let me spend a few moments on restructuring. In light of the ongoing changes in our business, during Q2, we commenced an enterprise-wide restructuring initiative to better align our spending with critical strategies and operations as well as to optimize our cost structure. We incurred $26 million of such restructuring costs in the third quarter and $61 million year-to-date, which primarily related to employee termination benefits. We currently expect to incur additional charges to the fourth quarter for this initiative. Consistent with prior practice, restructuring costs are excluded from our non-GAAP results. Let me next share more color on our outlook for the full year and the fourth quarter, starting with our top line expectations.

We are planning for comparable sales to decline approximately 10% for both the full year and the fourth quarter. The improved outlook for the full year is entirely driven by our third quarter results as our expectations remain unchanged for the fourth quarter. We continue to believe that the current macro environment trends will remain challenging for the remainder of the year. Although the year-over-year sales decline in Q4 is expected to be similar to sales decline we just reported for Q3. Our outlook implies a larger deceleration versus the pre-pandemic fiscal €˜20. As expected, the year-over-year sales decline for the first 3 weeks of November is similar to the decline we saw in October. Moving next to profitability. We expect our full year non-GAAP operating income rate to be slightly higher than our previous guidance of approximately 4%.

Similar to our top line expectations, this improvement is driven by our third quarter performance. Relative to our previous expectations, we now expect SG&A to be a little more favorable, whereas we are factoring in a little more gross profit rate pressure due to increased promotional activity. For the fourth quarter specifically, but we still expect a majority of the year-over-year operating income rate decline to be driven by lower gross profit rate. There is less pressure than prior quarters as we lap Totaltech and some of the supply chain inflationary impacts. I will now turn the call over to the operators for questions.

Q&A Session

Operator: Thank you. We will now take our first question from Zack Fadem at Wells Fargo. Your line is open. Please go ahead.

Unidentified Analyst: Awesome. Thanks so much. This is Sam Reed pitching in for Zack here. You guys gave a lot of good color around the Q4 outlook. But I guess I wanted to just unpack things a bit more there because Q3 really did come in nicely, ahead of plan, yet you’re keeping things through the balance of the year unchanged. Could you just give us a bit more detail there around your thinking? And can we interpret some of this as conservatism on your part? Or is there a possibility that there might be some differences in sequencing around holiday sales this year versus last year that might be driving your decision to kind of Q4 unchanged? Thanks.

Matt Bilunas: Sure. I’ll start here. This is Matt. I think when you look at the Q4, similar to the whole year, it’s been a bit difficult to properly reflect forecast in this environment. I think we’re trying to plan appropriately with everything that we see, Q4 comp sales are expected to decline about 10%. This is a deceleration from FY €˜20 growth perspective as you think about the quarters as they progress this year. The holiday, we do expect to look a little different than last year. So probably more around the sales events, so less early shopping as we saw last year, but a more early shopping than we saw in fiscal €˜20. So from what we can see as we exited Q3 with October sales down around 15%. We’re seeing November’s sales start around that same amount.

So we’re at this point in line with our expectations. Holiday is obviously quite different than it has been over the prior quarters. So I think we’re appropriately planned for where we see the consumer in front of us.

Unidentified Analyst: Awesome. Thanks so much. I will pass it on.

Corie Barry: Thank you.

Operator: Thank you. We will now take our next question from Pete Keith at Piper Sandler. Your line is open. Please go ahead.

Pete Keith: Hi, thanks. Good morning, everyone. Nice results. Just sticking on the Q4 theme, we know the macro stuff, but let’s just talk about products. What are some of the product categories looking at this holiday season, as you guys are most excited about and putting in front of your customers?

Corie Barry: Yes, I think I’d start with a holiday where €“ and I said it in the script that I meet it. I think people are really just looking for some joy in their holiday and what feels like a little bit more normal, I’d say that an holiday versus the last couple of years, Peter. So I think what we see as exciting are those things families can do together. So things like televisions. And that’s, again, not just the TV that’s about streaming so much more content than people were before. Things like VR that take you to new places and allow you new experiences and are increasingly having more and more content availability, Gaming continues to be exciting for people. And that is a place where we’re getting as much as we humanly can, but there still is some constraint, and we all know that drives a little bit of excitement.