So I put those two in that order. Customers in baskets first, cost second.
Operator: Thank you. And the next question comes from Michael Lasser with UBS.
Michael Lasser: Hi. It’s Michael Lasser from UBS. Thank you so much for taking my question. What is the competitive response you’re expecting, not only from the price investments that you’ve been making, but now the addition of the widely distributed brands? How do you prevent this from becoming a race to the bottom?
Ron Coughlin: Thanks for the question, Michael. So first, a lot of these products, actually all these products are controlled by [MAP] (ph) and the vendors. These are large scale vendors like the Nestle’s of the world, the Mars of the world. These are large scale vendors who have a vested interest in making sure that their prices are managed in the market via MAP tools. So, there are controls in place in terms of that. Again, this is about driving more footsteps. I talked about the customer in South Carolina. There was another customer that I met in Northern California, and she was buying Fancy Feast, and I asked her if she bought that from us before? And the answer was, no, she didn’t know we had it. She was buying it previously at a mass.
She was buying litter from us. So there’s a lot of customers for whom they are looking for these products from us, whether it’s our existing products, our existing customers or new customers that we have a better proximity to. I’ve met another customer who was buying it from another pet specialty player. So there is demand out there. We’re hearing it from customers directly. If you look at our assortment, we can marry the premium brands that we have either exclusively or in limited distribution with these value-based brands. And again, in many instances, you have finicky cats who only eat one brand or only one flavor, and we’re now expanding to those brands, and it’s a matter of meeting those needs. 50%, 50% of our services customers don’t buy food from us.
And a lot of instances is because they have a cat who has a certain product or they’re more value conscious. I met a customer who had eight dogs and they needed to have an affordable product and they serve pedigree, but they loved our Groomers. Right? And so now we have at-bats with those customers and then those at-bats lead to us being able to attach. So that’s more where we’re focused on it. We will have aggressive marketing, but it’s really about our differentiation as a one-stop shop that now includes these value brands.
Michael Lasser: That’s super helpful Ron. If I could ask one more quick follow-up. Is the decision to add value brands due to your perception that you’re losing market share? And if that’s the case, who are you losing market share to?
Ron Coughlin: It’s about customers, right? A business like ours is going to be successful when we listen to our customers. And whether that be customers migrating to channels where they can get these products or even our own customers looking for these products from a value pinch or seeing these services customers aren’t buying food from us. It’s about customers and bringing more customers through our doors. If you have double digit growth in the value products, that means customers are looking for those products. And we want to participate in that growth, not only from a share standpoint as you cite, but also to build our baskets and do the attach.
Operator: Thank you. And the next question comes from Steven Forbes with Guggenheim Securities.
Steven Forbes: Good morning, Ron and Brian. Given the new category level disclosure on gross margin or cost of sales, we went through the pressures right on the product side, but I think the services margin expanded pretty significantly year-over-year. So I was wondering if you could maybe expand on the drivers of that improvement within that segment?
Brian LaRose: A couple of things, Steve. Thanks for the question. First of all, the vet model. So if you think about the vet model, we’ve talked about this historically that as you invest in that model, the first year of those hospitals being open is traditionally a loss. And as you start to mature those hospitals, you start to get to break even and then positive in the end of the second year or into the third year. We have 282 hospitals and if I go back and think about how many of those have been added in the last two years, it’s roughly a couple of hundred, 175. So you’ve got a weighted average life of a hospital that’s maybe two, two and a half years. As those mature, that’s going to drive profit improvement. Secondly, the grooming business.
The grooming business has been such a strong business for us and a huge driver of the 14% services growth year-over-year. That team continues to do an exceptional job driving productivity. It’s something that our customers remain sticky about, so the grooming business strength coupled with the vet maturity, and just some good cost actions and basket building opportunities that the team has integrated.
Steven Forbes: Thank you for that. And then maybe just a quick modeling question. The 53rd week, as we think about appropriately sort of modeling that next year, can you give a little more color on the sales, EBIT and EPS impact?
Brian LaRose: Probably no better, Steve, than if you take the implied guide for Q4 and assume that there’s an extra week in there and do that math you’re going to get close. It’s not entirely linear, but it’s close enough.
Operator: Thank you. [Operator Instructions] And the next question comes from Anna Andreeva with Needham & Company.
Anna Andreeva: Great, thanks so much. Good morning, guys. Two quick ones from us. So inventory’s up 1 exiting the quarter. The trend had been down in the first half. Can you just talk about the comfort level with the amount of carryover within that? And how are you buying inventories for 2024, considering also the addition of the value type of offering? And then secondly, just looking out as you focus on operational savings, you have over 1,400 pet centers and have only closed a handful in the last couple of years. So is a real estate analysis with potential additional door closures part of what you guys are looking at?
Brian LaRose: Let me start with inventory, Anna. Thanks for the question. The team’s done a really good job with inventory. Yes, inventory was up slightly year-over-year at the end of this quarter. As we brought in the new value assortment, we did see that bump as we got products into our DCs and from our DCs out to our pet care centers. That product came in faster and at larger scale than we anticipated, but we’re happy with where inventory ended for the quarter, especially since in stocks are up year-over-year, inventory turns are up year-over-year. That said, we continue to take the opportunity with this reset to further evaluate the composition of both our consumables and supplies inventory to focus on aligning that inventory where we can drive the right velocity.
