Kohl's Corporation
Q4 2022 Earnings Call Transcript

Published: 1 Mar 2023

[Operator:]

Good morning. My name is Audra, and I will be your conference operator today. At this time, I would like to welcome everyone to the Kohl’s Corporation Q4 2022 Earnings Conference Call. Today’s conference is being recorded. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] At this time, I would like to turn the conference over to Mark Rupe, Senior Vice President of IR. Please go ahead.

[Mark Rupe:]

Thank you. Certain statements made on this call, including projected financial results and the Company’s future initiatives, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Kohl’s intends forward-looking terminology such as believes, expects, may, will, should, anticipates, plans or similar expressions to identify forward-looking statements. Such statements are subject to certain risks and uncertainties, which could cause Kohl’s actual results to differ materially from those projected in such forward-looking statements. Such risks and uncertainties include, but are not limited to, those that are described in Item 1A in Kohl’s most recent annual report on Form 10-K and Item 1A of Part 2 of the Company’s quarterly report on Form 10-Q for the first quarter of fiscal ‘22 and as may be supplemented from time to time in Kohl’s other filings with the SEC, all of which are expressly incorporated herein by reference. Forward-looking statements relate to the date initially made, and Kohl’s undertakes no obligation to update them. In addition, during this call, we will make reference to non-GAAP financial measures. Information necessary to reconcile these non-GAAP financial measures can be found in the investor presentation filed as an exhibit to our Form 8-K filed with the SEC and is available on the Company’s Investor Relations website. Please note that this call will be recorded. However, replays of this call will not be updated. So, if you’re listening to a replay of this call, it is possible that the information discussed is no longer current, and Kohl’s undertakes no obligation to update such information. With me this morning are Tom Kingsbury, our CEO, and Jill Timm, our CFO. I will now turn the call over to Tom.

[Tom Kingsbury:]

Thank you, Mark. Thanks to all for joining us this morning. I want to start by saying that I’m excited to be leading Kohl’s during this pivotal time. Kohl’s is a solid company. We have a substantial opportunity to make a difference in the retail landscape. As you will hear today, we have a solid foundation and a highly motivated team with a set of priorities to drive Kohl’s sales and earnings growth. During the past three months, I have had the opportunity to assess our go-to-market strategies, our operational capabilities and processes in our organizational structure. I have also visited a number of our stores across the country and engaged with many of our brand partners. It is clear to me that Kohl’s fields an important need in the market offering highly relevant products at a great value to millions of customers in conveniently located stores across the U.S. and online. We are making great strides in beauty through our Sephora partnership. However, we have lost some ground in other key categories. Candidly, I know we can do better. To reach our full potential, we will refine our strategy and reestablish merchandise disciplines with a customer center focus across the organization. This will sharpen our positioning with customers, allow us to capitalize on new opportunities and drive greater efficiency. Our efforts have already begun. We took a number of proactive measures in the fourth quarter to clear our inventories, and we will seek to maintain the discipline by planning inventory down mid-single digits percent going forward. We also implemented several growth initiatives in Q4 that will begin to benefit our results in 2023 and structure the organization to run more efficiently. One of the early messages I shared with our leadership team was that we must simplify how we work to drive efficiency, which in turn will allow for greater time to be spent on executing and driving our strategy. In late January, we realigned parts of the merchandising and marketing departments with the objective of driving efficiency in our operations. This included consolidating the number of general merchandise managers to 4 from 7, a structure that we had prior to the pandemic as well as transitioning, planning and allocation to report directly to me. And more recently, I am pleased with the appointment of two key executive leadership positions. Yesterday, we announced the hiring of Dave Alves as our new President and Chief Operating Officer. Dave is a 30-year retail veteran and will lead our enterprise operations including our nearly 1,200 stores, global supply chain and distribution center network, real estate portfolio, among other functions. In addition, we appointed Nick Jones as our new Chief Merchandising and Digital Officer. Nick has great experience across many of our categories, including apparel, home and gifting and will be instrumental in leading our merchandising strategy and functions. Both Dave and Nick will join us in the coming weeks, and I look forward to our partnership. Through these important actions, I am confident that we have the right plans, organizational structure and team in place to drive improved more consistent sales and earnings performance over the long term. That said, I want to be realistic in setting expectations. The full impact of our efforts will take some time. It won’t happen overnight. And we must acknowledge that we are implementing these actions in a challenging macroeconomic backdrop. As Jill will discuss in more detail, our actions against this backdrop form the basis of our prudent guidance for 2023. With that context, I will now discuss our path to improve performance and the key priorities that will guide our forward action. We are focused on four overarching priorities in 2023 that will drive overall sales and profitability. They are

[Jill Timm:]

Thank you, Tom, and good morning, everyone. I will review our fourth quarter results and then discuss our guidance outlook for 2023, the key takeaways from our Q4 performance and that we took meaningful proactive measures to better position the business for 2023 and that our sales remained pressured by the persistent inflationary environment. Net sales were down 7%, driven largely by reduced traffic with higher average ticket and lower units per transaction offsetting one another. Our middle income customers remain pressured and continued to lean into our value-oriented private brands. As Tom indicated, our sales trends improved throughout the quarter and were especially strong as we transitioned to a clearance focus in late December and January, and this continued into February. From a channel perspective, store sales improved sequentially throughout the quarter and were down 3% to last year. The improved performance was driven by having more Sephora shops open and elevated clearance demand late in the quarter that largely occurred in stores. Digital sales were down 12% to last year and accounted for 37% of sales. From a product perspective, sales of our private brands were relatively flat in the quarter with strong performance in many of our top private brands, including Sonoma, Croft & Barrow, Tek Gear and Lauren Conrad. Sales of our national brands were down high-single-digit percent, mostly due to weaker active home and denim performance. Accessories was our best-performing line of business, up mid-single-digits percent to last year. Strong sales growth in beauty was partially offset by lower sales of jewelry which, as a reminder, is largely driven by in-store displacement associated with removing the fine jewelry counter to make room for Sephora shops. We have an opportunity to do a better job solving for the lost sales in this category. As it relates to some of our other categories, men’s and women’s apparel outperformed the Company average. In men’s, we saw solid results in tailored dress, young men’s and outdoor. While women’s benefited from higher demand for elevated casual and dress wear and a sequential improvement in intimates. Juniors continued to be a headwind within women’s, and active was challenged across all lines of the business. Home, footwear and children underperformed the Company average. Other revenue, which is primarily our credit business, declined 13% in the fourth quarter. Performance of our credit business continues to be pressured by a lower overall accounts receivable balances and normalizing loss rates. Now let me turn to the rest of the income statement. Q4 gross margin was 23%, down from last year’s 33.2%. The decline was driven primarily by two items

[Operator:]

[Operator Instructions] We’ll go first to Bob Drbul at Guggenheim Securities.

[Bob Drbul:]

Hi. Good morning. And Tom, welcome. I guess just two questions that I have. The first one really for Tom, can you elaborate some more just on the opportunities that you do see now at Kohl’s and what excites you about the opportunities? And the second question is really for Jill. When you look at the guidance that you’ve given us, can you just elaborate a little more as how you have approached the guidance and how you think about it? Just how we should be expecting things to play a little more, that would be great. Thanks.

[Tom Kingsbury:]

I think Kohl’s has a lot of opportunities. It’s really a solid company with things in place already. I mean, I think Kohl’s has done a really nice job to set things up, such as the Sephora business. I think that’s -- will continue to be a big opportunity for us. It’s bringing in a different consumer, a younger consumer, a more diverse consumer. So, I think that’s all very good. We just need to improve some of the disciplines that we have -- the inventory discipline. We got out of control in 2022. We did a good job in ‘21. But ‘22, obviously, we have a big spike in the inventory. So, we need to improve those disciplines and need to be more agile in terms of having open to buy, to spend every single quarter so that we can chase the business. It’s better to understand what the customer wants and go after it than to buy it all upfront and hope it sells, okay? So, we’re doing a lot of that. We already took significant actions in the fourth quarter as we -- Jill and I both said. We also want to -- we’re looking at our store operations. We think that’s a big opportunity for us. We’re working on changing some of the flow of product, not tremendously, but we feel that we need to have more gifting upfront. We did that in the fourth quarter, and it did very well. So, we continued it for Valentine’s Day. We’re going to do it in Mother’s Day, all the true gift-giving periods. Just to have the store look a little bit different, we’re working on sidelines. We’re working on reducing the amount of graphics and signs we have in the store, just to have a more modern feel in our stores overall. But, we want to obviously have higher productivity in stores and that’s what we’re working on, as well as we want to continue to grow our digital business overall. So -- but I think in general, I think there’s a lot of opportunities. The reason why I came back to Kohl’s is because I see those opportunities, and I see that we can take advantage of those opportunities in the future.

[Jill Timm:]

And then, Bob, in regards to our guidance, I think what we did is we took a cautious plan as we look to the year. We wanted to be appropriate with our guide, given the environment, it’s high inflation, interest rates are rising, and we know that has a large impact to particularly our middle income customer. So, as we are navigating them in certain times, we have a lot of change that Tom had outlined not only in the script, but obviously just in his remarks as well in terms of what we see ahead of us. So, we do expect the sales to build throughout the year. Particularly as these initiatives roll out, we’re going to have more Sephora stores open. We’re going to work more on the gifting, impulse, home décor really seeing that build throughout the year. And then I think as well with gross margin, we’ll see that build throughout the year as well with the freight moderating. We’re going to see commodity costs come down, starting with our back-to-school receipts. And then we’re going to start taking more timely clearance markdowns throughout the year. And this will actually have a bigger impact to Q2 margin because we’ve typically taken these seasonally. You’ll see a negative impact in Q2, but a positive impact in Q3 as we move those marks up and take them much more timely, particularly on our spring and summer goods from that perspective. And then, in SG&A, we’ll expect Q2 and Q3 to have more costs associated with them just due to the timing of when we’re opening up our Sephora shops. Last year, we started that construction earlier in the year and this year, you’ll see it more in Q2 and Q3 with the 250 stores and then those 50 new shop stores. So, that’s kind of how I would make the model work and your build work from a guidance perspective.

[Operator:]

We’ll move next to Gaby Carbone at Deutsche Bank.

[Gaby Carbone:]

Tom, so previously, Kohl’s is targeted a 7% to 8% long-term operating margin. You’re guiding to 4% for FY23. I was wondering if your confidence still in that 7% to 8% goal over time. And what does the bridge look like to get there? Thank you.

[Tom Kingsbury:]

Well, I’ll talk for a few minutes, and then I’ll have Jill. Overall, we’re still confident in the 7% to 8% target that we have. A lot has to do with rebuilding our sales to obviously get to those levels again. But we’re not changing. We’re not changing our long-term guide at all because we feel we can get there. But I’ll let Jill talk about it.

[Jill Timm:]

Yes. I think the framework that we gave you with the 7% to 8% still exists today. And as Tom mentioned, it really starts with sales growth. And if you recall in that framework, it was a low-single-digit sales growth that was the beginning of that framework. So I think we feel confident in the initiatives that we’ve outlined today, like I mentioned, that we’re going to get back to that growth pattern. But as Tom suggested, it takes time to do this. So, we’re moving things in the right direction. So, we look at this as a long-term framework that still exists. You go into the margin side of things, our guide this year is at the low end of that, it’s a 36% to 36.5%. But we do think we’re going to continue to see benefits, particularly around the strong inventory management that Tom spoke about. We’re going to have better inventory control processes, this will drive turn, we’ll have better reg selling. So, we do see that we can continue to get to that higher end there. And then from expenses, we’ve always had a very strong focus on expense discipline at Kohl’s. We know we can leverage at about a 1.5 comp. This continues to be a focus for us. We’re looking for efficiencies across the business. But particularly, you’re going to see that around like automation, the self-service in our stores, automation in our distribution centers. We’ve done a lot of organizational optimization. We’re looking at marketing efficiencies, all places that we can continue to lean into to bring down our SG&A run rate as well. So I think overall, hopefully, you heard from both Tom and I, we’re very confident in the long term framework for op margin, getting back to 7% to 8%.

[Gaby Carbone:]

And just a quick follow-up. So you mentioned your private brands a flat for the quarter, which is encouraging. Just curious how you’re thinking about leveraging your private brands portfolio moving ahead, especially as consumers are continuously seeking more value.

[Jill Timm:]

Yes. I think, obviously, this is -- you said it value. And I think in this environment, value is very important to the customer, and they’re seeking that out. And we’ve seen for the last several quarters, they’ve leaned more into our proprietary brand portfolio because it brings to them that value. But we’ve also seen great performance by Sephora and some of our new brands like Tommy Hilfiger and Eddie Bauer in outdoor. So I think value goes across the chain and bringing them a quality product for a price they think is good. And I think that’s where you can see them making those trade-offs sometimes given the wallet in the middle income customer is being more stretched. And of course, we sell discretionary items. So I think having that dual portfolio of the private brands with the national brands has worked well for our consumers to be able to make that pivot given the constraints on their wallet today. So, we’re taking advantage of that. And we’ll lean into it, again, based on what Tom has mentioned, being much more in a chase model. So really working on how we can bring a faster model through those proprietary brands to life, and we have a lot of people working on that right now by using more West Coast suppliers and doing more direct to -- or direct vendors as well. So I think there’s ways that you’ll see us continue to feed into that private brand portfolio and doing that with the inventory discipline Tom indicated.

[Tom Kingsbury:]

Yes. I think that the -- I think that the private brands are really important part of our business. But we’re going to spend a lot of time in 2023 improving our performance in the national brands as well. We need to do both. We stumbled a little bit in the national brands in ‘22. But our goal is to have both national brands and private brands perform at a high level.

[Operator:]

We’ll go next to Mark Altschwager at Baird.

[Mark Altschwager:]

So, Tom, your commentary about utilizing the domestic marketplace is interesting. Is that strategy primarily focused on home décor and gifting, or do you see an opportunity in apparel and other categories as well? And I’m curious if there are -- if you need to make incremental investments in merchandising or the buying teams in order to build that muscle within the organization.

[Tom Kingsbury:]

We’re really looking at chasing goods across all categories of business, to be honest with you. There’s always ample product that we can chase. I’ve experienced that before in another place where I work that you can do that pretty readily. We do have the right structure in place to do that. We have the right buying teams, the right GMM structure to do that. There’s nothing really, I think, that could prevent us from doing that. But managing our inventories, that’s the key. I mean, we have to make sure that we have open to spend. That’s the only thing that could hurt us in that pursuit. But in general, I think it’s across the board that we can do it.

[Mark Altschwager:]

Thank you. A quick follow-up for Jill. Just with gross margin, any more color you can give us on the first quarter? I guess, specifically, the clearance headwind was obviously very large for the fourth quarter. It sounds like that activity continued into the early first quarter. So just relative to that 750 basis points, how should we be thinking about the headwind early in the year here? Thank you.

[Jill Timm:]

Yes. I think what we’re seeing is freight is moderating. That’s going to happen throughout the year. We’re going to get some product cost benefits starting with our back-to-school. Obviously, we took a lot of clearance into Q4. The selling is continuing to benefit us into February, like I had indicated, but the marks happened in the fourth quarter. So it’s not as punitive into Q1. I think the thing with the clearance markdowns that we’re looking for is just taking them much more timely when they’re more relevant to get better sell-throughs. And so the one quarter that I would say will look different will be Q2 because we typically haven’t done clearance in Q2. We waited till Q3. So, we’re going to move those up. So you’ll see Q2 be a little more margin pressured because of that change, and then that will offset into Q3. And of course, Q4, we don’t expect to have a repeat of this year. So, you’ll see a large benefit into Q4.

[Operator:]

We’ll go next to Matthew Boss at JP Morgan.

[Matthew Boss:]

So Tom, maybe help us to think about the time line needed for -- in the release and what you’ve talked about is refining the strategy, reestablishing the merchandise disciplines. Maybe larger picture, how do you view this turnaround opportunity relative to your past retail experience? And then at a micro level, how should we think about the market share opportunity as we think about spend from existing customers relative to new customer acquisition that might be needed?

[Tom Kingsbury:]

Time line, we -- it doesn’t happen overnight. It really doesn’t happen overnight. But we’ve already made some progress. Obviously, we’ve got our inventories at the level they should be. And we’re planning our inventories for the first and second quarter appropriately. But it’s going to -- we’re going to make progress in 2023, but we feel -- as any business, it takes a while for it to really get traction. But a lot of our -- a lot has already gotten -- we’ve already done a lot of things so far. Excuse me. So even in my previous experience, we -- it took us a while to get things going in the right direction. But it’s just something you can’t do overnight. But I want to make something very clear. It’s not -- the Kohl’s is a different company than my previous company. And we have a lot of really good things already in place in the strategy, so it’s not an overhaul. There are some things that we need to be doing, and we’ve already started working on it, but it’s not a total overhaul. I just want to make sure that people understand it. I think there’s a lot of good things in place already today. As far as market share, I think that if we can execute, we can gain market share from many different places.

[Operator:]

Next to Dana Telsey at Telsey Advisory Group.

[Dana Telsey:]

As you think about the merchandise mix, Tom of Kohl’s, active has always been a big portion of where they were driving to. What is your ultimate goal in the merchandise mix? And what do you think would be most effective? And then also, Jill, in terms of omnichannel and delivery expense and some of the headwinds there, how do you see that impact on margin in 2023 and the framework of whatever is happening with freight expense and supply chain? Thank you.

[Tom Kingsbury:]

Well, we’re going to let the customer tell us what they want. I think establishing targets in terms of businesses, I don’t think that’s in the best interest of our customers, overall. So, over time, our mix will evolve to what the customer is looking for. Right now, we feel that the active business is really important, but we also feel like outdoor is important as well. So we’re going to integrate into some of the presentations, some of the outdoor products. We’ve already done that. But I’m not going to set targets in general, because we have to be agile. We have to do -- we have to build the assortments relative to what the customer wants, not what targets we set. You will see more -- in the home store, more gifting product, more impulse product going forward, it’s something that I believe in a lot and the customer is already telling us, that’s what they want based on the sell-throughs, we had in the fourth quarter in gifting and our Valentine’s assortments did very well because it was repositioned in the front. So -- but that’s just following what the customer wants, and that’s what we’re going to continue to do.

[Jill Timm:]

In terms of omnichannel, what I would say is, obviously, digital is always an incremental pressure when it does come to that cost of ship. We are seeing, obviously, for a cost, like we mentioned, moderating, so not seeing as much of an increase there that we have in the past. But it will always as we increase that penetration of digital be a headwind. I think so, if you heard today, we think there’s substantial opportunity to grow our store productivity. And so that is definitely a place that helps us offset some of those headwinds because the penetration won’t be growing as much if we can grow both channels. And I think that’s something we’ve heard a lot about. Our focus is how do we bring back the productivity into our stores, and whether that’s through presentation changes, through the new categories that Tom has mentioned and really just the focus to drive in new customers through initiatives such as Sephora. So, I think we see it as always an extra headwind, but it isn’t quite as predominant as it’s been in the past. And I think the third piece of it is we’re also seeing a lot more efficiency out of our new fulfillment centers. And they -- as we continue to put more products through those centers, we are getting more efficient to how we can get it to the customer. And then, of course, we continue to utilize our stores, which gets us with -- in a couple of days of our customers as well. So we’re able to do that in a really efficient manner. So our stores continue to play a key role in our digital delivery, which actually makes our inventory even work harder. So as we talk about that inventory discipline and turning inventory, that’s another lever that we can utilize as well. So, I look at -- we have a huge opportunity to grow stores, which will help us kind of mitigate some of the headwinds we’ve seen on the cost of shipping side in the past.

[Operator:]

Our next question comes from Oliver Chen at TD Cowen.

[Oliver Chen:]

Regarding what’s the new strategy, I had a bigger picture question is the younger customer and capturing the traffic of the younger customer, women’s apparel, in particular, has been an opportunity. And would love your thoughts on -- as you think about home and gifting, what percentage mix do you see as an opportunity or a hypothesis there? And as we think about gross margin, return on inventory, [indiscernible] will the terms and margin profile differ? And I assume the opportunity will outweigh any of those factors. Jill, I would love your thoughts on inventory control processes and what specifically do you see as lower-hanging fruit. And as we think about this inflation and inflation, what does your forecast include in terms of average unit retail? Thank you very much.

[Tom Kingsbury:]

So I’ll take the first part, and then I’ll let Jill take the second piece of this. Well, having Sephora, bringing Sephora in is already bringing in a younger consumer. One of the other things that we’re working on is ancillary products such as women’s, that when the younger customers coming in to buy Sephora, we want to make sure that they can also buy women’s apparel, women’s accessories, women’s footwear, et cetera. So, we really feel that we’re started. We have something that’s bringing in a younger consumer. Now we need to expand it to other categories within the store. As far as the mix goes in terms of what percent, as I just mentioned before, we’re not -- we’re going to let the customer tell us what level the mix should be in home décor and gifting. Jill?

[Jill Timm:]

And I think from an inventory control perspective, I just think the processes and the disciplines we have in place in terms of the chase model and really letting ourselves have some liquidity and not making all the buys upfront, like Tom has mentioned is a core fundamental that we just really need to reinstate, instead of allocating all our goods ahead of time. I think this way, we can chase them to the right items. It helps the sell-throughs. It helps the margins because you’re buying the right goods, so you don’t have to take as many marks at the end of season. So I think that’s just really a core discipline that really needs to get reinstilled into the organization. And then quite honestly, the liquidity is going to go where the demand is. So, even though bustle plants at the beginning of the year, we need to be agile in moving through those based on what the consumer is looking for and then giving that open to buy to the right areas. So I think that’s fundamental I’ve always been really focused, as you know, on inventory control. So I love the new disciplines that Tom has brought to the organization. And then in terms of...

[Tom Kingsbury:]

We’re going to spend -- excuse me, just one second. We’re just going to spend and we already have -- we’re just going to spend a lot of time on inventory. And that area is going to report directly to me because of the importance that inventory control is in terms of everything we want to accomplish in 2023 and beyond. Sorry Jill.

[Jill Timm:]

No problem. And I think just on the inflation, deflation from an AUR perspective, I think that isn’t anything we saw a lot of inflation in our AURs this year in terms of -- we are in a discretionary spend. It wasn’t the same as if you’re buying or selling things people need. So we haven’t been able to really expand on the AUR. Our AUR growth has really been more of the mix of the goods that we’re bringing to the table. And again, it’s all with the lens of value. But you bring in Sephora, obviously, a higher ticket item. It’s something that we’ve seen continually perform for us, despite the ups and downs in the inflationary environment. We’ve brought in different items of products like Tommy Hilfiger and Calvin Klein had had higher tickets. So, we’re really going to be I think managing through this in a very easy manner because we didn’t bring tickets up. And then 65% of our sales are national brands. So we’re really going to be ticketed based on what those brands are seeing across the landscape and then we’ll move with them as well. So, I think one thing is we didn’t take things up because of inflation. So there’s not a lot of room to have to take things down either from my perspective.

[Oliver Chen:]

Okay. And Tom, one follow-up on making pricing less complex. What’s the timing at which you’ll execute on that? And Kohl’s Cash is pretty iconic and the Company has been on a journey to simplify and amplify, less can be more. So, what’s different about what you think needs to be done? And what kind of guardrails might be good ideas around making these kinds of changes?

[Tom Kingsbury:]

Well, whatever we do, we’re going to be very thoughtful and do everything at the appropriate pace. One of the things that we’re doing, and it will start around the back-to-school period, we’re going to bring in some product that have everyday low prices. It’s small. It’s single digits as a percent to total, and we’re going to learn from that and then determine how big it’s going to be or maybe it won’t be big at all. But it’s in test mode overall. We have a lot of layering of promotions and stuff like that. And we’re just going to try to simplify a lot of that. We’re not going to back off of Kohl’s Cash. That’s a very important component to the value equation overall. But we’re just going to -- we’re going to test other things. We want to focus on spending more markdowns on clearance because as Jill said, we’re going to take clearance at the appropriate time. We want to allocate markdowns monthly to address our clearance inventories, which is really important. We’re going to be more targeted in a lot of our promotions as well. Right now, we have a lot of general promotions, general audience promotions, which we’re going to look at that. We’ve already -- we’ve already reviewed the first and second quarter to figure out where we could do that but -- and spend more of our markdowns on targeting certain areas where we feel that we have an opportunity. But everything we do, it’s going to be at the right pace.

[Operator:]

And we’ll take our final question from Paul Lejuez at Citi.

[Tracy Kogan:]

Thank, guys. It’s Tracy Kogan filling in for Paul. Just two questions. On CapEx, it looks like you’re reducing your CapEx this year, which is understandable, but just wondering if that’s a good run rate and you’re no longer expecting the $2.5 billion over three years? And then secondly, I was hoping you could update us on the Amazon partnership and how do you assess the traffic driving results of the Amazon Returns in stores and how you’re doing converting as you look back at this year overall? Thanks.

[Jill Timm:]

Sure. I think for CapEx, obviously, Tracy, we’ve talked about one of our core strategies being to strengthen back to the balance sheet. So, we did make that reduction this year in terms of really focusing on the return projects. So, of course, still going to invest back in Sephora and then adding those 50 small stores now that we have a solution to hit all of our stores from a Sephora perspective, but really being able to pull back into those more meaningful areas just given the fact that we are trying to build back our cash. So given what we spent this year and next year is obviously hitting $2.5 billion is probably not where we’re going to be at this point. But we’ll continue to assess what that CapEx needs to be really based on a return model. But just to get to the math, we won’t be making up that difference over the next couple of years. I think we’re really thoughtful. And as we’ve said through this whole call, it’s just going to be long term. So we’re going to build back to that position of strength from a balance sheet perspective, but that’s going to also take some time because we need to make the right investments for growth for our business as well. And then, in terms of Amazon, I think Amazon is one of many, hopefully, you’ve heard today, initiatives that we’re looking to drive traffic with. So along with Sephora and even home décor, gifting, impulse, all things that will have customers coming in more to see the changes, it’s more impulse driven. So, we’re really going to just continue to be focused on all of our initiatives to drive topic, and Amazon is obviously one of those key items, Sephora being another one in terms of driving new customers and traffic into the store from a replenishment perspective, and then just really the whole store experience to drive more newness, ore exploration. So I think Amazon is just a key to that strategy in total.

[Tom Kingsbury:]

Thanks for joining us today.

[Operator:]

And this concludes today’s conference call. You may now disconnect.