Welcome to the JOANN third quarter fiscal 2023 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Ajay Jain, Head of Investor Relations. Please go ahead. Thank you, Chad, and good afternoon. I'd like to remind everyone that comments made today may include forward-looking statements, which are subject to significant risks and uncertainties that could cause the company's actual results to differ materially from management's current expectations. These statements speak as of today, and the company undertakes no obligation to update or revise any forward-looking statements to reflect subsequent events, new information, or future circumstances. Please review the cautionary statements and risk factors contained in the company's earnings press release and the recent filings of the SEC. During the call today, management may refer to certain non-GAAP financial measures. A reconciliation between GAAP and non-GAAP financial measures can be found in the company's earnings press release, which was filed today with the SEC and posted to the investor relations section of JOANN's website at investors.joann.com. On the call today from JOANN are Wade Miquelon, President and Chief Executive Officer, and Scott Sekella, Chief Financial Officer. During the question and answer portion of the call, we'll also be joined by Chris DiTullio, JOANN's Executive Vice President and Chief Customer Officer. I will now turn the call over to Wade for his prepared comments. Thank you, Ajay. Good afternoon and welcome to JOANN's third quarter fiscal 2023 earnings call. I'd like to first ask those on the call to join me extending a very warm welcome to our new Chief Financial Officer, Scott Sekella. Scott brings more than 20 years of experience in finance for several multinational brands, most recently serving as Vice President, Corporate FP&A Head at Under Armour. It's remarkable to me how fast Scott has hit the ground running, and we're very excited to have Scott on board as a senior executive. In the days ahead, I look forward to introducing Scott to many of you in the analyst, investor, and lender communities. As we enter the peak of our holiday season, I want to take a minute to thank our more than 21,000 hardworking team members at JOANN for their dedication to our organization's success. I also want to acknowledge the continued support of our customers and to express my gratitude to all the loyal sewing and crafting enthusiasts who continue to support JOANN despite the unique challenges many are experiencing during this difficult economic climate. In the third quarter, while the results showed some internal signs of strengthening, overall, we were disappointed. Our sales comparison versus last year was decline of 7.9% and versus fiscal year 2020, which was our pre-pandemic year, our sales declined by 1.1%. Gross profit dollars on an adjusted basis were down 9.3% versus last year and increased by 5.5% versus fiscal year 2020. As stated on the Q2 earnings call, our sales comparison had progressively strengthened through the end of Q2 and as we entered into Q3. However, midway through our third quarter, this trend worsened. This slowing was not incompatible with what our blind data illustrates for the specialty retail industry overall. This slowing was primarily caused by fewer items per basket as opposed to a downturn in customer traffic trends overall. Further, this reduction in items per basket was skewed to both our lower end database customers and our customers not in our database. During the third quarter, we continued to see strengthening in many large and important parts of our business, such as fashion apparel, special occasion, needle arts, and fleece categories. In addition, our Halloween seasonal business grew approximately 8%, and related categories performed very well. However, the fall seasonal decor and floral categories underperformed, as customers seemed much less inclined to indulge and decorate versus the prior year. Additionally, consistent with broader industry trends in this category, we experienced a meaningful slowdown in our craft technology business. Our general belief is that the ongoing inflationary environment has continued to pressure our customers' level of discretionary spending. We've talked many times about JOANN's resiliency through recessionary times. However, what I feel is a bit nuanced is the extreme inflationary factor, which has not been seen in 40 years. Increasingly, we're seeing that consumers are feeling the sting of inflation, but the recent shift in shopping behavior has skewed much more towards essentials and basics with less emphasis on discretionary purchases. These budget-conscious consumers have been under a prolonged period of stress for many months now, and they are getting more selective with their purchases. Fortunately, there are some signs that these inflationary trends are beginning to subside, even as we potentially head into something more typical of a recessionary environment in the short term. During the quarter, we continued to advance our key strategies, including enhancing our store experience, which, among other things, includes our journey to refresh our current and relocate stores. We had 13 grand openings in the quarter in which all but one was either a relocation where we're able to increase our square footage or enter into a net new market for us altogether. On balance, we're very pleased with the results of these locations as we were able to showcase the full breadth of the JOANN brand in a way which we could not in our previous smaller footprints. We have four additional stores opening in the fourth quarter to complete this year's projects. Our second core strategy is to enhance our multi-channel proposition. Our omni-channel efforts yielded an additional bright spot in the quarter, with sales representing over 11% penetration of JOANN's sales, plus 40 basis points to last year and over 600 basis points to fiscal year 2020. Omni revenue continued to outpace total sales for the quarter, with a moderate 4% decline compared to last year. Backing out the challenge technology business, which penetrates higher online, sales were flat for the quarter. We've been able to maintain much of our COVID lift to our online business as Q3 sales increased 126% as compared to fiscal year 2020. Importantly, over the past few days, we have worked hard to improve our omni profitability. The past few years, sorry about that, our profitability. And that trend continues with respect to both our gross and our net omni margin. To further enable our omni efforts, in October, we officially began filling orders out of our multipurpose distribution center in West Jefferson, Ohio. This distribution center will enable us to reduce split shipments, improve line fill rates, and expand our assortment tail. We are ramping up the production capability as we speak, and the impact of this holiday season will be nominal. However, we anticipate that the impact on value creation will grow substantially and meaningfully over time. Related to our online business, an online sewing competitor shut down near the end of Q3, and we are very encouraged by the sales increases that we are seeing thus far. Let me shift to what we're seeing as we are in and moving through Q4. We remain cautiously optimistic about our fourth quarter, which recall is our largest and most important quarter due to the seasonality of our business. We typically provide more intra-quarter color for Q4 on this earnings call than we do for other quarters, simply given how material it is to our annual results. We are now in the midst of the holiday season and less than 2 weeks from Christmas, I have a high level of conviction that we have been doing the right things right with respect to what we can control in order to win the day with our customers. Our assortments are relevant, our in-stocks are strong, and our promotional offers are competitive. Based on the voice of the customer and our Net Promoter Scores, our operating metrics, including our customer service, remain at all-time high comparison levels at JOANN, even despite the labor pressures that JOANN and most service-led companies are experiencing. November started slower than we anticipated, and indeed, there seems to have been some cycling of last year's fear of missing out from clogged supply chains, leading to an early consumer holiday shopping spree. Having said that, our pace has picked up with our Black Friday and Cyber Monday events and continued momentum into December. We anticipate finishing the fourth quarter with solid sales momentum as we move out of this fiscal year into next. Now let me shift to a few of our major focus areas moving forward. There's no denying the fact that the current inflationary environment has driven massive annual cost increases and has taken a significant toll on both our cash flow as well as our operating earnings. Fortunately, we are seeing stabilization across our cost structure and deflationary opportunities are now arising based on healing supply chains, stabilized commodity prices, and the strength of the dollar. To be successful, we are rethinking and taking fresh eyes to all costs and are working to root out anything that is not adding imminent value. I can assure you we will leave no stone unturned in order to strengthen our balance sheet and return to the company to double-digit EBITDA margins as soon as possible while maintaining our focus on a strong customer experience. In that vein, in October, we launched a program that we have coined as Focus, Simplify, and Grow, which is targeting approximately $200 million in annual cost reductions to be fully delivered by early fiscal 2025. We anticipate that 50% of these savings will be supply chain related, 30% will be from COGS improvements, and the balance will be from reductions to overhead costs. We also expect additional cash savings from other adjustments we are making to the business in areas such as capital expenditures and working capital. Of note, we anticipate the majority of supply chain savings to come from reductions in ocean freight costs, and the majority of these savings will offset the phase out of the ocean freight adjustment, which we have been making over the past five quarters, and which we anticipate will be fully eliminated in the first half of fiscal year 2024. While we're off to a good start, it's still early in the process and therefore we'll be providing updates on this effort in future quarters. I also want to comment briefly on our dividend. As announced in our earnings release, we've made the decision to pause our quarterly cash dividend payments. As a public company, our dividend has been an important part of our capital allocation strategy. This decision was not made lightly. However, as we find ourselves in a period of record inflation, rapidly rising interest rates, and a more likely than not recession, no priority can be more important than working to ensure that we can successfully weather any storm while not compromising on the most critical business investments that are critical to winning with our customers and also creating significant shareholder value long term. We fundamentally remain committed to returning capital to shareholders and being responsive to the needs of all of our key stakeholders. This pause does not preclude us from resuming our dividend at a later date. I would like to close out with some very exciting words regarding two of our blue ocean initiatives, the first of which is the Singer Ditto, our 50/50 joint venture with Singer, Viking, PFAFF. Ditto is a revolutionary product and platform for sewists and craft enthusiasts everywhere. We have been working on this initiative for over 4 years and now nearing launch during New York's Fashion Week in February. Units are in production and being shipped as we speak and will be launching in the United States in mid- Q1 of the next fiscal year. As I have said many times, traditional sewing patterns are both the heart of sewing projects as well as the most painful part of the process, as the format has literally not changed since the 1800s, in fact, since the days of Abraham Lincoln. Our patented Ditto system will allow customers to turn patterning into the most fun part of the sewing process using an AI platform integrated with a digital laser projector system that will enable a multitude of designs and permutations and literally take sewists from ideation to sewing in minutes versus hours. Of note, Ditto received one of the highest ever purchase intent scores by our external design partner, a partner who has over 1,300 commercialized patents. There are about 30 million households in the U.S. alone that actively sew, and a much greater number in the 180+ countries that Singer, Viking, PFAFF, and their respective dealers operate in. We believe that many of these sewing households would like to have access to a Ditto. Ditto has been vetted with expert seamstresses, design students, and beginner sewists and crafters alike. Acceptance and excitement across the various constituents is universal. In the coming months, we'll be working on a way to best bring to life the Ditto for all of our stakeholders. You can see it in action firsthand and get a better idea as to why this is so revolutionary. The second blue ocean I will briefly mention today is our wholesale initiative, which is in the early innings, but exceeding our internal expectations based on revenue contribution. We signed up over 200 new B2B customers in the third quarter. We have significant momentum with additional customers as well. The commercial website for our marketplace platform is scheduled to launch over the next 2 months. This website will provide greater operating efficiencies with added checkout capabilities for our B2B wholesale customers. Let me just close by thanking all of you for listening today. While we have faced a series of challenges over the past few years, including Section 301 tariffs, record inflation, and rapidly rising interest rates, we have also had many reasons to be optimistic. JOANN, starting with our stores, has a highly resonant and differentiated customer proposition that is very hard to replicate. Our omni business continues to gain momentum and is primed for significant profitable growth. Input costs, including supply chain costs, have reached an inflection point from highly inflationary to deflationary, and we are organizing to capitalize on the reversing trend and capture significant value. Lastly, our blue ocean growth initiatives are now coming to fruition and hold the promise to create significant value. Ditto specifically has potential to take an entire sewing industry to an entirely new level of technology, engagement, and fun. These initiatives, combined with our recent business momentum, give me optimism that we're on the right path as we transition from fiscal 2023 into fiscal 2024. With that, I'll turn it over to you, Scott. Good afternoon, and thank you, Wade, for the introduction and warm welcome. I'm very excited to join the JOANN team, and I'm eager to meet many of you joining us on the call today. JOANN's leadership position in the sewing and crafting industry is certainly well documented. Although I joined the organization recently, I've been particularly impressed by JOANN's strong cultural foundation, and I look forward to the opportunity to contribute to JOANN's continued success. As an organization, JOANN has experienced significant external cost pressures over several years now. More recently, we've also seen a noticeable shift in spending patterns by consumers who are prioritizing consumer staples and essentials over discretionary items. In what is now an increasingly uncertain economic environment, we are taking the opportunity to reset our cost structure, simplify and streamline our operations, and refocus our efforts for growth opportunities in areas that will maximize our long-term profitability. We also intend to capitalize on the stronger dollar in our sourcing efforts and take advantage of easing supply chain costs to generate greater operational efficiencies. We firmly believe that recent challenges provide us with a unique opportunity to carefully reassess our existing operations, and nothing is off-limits. As Wade mentioned, we launched our Focus, Simplify, and Grow initiative and are targeting approximately $200 million of annualized cost savings by the early portion of fiscal 2025. I am excited to see how the organization has embraced this challenge and tackled it head-on. These initiatives are intended to combat inflationary pressures we have experienced and create financial flexibility during these uncertain times. I'd now like to recap our third quarter results and then provide some additional color about our near-term outlook. As Wade touched on earlier, we experienced some deceleration in our sales trends during Q3 as the quarter progressed, particularly towards the end of the quarter. Net sales for our third quarter totaled $562.8 million, a decline of 7.9% compared to last year, with total comp sales decreasing by 8%. Relative to pre-pandemic levels in the third quarter of fiscal 2020, our total comp sales were slightly negative, declining by 1.1% over the corresponding period. While Halloween was a significant bright spot in Q3, we experienced some pullback in demand for fall seasonal categories, as well as continued softness in our craft technology business. Our average ticket increased by 1% in the third quarter over last year, driven by price increases and partially offset by fewer items per basket. Our e-commerce or omni-channel business declined by 4.4% versus last year. Our omni business continues to outpace our overall sales performance and has more than doubled relative to pre-pandemic levels. Going forward, our new multipurpose distribution center remains the cornerstone of our online strategy, and we are focused on bringing it to full capability. Over the long term, it will drive significant operational efficiencies, improve fill rates, and reduce split orders. On a GAAP basis, our gross profit in Q3 was $281 million, a decrease of 11.9% from last year and a decline of 1% from pre-pandemic levels in fiscal 2020. We absorbed $18.5 million of excess import costs during the quarter. This figure reflects a $7.2 million increase over last year, the amount was lower than expected as we continued to benefit from improving conditions in the spot market. After adjusting for excess import freight costs for both corresponding periods, our gross profit of $299.5 million declined by 9.3% from last year. Our core merchandising or POS margin was slightly higher compared to last year in spite of deeper promotional activity that we incurred late in the quarter in relation to fall seasonal and floral categories. While up close to 5% from last year, our average unit retail metric moderated slightly in Q3 on a sequential basis due to increased promotional intensity. Concurrently, our average unit cost increased on a sequential basis. These costs were anticipated. As we communicated in our previous earnings call, we've continued to experience spillover effects from higher inventory costs incurred during the peak period of last year's supply chain headwinds. It typically takes 6 months or more for inventory costs to work their way through our P&L. Once we complete the process of renegotiating our contracts for next year, we expect the outlook for average unit cost to improve in fiscal 2024. Our gross margin on a GAAP basis was 49.9% in Q3, a decrease of 230 basis points from last year. In addition to the impact of excess import costs, we experienced higher domestic freight expense as a result of higher carrier rates and fuel costs. Since we are now cycling the impact of extremely high ocean freight costs from the back half of last year, the year-over-year decline in our GAAP gross margin was much more moderate in Q3 compared to the 730 basis point decline in the prior quarter. After adjusting for excess import freight costs, adjusted gross margin of 53.2% represents a decrease of 80 basis points from last year, driven by the timing of clearance activity, increased carrier and fuel rates, as well as split ships. On a sequential basis, the decline in our adjusted gross margin in Q3 was more moderate compared to the 150 basis point decline in the prior quarter. As Wade mentioned in his remarks, we are encouraged by the fact that we are finally reaching an inflection point with regards to supply chain costs and cost of goods inflation. Of particular note, excess import freight costs have now effectively transitioned from headwinds to tailwinds, and we expect that will be clearly reflected in the fourth quarter from a P&L perspective. That said, we've realized $32 million of cash benefit from lower ocean freight rates in Q3. The fourth quarter of fiscal 2023 represents the first of what we expect will be several consecutive quarters of P&L benefit from improving ocean freight rates. In Q4, ocean freight expenses are expected to be around $15 million-$20 million favorable relative to last year from a P&L perspective. On a cash basis, we also expect to realize $15 million-$20 million of improvement in the fourth quarter from lower ocean freight expenses based on favorable comparisons to last year and ongoing improvements in the spot market. Turning to expenses, our selling, general, and administrative expenses increased by 4.4% from last year. Although we managed to optimize store labor hours successfully during the quarter, our operating expenses were negatively impacted by higher pre-opening and closing expenses relative to last year and incremental costs for our new multipurpose distribution center in West Jefferson, Ohio. We also cycled a significant reduction to incentive compensation from last year, resulting in unfavorable year-over-year comparisons, as well as experienced higher stock-based compensation expenses from a change in our retirement policy. Our net loss in Q3 was $17.5 million, compared to a net income of $22.8 million over the same period last year. Adjusted EBITDA in the third quarter was $40.2 million compared to $72.6 million last year. Moving on to our balance sheet. Our cash and cash equivalents were $27.5 million at the end of the quarter. As of October 29, we had $74.5 million of availability on our revolving credit facility. Our long-term debt net at the end of Q3 was close to $1.1 billion, reflecting an increase of $209 million from the same period last year, and a leverage ratio of 6.6x is measured by net debt relative to credit facility adjusted EBITDA on a trailing 12-month basis. The majority of this increase in borrowing was driven by higher import freight costs that we've absorbed on a cumulative basis over the past year. Our inventory at the end of third quarter was nearly flat year-over-year and lower than we anticipated on our last earnings call. We continued to manage our inventory receipts in line with current business trends. The plans that we previously outlined to lower inventory receipts in the back half remain on track. You'll recall on last quarter's call, we indicated that during the back half of fiscal 2023, we would generate a significant amount of cash flow with a particular emphasis on fourth quarter. We still expect the fourth quarter to be cash flow generative, but not to the extent we previously expected. We previously indicated we expected net debt to be in the low- to mid- $800 million range. We now anticipate around mid- $900 million for our year-end net debt. Approximately half of the increase is due to lower sales in the back half, while the majority of the remaining increase is related to timing of inventory receipts. This timing impact will now positively impact Q1 of fiscal 2024 instead of fiscal 2023 as previously expected. We have also narrowed our capital spending plans to a range of $65 million-$70 million for fiscal year 2023. The total number of store projects remains unchanged for fiscal 2023. Through the end of the third quarter, we completed 30 projects with another four planned for the fourth quarter. Consistent with our intense focus on capital allocation, we'll continue to assess the macro environment and adjust our capital spending in fiscal 2024 accordingly. Overall, we remain committed to enhancing the in-store experience, and our store refresh program remains a key part of this growth strategy. As Wade mentioned, we've carefully made a decision to pause our dividend at this time to focus on strengthening the balance sheet and improving liquidity. I also want to clarify that the cash impact from the pause in our dividend is incremental to the $200 million of planned cost reduction. The steps we're taking to streamline our operations are intended to both respond to a rapidly evolving consumer backdrop and to offset the wide range of cost pressures that have taken shape for several years now. To recap, we are focused on cash generation and are positioning our business for a significantly improved cash flow outlook in fiscal 2024. It's also clear that consumers are being more selective and demanding more value in the current economic environment, which is defined by continued uncertainty and by a noticeable pullback in discretionary spending. These challenges provide us with a fresh opportunity to reset the bar through cost optimization and to better position ourselves for growth once demand and economic conditions begin to normalize. With that, we'd be happy to take your questions. Operator? Thank you. We will now begin the question-and-answer session. To ask a question, you may press star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question will be from William Reuter with Bank of America. Please go ahead. Hi. Good afternoon. In terms of your savings, the $200 million program that you expect to achieve by early fiscal year 2025, do you have a sense for what you may be able to achieve during fiscal year 2024 at this point? Yeah, we aren't putting out specific numbers, but I, you know, I would suspect it would be, you know, very substantive. I would hope, you know, more than half. I mean, we already have a lot of runway on the supply chain savings as spot rates are normalizing. In particular, that's a very big number. You know, as we go forward in future calls, we're gonna try to provide a little bit more guidance in terms of the cadence of this. We are actually starting to incur savings on all the three core work streams. Some will take longer than others, but I think supply chain is one that can be most immediately realized. I'd also though just warn you that first we're gonna see the cash benefit of these, you know, then we're gonna see, you know, the P&L benefit. Some of these things, such as ocean freight and COGS, in particular, those two items work their way through your inventory, so there can be a 6-month lag before from the time you see the cash benefit to the time you see the P&L benefit. Yeah. Hi, William. It's Scott. Yeah, I just wanna reiterate what Wade said there, particularly at the end, that we do expect to see this impact on a cash basis first and more significantly than on an EBITDA basis in fiscal 2024. Because with both ocean and those product cost savings, which is a good chunk of that $200 million, that's gonna need to roll through the balance sheet, and oftentimes those costs take 6 months or more to impact from an EBITDA perspective. Great. That makes sense. Just a second question for me. It sounds like it's the more discretionary, I assume higher ticket items which may be experiencing greater softness. I guess, is that the case? Are you seeing divergent trends between arts and crafts versus your core sewing products? Yeah, I'll say a few things and maybe Chris can build on it. You know, I think what we see is one in kind of the technology sector. I think some of what we see there is, I don't think is a factor as much of discretionary spend as the fact that there was just so many sales during the pandemic, so you had a bit of saturation on the core products. You know, that will eventually work its way through. I think where we're seeing kind of the tightening is actually really in our seasonal product, not the basics so much, but it's the. You know, in particular, it was the fall decor. You know, we had a strong Halloween, but the fall decor where people, you know, chose not to spend the money to decorate as well as some of the other seasonal floral items that go with that. On the core basics, you know, we're seeing actually pretty strong stay demand. Yeah, I'd agree, Wade. Hi, William, it's Chris. You know, one of the things that we're seeing is our core customer is really strong and strengthening, especially the more advanced sewer, the more advanced crafter on both sides of the house. We're seeing some very good underlying trends in a number of our categories, both in craft and sewing. It's just that we're also, at the same time, dealing with some headwinds from those pandemic-boosted categories over the past couple of years in craft technology, and then more cotton-related fabrics, which were the two categories that really had the biggest boost over 2020, 2021 calendar. I'd also say, as we sit here, I read on the, you know, as we look at, you know, the fall decor, you know, it appears that people were less inclined to spend money there. On the holiday sales, there I think a bit of that, what I talked about, that fear of missing out, where they were waiting a little bit longer than last year, looking for deals versus last year, people were afraid there wouldn't be anything to buy because of supply chains. I think that's. You know, part of why we're saying that our most recent read here is showing some pretty good signs of traction. Perfect. Very helpful. Thank you very much. The next question will be from Paul Kearney from Barclays. Please go ahead. Hey, everybody. Thanks for taking my question. Just a quick clarification. On the $200 million of cost savings, I think you said some of this is from the excess import freight costs that was already recognized. Is one, is that correct? Paul, it's Scott. Yeah, I mean, a good chunk of the $200 million is gonna be from reduced ocean freight, but we haven't really recognized that. We're just gonna see the first P&L benefit here in Q4 around $15 million-$20 million. Ocean freight was still a headwind from a P&L perspective in Q3. Recall, you know, a lot of these savings will eliminate our add back, real cash savings, but elimination of add back, which we're gonna phase out next year. Then, you know, how far below what we've called normalized will remain to be seen as we get through it. Again, we're pretty encouraged by the current spot markets out there and some of the other signs, but not everything will be in the adjusted EBITDA component. Okay, thanks. Just, secondly, can you just comment maybe on the promotional environment you're seeing? Has it become deeper following Black Friday events, and how has it kind of progressed through the holiday season, and what are you expecting that to look like into next year? Thanks. Sure, Paul. It's Chris. You know, the promotional environment in many ways is still a very rational environment that we've talked about. I would say the one area being the exception, I would say from both us and competitors, has been some of the seasonal categories that we referenced. Whether that was, you know, fall product in Q3 or some holiday product here in Q4, you know, that's been where we've chosen to be, you know, competitive and aggressive and assuring we win the day. I would say on the balance of our business, which again, most of our business is basic, versus being seasonal, still pretty rational. Thanks. Best of luck. Yeah, I'd just would add in our immediate competitor space, you know, last year, it was hard to get product in. One of our competitors was, you know, very thin. Product came in a little bit later. This year, I think everybody's had a lot of product in stock. I think it's been an environment where, you know, there's plenty to buy out there, a lot more than there was a year ago. Thank you. The next question will come from Laura Champine with Loop Capital. Please go ahead. Hey, thanks for taking my question. On the $200 million in cost savings that you've targeted, how much of that are you expecting to come from macro things such as the spot rate improving, et cetera? How much of it do you need to drive internally with your own execution? I'd probably, you know, if I had to just kind of swag it, I'd probably say, you know, about 30%-40% is kind of macro. You know, these are those spot markets moving. It doesn't mean you're just gonna hand it to you. There's still a lot of work. Even on the COGS side, right, while you've got, you know, input costs and other things moving, there's a lot of work to do there to open up, you know, new bidding sources. You might have your own math, but I probably would say, 40%, you know, kind of macro, 60% heavier lifting than that. Yeah, I would agree. This is Scott. I would agree with the 40%. Yeah, a big chunk of this is gonna come from the product cost side, which is a lot of individual negotiations and discussions, as well as just attacking our cost structure overall. Is it fair to say that those cost cuts, at this point, you don't expect those to lead to lower pricing? I mean, we're separating the two. I think right now we feel that we've been, you know, we're pretty competitive out there in terms of our offers, and, you know, we make adjustments where need be, but I don't feel right now that we feel that we're not competitive. I really kind of separating A from B. We have incurred over the past 2 years on an annualized basis, you know, over $200 million of incremental costs, if you add it up. Now, at least relative to our business, all the kind of core underpinnings, all the input and feedstocks, are moving in an deflationary manner. You know, we're gonna go claw back. Understood. Thank you. The next question will come from Cristina Fernandez from Telsey Advisory Group. Please go ahead. Good afternoon. Thank you for taking my question. I wanted to ask on the $200 million, are there any savings related to stores that have changed your plan to open stores or take on remodel projects or any changes in labor as it relates to store base? Two things, and Scott can go into more detail. We are gonna have a capital and working capital cash savings apart from the $200 over and beyond, as well as the dividend over and beyond. The $200 is a component of the total cash that we'll be driving. We are going to adjust the number of stores and reloads we do, although we're not turning the engine off, for example. I would say, there are some. We said that everything's on the table, but one of the things that's very sacred to us is making sure they have great in-store experience. We are not gonna do anything on our store labor front, that's gonna compromise where we are right now, which is kind of actually in some of the rarefied air for that customer service metric. Doesn't mean there might not be some opportunity there, but, you know, that's something that we're gonna protect at all costs. Hi, Cristina, it's Scott. Just to reiterate Wade's point, you know, part of our initiative is looking at how do we optimize store labor without sacrificing that in-store experience. That could mean, you know, reducing, that could also mean increasing to drive incremental top line. We'll be taking a look at all of that. Then my second question is in relation to the debt balance. I understood your point that with lower sales, there'll be and the timing of the inventory, you won't get to that $800 million-$850 million target. When do you think you can get there? Do you have any target you can share as far as reducing debt in the next 12-18 months? You know, we'll provide more color on fiscal 2024 on our next call. You know, like I said, we do plan to end the year around the mid-$900s. With the cash generation that we're planning from the Focus, Simplify, and Grow, from the working capital initiatives, and the capital expenditures, just to name a few, we do expect to pay down debt in fiscal 2024. You know, not ready to give more color on exactly how much, but I do expect it to come down in fiscal 2024. Okay, thank you. One last one. What would it take to reinstate the dividend? I think part of what it would take is just a little bit more visibility on where the world is going, right? When you look at, you know, the pace of said increases of rates, about the fastest in 30 or 40 years, when you look at the inflation, which I believe is turning, is the warmest turn for our inputs, it's also, I think, turning for the consumer. I just need a little bit of time to just make sure we understand where the world is going. I mean, we didn't take it lightly, but on the other hand, you know, we absolutely wanna be ahead of it and drive cash relentlessly just to make sure that we can weather any storm if in fact, you know, there is a storm. But there is a lot of uncertainty out in the world. I actually have said this many times, I'll say it again, the worst thing for our business is stagflation, which I think relative to our business, that's where we've been stuck the last year. You know, I take a recession over stagflation because, you know, a consumer being squeezed in inflation from all angles, you know, is a much tougher picture than having inflation down and have some compression on growth. Not that that's recession is, you know, de facto a certainty either. But I think we just want to make sure that we're doing everything possible to strengthen the balance sheet, generate as much cash as we can, to also invest in the core initiatives. We talked a little about the blue oceans. We've got, you know, an incredible opportunity there. You know, our omni business is actually very, very strong and, you know, getting the underpinning engine here, running is gonna open up a lot of opportunity. Our core customer proposition is pretty strong too, and we'll be, you know, at the first quarter cycling, you know, what was, you know, a really tough 2-year comp. I think we'll start to gain some momentum there too. We just wanna make sure we don't get put into a position where, again, with rising rates, inflation, you know, consumer squeeze everything, where we don't have room to invest in the things that are gonna make us great longer term as well. I don't know if that totally answered your question, but I think it's just over the next year, let's just see where the macro environment unfolds. We're gonna plan for the worst and hope for the best here. Okay, thank you, and good luck this holiday season. Thank you. Once again, if you have a question, please press star then one. The next question will be from Zohair Azmi with Beach Point Capital. Please go ahead. Hi, thanks for taking my questions. First, do you guys have any sense of how your market share is trending versus your peers? We have several ways we triangulate. As you know, these are very fragmented industries. There's no, you know, clear read. From everything we can gather, you know, we've held our own across the board, kinda everywhere with a few core categories we think we've actually picked up some meaningful share. Not gonna comment on what those are, but, you know, we're pretty certain that we haven't given, you know, anything up. Okay. In terms of inventory, how do you feel about your current inventory levels? Do you guys feel that there will be any need to sort of go deeper into promotions to reduce inventory? Do you have a sense if you're in the same situation as your competitors there? Hi, it's Chris. From an inventory standpoint, we feel good about our quality. You know, some of the actions that we took in terms of moving up our Black Friday event to start a little bit earlier than it did last year, we're happy with those results and happy with the shelters we're seeing in our holiday product, which is really, you know, that's what's maybe the risk opportunity for the quarter, but we feel good about our current position. From a clearance and a basic standpoint, we're as clean as we were in Q3 and continue to see that being the case for the end of the- Yeah, that level we quoted in Q3 was about 5% year mark for that. It's about the same now. That is pretty much, you know, for this business, you know, as low as we've ever been. We're in very good stead. Do you feel like your main competitors are in a similar position, or might they push more on promotions? I'm sorry, might competitors push more promotions? Like, are they in the same inventory position, or do you think that they might get more aggressive? Yeah. Yeah, I think that, we see competitors being aggressive in similar categories as us. You know, some competitors, it's a larger percentage of their business than it is of ours. You know, I think for us, we feel good about the actions we've taken and the quality of the inventory. Yeah, I think again, where we've seen any more of that aggressiveness is a rational place to be, whereas last year there was a lot of scarcity in product. This year, there's a lot more of that seasonal holiday product. You know, everybody wants to move that. Again, on the vast majority of our product, the basics, the day in, day out, we're not seeing that. Lastly, any additional color you guys can provide on how, like, the Christmas season is progressing and how seasonal and 4Q have trended through Black Friday and through now? Sure. you know, the month I think started hard for a lot of folks in retail. You know, as I looked across the spectrum, you saw a number of companies pull their Black Friday events forward, starting earlier. We certainly had a competitor do that. We did as well. We've seen the customer respond to those to those promotions, whether it was Black Friday or Cyber Monday. You know, so far, the momentum has been similar in the month of December. Thank you. Our next question will be from David Lantz from Wells Fargo. Please go ahead. Hey, guys. Thanks for taking our questions. I was just curious if you could talk through some of the gross margin buckets in the quarter outside of the 145 basis point excess freight headwind. Hi, David. It's Scott. If you look at Q3 gross margin, you know, on an adjusted basis, we were down 80 basis points year-over-year. If I break that down from a POS standpoint, we were up 10 basis points because our AUR was slightly higher than our AUC. Clearance reserves, though, were unfavorable 40 basis points. From the domestic freight side, we had increased carrier fuel rates, which were about unfavorable 30 basis points, and increased split ships were unfavorable about 15 basis points. Got it. That's helpful. With the cost savings efforts, curious how you're thinking about SG&A in Q4 relative to prior expectations for being kind of flat in the second half? Yeah, I mean, a lot of the Focus, Simplify, and Grow impacts to SG&A will be more in fiscal 2024 than Q4. You know, I expect Q4 SG&A to be a little bit in line with how Q3 progressed. You know, Q3 was up year-over-year, as we mentioned, with the new distribution center. The other piece is we were lapping some favorable incentive comp, and then we had to change to our stock-based compensation due to a change in retirement policy. I expect overall, you know, incentive comp to be slightly favorable in Q4 versus year ago as we lap some of the items there. Got it. Thanks. Our next question is from John Nusbaum with 400 Capital. Please go ahead. Thanks for taking all the questions. With regard to the $200 million in cost savings, did you say already what the cost or the expense of achieving the $200 million will be over the 18-month period? Hi, John. It's It's Scott. At this point, you know, we're not planning or anticipating restructuring charges or anything like that. There could be some as we get into it, but nothing that we've identified at this point. You know, as Wade said, as we go through the program, we'll keep you updated, and if we do incur some, we'll obviously let you know. Thank you very much. Ladies and gentlemen, this concludes our question and answer session. I would like to turn the conference back over to management for any closing remarks. I'd just like to thank all of you for your generous listening and dialing in today. We work hard every day on behalf of all of our constituents, and we'll keep doing it. I think we've got a great opportunity here, and it's ours to go get, and, we're after it. Thank you. Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.