"Good morning." "My name is Dennis, and I will be your conference operator today." "At this time, I would like to welcome everyone to Kohl's Corporation Q3 2022 earnings conference call." "All lines have been placed on mute to prevent any background noise." "After the speaker's remarks, there will be a question-and-answer session." "If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad." "To withdraw your question, press star one again." "I would now like to turn the conference over to Mark Rupe, Senior Vice President, Investor Relations." "Please go ahead." Wait, "star, then the number one". "star one". Rule 5: "retain spoken phrasing (e.g., 'press star one')". This is the most explicit rule for this specific phrase. Wait, "number one". 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 1-A in Kohl's most recent annual report on Form 10-K and Item 1-A of Part 2 of the company's quarterly report on Form 10-Q for the first quarter of fiscal 2022, 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. If you're listening to a replay of this call, it is possible that the information discussed is no longer current, and Kohl's undertakes no obligation to update such information. Today's call will be abbreviated as compared to past earnings calls. We are planning the call to last approximately 40 minutes. With me this morning are Peter Boneparth, our Independent Chair of the Board, and Jill Timm, our Chief Financial Officer. I will now turn the call over to Peter. Thank you, Mark, and thank you for joining us this morning. I'm gonna provide some brief introductory remarks, and then I'll turn it over to Jill to review our Q3 results. We will then take some Q&A. As we shared last week, Michelle Gass decided to step down as CEO to become the successor CEO at Levi's, a valued brand partner of ours. On behalf of the board, management, and all of our associates, I want to thank Michelle for her contribution to Kohl's during the past nine years. Her efforts to strategically transform Kohl's through brand introductions and partnerships like Sephora and her focus on building an inclusive and collaborative culture will benefit the company for years to come. Michelle is an outstanding leader, and we look forward to continuing to work closely with her in the future. We have plans in place to facilitate a smooth transition. The Board appointed Tom Kingsbury as Interim CEO. Many of you know Tom from his leadership and success at Burlington. He's highly regarded and an exceptional operator with a keen focus on inventory management. I knew Tom from his early days at Filene's, and I personally have always had a great deal of respect for his professionalism, retail acumen, and integrity. Tom is no stranger to Kohl's. He calls Milwaukee home. He's been on the Board since 2021 and has been intimately involved in working with Michelle and the team. He is the perfect fit to lead the company during this interim period, and we greatly appreciate his willingness to serve in this capacity. We expect him to hit the ground running. Given the recent volatility in our business and consumer behavior, the significant macroeconomic headwinds, along with the unexpected CEO transition, we will not be giving guidance for the fourth quarter and are withdrawing our prior outlook for the year. We also want to make sure that the company has the flexibility to take the actions necessary in the fourth quarter to best position the business for 2023. We continue to have strong conviction in our strategies and it is our intent to resume providing guidance on our Q4 call in late February for the new fiscal year, 2023. Now, let me spend a few minutes on our next steps. The board last week formed a committee to oversee the search for a new CEO. Michael Bender, our current Chair of the Nominating and ESG Committee, will be leading our efforts with help from Christine Day, Margaret Jenkins, as well as Tom and I. Kohl's is a great company with bright prospects, and this is an attractive role and an opportunity in the retail industry. We are excited to engage with candidates. Let me share with you some of the key characteristics we are looking for in a new CEO. Kohl's has always been known for brands, value, and convenience, so it's important that we land a candidate that has great brand-building experience, understands our go-to-market value proposition, and has deep omnichannel expertise. In addition, we are looking for a leader that can build great teams and drive stellar results while furthering the innovative spirit and inclusive and collaborative culture. We don't have a timeline for you on how long it will take, but we know that the process is underway and that Tom has agreed to remain Interim CEO until a permanent successor is named. This company has been through a lot over the last couple of years. I want to thank our shareholders for the time you invest in engaging with us, as well as to thank you for your continued support during this transition period. We are committed to finding the next great CEO to successfully position Kohl's to drive sales, grow earnings, and create shareholder value. This Board is also committed to supporting Tom, the management team, and the entire associate base during this interim period. I will now turn over the call to Jill to discuss our Q3 results. Thank you, Peter, and good morning, everyone. Before I get started, I too want to thank Michelle for her leadership and partnership over the past decade. Let me now review our Q3 results and business performance. As we shared last week, sales were down approximately 7%. Our operating margin was 4.7% and diluted EPS was $0.82. Our performance during the Q3 was relatively in line with our expectations as the organization continued to manage the business effectively in a challenging macroeconomic environment. Persistently high inflation continues to dampen consumer spending and our business, given our exposure to discretionary categories like apparel and home goods, which are facing disproportionate pressure. During the quarter, we saw our middle-income customers continue to purchase fewer items per trip and trade down to our value-oriented private brands. From a channel perspective, store sales outperformed digital and improved sequentially in Q3, due in part to having more Sephora shops open and our investment in labor to enhance execution across the store. Digital sales were down eight percent to last year, but still up nearly twenty percent to the Q3 of twenty nineteen. Digital accounted for twenty-nine percent of sales. From a product perspective, sales of our private brands increased slightly to last year, with strong performance in our top private brands, including Sonoma, Croft and Barrow, Jumping Beans, Nine West, Tek Gear, and Lauren Conrad. Accessories was our best performing line of business, up mid-teens percent, driven by strong performance from Sephora Beauty sales. We continue to see mid to high single-digit percent sales lifts in stores with Sephora relative to the balance of the chain. This was partially offset by lower sales of jewelry driven by in-store displacement. Our core women's business outperformed the company average and excluding juniors was flat to last year. We maintained momentum in dresses, though experienced weakness in juniors and intimates, which we are working to improve. As it relates to some of our other categories, active underperformed in Q3 versus the company, driven by continued softness in active footwear. Our outdoor business continues to outperform with growth from Eddie Bauer and Lands' End. In footwear, we were pleased with the growth achieved in our dress casual business, especially in boots. Lastly, men's performed in line while home and children's underperformed the company average. Now let me turn to the rest of the income statement. Q3 gross margin was 37.3%, down 263 basis points from last year. The decline was driven by an ongoing increase in freight costs, which pressured margin by 150 basis points. Product cost inflation, which was a 50 basis point headwind, as well as elevated shrink levels. Our margin continued to benefit from our pricing and promotional optimization strategies. SG&A expenses decreased 3.3% to $1.3 billion, benefiting primarily from the lack of holiday-based retention incentives this year and lapping last year's Sephora rollout expenses. Through disciplined expense management, we were able to offset some of the continued wage headwinds. Depreciation expense of $202 million was $8 million lower than last year due to reduced technology capital spend. Interest expense of $81 million was $15 million higher than last year due to Sephora-related lease amendments and increased borrowings. Net income for the quarter was $97 million, and as previously reported, earnings per diluted share was $0.82. Turning to the balance sheet and cash flow, our inventory at quarter end increased 34% to last year, with our Sephora at Kohl's beauty investments contributing 5 percentage points of the increase. When compared to Q3 of 2019, inventory was flat. During Q3, we set the pack and hold merchandise on the sales floor and in-transits normalized. We feel good about the progress we are making to reduce inventory and continue to expect further improvement by year-end, remaining agile and responsive to the demand environment. Operating cash flow was $121 million in the Q3. Capital expenditures for the quarter were $185 million, driven mainly by Sephora and new stores. We opened five new stores in 2022, four of which occurred in early November and relocated another four stores. During the quarter, we paid $57 million or $0.50 per share in dividends to shareholders. In addition, as previously disclosed on November ninth, the board declared another quarterly cash dividend of $0.50 per share payable to shareholders on December 21st. Subsequent to the end of the quarter, we completed our 500 million dollar accelerated share repurchase program. In total, we received 17.9 million shares, which resulted in an average price of approximately $28 per share. From an accounting perspective, we recognized 11.8 million shares in Q3 and will recognize the remaining 6.1 million shares in Q4. Now let me provide an update on our capital structure and capital allocation priorities, starting first with our revolving credit facility. As expected, we increased our usage of the revolver during the Q3, driven by our seasonal inventory build ahead of holiday and to execute the five-hundred-million-dollar accelerated share repurchase program. At the end of the Q3, our outstanding revolver balance was $668 million. Importantly, we expect to fully repay our revolver borrowings in early December as we move through the key parts of the holiday selling season. We have consistently communicated that our long-term objective is to maintain our investment-grade rating, supported by prudent balance sheet management and a leverage target of 2.5x. Our philosophy and objectives have not changed on this front. Looking forward, our capital allocation actions will prioritize the dividend, followed by returning our balance sheet to its historical strength. We plan to pay down our two bond maturities totaling $275 million in 2023. We are not planning on repurchasing any additional shares until our balance sheet is strengthened on a path towards our leverage target of 2.5x. We view the recently completed 500 million-dollar ASR as a pull forward from 2023. We recently completed a robust process where we engaged with dozens of industry participants to assess potential asset monetization opportunities for our owned real estate. This included robust engagements with large, fully integrated real estate service firms, specialty real estate advisory and brokerage firms, large institutional real estate investors, and specialty real estate investment and private equity firms. Given the market volatility and current rate environment, we have concluded that it's best to stay the course and continue with our existing process of regularly evaluating our real estate to maximize asset value, drive long-term profitability, and optimize the portfolio with a focus on maintaining balance sheet health and financial flexibility. We will continue to take advantage of favorable opportunities as they arise, but not engage in a transformative sales leaseback transaction at this time. Let me share a few comments on our forward outlook. For holiday, knowing how important value is to customers this year, we are amplifying our value messaging through our holiday brand campaign, as well as by featuring our private brands more prominently in our marketing and leaning into our iconic Kohl's Cash and Kohl's Rewards programs across key promotional events. Our key product focus areas include an expanded Sephora gifting assortment, increased newness and greater exclusivity in toys, tech, and pet, active and cozy apparel, and special occasion outfitting, such as holiday dresses. Gifting is an important theme in our messaging, and we look forward to serving our customers once again this holiday season, both online and in store, including our now over 600 stores with Sephora at Kohl's shops. As it relates to our financial outlook, as Peter stated in his opening remarks, we remain committed to and confident in our strategy. However, we are not providing fourth quarter sales and earnings guidance at this time. It is the prudent thing to do given the recent unpredictable trends in our business, the significant macroeconomic headwinds, along with the unexpected CEO transition. We also want to make sure that we have the flexibility to take the actions necessary to best position the business for 2023. Let me share a few qualitative comments on recent trends and select financial commentary. In recent weeks, the environment has become more unpredictable to forecast. Following fairly stable trends in August and September, sales decelerated in late October, with softness continuing into November as compared to last year. We believe this is primarily a function of a later start to holiday shopping as compared to 2021, when customers were concerned about scarcity of inventory. Given our expectation that the challenging environment will continue in the short term, we are taking actions across multiple fronts to ensure that we are best positioned. We are planning inventory commitments conservatively, executing expense savings opportunities, and reducing capital expenditures. We will do this while continuing to invest in our key future growth initiatives. Our partnership with Sephora remains extremely strong, and we are both incredibly focused on building Sephora at Kohl's to $2 billion in sales. In 2023, we'll open 250 additional Sephora at Kohl's shops, bringing the total to 850, as well as make progress on developing a smaller footprint concept for our remaining 300 stores. In closing, I want to extend a special thank you to all of our associates. I admire your commitment to putting our customers first each and every day, and I greatly value your dedication to Kohl's. The holiday season is a special time for so many reasons, both personally and for our business. I'm excited to see more and more of our customers experience the elevated store environment with Sephora and benefit from our value-driven holiday promotional strategies. With that, Peter and I are happy to take your questions at this time. At this time, I would like to remind everyone in order to ask a question, simply press star, then the number one on your telephone keypad. Once again, please press star one if you would like to ask a question. And your first question is from the line of Mark Altschwager with Baird. Please go ahead. Good morning. Thank you for taking my question. First, Peter, with respect to the CEO search, could you expand on the key attributes the Board is looking for? Are you looking for an individual who can execute on the current strategy the company has outlined, or perhaps looking to shake things up a bit? Finally, is there a scenario where Tom continues in the role for more than an interim basis? Yeah. Thanks, Mark, and good morning. As regards to your first question, just to elaborate, the Board and the current management team and Tom are fully aligned that the strategy that we've embarked upon is the right one. We're not looking for a CEO who's coming in to change the strategy that we've embarked on. What we are looking for is a very strong operator, as I said, somebody who can drive sales, somebody who can drive earnings per share, and somebody who understands the basic tenets behind the Kohl's value proposition and the brand strategy. What we are confident in is that this is amongst the top jobs in retail and that the search firm is gonna lead us to somebody who can run this business for a long time. As it relates to Tom's ongoing involvement, Tom has committed to us that he will be Interim CEO until we find one. While there's no end date to that, it's very clear that his assignment at this point is interim. We couldn't be asking for a better leader at this time, given his background and his support of Kohl's along the way. Thank you for that. Jill, I know you don't like to provide a lot of monthly detail, but given the decision to withdraw the guide, any more color you can give us on the volatility in late October and early November would be helpful, just as we try to get a sense of what the run rate is kinda exiting the quarter and into early Q4. On gross margin, you called out some of the puts and takes in Q3 on freight and cost and shrink. Just any thoughts on what those factors look like in Q4 relative to Q3 based on what you see today? Thank you. Sure. Good morning, Mark. I think for sales, you know, we mentioned on the call, we saw stable sales in August and September. It was that late part of October that we really saw a softness. You can read that into it actually underperformed the quarter. We saw softness continue in November. What I would say is it's moderately better, so we are seeing some improvement. Like we mentioned, we are looking to see is that shopper reverting back to more of that pre-pandemic 2019 shopping period, 'cause last year we did see an acceleration due to the scarcity of inventory. Given the volatility and really the uncertainty in the macro environment, we just don't have a lot of visibility into that, which led us to why we wanted to withdraw the guidance today. In terms of margin, you know, we had talked a lot about freight being a headwind all year. We knew we would start lapping that as a headwind in Q4. That will actually moderate, but what does come back in Q4, as you saw, we called out, is that cost inflation. Where freight will moderate, cost inflation actually elevates, so we'll see a similar pressure there. Shrinkage is just really ongoing. I think you've heard about that more macro, so we've continued to see shrink as a headwind for us. We're doing a lot of things to try to manage that with, of course, the first and foremost priority of us keeping our associates and our customers safe as we go through from that perspective. I think that's kinda the color I can give you as we move into the fourth quarter, but I would say just overall it's the uncertainty and the lack of visibility we have, not that we don't have a conviction and confidence in the strategy that we're employing. Great. Thanks again. Your next question is from the line of Bob Drbul with Guggenheim. Please go ahead. Hi. Yeah, I just wanted to sort of follow up on Mark's questions. I don't know if this is Peter or Jill or both, but can you just talk about the decision to actually withdraw the guidance, you know, versus maybe a wider range, you know, any framework that you can give us around Q4, but even into 2023 as you think about, you know, how you wanna position the business in 2023? I think that would be pretty helpful. I do have a follow-up. Yeah, Bob, maybe I'll start and then toss it over to Jill. First of all, good morning and nice to talk to you. As you know, I've been doing this a long time, as have many members of our Board, as has Jill, and I would say that the visibility for the fourth quarter has been as difficult as any period I can remember. What you have, as we've said, is on the one hand, you had last year a situation where nobody had any inventory. As a result, all customers were inclined to buy early, and so you had these big numbers early in the quarter, so people had a lot of conviction. Of course, by the end of the quarter, people who had inventory problems had issues, and we had that as well. Now you flip it over, everybody has a lot of inventory. We're anticipating a highly promotional calendar. We saw this pronounced slowdown in October going into November. Was that consumer behavior? Was that weather? Was that the elections? I don't think anybody really knows. It's probably a combination of all those three factors. You then combine that, in our minds, with obviously an unexpected CEO transition and our judgment call, which frankly is a 51/49 call. Our judgment was that it was very important to give Tom and the team the latitude in the fourth quarter to execute on our basic strategy, which is to drive value and sales during a very promotional environment. You've heard from other competitors. I think it's consistent with what everybody is saying out there. I think everybody believes that Christmas will come, but I don't think anybody out there today knows for sure exactly what's gonna happen. I don't know, Jill, if you have anything to add to that. No, I would echo the sentiment. I think it's really about the unpredictability and the volatility and the trends that we've seen over the last several weeks. It's not that we're not confident in the strategy. As we enter into the holiday season, we know it's gonna be very focused on value. It's a core tenet for Kohl's. This affords us the opportunity to make sure that we can compete, go after the market share. We're set up really well. We have 600 Sephora shops. We have a lot of newness across the store, including smart home, pet, leaning into successful areas like outdoor and dress. We have confidence in the strategy. I think it's much more about the uncertainty and the unpredictability of the macro environment that Peter had mentioned. Got it. Jill, I just have a follow-up question. I think, you know, one of the brands that you called out, you know, was the Lauren Conrad brand. You know, one of the products that seems to be creating a lot of chatter is the women's LC Lauren Conrad mid-rise leggings. I was just wondering, you know, if that's enough to really sort of carry the brand. If you have any comments around, you know, how that is performing in stock or, you know, how important it'll be to you in the fourth quarter. Thanks. Well, Lauren, we did call out, I think we have called out, has been a successful brand for us and is really resonating with our customer. I personally am a Lauren Conrad shopper, as everyone knows, and who doesn't love a great pair of leggings? I think it's just really indicative of the success of her leggings. They're doing well, but really just of the brand in general. You know, we talked about women. The core women's business was flat on the quarter. When you take out, you know, juniors, which we've talked about, we're working through some of the issues we have there. We feel really happy with how women's is performing. Overall, Lauren is just a great brand. We're happy with the partnership, and I'm really happy that you actually know about the Lauren Conrad leggings. Apparently our social marketing is broad reaching. Thank you. Your next question is from the line of Gabby Carbone with Deutsche Bank. Please go ahead. Hi, good morning. Thanks for taking my question. On inventory, last quarter, you mentioned it would likely be at maybe high teens at the end of the year, which kinda brings you back in line with 2019 levels. You know, curious if that's kinda how you're still thinking about it. I understand you aren't providing guidance. Just on the promotional front, just curious if your activity and kind of how you're thinking about holiday maybe is still gonna be better than what you saw in 2019. Thank you. Sure. In terms of inventory, I think, you know, inventory is actually right where we expect it to be. I think we talked in Q2. We knew we were gonna make improvements, but it wouldn't be a large amount of improvement because we wanted to protect holiday. We wanted to make sure we were flowing those fresh receipts, which we did. A lot of that benefit would come to us after we flowed the holiday receipts. We're still very focused on inventory. I know just talking with Tom, it's a key focus of his as well. You will see that we are positioning ourselves with the flexibility to make sure that we enter 2023 clean and ready to be successful in that year. I would say we're gonna continue to focus and bring that down. I'm happy with the fact that we're flat to 2019 from an inventory perspective, even with the investments we're making into beauty. The progress is right where we expect it to be. In terms of the holiday period, I mean, holiday is always unique, and we know there's a lot of business still in front of us for holiday. We know it's going to be promotional. You know, when Peter started this call, he talked about the core values of Kohl's and value, you know, convenience and brand. We're gonna really lean into that. You know, we have the iconic Kohl's Cash. We have our Kohl's Rewards programs. We're gonna use our Kohl's credit value offering as well to really drive that business through the holiday season and make sure that we're competitive. I think that's another portion of what. You know, the actions we took, this is really gonna give us the flexibility to compete and make sure we're getting that market share. Great. Thank you so much. Your next question comes from the line of Oliver Chen with Cowen. Please go ahead. Hi, Peter and Jill. Nice to talk to you, and nice job on Lauren Conrad as well. As we look ahead in this uncertain environment, which categories do you think might have more promotional intensity? Would love your general views on what's happening with the consumer with these crosscurrents, 'cause there still is low unemployment and some savings, but the consumer is just becoming much more price conscious. Yeah, I can definitely start on this one. Well, I'll start with the consumer 'cause you talked about it. You know, we mentioned on the call in Q2, and now again, we're seeing it, is our lower income customers and higher income customers are growing. We're really seeing that squeeze in who is our core customer, which is the middle income. That continues into this quarter as well as we watch that customer move. We know value is important. We also saw it, Oliver, in how they voted in the quarter. They've migrated both in Q2 and Q3 to our proprietary brands. They've outperformed national brands for the last two quarters, which is really the first time that we've seen that in a long time. We know value is definitely going to win this holiday season, and we need to lean into that. You know, we talked a lot about newness, but even in our Sephora shops, we know that we have an opportunity to elevate gifting, so we'll be doing that. We're gonna have gifts that even start at $35, really leaning into the fact that we're bringing in a little bit lower income customer and how can we make sure that we're fulfilling their needs across the store. In terms of the promotional intensity, I mean, I definitely think it's going to be widespread. I don't know if there's any particular category that's gonna have more promotional intensity than others. I just want you to know that, you know, that is a core fundamental of who Kohl's is, and we're prepared to compete this holiday. Thanks. Happy holidays. To you as well. Your next question is from the line of Omar Saad with Evercore Partners. Please go ahead. Hi. Thanks for taking my question. Jill, could you do a deeper dive on the inventory, you know, balance, you know, how you feel about the, you know, positioning, especially kind of COVID-winning categories versus kind of recovery and occasion-driven categories? Do you feel like you're well positioned from inventory standpoint as consumers return to some of their pre-pandemic shopping behaviors and categories they're shopping in, or are you comfortable where you're at? Thank you. Sure. I think from an inventory perspective, you know, last year, as we called out, we were low on inventory, so we really needed to build back. I think the two big places that we built back in, first and foremost, was women's. If we go back over time, we took a transition in women's. We did a lot of exiting out of underperforming brands, and then we were trying to bring back in that newness. That was tough to do last year given the supply chain disruption, so we were definitely under inventoried. I think we feel well positioned from an inventory perspective for women. You know, we're seeing that resonate with the customer. Dresses specifically has been a new category for us, right? We haven't always participated in it, but we know that dresses and dress casual are more important. We funded into that inventory, and it's definitely been performing for us. You'll see even into the holiday period, we're gonna have more dresses really around that holiday occasional dressing as well. Feel good and well positioned from that perspective. In home, we're actually moving back into some of our electronic smart home TVs, things that we haven't necessarily participated in but we know are big Black Friday deal drivers for people to come to the store. I think the newness that they're bringing in in electronics is great. We're also expanding our outdoor business. You're gonna see things like tents and coolers and seating. That's really gonna build off another strength that we've had over the past quarter. You know, I think last is, you know, active is a place that you've seen softness. On the apparel side, we're still trending well, so you're gonna see that. We moved that to the front of the store with Sephora. You're gonna see that we're gonna have a great array of products, but really gonna see more on our FLX and Tek Gear because of the value orientation of those products, which are gonna be much more important during this holiday season. I think as I look across inventory, I feel like the progress we made was right where we expect it to be. We feel good with the content that we have as we head into holiday, and then we will have the flexibility to make any moves that we need to to make sure we enter 2023 from a strong position. Got it. Thank you. Maybe any quick thoughts on what's going on on the active footwear side of the business and, you know, any levers you can pull to get that going again? Yeah. I think right now it's about the supply chain and just getting the newness in. When we do get newness, it sells well. We just don't have enough of it. From my understanding, you know, we should start seeing a flow happen more in Q1, so we expect spring of 2023, we'll start pushing that back into a positive zone. I would say what I am excited about in footwear, Omar, is the dress side of the business is really coming through. We actually ran, you know, positive comps there, and we have a great boot business happening as well, which is a good statement as we move into the holiday period. I think active footwear will leg a little bit, but really excited about the dress side of the business. Thanks. Have a great holiday. Thanks. You as well. Your next question's from the line of Ashley Helgans with Jefferies. Please go ahead. Hi, it's Blake on for Ashley. Good morning. I wanted to ask two questions, one on the promotions and just the impact to gross margins. I think you mentioned freight as a headwind in Q3 and then product cost inflation. Didn't know if you could hone in a little bit more on the gross margin impact from promotions and then maybe any directional read how we should be thinking about Q4 for promotions. Sure. You know, I think as you know, we have had a strategy around our pricing and promotion and really optimizing that. We actually called that out as a benefit to our margin in the Q3, really helping offset some of these headwinds as well as, you know, helping us when we had to clear through some inventory offset that. What I'd actually say is we're optimizing those promotions to be much more effective as well, much more targeted offers, much more personalized offers, you know, eliminating a lot of stackability, which was confusing for the customer because they had to do math. Really making sure that the offers that we're putting in are meaningful to the customer to drive their behavior. That strategy is still being employed. You know, pricing being really important during this holiday season to make sure that we're being competitive and then underline where's that extra benefit we can get from Kohl's Cash specifically, and then, of course, all offers. As we move into holiday, it's always promotional. It's something that, you know, Kohl's has thrived in over the years, as we know how to be promotional. We know how to lean in and out, and I think the agility that we have today is a new muscle that you haven't seen, you know, in years past. We're gonna be able to make those moves much more quickly dependent on what we're seeing from a consumer perspective. We're able to promote to be competitive, promote to see where the product is moving and promote much more in a targeted manner to move consumer behavior. I feel that this actually plays to a strength of Kohl's, and we're set up to take advantage of that in the fourth quarter. That's great to hear. Thank you. Also on Sephora, just wondering, you've had some of those stores now for about a year or year plus. Just wondering if you could comment a little more broadly on how those stores are comping. How do you expect that customer to hold up under inflation versus your chain average? Thank you. Sure. What I would say is, one, we're still seeing great performance from Sephora. They're up mid to high single digits, so outperforming the balance of the chain, so we feel good. The stores obviously just count for one month of the quarter, but you know, it is positive, so we feel great that they are comping. I think that we're seeing in beauty sales. I think that we're seeing across is that beauty, people need it. They see this as a need. We've always said this is a traffic driver for us. It's why they come back. Even during inflationary, you know, times, they need to replenish their lipstick or makeup or cosmetics and skincare. We feel like this is definitely a thing that can continue to drive our business during the holiday period. Like I'd mentioned on the call, we know last year gifting was something that outperformed for us, so you're gonna see a much more expanded gifting assortment this year. We're gonna have some at very good value price points to really take into accountability the uncertainty and the inflationary environment that we're in, and we're gonna do this all with a much more elevated marketing support in partnership with Sephora. I think we feel great with the strategy as it unfolds. We feel great as, you know, those first 200 stores start hitting their comp year, and we feel really well set up for the holiday period. Thanks so much. Your next question's from the line of Chuck Grom with Gordon Haskett. Please go ahead. Hey, good morning. Thanks very much. Good to see the progress on inventory. Jill, last quarter, you guys provided a really nice slide on packing that across different buckets, core, in-transit, Sephora, pack and hold. I was wondering if you could, you know, maybe frame out those buckets for us how this go-around. Yeah. Made it a lot easier on us, Chuck. Honestly, the pack and hold's on the floor, so it is literally not a difference to last year. Obviously, we didn't buy into that inventory, so that went away in Q3. We mentioned on the call our in-transits really just kinda came back in line. I think you saw across the supply chain disruption, you know, we had written in a lot of extra time. That wasn't needed because the ports are pretty clear. There's capacity in, you know, the shipping lanes. We were able to really normalize that. We didn't have to call it out. The one thing we did call out was about 500 basis points for beauty. As we now have, you know, the 600 stores open, we made that investment into inventory. That was the only reconciling item. Really trying to simplify what we're looking at. Even with beauty flat to 2019, so we do feel good with the progress, but more progress to come, as we mentioned, going through Q4. All right. I think that was our last question. I just wanna thank you everyone for listening on the call today and wish you a wonderful holiday season. Thank you all for joining Kohl's Corporation Q3 2022 earnings conference call. This does conclude today's call. You may now disconnect.