Greetings and welcome to the Dollar Tree Q3 2024 Earnings Call and Webcast. At this time, all participants are in a listen-only mode. [Operator Instructions] A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Bob LaFleur, Senior Vice President, Investor Relations. Please go ahead, Bob.

Good morning and thank you for joining us today to discuss Dollar Tree's Third Quarter Fiscal 2024 Results. With me today are Dollar Tree's Interim CEO, Mike Creedon; and CFO, Jeff Davis. Before we begin, I would like to remind everyone that some of the remarks that we will make today about the company's expectations, plans and future prospects are considered forward-looking statements under the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties, which could cause actual results to differ materially from those contemplated by our forward-looking statements. For information on the risks and uncertainties that could affect our actual results, please see the risk factors, business and management discussion and analysis of financial condition and results of operations sections in our annual report on Form 10-K filed on March 20th, 2024, our most recent press release and Form 8-K and other filings with the SEC. We caution against reliance on any forward-looking statements made today and we disclaim any obligation to update any forward-looking statements, except as required by law. Also, during this call, we will discuss certain non-GAAP financial measures. Reconciliations of these non-GAAP items to the most directly comparable GAAP financial measures are provided in today's earnings release, available on the IR section of our website. These non-GAAP measures are not intended to be a substitute for GAAP results. Unless otherwise stated, we will refer to our financial results on a GAAP basis. Additionally, unless otherwise stated, all comparisons discussed today for the third quarter of fiscal 2024 are against the same period a year ago. Please note that a supplemental slide deck outlining selected operating metrics is available on the IR section of our website. Following our prepared remarks, Mike and Jeff will take your questions. Given the number of callers who would like to participate in today's session, we ask that you limit yourself to one question. I'd now like to turn the call over to Mike.

Thanks, Bob, and good morning. I want to welcome everyone to today's call. This is my first time speaking to you as Interim CEO, following our recent leadership transition. I'm honored that the Board has named me to this role at a critical time in our transformation. To all our stakeholders, please know that I take this responsibility very seriously and with great humility. I also want to thank Rick Dreiling for his leadership and the support he provided to all our associates and leaders. From all of us at Dollar Tree, we wish him the very best. As an organization, our top priorities remain accelerating the growth of Dollar Tree and finalizing the strategic review to identify the optimal ownership structure for Family Dollar. Executing against these objectives is the first priority for this leadership team and our Board. Throughout the strategic review process, we have maintained our operational focus and driven meaningful improvements in Family Dollar sales productivity and profitability. Our ultimate goal remains positioning both banners for long-term success and unlocking value for Dollar Tree shareholders. At the Dollar Tree banner, we're converting stores to our in-line multi-price 3.0 format, opening new stores and improving the in-store experience through renovations and customer service enhancements. We believe there is ample runway ahead for Dollar Tree to meaningfully grow its square footage over a multiyear horizon. Value always resonates with the customer and that is why our business model has stood the test of time across decades and multiple economic cycles. We have made good progress on store conditions and operations, but there is more work to be done. At the end of the day, retail fundamentals are the key to unlocking value at Dollar Tree and I'm confident that we have the right team in place to deliver…

Thank you, Mike and good morning. Before I discuss the details of our third quarter results, I want to extend my thanks to our Interim CEO, Mike Creedon; our former Chairman and CEO, Rick Dreiling, my finance team and the extended Dollar Tree management team. During my time here I've had the privilege of working with talented colleagues, navigating exciting challenges and celebrating many milestones along the way. I'm proud of what we've accomplished together and I'm confident in this management team and the business strategies that are in place. I remain energized about the future possibilities for both Dollar Tree and Family Dollar. With that, let's get back to business. As usual, I'll start with a discussion of our quarterly results, and then I'll provide our outlook for the balance of 2024. Where applicable, I will focus on our adjusted results. A reconciliation of non-GAAP adjusted results is provided in our earnings release. Third quarter adjusted EPS increased 16% to $1.12. Overall results benefited from sequential top line improvement at both banners and positive discretionary trends at Family Dollar. Turning to the business results, on a consolidated basis, adjusted operating income was $343 million, a 14% increase from last year. Adjusted operating margin increased by approximately 40 basis points to 4.5%, reflecting a 120 basis point increase in gross margin, offset by a 80 basis point increase in adjusted SG&A rate. Our adjusted effective tax rate was 23.8% compared to 21.8%, reflecting lower workers opportunity tax credits in the current year. Adjusted net income increased 13% to $241 million. Now let's move to our business segment results. At Dollar Tree, adjusted operating income decreased 3% to $466 million. Adjusted operating margin decreased 140 basis points, driven by a 60 basis point increase in gross margin, offset by a 180…

Before I go, I want to acknowledge our associates who were affected by hurricanes Helene and Milton. Those in the affected areas face significant challenges and many of them were personally and directly impacted by the storms. While rightly concerned about themselves and their families, they nonetheless stepped up to serve others. The two storms closed over 1800 of our stores, but within a day or two, two-thirds of those stores were back open and serving their communities. The resilience, dedication and commitment of our associates to their communities is inspiring. By quickly reopening these stores to provide essential services to those in need, our associates truly demonstrated what it means to live our values. Finally, I also want to take the opportunity to thank all of our associates and team leaders during this especially important holiday season. In the face of a challenging and rapidly changing landscape, I am extremely proud of the contributions made by each and every one of our associates. As a result of all your hard work, we expect to turn in a very good year-end and a very bright future lies ahead for our business. With that, we're ready to take your questions.

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question is coming from Michael Lasser from UBS. Your line is now live.

Good morning. Thank you so much for taking my question. I have a two-part question on your earnings outlook moving forward. The first part is you obviously had some one-time items this year that should come back next year. So as you see today, is there anything that should stand in the way for us to simply add the impact of these one-time items to your base earnings next year? And the second part of that question is the two wildcards might be anything that happens with Family Dollar. So how should we think about that potentially impacting your earnings outlook? And then tariffs, what's the downside case to your earnings for next year in tariffs? Thank you so much.

Thanks, Michael. I'll let Jeff handle the one-time and the FD and then I'll jump in on the tariffs. But Jeff?

Yes. Good morning, Michael. On the one-time, as we had discussed last quarter, those items would be added back to sort of a base level for going into FY'25. And then as it relates to the second part, which was around Family Dollar. As it relates to Family Dollar and a strategic review, we're not giving any guidance as to what that might, how that might impact us in 2025 at this point in time. There are a number of factors that you had mentioned, we'd have to work through, but it would be inappropriate for us to make any discussions or points of adjustment at this point in time.

And Michael, on the tariffs, it's still unclear what will make its way to policy. But we managed through this before. Rick McNeely and his team in 2018 and 2019. They did a very good job of mitigating the vast majority of the impact with only a few levers to pull. Back then, the choices were they could change some of the specs on the product, they could negotiate furiously with our suppliers or they can eliminate the product altogether. They still have all three of those levers to pull. And yet we add to it now, we've done a tremendous amount of work over the years looking at alternative countries of origin. Our China Plus One strategy basically backs up our key categories so that we could move if we needed to. And then finally, we've got multi-price. Multi-price gives us the ability to flex where we need to if a certain product becomes something that we've got to move in the market to be competitive.

Thank you. Next question is coming from Edward Kelly from Wells Fargo. Your line is now live.

Hi. Good morning everyone. Mike, I was hoping, can you talk a little bit more about the softness that you mentioned in November. I know you started the year, you're pretty optimistic around Q4, and I think a lot of that was around the seasonal product for holiday. So have you seen that bounce post-Thanksgiving? And I guess the question I'm really trying to get at is how much optimism is in the forecast for an improvement off of November. Can you just provide a little bit more help related to all that?

Sure, Ed. One of the keys we're seeing is, and I mentioned it earlier, our customer is focusing on their needs and we see that in our consumables. I mean, it's an incredible, the growth we've seen in our consumables, both Dollar Tree and Family Dollar. And when you look at the multi-price, I mean, we ran a 6.6 in consumables on Dollar Tree multi-price. So the customer is clearly buying for need and she's also buying what we call closer to need. So we saw this in Q3 as you saw a cadence built as we got to Halloween, which occurred at the end of the quarter, you could see the strength with which she showed up in terms of buying at the end. We ran a multi-price, we ran a 10 comp for Halloween specific products. So that buying for need and then buying closer to need. And then as you look at Q4 and how it unfolds, we saw it with Thanksgiving. I mean it was -- it came at the end. I always take the foil pans, which are such a key component of Thanksgiving for us. The last week was just incredible. So we see her getting closer and closer to the need. And then what we're trying to do in terms of the balance for the rest of the quarter is really balancing that, okay, there's five fewer days, yes. But there are also, you've got more days before Christmas when you move it to the middle of the week. And so we have a wide range in the fourth quarter, but that contemplates that balance of her buying for need and then buying closer to the need and how that unfolds, especially with the five fewer days. But the set is fantastic, especially when you look at the holiday set, what we're seeing, what we're seeing in toys, what we're seeing in trimming hard, trimming gift, trimming tree. We really like the cadence we're seeing of the customer as she navigates through this holiday.

Thank you.

Thank you. Next question is coming from Matthew Boss from JPMorgan. Your line is now live.

Great, thanks. So Mike maybe could you speak to customer demand trends across income cohorts best you can decipher out. Any notable trends you're seeing between consumables and discretionary? And just for perspective, were comps at the Dollar Tree banner positive in November? And then, Jeff, on the conversions, I guess, is there a way to elaborate maybe on top line and margin performance versus your initial plan? And just a mindset for further slowing the rollout this year and what the expansion looks like for next year?

Yes, I'll take the first part and Jeff to take the margin. When you look at the customer cohort, our low-end customer is definitely pressured. We see that. We see that she is clearly focused on consumables. We see a rise in the eat at home, which helps us, and you see that in our consumables comp. And then the low -- the middle income and even the higher income is still feeling some pressure. And basically, when you look at a year ago, they were cutting out big purchases. TV, things like that. If you look at the early part of this year, they started eating more at home and cutting going out. Now they're reducing some parties, and we see that or the party is not as big, they don't invite as many people as they did. So we're seeing that throughout. But I think when you look at the share we're taking and you look at Dollar Tree and Family Dollar as an answer for this customer as they're pursuing need and closer to need, we like what we're seeing from that customer. The shift is tough. It is really tough to start the year when you have Thanksgiving later and all those days are comping against days from last year that are different in the calendar. Look, it happens every six years. It's one of the things that we have to deal with. And it definitely is a reason for the soft start. But when we double-click and we look into fall in Thanksgiving sell-through. When we double-click on some of the early subcategories for Christmas. We believe that we're set up really well for the fourth quarter and our guidance implies that we'll hit that low-single-digit in both Family Dollar and Dollar Tree.

Matt, as it relates to the conversions, we've talked about this in prior quarters. But if you think about our stores as being a little bit of a bell curve, we've got the stores that are far exceeding our expectation with respect to multi-price across not only consumables, but discretionary and some of those that are laggards. But as we think about on the quantum of the business, it is absolutely meeting our expectation. What we're really excited about and Mike has been talking about it is as we've been transitioning now into the time of the year where discretionary is a much more important complex for our customer purchases. We're actually seeing a customer really lean into our multi-price and that's something else that's very attractive to us. The merchant teams have done an extraordinary job of going out and sourcing and determining how to bring good value to our customers. From a margin perspective, in the third quarter, we actually saw the impact of multiprice being more muted than what we thought it would be, meaning that the margins came in stronger for us. And a lot of that is, once again, that mix and the discretionary versus the consumables is what we're seeing.

Thank you. Next question is coming from Rupesh Parikh from Oppenheimer. Your line is now live.

Good morning. This is actually Erica Eiler on for Rupesh. Thanks for taking our question. So I wanted to dive a little bit deeper into Family Dollar. So traffic picked up. You talked a lot about the positive inflection discretionary. So can you talk about your confidence in being able to sustain the momentum on both these fronts?

Sure. Yes, it was a really nice quarter at Family Dollar. And one of the things I mentioned in my remarks earlier is that we feel that, yes, you've got some of the SNAP that you're sunsetting over time, but it's still an impact. We feel the actions we took and the team took to really improve the discretionary, move a little bit on the discretionary side to the, if you will, the consumable side of discretionary. The things that people will buy more often and buy each year or each quarter within the discretionary. We feel that, that's set and the resets that we've done to the stores, targeted end-caps that really provide the customer with what they need. We believe those are long lived. We believe that the actions we're taking today help us as we go through. And then the changes to the stores, when you, over 1,500 renovations now. Our 2.5s, which is our latest and greatest format. I mean the comps are fantastic and really fueling it. And then the XSBs which is this urban smaller footprint store is resonating incredibly well with the customer. Those changes are long lasting. Those are the ones that really help us.

Thank you. Next question is coming from Zhihan Ma from Bernstein. Your line is now live.

Thank you very much for taking my question. I wanted to ask on the multi-price side of things. I think last quarter, you mentioned more mid-single-digit comp lift for the Q1 and Q2 conversions. Can you talk about the cadence of the multi-price rollout, how the Q3 conversions compared to the Q1 and Q2? Has there been some sort of a deceleration given that we're seeing a more low-single-digit comp sales lift this quarter? Thank you.

Sure. First of all, the customer response has been incredibly positive to multi-price. If you look the basket has five more units in it. It's nearly double the value of a traditional Dollar Tree basket and we're seeing more trips from the customer in terms of our typical customer, which means they're really embracing that treasure hunt of what they'll find on the next visit via multi-price. In terms of the cadence, not all conversions are created equal. When you're going, if you look at Q1, the vast majority of those stores were going from what we call a 1.0. So just $1.25, they don't have Dollar Tree Plus, they don't have the three, four, five coolers. And so they're going from a 1.0 all the way to a 3.0. And we look at Q2 that was kind of balanced across the two cohorts going from a 1.0 to a 3.0 versus a 2.0 to 3.0. When I look at the Q3, and this is where the decal comes in, we were 75% coming from 2.0 to 3.0. And as we look out, we have to convert them by distribution center. And so when you pick a distribution center that's heavily geographically weighted on Ohio, Pennsylvania and New York, you also tend to hit maybe some of our harder geographies and you hit stores that already have Dollar Tree Plus. So what we've done is we look out over next year as we're really trying to balance that out. So that we keep a perspective of that 1.0 to 3.0 and 2.0 to 3.0 in terms of the balance. One of the things I'm most encouraged by, though, is as multi-price unfolds, the stores from Q1 continue to be our strongest. Q2, second strongest, and then Q3. So the longer they're on multi-price, the more the customer finds it and the more the customer shops it and the better the experience is. And then finally one of the -- when you look at some of the geographies of going from 1.0 to 3.0 as we did in Q1, they got the very best of the learnings of Dollar Tree Plus from the last couple of years. And so as we go back we now take those Dollar Tree Plus learnings and we revisit other Dollar Tree Plus stores and we're upgrading. We're taking some categories out or some SKUs out and we're adding in ones that resonate better. Categories that were a bigger hit or SKUs that really resonated with our customer and help them. So this is -- we're nine months into this. This is still test and learn, but we like what we're learning and we love what the customer is experiencing and the feedback that they're giving us.

Thank you. Next question today is coming from John Heinbockel from Guggenheim Securities. Your line is now live.

Hey, Mike, a couple of things, you didn't talk about the performance of the non-3.0, right? So I think they comped about one, which is a little bit better than last quarter. And that gap versus the 3.0, right, is the -- which maybe like 200 plus bps. Is that -- is the gap -- if you segregate it, is it entirely multi-price point items that are driving that gap and then the last thing, right, it's working as well as it is. How can you accelerate the process, right, of without letting execution slip, right? Because you'd like to get chain-wide done here probably in the next 18 months, no.

Yes. So, John, it's -- first in terms of the non- 3.0 performance. It's not just about the base stores. We'll get to those, we'll convert them. I think one of the keys in accelerating the non-3.0 is in what we're doing going back to Dollar Tree Plus, which has been in place for several years now and refreshing that. We take whole sections and refresh them and really like the results that we're seeing. In terms of the – and, yes, we did see one of the -- we always measure our gap in terms of how are multi-price comparing to the chain. And one of the reasons that gap closed is the chain got better. Dollar Tree Plus, definitely, those base stores got closer to multi-price, which is encouraging. And then there's two ways to accelerate, the first is in the conversions themselves. And you'll see we slowed that conversion. Part of that is just from an execution standpoint. We introduced some milestones where we said our district manager has to sign off in a store four weeks before we go live and then a regional director, our next level up, has to sign off on a store two weeks before. And they have the power to say, no, yes. They have the power to say we need some support to make sure we're ready or change or whatever reason they might have. And so it does slow us, but we believe that done right is better than done fast there. And that's not our only means of accelerating. We also have the opportunity to go back in and look at the SKUs that are working for us. We're several years into Dollar Tree Plus. We're only nine months into multi-price 3.0. Going back and looking at what…

Thank you. Our next question today is coming from Simeon Gutman from Morgan Stanley. Your line is now live.

Hey, good morning, everyone. Mike, I have a follow-up on multi-price. The 5.1 that we talked about the prior quarter versus the 3.3. Are you saying those are apples-to-apples or not necessarily given timing of 1.0s and 3.0s. If it is apples-to-apples, is it because some of the old 1.0s that got converted are seeing inherent or slowing or is it that the new 3.0s are not as impactful as they were when they were initially rolled out?

Yes. So the 5.1 was just how did the Q1 conversions perform in Q2. That's what that was. And as I roll that out to Q3, Simeon, those Q1 conversions continue to be the strongest performing then Q2 and then Q3 in that order. So the longer they're on, the better they perform. And going from a 1.0 to a 3.0 to use our parlance, $1.25 is a 1.0, $1.3 plus is a 2.0, multi-price in-line is a 3.0. The stores that went from 1.0 to 3.0 have the biggest bang. We see them because they're getting everything, if you will. And so then we go back to stores that just have Dollar Tree Plus and we take the learnings of what's working what's resonating the most and we go upgrade those stores. And physically the cost we have for resetting the store, we get that once. Yes, it plays out because of the conversions over 18 months or two years. But we don't have to go back and change hardware in that store. We don't have to add steel. We do that once. And then Rick and his team can go and make sure we have the best assortment that's resonating the most with the customer. And so as you look at that cadence, yes, our Q3 were the softest. They had the fewest amount of 1.0 all the way to 3.0. And I also think there's some geography mix in there. If you look, I mentioned in the Q2 call, we saw California really resonate well with multi-price. Florida, we expect to resonate well. We did have some execution issues. I was really pleased to see them kind of have a stronger Q2. And now as we look at the Q3 sets, we're more in our kind of Midwest area and it doesn't have the same pop that we saw in California and now in Florida.

Thank you. Next question is coming from Kate McShane from Goldman Sachs. Your line is now live.

Hi. Good morning. Thanks for taking our question. Mike, just given your new position, I wondered if you could talk to anything that you might want to accelerate or change with the investments or the strategy and can you talk about some of the leadership changes you announced recently for Chief of Dollar Tree stores and President of Family Dollar stores?

Sure. Yes, I've been here more than two years now. My family and I absolutely love the area. It is a great community to be a part of. I've gotten to know the founders here of Dollar Tree, gotten to know a lot of people, our kids go to school together, those types of things. So I'm really embraced this company, this culture and its future. And so that has been just amazing and very humbling. So I'm excited about that. In terms of the changes, our focus is on the successful execution of the Family Dollar strategic review and setting up Dollar Tree for a multiyear kind of next chapter if you will. That's my focus. That's what the Board's charged me with. And when we look at the pluses and minuses of that, we're going to continue to test and learn. We're going to continue to make enhancements to the business and what resonates the most with our customer. And we're always going to start with our customer and work our way back that doesn't change. So multi-price is a perfect example of that. It's amazing what resonates and what doesn't. And we'll continue to kind of work that to make sure we're relevant for the customer. But it's exciting what we see. The increased trips, the bigger basket really like to see how the customer is responding to it. And then in terms of the leadership changes both Jocy Konrad and Jason Nordin have been here a year now, have both had a big impact on store standards, big impact with our associates. And it's just as I looked at the next chapter, as I look at the next five years for Family Dollar, the next five years for Dollar Tree, I wanted to make sure we had the folks that were best suited to that role. So Jason's prior role at Pilot Flying J fits really well with Family Dollar, the convenience element of it. The high consumables element of it. Jocy Konrad is the first to say. She's one of our biggest customer. She's a crafter. She resonates incredibly well with the team. And so I think these changes position us really well for that next chapter of Family Dollar post review and Dollar Tree go forward.

Thank you. Next question today is coming from Chuck Grom from Gordon Haskett. Your line is now live.

Hey, guys. This is Ryan Bulger on for Chuck here. I just wanted to ask on -- it didn't come up this quarter, but there's been the general liability claims a couple of times in the past. Is that something that you'd expect to see going forward in FY'25? And just sort of how that may progress going forward? Thank you.

Jeff, I'll let you handle that.

Yes. Maybe that's a little bit of a sore spot for us here because we've spoken about it so many different times. Hey, listen, we believe that the adjustments that we've taken this year addresses the portfolio of claims and the progression of those claims. We do an evaluation twice a year, once in April and then a second time in October timeframe. We believe we're well positioned based upon the adjustments that we've taken. As we move forward into the future years, it all depends on number of claims and the severity of claims. And what we're doing from a safety and security basis with our stores, how we're helping train our associates how to deal with different situations should help mitigate some of the challenges that we've had in the past. But at this point, it would be, I think, inappropriate for me to start talking about 2025. But as we think about what the claims that we have on the books today and how they've progressed that the reserves that we've taken adequately reflect what that liability would be.

Thank you. Next question is coming from Krisztina Katai from Deutsche Bank. Your line is now live.

Hi. Good morning, Mike and Jeff. Thanks for taking the question. So I wanted to ask on margin. Obviously -- we saw nice gross margin improvement, but SG&A saw deleverage and you cited higher depreciation on some of the temporary labor associated with the 3.0 rollout. So maybe can you quantify the impact of these two? And when do you expect these temporary labor costs to normalize? And what is the long-term SG&A leverage opportunity as the 3.0 rollout matures? Thank you.

Jeff, why don't you take the first one.

Yes. So there's a couple of elements to this. If we think about, first of all, from a temporary labor perspective, the temporary labor is associated with the multi-price rollout this year being the first year and then over the next 18 to 24 months, we'll complete that. So you would expect that, that would be a headwind on a declining basis over the next 18 months to 24 months. As it relates to the depreciation, the depreciation reflects the quantum of the investments that we've been making over the last couple of years as it relates to new store growth, the investments we've been making in the supply chain and of course, in our IT system cost. If you take a look at our asset investments, they're actually starting to moderate. Last year, it was about $1.8 billion to $1.9 billion previous to that was $1.2 billion. This year, we believe we'll be roughly about $1.8 billion. And as we now kind of hit sort of a high point and as that will moderate as we go forward, the expectation is that the depreciation, the increase in the depreciation on a period-over-period basis should start to moderate. Unfortunately, where we are in this cycle, given the customer purchasing behaviors with respect to consumables versus discretionary, some of the headwinds that we've had more recently as it relates to shrink and how and mix, how that's been playing out. I've mentioned before that in this economic cycle that we needed approximately a low-single-digit, maybe a low-single-digit plus comp in order to leverage the business. And coming in at just shy of 2% this quarter on the Dollar Tree side, you saw that there was some deleverage as it relates to the SG&A. Our expectation is that we will continue to be disciplined in our investments, we discipline in our spend. We'll increase productivity where we can, such that as those sales start to come in at the higher margin rates that we'll be able to flow more of that to the bottom line.

Yes. The only thing I'd add is these investments that drive the depreciation, the investments we've had to do, the investments we want to do, the cost comes right away, the benefit, the returns come over time. I think new store openings, I'm incredibly excited about the pace with which we're opening new stores now compared to in the past. And the real benefit of new stores comes in that year two, year three, year four before they reach kind of the maturity of the enterprise, both in sales and in their profitability. And so you get that over time, that benefit. And that's a great example of you hit the cost now, the depreciation over time, but the real benefit in the accelerating benefit is a little delayed. Then the second thing I'll just say on the leverage is and I've been in small box for a while, small box math is a beautiful thing. The more sales you can drive through that box, the better you're going to leverage because you get to a point where you need so many people to open the store and close the store, but you can increase the sales and not have to increase the ton of the payroll and that's really where the leverage comes. So our focus is on retail fundamentals that will drive those sales per box.

Thank you. Our final question today is coming from Seth Sigman from Barclays. Your line is now live.

Hey, good morning, everyone. Thanks for taking the question. I wanted to follow-up on the margins. I think you've raised the benefit from lower freight costs by about $1 to $1 for the year. It seems like that's more than the total guidance change. So I'm curious if you could maybe frame for us what the offsets to that are in the guidance at this point? And then specifically on the gross margin in terms of the acceleration that you've built in here into the fourth quarter? And maybe just remind us of some of the key drivers for that. Thanks so much.

Jeff?

Yes, I'll take the first part. Yes, we did increase the expectation of the freight benefit, as you had mentioned, by approximately a dime on the top end. There are certain offsets that we would have had during the course of the -- and really that dime is for the second half of the year. It's not just for the fourth quarter. We didn't quantify because there was a number of puts and takes. But if you can imagine when Mike was, in his prepared remarks, speaking to the storms that we had, there were certain costs that we incurred associated with that. It was $0.02 to $0.03 associated with markdowns and other costs to return the stores back to their normal operating format. There are a couple of other expenses associated with some of the balance sheet accruals that we've taken most importantly. We have been running short of what our overall annual plan was going to be with respect to sales. And we take a look at our inventories. We want to make sure that we're taking the right markdowns on them to address those liabilities. We did so during the course of the quarter, such we make sure that, that is appropriately reflected. So that starts to offset a portion of the additional freight costs. But all-in-all, as we think about the balance of the year and what the opportunities are across the business, the guidance that we've given reflects all those puts and takes.

Thank you. We reached the end of our question-and-answer session. I'd like to turn the floor back over to management for any further or closing comments.

Thank you for your time today. Look forward to wishing everyone a very happy and healthy holiday season. Thanks so much.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.