Good day and thank you for standing by. Welcome to the Kohl's Corporation Q3 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. I would now like to hand the conference over to your speaker today, Mark Rupe, Vice President, Investor Relations. Please go ahead.

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 believe, expects, may, will, should, anticipate, plans, or similar expressions to identify forward-looking statements. Such statements are subject to certain risks and uncertainties, which could cause Kohl's actual results to differ materially from those projected in such forward-looking statements. Such risks and uncertainties include but are not limited to those that are described in Item 1A in Kohl's most recent annual report on Form 10-K and 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, including free cash flow. Information necessary to reconcile these non-GAAP financial measures can be found in the investor presentation filed, as an exhibit to our Form 8-K filed with the SEC and is available on the Company's Investor Relations website. Please note that this call will be recorded. However, replays of this call will not be updated. So, if you are listening to a replay of this call, it is possible that the information discussed is no longer current and Kohl's undertakes no obligation to update such information. With me today are Michelle Gass, our Chief Executive Officer, and Jill Timm, our Chief Financial Officer. I will now turn the call over to Michelle.

Thank you, Mark. Good morning and welcome to Kohl's third quarter earnings conference call. Our strategic effort to transform Kohl's into the leading destination for the active and casual lifestyle continues to gain traction. We delivered another outstanding performance in the third quarter, continuing our momentum from the first half of the year. During today's call, I want to leave you with 3 things. First, we achieved record Q3 earnings and raised our full-year outlook, resulting in an all-time high EPS for the Company. Q3 sales increased 16% to last year, and our operating margin was a 9-year high of 8.4%, benefiting from our actions to structurally improve our profitability. Second, our efforts to reposition Kohl's are working. Active sales growth accelerated in the quarter, led by our key active national brands. And we launched several new transformational brand partnerships across the business, including the rollout of the first 200 Sephora at Kohl's stores. While having very little impact to this quarter, given the timing of the launches, we are pleased with the early results and what this means going forward. And third, we are accelerating our share repurchase activity, reinforcing our commitment to driving shareholder value, and now expect to repurchase $1.3 billion for the year. We see a lot of value in our Company and believe repurchases are a great mechanism to return capital to shareholders, given our promising outlook and formidable cash position of $1.9 billion. All of the pieces of our strategy are coming together and we remain incredibly confident in our future. As we look ahead, we are focused on building on this year's success. We are positioned to exceed most of our 2023 goals this year and we look forward to sharing an updated financial framework at our Investor Day on March 7, 2022.…

Thank you, Michelle, and good morning, everyone. I want to start by reiterating Michelle's sentiment. We delivered another great quarter and continued to gain traction on our strategic initiatives. I am incredibly proud of our action to reposition the business for future growth and drive improved profitability. For today's call, I am going to review third quarter results, discuss our capital allocation actions, and then provide details on our updated 2021 guidance outlook. For the third quarter, net sales increased 16% to last year, and were slightly ahead of 2019, driven by growth in both our stores and digital businesses. Other revenue, which is primarily credit revenue, increased 17% over last year. Turning to gross margin, Q3 gross margin was 39.9% up 408 basis points from last year, driven by our inventory management efforts and our pricing and promotion optimization strategies, offset partially by incremental transportation costs, related to the constrained global supply chain. Now let me discuss SG&A. In Q3, SG&A expenses increased 6% to $1.4 billion driven by the double-digit top-line growth. As a percentage of revenue, SG&A expenses leveraged by 273 basis points to last year as we continue to deliver against our efforts to drive marketing and technology efficiency, and improve store labor productivity, which more than offset increased wage pressure across our stores and distribution centers. Our strong margin and SG&A performance translated into an 8.4% operating margin. This was a 9-year high for the third quarter and represented an increase of 734 basis points to last year and an increase of 403 basis points to 2019. Last, let me touch on some additional financial items. Interest expense was $12 million lower than last year, due to lower average data outstanding during the quarter. Net income for the quarter was $243 million and earnings per…

As a reminder, if you would like to ask a question, . And your first question comes from Bob Drbul with Guggenheim Partners.

Hi, good morning. Congratulations.

Good morning. Thank you, Bob.

A couple of questions on the Sephora piece. I'm hoping you can help us. You talked about strong initial response with an acquisition of younger, more diverse customers. Do you have any idea of how many can you quantify? How many new customers you have seen so far? That's part 1. Part 2 would be can you talk about the AUR at Sephora versus your expectation? And then part 3 would be the comps of Sephora stores versus non-Sephora stores?

Sure, Bob. There's a lot in there. First of all, we're super pleased with what we're seeing with Sephora. I mean, you have to remember, we're literally just weeks into the launch. 200 doors, the Sephora site on our website, and to me this was introduced as flawlessly as it could be. To your specific question, the results are really positive. So first off, if we look at our Sephora doors versus the non-Sephora doors, we're seeing about a mid-single-digit comp lift through those stores. So, we are seeing that incremental lift to the overall stores, which is really encouraging. Again, given that we're in the early days, and we expect it to build over time. I think not unlike when you are building a new store and you have a couple of years of growth ahead of you, I'd say we and Sephora both expected this will grow over time as customers, whether existing or new, really discover the shops. So, that's point number 1. As it relates to new customers and more than 25% of Sephora shoppers are new, they are younger, they're more diverse, and it's meaningful. It is meaningful. And again, you have to keep this in context. It's only 200 doors. So, when we're up over 600 next year, you can only imagine the millions and millions of customers that we're going to be introducing, so it's already meaningful and that will only grow. In terms of your question on AUR on Sephora assortment. I mean, it's really strong as you'd expect. This is prestige, beauty into categories that we've really never offered to this level. I think really the encouraging thing is that we are seeing our customers, whether it's existing or new, shop across the assortment and Sephora has done a phenomenal job curating a real breadth across categories and within categories. So, I think some noteworthy ones on the makeup side would be brands like Fenty and Too Faced, NARS. And then Sephora collection, which is more of your more entry price point. Skincare, kind of a real noteworthy one for me is Tatcha, I think it's such a great brand, it’s doing really well. Hair care, Olaplex has been phenomenal. And then even on the fragrance side, I mean we are seeing brands like Gucci and Armani really resonate. So really, I mean, on every level, Bob, we couldn't be more pleased with the launch.

Great, if I could just ask one more question. In terms of collabs, one of the ones that I think seems to have a big opportunity is the Lauren Lane x Sonoma collab. I was just wondering if you could talk about how that's gone for you and sort of the opportunity that you see with that. Thanks.

Great question. Actually, I love that capsule for us. And where are you hitting on is Sonoma being a key go-forward brand for us. It's performing exceptionally well in the women's business and it’s offering those core essentials and that bit of discovery. I happen to own the ribbed sweater dress in the collection, Bob. So again, the product is phenomenal and, I think this is just the early indication of what you can expect to see on the women's business going forward.

Okay. Thank you very much.

Your next question is from Blake Anderson with Jefferies.

Hi, good morning. Thanks for taking the question. Quick housekeeping one, maybe I missed it, but for your 4Q guidance, did you give any breakdown on below the line assumptions like interest or periods if that includes any buyback as well?

Sure. We didn't give specificity in Q4, but I would say as for interest D&A, (ph) run rate you saw in Q3. And then obviously the buyback we announced, we will be doing another $500 million in Q4 to bring our total for the year to $1.3 billion.

Got it. Okay, thanks. And then, I appreciate all those Sephora commentaries, that's really helpful. I was curious on the mid-single-digit sales uplift. Can you talk about how that's skewing between national and private label? And then how much of that is from the 25% of new customers versus existing?

Yeah. So, I can take that. I mean, first of all, again, I'll echo what I just said a moment ago. I think out of the gate, seeing that kind of incremental lift is incredible. As you'd expect, we're seeing beauty sales as I was speaking to earlier question, we're seeing that across a range of categories and brands. So, I would just say stay tuned. We wanted to share some of those really exciting data with you right out of the gate, but I'd say, stay tuned.

Yeah. I would just add I think the basket outside of Sephora to what Michelle's point is beauty's very strong, but we're seeing that across really all our lines of business are benefiting. Obviously, with Sephora we also did the reflow of active to the front of the store. And as you heard, that was up 25% in a quarter, so obviously really resonating with the customer, but even more so when we give it that prominent positioning. So, we're seeing them really shop across all brands and all lines of the business which has been great for us. And again, I think just to reiterate, Michelle's point. It's really only been opened 200 doors for a couple of weeks -- a few weeks, just about a month in total. So, I'm really pleased with the initial results and expect to build on it, especially as we move into the holiday season.

That's really helpful. One last one, I was wondering if you could maybe size up at all the women's revenue headwind from out-of-stocks. And if you'd be able to quantify that at all, how much that's impacting?

I would say we are down 25% as an organization and women's is down notably more than that. So just really when you start looking at how you can drive that benefit and to take us back. We're in the midst of a transformation here. And so, when we exited 10 brands, that took a lot of inventory out of the ecosystem. The newness as we had talked about when we did our Investor Day, was supposed to start in fall and that was really hard to chase back into given the supply chain disruptions although, I can't quantify it, I would definitely say it was a notable impact to their business, just given the fact that they were down so much more than the Company.

Yeah. No, I would just add to that and echo that women's is clearly very important to us. We embarked in the biggest, boldest transformation as Jill was just saying, we plan the year down. So, inventory being down 25% for the entire business, women's more so than that. With the strategy to chase, as we saw, really what were going to be the outstanding winners, we got lots of them. As I was mentioning Sonoma, SO, Lauren Conrad, the newness, is working, whether that's within brands like collaborations or certainly the additions we've brought in like which has had some time to really settle in, as well as we're excited about some of these new outdoor initiatives we're bringing in like Eddie Bauer. So, the turns are really strong, they're multi-year high, the margin, multi-year high. And as we look forward, we have a lot of aggressive strategies in place to fill in the inventory. Our customer is really liking this new assortment that we have in front of her, we need more of it, is the bottom line.

Got it. Very helpful. Thank you.

Thanks.

Your next question is from Mark Altschwager, with Baird.

Good morning. Thanks for taking my question and congrats on the momentum here. This profitability is outstanding.

Good morning, Mark.

So, the new EBIT margin guide for this year, ahead of your prior longer-term goals sounds like we'll be hearing more of the early part of next year, but just any high-level thoughts you can share on that. I mean if -- you think maybe 2021 is sort of a new base case from what you could grow or is it fair to assume that there's perhaps some moderation as some of the consumer spending tailwinds moderate into, in the next year? Thank you.

So, Mark, we can be more pleased with the progress that we made against our strategy this year. Obviously, this performance in 2021 exceeded our expectations. And I didn't point out, our guidance really puts us in a place that we're going to exceed our 2023 goals this year. We believe our business has momentum. We have a lot of really great new initiatives that just literally set the end of Q3, and we're going to continue to build on that which gives us really great confidence on us being able to continue on this strategic mission of repositioning ourselves to grow more profitably going forward. So, you have our commitment for growth. You have our commitment to driving shareholder value, which hopefully you saw was reinforced with our share repurchase actions. But as we look to 2022 and beyond, I guess I'm going to just ask for your patience and we really want to be able to share that with you in the Investor Day that we just announced that will happen in March, of early next year, and we'll give you a big update on what that long term framework looks like in light of the fact that obviously we just some really great numbers this year.

Thank you. And then stalling up on the supply chain front and you gave us a lot of detail on the women's piece. As we look into spring, what's your level of visibility on flows for some of your larger national brands?

Yes. So -- great question. The team has -- I will tell you the team has been all over this both on the proprietary brand and on the national brands. First, I'd start up with active. So, we shared on the -- in our earlier -- in our comments that our active business was up 25% last year, more than 20% last year. And our inventory is in great shape. I mean, it's one of the categories that's actually in the best position. We have phenomenal national brand partners, with Active and beyond. And so, but if I just take Active, given it's such a strategic priority for us, they've been terrific to helping us navigate. And again, you see that reflected both in the inventory numbers, but more importantly in the sales on Active. And we're working closely with them. We -- like I said, we have a great partnership, we are certainly looking into planning as we look ahead for 2022 and beyond as we grow this business together. So, I will just say that we'll do everything we can to make sure that we can protect as many receipts as we can. And I think overall to the question, it's -- I mean, this has been a disruption for most retailers and we've been part of that as we're talking about the most dramatic impact in our women's business. But the teams are aggressively planning as we look ahead into 2022. We do expect it to improve sometime over the course of the next year. We have front-loaded orders. We have moved production around. We're expediting delivery. We're really doing everything we can to where we have pockets where we're just to lean to get back into stock.

Thank you. And best of luck over the holiday.

Thanks, Mark.

Thanks, Mark.

Your next question is from Gabby Carbone with Deutsche Bank.

Hi, good morning. Congratulations on the nice results. So, I want to say yes. So, one of the offsets to the supply chain pressure has been lower promotions, which has been the case across the industry. I was wondering if you could talk to us a little bit more about how you're thinking about pricing and promotion in the holiday and maybe into early ‘22.

Yeah, you bet. So, I would say, it's not just been about holiday, but how we price and promote, has been one of the key tenants of our overall strategy over the last year. And we built a lot of new muscles as it relates to capability. And it's really this blend of how we price our goods competitively and what level of promotion we do have. And that's worked. And I think a good testament to that is the number of new customers we're getting driving a clearer price strategy. You never want to swing the pendulum one way or the other too hard, and I feel like we're really getting a good rhythm in place with our customers. So, as we look ahead for holiday, that time of the year is always promotional, but we expect our key strategies on pricing and promotion to carry through. And the effectiveness of that and how the team has been driving it, that's really due to Q3 reflected in our very strong margin performance. We saw that in Q2 and Q3, and a direct contributor was around this pricing and promotion strategy.

Got it. Thanks. Just a quick follow-up on your comments around the supply chain. Just wondering how much pressure you expect on gross margin in the fourth quarter versus what your kind of experienced here in the third?

Sure. Gabby, I think I called out in the guidance for Q4 as we have about 350 basis points of pressure. I'd say the majority of that is going to hit in your gross margin. Looking at digital penetration, digital always out penetrates in Q4. When you look at our penetration versus 2019, that's up significantly and usually that's the high end of the range that we give in terms of the pressures we see for costs. Typically, it's just more expensive when you have more going to the ecosystem. Freight surcharges, we saw them in 2020. Obviously, we didn't have them in 2019. That's an added pressure that been there in Q3 at all. And then of course, continuing with freights, we saw some of the freight pressure in Q3, but I would say that accelerate as we move into Q4 and we're really bringing in a lot of these holiday receipts are more real-time than we have in the past so that would accelerate. The other piece of it is obviously the wages which is probably the lesser part of those 350 points. And that would hit SG&A, I would say we still expect to leverage our SG&A in Q4 if that's helpful despite the wage headwinds just given the focus that we've had on the efficiency both in our marketing A to S, as well as our store productivity continues to increase to help us offset some of those waging increases.

Great. Thank you. Super helpful.

Your next question is from Chuck Grom with Gordon Haskett.

Thank you very much. Good quarter. On Sephora, Jill or Michelle, you talked about the 5% or mid-single-digit comp lift. I'm curious if that's built over the past couple of months. Delivering at the start, maybe in the little single digits, and it's now exceeding that. If I recall, Amazon, it took a little bit of time for that to build. Just curious if it's improving and I guess going forward, do you expect it to build higher than that level?

Yes. Chuck, Michelle here. Great question. Again, just as we said earlier, we're certainly still in the very early days of this, but to come out of the gate and see that result, really encouraged, but we do expect that to build over time. And if you look at any example, you brought up Amazon, you'll get new stores, etc. We should have a very nice tailwind with that. A will get the tailwind because we're going to be opening more stores upwards of 850 over the next couple of years and then B, they call it comp lift that you have associated with that.

Okay. That makes sense. And then I'm sorry. Did you want to go Jill?

It's really about traffic drivers. So, if you think about us only being open for really a full month in all of these stores, it's getting that recurring trip. So, I think as we've introduced this to customers, existing and new, we talked about a lot of new customers coming in through the Sephora partnership then we build on that. So, I think that's really where we get excited about that next trip and we've had the conversation in the past. It's a replenishable item in Kohl's. So that's why we expect you to see that build happening overtime and just to reiterate, Michelle. But if you have comp stores, we know they build in comps over years. So that's always a benefit that we expect to see as we continue. And then as we get more math’s and have those 400 doors starting to open early next year, and then finishing that out in 2023, we'll only build on that awareness as well, and that will give you a benefit not only to store, but also to the digital channel, as we've talked about in the past.

That makes a lot of sense. A lot opportunity for people to cross over is huge. So, I guess sinking up when the women's business or women's inventory levels gets back to normal, is pretty critical. So, are you guys thinking about timing that with the next batch of support as the 400 that are going to be opening?

Yeah. So, I'd say a couple of things to that. First of all, we are working as aggressively as possible to get back in stock on key brands, items, et cetera and the limit overall, but in the women's business in particular. So, we are expecting that we will see improvement in 2022. As we mentioned earlier, we're looking to be built -- well, we'll be building out our stores throughout the year, next year, but call it, late spring on the 400 doors beginning there. And so, I think the timing will be good as we see improvement with women. But I think the second point more importantly is as we build out these Sephora shops, we're also taking the opportunity to refresh and redo the entire store. We've done a lot on our entire store base over the last year, as you've seen, in terms of just new merchandising, more mannequins, more storytelling, more discovery, open aisles, more shop-ability, more inspiration overall. And we are getting nice marks from our customers on that. In the Sephora doors, we're also taking it a step further and re-flowing the stores. So, putting our key strategies such as Active right at the front. And we're expecting that it's going to be a nice synergy between those brands, and of course Sephora. The discovery and -- discovery area if you will, adjacent to the Sephora shops, so that's where we'll be merchandising Draper James, the Reese Witherspoon collaboration that we're really excited about. And then I think as we were talking about this Sephora, we expect that to build. I think the momentum on women will absolutely build. Like I said, the supply chain disruption really hurt us there because we penetrate 70% on private brands. So, we've been most acute and we plan that business conservatively given we're going through this massive transformation. Where we see the winners, we're leaning in, we're chasing, and we're building inventory, Bob. So, we are anticipating that to improve in 2022 as we open these doors to your questions.

Okay. Great. And then one last one from me more near-term focused. Macy's just said that they thought they saw a little bit of a pull-forward into the month of October. Curious if you guys thought you saw about it and maybe there was some lift in the 15% comp from some pull forward. And then any thoughts on the past couple of weeks as we start up the month of November?

Yeah. Well, first I'd say for holiday calls, we're off to a great start. And we launched officially, if you will, holiday with our Black Friday preview event, which was in this quarter, which is the beginning of November. And we've got terrific response from our customers. And we saw it across the board, but in particular, we're excited that a lot of our key strategies, where we leaned in, especially on inventory like active, they are really responding. So, I guess you can buy for yourself or you buy as a gift, but fleece works all the time. So active, doing well, cozy doing well, kids and notably toys doing well, with that business has been a small business for Kohl's historically. But we've been growing it and we have great brands now like LEGO, which is doing terrific. The home category is really resonating, whether it's anything for the kitchen or like I said, cozy and the gifting areas. So, we're encouraged. We still have a lot of holidays ahead of us, but to come out of the gate strong with our products and our pricing really resonating. Next week is Black Friday. So, kind of view what just happened that the earlier the month a little bit of a teaser for that. And I think this is also where our omni -channel strength comes into play. You may have folks digitally maybe ordering a little bit now. I can't really declare that per se, but I will tell you is shipping cutoffs happen in December. That's where the strength of our 1200 stores comes into play, and convenience is like curbside in BOPIS. So, I'm excited. We've only just begun, but we're off to a great start.

Awesome. Good luck. Thank you.

Thank you.

Your next question is from Paul Lejuez with Citigroup

Thank you. It's Tracy Kogan filling in for Paul. I was hoping you guys could talk about what you're hearing from your customer and whether the customers starting to feel the effects, the receding effects of inflation and higher gas prices. And then what is your view on your ability to pass through your higher cost as you move through the year, or next year? Thanks.

Hey, Tracy, I'll start and let Michelle add in. But I think we're all started. You know value as a coal tenant for coal. So, we're always going to ensure that we're delivering that to our customers. We've talked a lot about the fact that we have a simplified pricing and promotional based and promote and I think that's worked for us this year, as you've seen, that as we move into next year as well and really work through what these pricing items can look like. Also, as a reminder, we have sourcing initiatives underway that we talked about that we looked to save about $125 to $175 million with. This is really helping us manage through those inflationary pressures as well. We feel great with the ability that we've really worked through this year, and we're going to continue to leverage that muscle as we move into next year with how we price and how we promote to our customers to make sure that we continue to always deliver them value.

Thank you.

Your next question is from Dana Telsey with Telsey Advisory Group.

Good morning, everyone and congratulations on the progress.

Thanks Dana. Good morning.

With the uptick in before that you've been seeing in the new customers, any way to frame it as to compare to what you saw from Amazon? It seems like this is giving you all a higher uptick than when you put in the Amazon returns. From what I remember, I think that was low-single-digits. Is that fair? And how do you see that progressing? Thank you.

We gave you a number around how many new -- the total number of new customers we acquired, I think it was earlier in this year if we look back at last year, we didn't give you -- I don't think a specific on the percent uptake. Let me just say that with Amazon we continue to be pleased with that partnership as well and we continue to see new customers from that program. So, we saw that build. I think it’s a little apples and oranges. I mean, Sephora is a whole new piece of business for us. And so, while I guess arguably, they both drive traffic and you can both get the tailwind of the attached purchases. This is fundamentally transforming our brand and our business. We're finally in the beauty business. It's prestige, it's making us and even more relevant useful retailer. And then on top of that, we're going to build a very big beauty business. There's a lot to like with this partnership. The traffic, getting into beauty and relevancy, the attach that we're already starting to see as Joe was mentioning. And then that traffic coming in. We're seeing a high number of new customers and they're younger and more diverse. So, it's all good.

Got it. And then, just any follow up on the active business, given the strength of that business? Are there new brands coming in, or is it the strength of the existing brands that you're seeing? And do you expect that square footage to remain, or do you continue to expand it?

Yeah, you bet. So, in terms of overall active, we expect that we will continue to expand that space. And that is one of the moves we made in the 200 doors with Sephora when we did the re-flow. So that will roll out across upwards of 850 or more stores, as we build out those shots. So that plan is going. It's working really well. The growth is coming off of today as we spoke about earlier, the growth is really coming off of our key national brands so we're seeing great results with Nike and Under Armour, Adidas, Champion added to the mix. And then even on our private brands. So, you have more value oriented private brands like Tek Gear, which has been doing really, really well. We'll always look for a new brand opportunity if it makes sense. We have a process there. But I will tell you the level of innovation and thinking and newness at these core brands are bringing has never been stronger. So, we're looking forward to that continuing, its central to our strategy going forward.

Thank you.

Great. Thanks, Dana.

Your next question is from Omar Saad with Evercore.

Good morning. Great quarter. Thanks for taking my question. I apologize if you've answered this, but I'm wondering if you guys could share with us the in-transit -- how big of a drag in-transit was on that comp number in the quarter as we think about maybe how the comps could trend when in doing that supply chain, the supply chains bottlenecks open up? And also, as we think about in-transit and delayed deliveries and things like that, should we be concerned about promotional risk if inventories arrive too late and there be greater need to markdown goods as you -- transitioning from season to season? Thanks.

Sure Omar. I would say from an in-transit perspective, it was up quite substantially relative to what we had seen historically. So, in multiples of where we had seen it, it just really due to the delay. The good news is it's fresh and, it's clean, and what's coming but obviously the 25% is a little bit of a misnomer because we were down more than that with this in-transit. And then, of course, it's happening in women. When we talk about women's being notably down more, they were also most hit by the in-transit just given their exposure, as Michelle mentioned earlier, to the fact that they're much more of a proprietary brand portfolio than the rest of the businesses. That is definitely having an impact. In terms of having a promotional risk, I think there's a couple of things. One is some of these items are fleece. So, they might be coming in late, but they sell well into spring because up here in Wisconsin, it stays cold for a while. So, we know we can sell fleece longer into the season and it's not just ending with January. And then anything from a really relevant I think when it goes into holiday motif type items, if we're not getting them, we actually learned in 2020 how to use pack-and-hold. And so, there is a place that if we don't have an opportunity to set it and really get a good sell-through season, we'll do a pack and hold on that, given the fact that we don't see a lot of change in that holiday motif type items. So, we'll look at what that looks like impact away versus taking up per markdown right away. So, I just think we're going to be really smart on what we put through based on what we expect the sell-through, being able to be versus what we pack away and hold to really help us continue to protect the margin.

Got it. That's actually really helpful. Thank you. And then a quick follow-up. I think you said men's plus 30. Maybe you could dive into that a bit. What's going on there? That's a pretty big number. Is it people getting back on, back to work and that type of activity or is it all in the sports and active wear side? Maybe talk about that customer a little bit too. Thanks.

Sure. I'll take that one. With men's, we're really seeing it across the board. We've been talking a lot about Active, but this go back to work and really in the casual styles, that's been resonating. We talked a lot about the brand and it's -- that the women's team did, but the men seem to doubt as well, so that more focused assortments working. And then a lot of newness. We're in still the early days of some of our most recent, but I say most powerful newness, that we're offering the customer. So, Tommy Hilfiger just said, Eddie Bauer really just said. So that's all-in front of us. But really on kind of the core private brands like Sonoma, Lands ' End in men's, brands like Hager, Columbia, Apt. 9, we have a great tight assortment and are also working on Levi's. Levi's, it's terrific brand and business for us across all categories and especially for men.

Got it. Thanks, Michelle. Thanks, Jill.

Thank you.

Thank you.

Your last question is from Michael Binetti with Credit Suisse.

Hey, guys. Thanks for getting me on. Thanks for all the detail here today. I'm just -- I'm curious what you think as you look -- I know we'll get a bigger update on the longer-term for me in March, but I'm curious what you think as we look at lapping stimulus and very, very low level of promotions across the industry this year. As you get into early next year, do you see the combination of all the noise, Jill, with inventory shortages hopefully getting better in the tough laps? Do you see gross margins as something that need to -- that you can hold onto or do they start -- is it best to think about them coming down a little bit in the early year -- the beginning of the year just due to the compares? And then, I was curious -- I know you said that the Sephora stores are giving you mid-single-digit lift. Was there any hold back to the total comp for the quarter as you got to think about some of the construction perhaps being a disruption in the stores? And maybe, I know you said you're updating some of the adjacencies and other parts of the stores as well alongside before. Then finally, Jill, just that the buyback, obviously, very big number. I'm curious how you're thinking about that going forward and the leverage you want to run at after this.

Okay, Michael. That was a lot. I'm going to really try to hit them all.

Thanks.

From a margin perspective, we actually went into the year last year fact, we said we had a strategy and around that strategy was simplifying our pricing and promotions and a lot of the benefit we saw this year was leveraging that strategy. We knew our new customer got confused by the stacking of offers we're able to really drive a simplistic offering which helped us drive margin. And it resonated. It resonated with that new customer. They really saw keen value in what we are offering them. We've also heightened the offerings through this time. We brought in Sephora and Tommy Hilfiger and Calvin Klein. So, our brand portfolio has also been elevated. So, value is not just in the price, but also the offerings that you see in the store. So, I think as we move into next year, I'm just excited because we just got these. This is so new at the end of Q3. We have all that momentum as we move into next year. But I think we really reset what our margin needs to look like by being able to take out some of these stackable offers, talk to all these new customers that we're driving into our store with these new brands, and so they could keenly see the value easily. So, I feel good with some -- with our margin as we move forward. But obviously we'll give you a lot more around that strategy, at our Investor Day next year. I think you hit it on. We did have disruption. I think if you go back, you've been following us for a long time, Michael. When we did remodels, we know the customer when you see disruption, it does have an impact. You moved the Sephora store to the middle in-center…

Thanks a lot, Jill.

Thank you, everyone for listening on the call today. We wish you a healthy and wonderful holiday season, and look forward to speaking with you in early March.

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