Question-and-Answer Session
Operator
(Operator Instructions) We’ll pause for just a moment to compile the Q&A roster.
And our first question will come from the line of Michelle Clark with Morgan Stanley.
Michelle Clark – Morgan Stanley
Yes. Good morning. Thank you. First question, you commented on a more challenging macro-environment. Can you just give us some more specifics on what you’re seeing here? Any regional variation to make note of?
And then the second question is, on the gross margin the basis point impact coming from the unredeemed gift cards and is that something that we should expect to continue in the fourth quarter? Thank you.
Stephen I. Sadove
Okay. I’ll talk to the competitive environment and the macro-environment. I’ll ask Kevin to talk on the gift cards.
I think that the environment is getting tougher out there. I still think that the luxury sector is very healthy. I think that the consumer is, you know, I think that the consumer is clearly seeing some impact, especially at what we would call our good zone. Remember, we’re always thinking in luxury terms, but we’ve looked at it from a good-better-best luxury price points and I think that you’re seeing more pressure on that aspirational luxury consumer that would be our bridge price points, our entry price points as where you’re seeing more of the pressures at the higher-end luxury price points and not seeing a slow down. We feel quite good about that consumer’s buying power at this point.
I think that you still have a very healthy DOW at the 13,000 level and I think that overall we feel quite good about where the fourth quarter is. But clearly you’ve seen some more price competition at the lower end of that spectrum.
Let me have Kevin talk to the gross margin.
Kevin Wills
Sure. Michelle, there were a number of components that go into the gross margin and we do not break out the specifics of each of those components. But as we noted in the press release this morning, we did experience a modest erosion in our core gross merchandising margins and the favourable experience in the quarter in unredeemed gift cards offset this such that we were able to get back to flat.
Michelle Clark – Morgan Stanley
And should we expect that to continue, the benefit from the unredeemed gift cards in the fourth quarter or is that just the one-time event in the third quarter?
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