Engagement Units and Guidance
Q: How are engagement units trending, and what's needed to hit guidance?
A: Engagement units are increasing, signaling an engagement recovery. The company observes a positive trend quarter-to-date in the third quarter, with Bridal units running up. To achieve the high end of guidance, which is +5% units in Bridal, fourth-quarter Bridal units need to grow by high single-digit to low double-digit percentages.

Lab-Grown Diamonds Impact
Q: How are lab-grown diamonds affecting sales and customer perceptions?
A: Lab-grown diamonds are gaining penetration, with total sales up mid single digits to reach a mid-teens percentage. Customers understand that lab-grown diamonds allow them to trade up to larger stones due to lower prices, though they don't expect them to hold value over time like natural diamonds. There's a higher average transaction value on lab-grown pieces compared to natural diamonds, and a higher attachment rate of extended service agreements. In Fashion jewelry, lab-grown diamonds offer the chance to add bling to pieces that would have been too expensive previously.

Gross Margin Outlook
Q: Will merchandise margins remain consistent in the back half?
A: The company expects continued margin expansion driven by increased penetration of Fashion newness and higher attachment rates in both Bridal and Fashion. Fashion average transaction value was up mid single digits, providing margin expansion at the merchandise margin level. Services will also be amplified to contribute to margin growth in the second half. The competitive environment is expected to remain, but the company is prepared with flexibility within guidance for promotions, leveraging the same strategies as in the second quarter.

Marketing Spend
Q: How is marketing spending expected to grow over time?
A: Marketing is viewed as a competitive advantage, and the company is the biggest spender in the jewelry category. Investments in marketing have been increasing to drive more traffic to the brands and to appeal to 80% of jewelry customers. Dollars spent on marketing are expected to be up for the year, contributing to SG&A deleverage. The company plans to continue investing while driving efficiencies through refined algorithms and personalized marketing capabilities.

Q4 Margin Expansion
Q: What's driving the expected Q4 operating margin expansion?
A: Positive comparable sales are expected to naturally expand margins by leveraging fixed costs. The company will continue to drive Fashion and Services, and with the engagement recovery, higher penetration of Services will help expand margins. Consistent application of competitive pricing and leveraging newness will also contribute to margin improvement.

Digital Banners Margins
Q: How are margins in the Digital Banners performing?
A: Digital Banners have shown improvement, moving from a negative 2% impact to a negative 1% in the back half, a 600 basis point sequential top-line improvement. This helps offset fixed costs and contributes slight bottom-line margin expansion. The integration of API fixes, addition of new vendors, and inclusion of finished and Fashion products are expected to drive further gross margin expansion in Digital Banners.

Real Estate Performance
Q: What's the performance of physical real estate during the quarter?
A: E-commerce was relatively flat across banners. The company is pleased with Zales, where the influx of Fashion products is driving e-commerce performance. Stores are well-positioned and undergoing renovations in anticipation of improved traffic, with expectations of a lift in top-line as stores are completed heading into the holiday season.