During the due diligence process, a private equity firm performed a detailed benchmarking analysis on a target company, comparing the target$$s margin profiles over the last three years with those of both public and private comparables within the same industry. Based on the insights below, which of the following best describes how these findings should be interpreted to identify opportunities for operational improvement and value creation?

The target is efficiently allocating resources to strategic areas like marketing and R&D$,$ essential for growth. The lower gross margin is seen as a minor issue that doesn't necessitate immediate action, while higher SG&A expenses are justified by long$-$term strategic investments.

There is an urgent need to prioritize improvements in the target$$s gross margin through better cost management in production and procurement, even if it means potentially increasing SG&A expenses in the short term.

The target should focus primarily on reductions in SG&A expenses through cost$-$cutting measures in administrative and sales functions in order to better align operating expense margins with its peers.

There are opportunities for improvement in both gross margins and SG&A efficiencies, and operational improvements should therefore focus on better cost management and strategic reductions in SG&A$.$