Linda Rendle: Yes, Chris, we — from all the data that we see, the progress we’ve made with the consumer and what we anticipate will happen here in Q4, we do not feel like we have a dynamic that the sales miss was due to a consumer issue that we have or not bouncing back to that degree with the household penetration we lost. This was simply we had two very complex businesses, we thought we would make more progress on supply than we did. It went longer, it went through the remainder of the quarter when we thought we would get it done mid-quarter. That impacted our ability really to supply for merchandising mostly. Distribution, we always knew would come back in the fourth quarter because that’s when retailers reset their shelves.
So the good news is because we were able to fully restore supply by the end of the quarter, we’re still on track to recover that distribution. But this really was heightened competition as we weren’t able to supply merchandising events and still not in a place where we were fully able to supply on those couple of businesses. But we’re through that, we got through that at the end of Q3. We have the ability now to fully supply in Q4. That investment level, we feel is the right investment level. And I’ll just be clear, we have not constrained our businesses. We have said they should spend what they need to — to get these households back. That is contemplated in the outlook that we provided and we believe we have the right spending on both advertising and [self-promotion] (ph) and merchandising.
And if we have to make adjustments as we go through the quarter, we will. But right now, we feel like we have the right plans, we are seeing those households come back. Again, we went through one purchase cycle. We’re going through another one here in Q4, but all indicators are that we will restore our business. And we feel like the fundamentals will be fully recovered by the end of Q4 and set us up well as we head into fiscal year ’25.
Christopher Carey: Okay. One quick follow-up would just be Manufacturing and Logistics was a 210 basis point negative impact to gross margin in the quarter. That’s a pretty notable step-up. And I don’t think we’re seeing logistics inflation at that level. Kevin, can you maybe just contextualize what happened there in the quarter? And whether that specifically is durable going forward or whether this is just an anomaly? Thanks.
Kevin Jacobsen: Sure, Chris. The increase you referred to that is primarily driven by inflation in Argentina, you might recall before we divested that business, we were projecting about 300% inflation, and they had a significant devaluation in December. So that was playing through and it’s the biggest driver. To your question, as you go forward now that we divest the business, I would not expect to see Logistics and Manufacturing be that level of a drag. Logistics is turning on us, it’s fairly benign in terms of year-over-year cost once you strip out Argentina. So, this is one of the additional benefits of not having that business in our portfolio any longer, given the disruptions it had broadly across the P&L.
Christopher Carey: Okay, thank you.
Operator: [Operator Instructions] And our next question comes from Dara Mohsenian of Morgan Stanley. Your line is open.
Dara Mohsenian: Hi guys. I get you don’t want to be too explicit for fiscal ’25 at this point, but I just had a follow-up question on top-line growth as we move into next year just relative to a normal base this year. Kevin, can you just talk about or Linda, any puts and takes as you look out to fiscal ’25 as we think about top line growth? And maybe also just quantify what level of sales did you lose in fiscal ’24? Do you expect to lose in fiscal ’24 from the systems issue relative to a typical year?
Kevin Jacobsen: Hi, Dara, what I’d say it’s a little too early for us to talk too specifically about the ’25. As I said, we’re still developing our plan. Maybe the one item, I would just make sure remind folks is, with the divestiture of Argentina business, that’s about 2 points of sales. We’ll see a portion of that in Q4, but you’ll probably still have about 1.5 point headwind next year as a result of that sale. But for the other items, we’re going to wait until August to have that conversation because we’re still working through our plans. It’d just be too early to talk any detail.
Dara Mohsenian: Okay. And then on gross margins, you talked about a CAGNY to focus on holistic margin management and RGM. Can you give us a little more color on how important that might be over the next couple of years? And as you think about recovering gross margin pressure over time as you indicated in the prepared remarks, is that a big piece of the recovery? And as we think about the recovery, is this a multi-year effort? Should we think about a lot of progress coming out in fiscal 2025? How do you think about that conceptually from a timing standpoint?
Linda Rendle: Sure, Dara. Without obviously, again providing any guidance for 2025 or beyond on specifics. I think I can say with really strong confidence, one based on the track records, if you look, we’ve delivered our sixth consecutive quarter of gross margin expansion behind this toolkit that we have. And what we talked about at CAGNY is important. Pricing and cost savings have been the majority of the tools that we’ve had, and we put them to good use over the last couple of years as we’ve dealt with inflation. But we knew that we wanted to take a broader look and the fact that we are implementing a digital transformation, and we have more visibility end-to-end, gave us a great opportunity to look and see where else can we go beyond traditional cost savings.
Revenue growth management is certainly one of those tools, price pack architecture within that. And the teams all have plans in place to use those tools to continue to make progress against our commitment that we stand behind to return gross margins to pre-pandemic levels and then grow from there. And we feel very confident in our ability to do that. Kevin and I have talked before, it’s really dependent on two things. One how fast we implement this toolbox and feel good about that. But second will be what the cost environment looks like. And as what we continue to look forward, we continue to see inflation in people’s reporting. Again, we are not providing any specifics around our business at this point. But the pace of recovery and when we returned to pre-pandemic levels will be those two factors, but we feel very good about what’s in our control and that we have the right toolbox to be able to accomplish what we set out to do.
Dara Mohsenian: Okay, thanks guys.
Linda Rendle: Thanks Dara.
Operator: Our next question comes from Anna Lizzul of Bank of America. Your line is open.
Anna Lizzul: Hi, good afternoon. Thank you for the question. You mentioned in your prepared remarks a consumer who remains under pressure. I was wondering if you’re seeing this across all income tiers? Or is this comment primarily related to the lower income consumer as some other companies have indicated so far in Q1? And then you mentioned your levels of merchandising and promotion are increasing along with the higher advertising spend in the second half here. So, just wondering how much of this is driven by the need to rebuild share loss from the cyber-attack versus just trying to win over a financially weaker consumer. Thank you.
Linda Rendle: Sure. We’re seeing pressure across all consumer groups. And we are seeing behaviors broadly outside of our categories changing for nearly everyone, as they evaluate what’s going on. And as they think about what’s happening in the future whether that come down to the interest rate environment, et cetera, cost of housing, a cost of a basket of groceries when they go to the store. So we are seeing that behavior quite broadly, and we called it value-seeking. People are buying larger sizes, they are buying smaller sizes and they are thinking about the trips they take, et cetera. I would say, in particular, we always have our eyes focused on the lower income consumer as they are more pressured. And I — and to-date, we have stood very well with them.
And we tend to do it during times — tough economic times for low-income consumers because we deliver products at a great value that work really well, and they can’t afford to make a mistake in our categories. And so we typically fared-well, and we continue to see that we are doing well with low income consumers. And we haven’t seen a material trade to private label that isn’t due to the cyber-attack. And of course we are watching that closely as we get our distribution and our merchandising back, but we largely believe private label growth is due to the fact that we weren’t on the shelf. And we are seeing Q3 their share was lower than it was in Q2. We are seeing all the right indicators our households are coming back that might have tried private label during that time when we were off the shelf.
So we’re watching all income tiers always focused on low income, but that was a very general comment to say that all consumers are under more pressure and are certainly evaluating their behaviors and how they are spending their wallet. And then when it comes to our spending plans, we had always anticipated that we would return to pre-pandemic merchandising levels before we even saw a more stressed consumer. Because we just thought that was the right level of spending to ensure we were introducing people to new innovation making sure that we are capturing new behaviors in times where consumers are open to that. For example, when they send their kids back to school or when they send the kids to college. And so we’d always anticipated that, and that — this promo though does also support our return to share growth and our return from a distribution perspective.
So we like that it works doubly hard for us. But I wouldn’t say, we are doing this because of our recovery from cyber. We just always anticipated that this merchandising level of return. And then from an advertising and sales promotion level, we did increase that this year because we saw a pressured consumer and wanted to make sure that we were communicating our superior value, et cetera. But these are all within the range of normal spending for us in a given year. We typically spend around 10% in advertising and sales promotion. It will be closer to 11% this year, and we are returning to a level of reduced revenue spending that we’ve had in the past. So, we don’t see any need to go further or deeper than that. We feel like we have the right level.
But this really is about more normal course of business than it is that we’re seeing consumer behaviors that we need to react to.
Anna Lizzul: Okay, that’s very helpful. Thank you.
Operator: Our next question comes from Javier Escalante of Evercore ISI. Your line is open.
Javier Escalante: Good afternoon everyone and thank you for the question. I actually have two. One is if you could — on the commentary when it comes to market share and household penetration, it feels as if you are referring always back to the cyber-attack. But if I understand the trajectory correctly, there was also market share losses relative to say pre-pandemic because of the supply chain issues that you mentioned. So if you can comment on that — whether the intent is to restore market share to pre-pandemic levels in these highly contested categories like pet litters and trash bags? And then I have a follow-up.
Linda Rendle: Sure, Javier. I mean it has certainly been a complex last few years and lots of puts and takes. And so what I would comment on is we intend to grow market share. That is our mid- to long-term goal, and that is the bar we hold for ourselves to say if we are winning with the consumer or not. Clearly, given the cyber-attack, we have not grown market share this year, but we’re seeing the trend move in the right place. So for perspective, we lost about 5 points of share, nearly one-third of our market share during the low point from a cyber perspective. And we are back down — we ended the quarter down about [0.75] (ph). We’ve made progress since there if you look at the weekly data. But what we first need to do is restore market share and then grow from there, and we believe we have the right plans to do that.
