John Howard: No. I think that’s right. I think the way we think about that leverage, just a little more granular John is, we’re targeting (ph) to taking a little higher than where we were in ’23, but I don’t want to lose sight of the focus that we’ve had over the past few years on reducing debt, since the acquisition, we’ve paid down $1.4 billion worth of debt since the acquisition, getting that total debt down to that below $2 billion. So we are continuing to focus on that as part of our overall capital strategy.
John Heinbockel: Thank you.
Operator: Your next question comes from the line of Leah Jordan from Goldman Sachs. Your line is open.
Leah Jordan: Thank you. Good morning. I first had a couple of questions on cost-savings. Just wanted to touch on the contract review part of the original $100 million. Is it fair to say that you’re fully done reviewing your — all of your contracts at this point and that they are fully consistent? Just any update on that. And then the second piece is around the incremental $50 million that you’ve found since last quarter. Just what specifically are you seeing there and then how should we think about timing? Have you — is that fully incorporated within your guidance for next year?
Sandy Douglas: Sure. Hi, Leah. Sandy here. The specific answer to contracts is that a significant amount of that work has been done to assess them. There I would bucket the opportunities into immediate action, contractual improvement opportunities that obviously take time, and then projects in particular categories, for example, where we may be experiencing unsatisfactory economics where we need to work with a supplier to change how we go to market. And so, a significant amount of the quick wins have been captured. The longer-term contractual ones are obviously being done in partnership with our customers or suppliers depending on where the contract sits. And the projects are obviously more ongoing. In terms of increasing our outlook, I would say that area has been an area that’s been helpful.
And remember that a lot of that is necessary to offset increases in operating expenses. And that makes sense to both suppliers and retailers. But we’re going to make sure that every single one of our agreements is fair, it’s modern, it’s consistent and that is thoughtful relative to the new characteristics of the given situation. And so that’s where a lot of the plus side has come. The rest of the program is, as we’ve described SKU optimization, zero-based budgeting, flattening the organization to be more agile and more effective, and all of those programs are on schedule.
Leah Jordan: Okay. Great. Thank you. And then my follow-up is just a little bit longer-term. Understand next year you’re still executing on your transformation efforts. But how should we think about margins in a normalized environment? Is it possible to get there in ’25 or how are you thinking about timing and what is the key unlock you’re looking to beyond whatever is happening in the inflation backdrop?
Sandy Douglas: Sure. I think, obviously, we haven’t given an outlook for years past fiscal ’24. And we intend to continue to refine our assumptions. And as we get the implementation plans laid down specifically, we’ll have a more specific outlook for those years. But from my point of view, the opportunity, as I said in my script, that we see in the transformation agenda to make this company more profitable and to allow it to grow faster and create more value for customers and suppliers is significant. And beyond that, we haven’t really provided public information. But it’s a — we view the opportunity as significant. It’s the simplest way to put it.
Leah Jordan: Thank you.
Operator: And your next question comes from the line of Scott Mushkin from R5 Capital. Your line is open.
Scott Mushkin: Hey guys. Thanks for taking my questions. I’ve got a couple kind of short ones. And then maybe more strategic. So when you mentioned market share, and you’re kind of just a little bit above IRI and Nielsen, are you referring to the total market or just the supermarkets?
Sandy Douglas: In that particular line, I believe we were talking about the total market.
Scott Mushkin: Perfect. And then I don’t know if you had said it. Maybe I missed it. Did you talk about service levels in the quarter?
Sandy Douglas: Service levels, I don’t know that we mentioned it, but we are seeing service levels improve sequentially. I think we mentioned last quarter that they were up about 10 percentage points versus 12 months before and they are remaining at that level.
Scott Mushkin: And then final, a little housekeeping going on here. Inflation, you guys said low to mid-single digits. I mean, we’re tracking it kind of flattish right now over the last six months. So that seems somewhat aggressive and I was just wondering maybe you could get into why you think it’s going to be at that level.
John Howard: Yeah. I’m happy to take that one. We exited Q4 with just under 6% inflation for our business. And so the way we’re thinking about that is it’s going to continue to decelerate as we move through ’24, ending somewhere in that very low-single digits, but the average for the year will be something in the low-single digits, 2% to 3%.
Scott Mushkin: Okay. That’s great. And then my final one is a little bit more strategic. When you look at automating these facilities, everyone is kind of on that path a little bit given the activities from Walmart. How should we look at that from a timeline perspective? When would you have the bulk of the facilities automated? Is this a five-year process? Just a little kind of thoughts on timing here.
Sandy Douglas: Scott, I’m going to answer that with the information that we’ve provided, unfortunately, which won’t give you all the answer to that because there is some competitive sensitivity there. But before I do, let me make sure in your first question, you asked a question about market share. And I want to make sure we’re connecting exactly on what the universe is. The universe that we’re outperforming is just the supermarket channel. It’s basically like-for-like. It’s not inclusive of discounters and club stores. So if you’re comparing it to customers that are like our customers, we’re performing slightly better than the broader market. On the question around automation, as I mentioned in my script, we are going live in our first one.
We had several other projects started. Our pace will be directly related to the capability and confidence we get in our ability to run those projects effectively and how many of them we can do at a given time. They have a wide range of benefits. Probably a very important one of those is the economic value they create. And as we get full confidence and visibility into that, that will then dictate exactly what the end footprint looks like. Right now, we’re going to the most obviously productive sites, and that was what we announced in our first agreement with Symbotic. We also had some each-pick automation that we’re doing in parallel. It’s more tactical. But in the end, we will automate our distribution system in a very disciplined and economic way, and the speed will directly relate to our capability to do it well.
