Thomas Palmer: I wanted to maybe start off back on the input cost environment. It sounded like you’re expecting less favorability as we move through the year, but you also noted 3Q a year ago was a bit elevated along with that second quarter. So is it kind of less deflation as we move into 3Q and then is there a point we kind of return to inflation or is that more a fiscal 2025 consideration?
Paul Rode: If you look at the second half, we are expecting costs to go up from the second quarter mostly for powders, which go up significantly. It’s about a 50% increase from Q2 to Q3, so it’s significant. Shakes start to modestly head up higher in the third and fourth quarter on proteins. So from a sequential basis, increases. Versus a year ago, we still see fairly significant favorability on proteins in the third quarter, but it does start to significantly moderate in the fourth quarter. So there’s a very little benefit in the fourth quarter, but still pretty significant favorability in the third quarter. And again, that’s just the dynamics of lapping last year’s high kind of peaks at Q2, Q3 last year. And we’re seeing kind of the – I’ll call it the floor in the current protein environment here in the second quarter, then it starts to head up again.
So that’s the dynamic. So we still should see some favorability in the second half, but mostly in the third quarter on our proteins.
Thomas Palmer: On marketing, I think one thing you’ve talked about in recent quarters is kind of some flexibility to pull back on marketing if demand is running particularly strong. And I realize some of this that you’re talking about with marketing is a shift maybe between brands, but it does seem like Premier, you’ve got kind of limited safety stock, very robust demand in the quarter. To what extent are we seeing kind of a shift there with a pullback in Premier versus a ramp up in Dymatize and how does that kind of net out as we think about the second half versus what you’d planned on initially?
Darcy Davenport: I’ll start and then you can add, Paul. We decided to pull back and move the major equity campaign from Q4 this year to 2025. But we pivoted some of those dollars to both Premier Powder, Premier bottles, and Dymatize. So think of kind of the tetra side of our business on Premier as being the constrained side. So, we’re still spending, but on the other parts of our business, but not just Dymatize. So definitely spending on Premier Powder and bottles.
Paul Rode: And just to expand, we’ve called previously for low 3s, kind of 3%, 3.5% for the year. We’re still in that ballpark. As Darcy said, we have toggled a little bit between brands and pulled back slightly from our prior expectation, but it’s a modest change.
Operator: Our next question comes from the line of Bryan Spillane from Bank of America.
Bryan Spillane: One, a clarification, Paul. Just following the discussion around gross margins in the back half of the year, will gross margins be up a little bit more in the third quarter versus last year than they will be in the fourth quarter? It sounded to me like 3Q, 4Q should be roughly similar, maybe 3Q a little better because you won’t have as much promo and then 4Q a little less gross margin expansion, but just want to make sure I was hearing that correctly.
Paul Rode: Yeah, you’ve got it correct. So we don’t see – Q3, Q4 ought to be pretty similar from a margin perspective at gross margin, and you’re correct that you will see from a year ago perspective much more favorability in the third quarter than the fourth, and that’s the protein dynamics as proteins start to step up in our second half where they started to step down in last year’s Q4. So that’s why the favorability is less in Q4, but still favorable.
Bryan Spillane: Darcy, can you talk a little bit about the – rather than household penetration, just kind of how the sort of consumer base is changing, if it has? I guess what I’m asking is just, are you recruiting more kids, male versus female, age cohorts? Initially, this was a pretty relatively narrow consumer base, but I’m just curious if it’s expanding. And I ask that, I guess, in the context of, I think with Fairlife and Core Power, they’re definitely seeing a pretty wide age cohort, especially young drinking it. So I’m just curious with Premier shake specifically, right, if you’re beginning to kind of widen the consumer base?
Darcy Davenport: We definitely are. Not kids though, this is definitely adult brand. It’s high protein. But it is more of an adult brand. Honestly, like both the Coke side of the business and our side, we’re the ones driving the category growth with these new households. We are bringing in – yes, we’re bringing in younger people, but honestly, with such a low household penetration brand, we’re bringing in just a really diverse set of age and gender, et cetera. So what’s unique about Premier, and I know I’ve talked to you guys about this, is our ability to really source volume from all ages, kind of people looking for different things. So number one reason why people enter Premier is to lose weight. But we also source volume from the adult nutrition side of the business, from sports nutrition.
Our range of consumers is very, very wide. And more than many other brands out there, we actually have a pretty even split of gender. So what is magical about this brand is just how broad it is. And you can see that in our consumer, the consumers that we’re bringing into the brand.
Operator: Our next question comes from the line of Robert Moskow from TD Cowen.
Robert Moskow: I think in your prepared remarks, you said that TD points are showing signs of stabilization in most recent periods, and that the out of stocks have stabilized. How soon do you think it will be before you can get those ramping higher again? Like, is it in the next few weeks we should expect TDPs to start recovering higher or not?
Darcy Davenport: We’ll see improvement kind of every month. So we’ll see improvement throughout Q3, and then we’ll get back to kind of all-time highs in Q4.
Robert Moskow: A quick follow up. These club promos you did were obviously very successful. Do you think your competitors are going to conduct similar promotions in the second half of the year? And if so, does that present any risk of a shock to your demand in that channel or not?
Darcy Davenport: From a club promotion standpoint, most competitors are already doing promotion. So there’s an exception of – Fairlife hasn’t been doing promotions, but I expect them to, when they get in a good supply – in a supply situation that they will as well. But we’re pretty complementary. I always go back to that – there is room for two strong brands in a low household penetration, high growth category. And we have both been very successful in every single channel, but specifically in the club channel.
Operator: Our next question comes from the line of Kaumil Gajrawala from Jefferies.
