Kaumil Gajrawala: Can you talk a bit about aisle placement? I think for quite some time, it was about moving the products to other parts of the store and with the business still being so sort of linked to feature and display and pulling them out of the aisles, are you able to shift where in the store you are or increase the number of places you are within the store?
Darcy Davenport: Our focus right now is just really good at in stock within the pharmacy. We are, as I said earlier, display is a huge driver for us. So, we still think that there is a lot of upside within the pharmacy just getting displays kind of outside of the pharmacy. Longer term, we do see – so think of it just as incremental display that could include some incremental placement. We already are, so for instance, in some mass retailers and food retailers, we have singles up in the cooler, so it’s more for like a grab and go. So we’re aggressively going after those kind of opportunities. So to answer your question, yes, we are absolutely looking for – the more places we can be in the store to kind of to introduce our brand to more people, the better.
I think that, eventually, more in kind of the medium, longer term, we do think it’s interesting to actually change aisles, but for now we think that there’s a ton of upside just through building our base business within the pharmacy section and then getting incremental placement and display throughout the store.
Kaumil Gajrawala: And on the price increase, maybe just some more details on why is it linked to where costs are because it looks like it’s coming through just as its capacity is going to kick up again. So, just any more details on the thought process behind the price increase?
Darcy Davenport: We’ve seen cost increases in co-man costs, logistics, packaging, and so – and actually, many of our competitors have taken price. Our biggest competitor took price in Q1. So this is – and mainly, it’s because the entire category is really seeing rising costs. Honestly, outside of kind of dairy inputs, however, dairy inputs are also supposed to, as Paul talked about, to start rising again. So it’s late in the year. You talked about late in Q4. And I think that we feel comfortable with our price difference versus competition after the price increase.
Operator: Our next question comes from the line of Jim Salera from Stephens.
Jim Salera: Darcy, I wanted to drill down a little bit on the TDPs that you mentioned from the out of stocks. Do you have any sense for what retailers did with those shelf placements as there were some out of stocks? They flex bars in, do they move a competitor in? Just any color there would be helpful.
Darcy Davenport: We didn’t lose any space. We knew that it was going to be temporary. And honestly, Jim, they’re sporadic. So what happens is that we have certain flavors, a four count going out for a period of time, then 12 count. And so the space – retailers, honestly, there are holes on the shelf occasionally. So it’s not about that – maybe they expand the products on the shelf to kind of fill in the holes. But the idea is that it is for a relatively short period of time, and it’s never so broad that the entire brand is off the shelf.
Jim Salera: I guess as a follow up to that, do you have the ability to see, for example, if my favorite flavor is on shelf, do I just then reach for chocolate, which is two slots down? Or does that typically end up in just kind of a lost sale?
Darcy Davenport: You’re describing the challenge with forecasting because what we’re finding is that, yes, there’s, for the most part, there is – especially because our biggest capacity constraints has been on 4 count. So consumers will just change to a different – most of the time, to a different flavor. Every once in a while they’ll also change to a different pack type. So four count chocolate’s not available, they’ll go to 12 count chocolate, for instance. There’s even some channel shifting. So they might go to a different channel because it might be available there. So that is the challenge of forecasting accurately because there’s so much interplay between the flavors and the pack sizes. For the most part, they are staying within the brand.
There are times – and I would say it’s more the minority – that if somebody has a favorite flavor, they will just kind of wait to purchase for that cycle, and then they’ll see if it’s back on the shelf the next time they shop.
Operator: Our next question comes from the line of Matt Smith from Stifel.
Matt Smith: I wanted to ask Paul a follow-up question about the third quarter guidance. He said it was tracking to the implied second half growth rates for revenue. That implies fairly even phasing of growth in the second half of the year with a tougher comparison in the fourth quarter. Do I have that right? And can you talk about the phasing of promotional activity for the rest of the year? Are there any large incremental events year-over-year that we should be aware of?
Paul Rode: Yes, you are tracking it correctly that we expect growth to be pretty similar in Q3 and Q4 compared to a year ago. In the fourth quarter, we have some light promotion, but it’s not – it’s nothing we had – we also had some light promotion on shakes in the fourth quarter of last year, so I think overall there’s not a dramatic change in promotional activity between the years.
Matt Smith: And just one more follow up for me and I’ll pass it on after. Shipments were in line with consumption in the current quarter. Do you expect that to persist through the second half of the year? Is there potential for retailers to start to increase their inventory levels exiting the year?
Paul Rode: Our expectation is that shipments and consumption will largely track. It would likely modestly swing towards the shipments. It’s a little bit of a inventory load, but nothing – we’re not expecting anything dramatic in the second half. So again, we’re trying to replenish shelves as well as keep up with the demand. So we would expect a little bit of shipments above consumption in the second half.
Operator: Our next question comes from the line of Matt McGinley from Needham.
Matt McGinley: You noted the increased e-commerce competition for Dymatize this quarter. Can you expand on what you saw there competitively? And is that something you expect to persist or is that something that is more unique to this quarter?
