Matt Farrell: Well, look, we’re always on the hunt. It’s the highest and most used cash for the company. We have a disproportionate amount of our cash that goes towards acquisitions and there’s always something for sale, but that’s about as far as I can go right now.
Olivia Tong: Great. Thanks. And just one on — following up on Bonnie’s question around promotion, you talked about it continuing to creep up, but still obviously well below pre-COVID norms. Is your expectation that it does get back there or just continue to show a creep through the year? And then on the couponing, just a point of clarification, is this more than normal or more a function of the timing of new products and the trial building and couponing that goes with that to support the launch?
Rick Dierker: Yeah. It’s really more — on your second question, it’s more your second explanation. It’s incremental couponing to support higher and more new products is the short story. On the — on your first question on amount of promotion and really trade spend, I think it’s — saying that we told Bonnie, it’s — the forward look for promotion for laundry is always dependent upon how category growth is doing and if category growth is stable, then normally promotion stays in line. And right now, category growth is great.
Matt Farrell: Yeah. The other thing to keep in mind, Bonnie, all those price increases that went through the last couple of years, they were really unusual for all CBG and food companies. That does obviously make it more expensive for the product, but it didn’t necessarily expand gross margin for people. So, I don’t — like Rick said, we have to react to what’s going on in the category. So it’s — you can’t really predict or certainly not going to telegraph what our plans might be for the remainder of the year.
Olivia Tong: Got it. Thank you.
Operator: Our next question will come from Lauren Lieberman with Barclays.
Lauren Lieberman: Great. Thanks. Good morning. I was curious in thinking about the gross margin progression from here and for the rest of the year. One of the things you called out with regard to sales slowing down particularly starting next quarter was that lapping on distribution gains from HERO. So, I was just — what we can see in Nielsen, which I know isn’t representative of the full distribution of the brand, is that let’s call it same-store sales still really, really strong. But is some of the slowing down that’s implied in HERO also impacting that gross margin forecast going forward? I imagine we know it’s super accretive. And I just want to think about — talk about how to think about the contribution of HERO to that gross margin build as we move from here and start to lap the distribution? Thanks.
Rick Dierker: No problem, Lauren. This is Rick. That isn’t really in our thinking as we move forward. The two things that are driving gross margin to maybe not grow as fast would be less carryover pricing and that’s kind of what I talked about from the organic revenue side too. So we’re fully through all the carryover pricing. And then number two, we talked about it during our Analyst Day in January. We’re adding more fixed costs to the system for capacity reasons like new distribution centers. Those are coming online as we move through the year. Those are the two things.
Operator: Our next question will come from Javier Escalante with Evercore ISI.
Javier Escalante: Hi. Good morning, everyone. I do have a follow-up on the gap between retail sales that we see and the reported domestic number. You flag WATERPIK as a point of impact, but we use Cercana [ph], and I believe that you guys do too. The retail takeaway is more about 7%, 8%, so there is a little bit of still kind of a 2-point gap. Do you think that it’s related to a slow retailer reorders as your competitor in laundry mentioned earlier in the season and I have a follow-up?
Matt Farrell: Are you comparing Q1 for your question?
Javier Escalante: Correct. Yes. Correct. Exactly. Correct. Just trying to understand whether this is something of the accounting of the couponing or something weird that basically we are overstating your retail sales growth and therefore your shipment growth.
Matt Farrell: Yeah. I got it. No. It’s interesting. I know we all have similar databases. Our — internally, our shipment number of course is, again, is 4.3%, and then IRI, our number is around 6%. Our gap is closer to 1.5%. Part of that is the couponing. Part of that is the WATERPIK consumption that we’ve talked about working through retail inventory and I mean, those are the two biggest pieces.
Javier Escalante: When it comes to the gross margin getting better than expected and I know that price mix was an issue, was the driver. Is it more like the change in the portfolio, meaning richer sales from HERO and THERABREATH? What was the driver of the better gross margin for the earnings beat?
Matt Farrell: Yeah. That’s a good question. I think it was really the two things. It was — mix was a little bit more helpful and volume was helpful. I mean, price came in as expected. Manufacturing cost came in as expected. Productivity was in line. It was really higher volumes which helped with throughput and efficiencies and then a little bit favorable mix.
Javier Escalante: Thank you very much, guys.
Operator: Our next question will come from Filippo Falorni with Citi.
Filippo Falorni: Hey. Good morning, everyone. I wanted to follow up your point of the cycling of the distribution gate for HERO and maybe extend it to THERABREATH as well. Can you comment on how much incremental shelf space are you getting this year compared to last year in the U.S.? and then I think at CAGNY you talked about more International opportunities for those brands. Can you give us some sense of the potential contribution from International? Thank you.
Matt Farrell: Yeah. Okay. Yeah. When you think about THERABREATH and HERO. THERABREATH, we bought that business in 2021, HERO in 2022. For THERABREATH, resets this year, we’re getting more doors, but I would expect that the distribution gains from a number of doors perspective is going to plateau for THERABREATH this year and that we’re going to be getting — the way to look for distribution gains in the future are going to be more facings and we are seeing that already from some existing retailers where we already have good distribution but maybe not the amount of facings we deserve. And then innovation which, so I think more facings and innovation are going to drive future growth for THERABREATH once we plateau with respect to the number of doors.
For HERO, since we’ve owned a little bit less, a year less than THERABREATH, there’s still some distribution gains to come with some decent sized retailers, but we expect the same thing to happen. But with respect to HERO, what we’ll be starting to do is start to move from just patches and acne into adjacent consumer needs such as skin care, pre- and post-acne. And you mentioned International. So International is an area where we’re running to launch HERO and THERABREATH. HERO we’re planning on launching in 40 countries in 2024. That’ll happen throughout the year and then, of course, the sales growth will start to build in future years. But I think the other thing that’s probably worth pointing out is that, both HERO and THERABREATH are high ring products.
If you’re a retailer, you really like a high ring product with a growing brand and consequently you do want to give that brand more facings and listen to innovation. So we think the dynamics for each of those brands are going to bode well for growth not only in 2024 but in 2025.
Filippo Falorni: Thank you, guys. I’ll pass it on.
Matt Farrell: Yeah. Okay.
Operator: Our last question will come from Brett Cooper with Consumer Edge Research.
Brett Cooper: Good morning. I was hoping to dig more into the HERO business in the U.S. Distribution’s up significantly, making the underlying rate of demand a bit difficult. So I was hoping you could click one level below and see — and talk about what you’re seeing with respect to existing consumer demand, new users, trial and repeat, and other drivers? Thanks.
Matt Farrell: Yeah. Could you just — I didn’t hear the first part of your question. I’m sorry.
Brett Cooper: No. It’s the HERO business in the U.S., right? So…
Matt Farrell: Yeah.
Brett Cooper: …huge distribution gains, right? So you see significant sales growth. So just trying to understand, I guess, one level below and what you see from consumers that have been in the business for a while and then what you’re seeing with respect to new users, trial and repeat and any other drivers on the sales growth?
Matt Farrell: Well, look, the volumes for this business continue to grow. So it’s not a price-driven business. And the awareness and household penetration is still ahead of us for this brand. You may remember that when the — back in — before patches hit the scene, it was really ointments and lotions that people were using to address acne. It’s patches now that are driving the category and our ability to grow is going to be going into adjacencies.
Rick Dierker: And I would probably say in all channels we are growing and have positive growth, even in channels that are declining because of macro or secular trends. So that bodes well for this brand.
Operator: That will conclude today’s question-and-answer session. I will now turn the conference over to Mr. Farrell for any additional or closing remarks.
Matt Farrell: Well, thanks for joining us today. We had a great quarter. We’ll see everybody in July.
Operator: This does conclude today’s conference call. Thank you for your participation. You may now disconnect.
