Mauricio Serna: All right. I guess, very quickly, what are the two regions that you mentioned for the — regarding the PFAS? Maybe I didn’t hear it, but I just want to make sure I got those two. What were those two regions?
Jim Swanson: New York and California.
Mauricio Serna: Oh, okay.
Jim Swanson: Just those two states. Those are the only two states that require PFAS-free chemicals, and the effective date of that regulation is January 1 of ’25. So, we have between now and then to work through the transition. We’re well down the tracks on this. We’ll — beginning with our Fall ’24 season, which we’ve commercialized and we’re going to market on, that product no longer — we’ve designed it so that it no longer has PFAS chemicals intentionally put into that product. And so, we’ll be working through next year as retailers destock any on-hand inventories they have and then restock into the new merchandise. That’s going to create some of the challenges when you think about first half, second half from a rate standpoint, because part of that first half order book is soft as retailers begin to contemplate what they need in inventory and be able to sell down those PFAS styles.
And then our expectation is that they’ll eventually begin to restock into that as our fall merchandise becomes available in the market. And to some degree, while this is specific to California, New York, we are making these conversions for our global product line. And so, to some extent, while this is specific to New York and California, it does have a carryover impact into other geographies as they need to work through the same transition with all of their retailers.
Mauricio Serna: Got it. Thank you so much.
Operator: Okay. The next question comes from Laurent Vasilescu with BNP Paribas. Please proceed.
Laurent Vasilescu: Good afternoon. Thank you very much for taking my question. I wanted to ask — sorry, I’m going to be the next person asking about PFAS, but I think Jim, you’ve been pretty clear about PFAS. You guys called it out at your Investor Day. I think you talked about it. It’s in your 10-Q. You guys been ahead of the — ahead of this, but what do you think are the implications? I know you can’t speak to other companies. But what do you think the implications are for the industry? Where do you think you are in terms of phasing this out relative to the overall industry? Is this applicable to just outerwear? Or does it just go down all the way down to either the YKK zippers and this is more of a broad industry factor to consider?
Tim Boyle: Yes. So, this is Tim. So, just to be clear, PFAS has been around in thousands and thousands of products all the way from food containers to medical devices, which are implanted in a human body. So, this is not just limited to outerwear. This is an endemic across all sorts of stuff, including furniture and anti-stain paint, as you mentioned in the different thing. So these products are endemic and across all sorts of different products. But I think we’re well ahead. In fact, I know we’re well ahead of many competitors, especially those who are smaller. So, if we think about the size of our business and the amount of opportunity we have and capacity to accept additional expenses as it relates to understanding the chemistry, applying the chemistry to our products, et cetera, and then managing where these products go after January 1, ’25 so that we don’t run afoul of these issues, we’re well ahead.
There are other smaller companies who are quite far behind, and even some larger ones. So, I think we’re managing our business to the best we can. And I think we’re — we’ve got it well organized, and I’m proud of what the team has done to manage this process.
Laurent Vasilescu: Okay. Very helpful, Tim. And then, maybe I might have missed this just because we’re all juggling up a bunch of earnings calls, but did you guys — you talked a little about your spring order, the reflection of the challenges. Maybe can you just kind of put a finer point on that? Like how do we think about that for — as we think about 1H? And is that reflective of U.S. wholesale challenges? Or are you also seeing that reflective of EMEA as well or other regions?
Jim Swanson: Yeah, we commented on, Laurent, this. Given the spring ’24 order book that we’ve now fully taken, we anticipate our wholesale business globally be down a low-double-digit percent. Within that, as you think about it from a geographic standpoint, knowing that the U.S. is where we’ve seen most of the softness and then you have some of the discrete activity that we’re talking about on the conversion of PFAS, the U.S. wholesale business will decline at a faster rate than the overall global rate. To a lesser degree, are we seeing that in the case of our European business and then our Asia businesses, we’re actually still quite well performing. Those index a little bit more DTC channels. Taking that outlook for our wholesale business being down low double digit, and when we combine that with the expectation that our DTC business continues to grow in the first half of next year, we believe that from an overall standpoint through the first half of the year, our business is likely to be down a mid-single-digit percent.
We’re still very early in our 2024 planning processes. So, we’ve not gone any further than that in terms of what that might mean from an operating income perspective. I would expect at least some pressure knowing there’s going to be and the top-line is going to be down to the first half of the year. And of course, it’s too early for us right now to comment on the full year.
Laurent Vasilescu: Okay. No, that’s helpful. And then maybe, yeah, to your point, it’s super early, but maybe you could just talk, Jim, about just the degree of flexibility around the P&L? What could you do in terms of pulling back? I think you’ve got a 5% marketing spend. Anything that you would be willing to just — are there no sacred cows kind of approach to hold the profitability for — as we transition through this PFAS transition?
