Then along comes the growth profile and there’s your leverage. The one thing I would also call out is, if you want to get what we think is a good proxy for quarterly G&A levels, I would look to Q2, Q3 of last year $102 million, $103 million as a really good proxy. We will see a step-up in Q1 this year against last year mostly because we’re cycling some good guys that hit in 2023 related to changes in compensation and benefits. And as we disclosed, we had a step-up in Q4 of 2023 mostly related to higher incentive costs. So there’s some choppiness by quarter, but I think flat year-over-year is what we see Q2, Q3 levels being the proxy for each of the quarters in 2024 is what we see.
Dan Sullivan: And Chris, I would just ladder up on the SG&A point because you’re making a good point here on the leverage and how it comes together. We’re seeing leverage right as we put this together which is good. And I think we’re excited about that. But as we look at SG&A more broadly, we look at the forward-looking period and say we need to control what we can control and SG&A as much as anything else is in our control. And so we’ve been very focused on being smart and very efficient with how we allocate spend for next year. But we also have lots of opportunity as we reduce cost to actually improve the effectiveness of how we run the business. And so I’ll just give you two examples. We’re eliminating layers that exist in the business today.
Historically, we’ve had an international layer between the global leadership team and the local markets in our international markets. We’ve effectively eliminated that layer. And as a result, in addition to having better leadership capability and talent in the local markets, we’ve now got a direct connection. It’s faster. It’s simpler. There’s less handoffs. It actually ends up leading to a better result. And I think some of what you’re seeing in our international markets and the growth rates you’re seeing come out of those markets is a direct result from that change. Equally, as we talk about innovation — we have historically had a global structure in this company that built innovation, and then flowed that down to local markets. The path from a consumer insight to a product or an offering or a solution to a consumer has been very long slow with too many handoffs, as we eliminate some of those handoffs and streamline and delayer that innovation process, A it’s cheaper, but B it’s better.
It’s faster and ultimately than what we put in the market and better received by consumers. So I guess, we have good fortune by having a historical structure and setup that offers opportunity for cost reduction, but at the same time for better outcomes on the sales line.
Chris Carey: That’s comprehensive, and thank you very much.
Chris Gough: Thanks, Chris. Operator, next question, please.
Operator: Our next question comes from Dara Mohsenian from Morgan Stanley.
Dara Mohsenian: Hello?
Operator: Please go ahead, Dara.
Dara Mohsenian: Hey, guys. Can you hear me?
Rod Little: We can hear you.
Dan Sullivan: Hi, Dara. Good morning.
Dara Mohsenian: So I just wanted to return to the subject of ad spend, I totally get the point about the internal efficiencies, but we’ve seen your HPC peers really increased spend at pretty significant rates this year sort of in the opposite direction granted some of those are direct competitors but you’re now basically at a level or expecting to beta level this year that’s at or below a lot of your HPC peers despite them being larger and theoretically having more leverage as a percent of sales. So just want to get longer-term context is 11% of sales really the right level? Should that go back up over time? And then just be near term with the increases we’re seeing elsewhere in the industry, are you comfortable with the share of voice in your categories? And how do you think about that short term? Thanks.
Rod Little: So Dara, I think the 11% that you see that we’ve got in our outlook for 2024 that is roughly one point at a rate of sale of improvement year-over-year. And so as we’ve landed 2023 and we look forward to 2024, we definitely believe much like you’ve seen in reference from some of our peers, it’s a good time to lean in and increase ad spend which we’re doing. And we’re being very intentional and specific on where we’re doing that. Dan referenced it before. We’ve got an expansion opportunity with a strong Billie-Shave business now that’s roughly 10% market share after the national rollout which has been very successful. We’ve earned the right to take that brand into adjacencies and we’ve got good acceptance from a lead retailer that we’ll do that with here in the year ahead.
We’ll fund that. We will have what I believe will be the number one innovation in Sun Care this coming year around a form factor change. It’s super interesting. We’ve had good retailer reaction to it. The consumer testing we have on it is very strong. We’re going to lean in and spend behind that. And then Dan also referenced a carefree master brand redo where we’re going to strengthen that brand. We’re going to simplify the structure of the portfolio and the brand lineup. And we’ve had great retailer response to that lead to some incremental distribution around that. We think the consumer is going to love it as well. It’s going to be a simpler category to shop. So we’re leaning into those three areas. And then we’re also incrementally funding some shave opportunities that we think are interesting as well.
So it’s a very balanced spend. It’s a very disciplined approach. It’s a more in-house model than we traditionally have in the past. So we have paid agencies to do things for us. And frankly it’s not been super effective. We’ve in-housed a lot of that which is cheaper and sometimes it’s a model shift out of A&P to G&A as well. So we have some of that going on. But the other thing I would leave you with is when you factor out our private brands group which takes 0 A&P support and has effectively contribution margin average that 11% looks more like 12% even slightly over 12% on an adjusted basis for that fact. Dan?
Dan Sullivan: Yeah. All good point. Dara the only thing I would add maybe just for how we think about our business model. I think 2024 is a really good example. You’ve got top line growth, you’ve got gross margin accretion, you’ve got leverage in your G&A line and that gross margin accretion is funding a step-up in A&P spend. That is the model. Now we have to be balanced about that coming out of high inflation and currency headwinds and interest expense. So as Rob said it’s a balancing act, but that model of sustainably grow at the top generate margin accretion tight on costs and fund incremental brand investment that is the model and we just need to sort of balance the view of today and some of the macro challenges and the view of tomorrow. All of that goes into how we think about spend.
Dara Mohsenian: Thanks guys.
Rod Little: Hey, thanks, Dara. Operator, next question please.
Operator: The next question comes from Olivia Tong with Raymond James. Please go ahead.
Olivia Tong : Great. Thank you. My question is around gross margin. Obviously, nice to see the expansion that you’re expecting for fiscal 2024, but that’s obviously still a fair bit below historical level. And then you mentioned in your comments about Q1 and the starting point. So where do you think gross margins can eventually get back to in the driver — excuse me the drivers to get you there? You mentioned some incremental price. What categories are those price increases going into and the magnitude? And then just what are sort of the building blocks in terms of getting gross margin expansion to continue? Thank you.
Rod Little: Yeah. Thank you, Olivia. I think we remain very committed and I think very confident that we can get back to a 45-plus percent gross margin back into the fiscal 2018, 2019 period if you go back to that time period. And so I think that’s more than an ambition. I think it’s — as we work through our forward-looking plans, we’ve got building blocks to go deliver that. So, very much committed to do that, very much have line of sight to do that. What we don’t control is short-term inflationary bumps or potentially deflation if it comes. And the foreign exchange impact that we have on what is a very globally distributed manufacturing and supply chain network, right? And we’ve had headwinds last year. We’ve got headwinds again this year hurting gross margin to roughly 100 basis points.
