Scott Morris: Yes. And just for perspective, and I’ve said this before, I mean, if we reached the $1.8 billion goal in 2027 and get the media spend down around 9% of sales, which we expect on both as $160 million of media spend, one brand, basically one country, we think that’s a powerful resource to drive 25% CAGR.
Unidentified Analyst: Awesome. I appreciate it. And congrats again.
Scott Morris: Thank you.
Operator: Thank you. Our next question is from Jim Salera with Stephens. Please proceed with your question.
Jim Salera: Hi, guys. Thanks for squeezing us in. I wanted to ask on the expanded distribution of the large dog offering as well as the complete nutrition. What does that look like in the fridges in store, which SKUs get taken out in replacement those? Or is that kind of a way to dangle that offer in front of retailers to motivate them to put in that second fridge?
Billy Cyr: Yes. It’s — as we build out new products, we typically will really have a very deep discussion with the retailers about adding a second fridge. It takes up a fair amount of space. You’re typically dedicating at least a full kind of two feet to it in a fridge on a shelf in order to get packed out. So it takes up a fair amount of space. You never want to kind of take out existing items that are performing extremely well. So it is a really, really big push to go into our second fridges and even some of our third fridges over time.
Jim Salera: Okay. That’s helpful. And then, Todd, maybe a follow-up. I know people have touched on the logistics piece, but I think you just — you guys delivered really impressive results there. Should we think of the current logistics expense of that kind of sub 7% rate as sustainable moving forward? And maybe you guys just delivered on that kind of better than the 2027 target on an ongoing basis?
Todd Cunfer: Yes. I mean we laid out, to your point, we laid out a goal of 7.5% logistics back in February. Obviously, one of the bright spots is we’ve already beat that target. So yes, we think we will long-term, be below the 7.5%. Obviously, if there’s a big spike in diesel or lane rates from time to time, that could drive it periodically higher. But long-term, we’re very confident at this point with reasonable diesel costs that we will be sub-7%. And from what we can see right now, obviously, something has changed, but we feel good about being 7% or below for next year as well.
Jim Salera: That’s helpful. And then if I could maybe sneak in one last question. On the breakdown of the household growth rate by income, I was honestly surprised to see low income up as much as it’s been. Can you just give us an idea of maybe what SKUs are driving that? And then from a consumer perspective, is kind of the value proposition that you guys offer that a consumer that has a little bit tighter of a budget would still be buying premium pet feed?
Billy Cyr: Yes. Jim, one of the things I always struggle with in providing the data by income is it treats all income is if it’s funding the same size of household, the reality is that a significant number of our consumers who fall in that lower income bucket are in the smaller sized households, they might be single and have a dog they might be, the kids may have left the nest in so that them and the dog. And so the discretionary income they have available is significantly higher despite the relatively low overall total income. And given our skew towards younger households, we have a fairly significant number of millennial and Gen Z consumers, who are in that bucket, but for whom the dog is the only thing or the most important thing in their life. They don’t have a car, they don’t have a spouse. Their expenses are relatively narrowly confined.
Jim Salera: Okay, awesome. That’s very helpful. I’ll pass it along.
Operator: Thank you. Our next question is from Jon Anderson with William Blair. Please proceed with your question.
Jon Anderson: Hey, good morning, everybody. Thanks. Just two quick ones. On the productivity work, congrats on the benefits that you’re delivering there. As you look to the Fresh Future goal, of getting to 18% EBITDA margin by 2027. It looks like this year will come in closer to 8% from an EBITDA margin perspective. So you’ve got about 10 percentage points over the next four years. Can you talk a little bit about the path you expect during that time frame? Is it straight line? Does the improvement ramp in the out years and what some of the drivers are there? And then the follow-up to that is, Todd, I think you mentioned gross margin you expect it to be sequentially lower in the fourth quarter than the third quarter. When do you think you hit an inflection point where we did see kind of sustained gross margin improvement sequentially going forward? Thanks.
Todd Cunfer: So let’s take your first question on EBITDA margin. So yes, look, we’re going to get around 500 basis points of EBITDA margin improvement this year, which obviously is terrific. We’re not going to get 500 basis points each and every year and obviously don’t need to. So where is that next 10 points that you mentioned going to come from. So obviously, 5 of it has to come from gross margin. We’re going to have about 39.5%-ish gross margin for this year. So we have about 550 basis points to go. So obviously, that’s half or a little bit more than half of it. We talked about the media spend that will come down as a percent of sales, a couple of hundred basis points. We probably got a little bit more room to grow in logistics, but not significantly.
Obviously, we’ve made tremendous strides there. And then the rest of it, quite frankly, just comes from SG&A leverage. If you’re growing 25%, we do not need to grow head count and other expenses more than high single digits. So there’s a tremendous amount of leverage in SG&A as well. So those are the components. And we have really good visibility to it. Obviously, gross margins that the trickiest part to debt, and we have to execute really, really well, but we’re very confident with the scale of the business. and our ability to execute and we can be more productive and efficient in our lines that, that will occur. The cadence — look, the cadence is really hard to predict. Again, I think we’ll — I’m confident we’ll have some nice improvement, both on gross margin and EBITDA margin next year.
Again, it’s a little bit too early to commit to a number. Again, I got four years to get 10 points. So I got to get 250 basis points on average of EBITDA margin per year. Again, very confident we will do that. But the exact cadence of that is hard to predict. But I think we’ll get another nice chunk next year.
Jon Anderson: Thank you.
Operator: Thank you. There are no further questions at this time. I would like to hand the floor back over to Mr. Billy Cyr for any closing comments.
Billy Cyr: Great. Thank you, everyone. I’ll leave you with this thought. The humorous Jerome K. Jerome said about dogs. They never talk about themselves, but listen to you while you talk about yourself and keep up an appearance of being interested in the conversation, to which I’d add, we reward them for the patience and feed them Freshpet. Thank you very much for your interest.
Operator: This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.
