Paul Ruh: Yes. Directionally correct, Andrea. As you know, gross margin is the result of several elements, including value realization. We have about 60% of the value realization as a carryover from last year, and we will take surgical pricing in addition to another 40%. So that’s one in addition to premiumization and mix. And also, the efficiency that we talked about. In addition, of course, you have the inflation and forex impact. Inflation is still positive, but it’s coming down. So you will see a progression to contribution to gross margin enhancement in terms of that inflation. We’re exiting TSAs as we speak. Day by day, we’re talking about hundreds of TSAs, and that impact both our gross profit line and also our operating income line, and those are spread throughout the year, where you will be seeing is the investment starting right out of the gate.
Some of that will bear fruits later. If it’s more equity advertising or promotional spend will deliver the benefits in the shorter term. So that’s how I see the cadence. So it’s definitely more of a – it’s a balance with an enhancement toward the second half, and we intend to continue that into 2025. We’re not running into 2025, but that philosophy of heightened investment should continue beyond 2024.
Operator: Our next question comes from the line of Filippo Falorni of Citi.
Filippo Falorni: I wanted to go back to the question on marketing investment. I think the initial plan was to spend more in 2023. But I think, Paul, you said advertising was slightly down in 2023. So maybe what drove, I guess, the decline? As you think about the investment into 2024, can you give us a little more concrete examples of where you’re spending the advertising by product, by category, and your expected ROI on those investments?
Paul Ruh: Let me start with the first part of the question, and maybe I’ll turn it over to Thibaut for your second one. Particularly, the investment in advertising, yes, was slightly down year-over-year, and that was primarily the result of a reduction in Asia-Pacific, where we did not see investable propositions towards the back half of the year. But looking into 2024, investing in our brand is a key priority to fuel the growth. I mentioned approximately 15% is about $300 million more. We want to start out of the gate. And the most important thing is our philosophy of maximizing ROI is what we’re going after. And it will be applied to all the categories as long as we see those investable propositions, and we maximize ROI across the portfolio. Thibaut, anything you want to add?
Thibaut Mongon: Filippo, this overall investment is broad-based to activate our brands with consumers and with healthcare professionals. So I remind you that our advertising line only captures part of our investment to activate our brands as everything that’s related to healthcare professional engagement is not reflected in that line. In 2024, we are going to increase our investment in both areas. And we are going to apply this additional investment across the portfolio, but very focused behind our 15 priority brands that I highlighted in my prepared remarks. So, it’s a very focused plan, but with more fuel behind a philosophy that Paul highlighted of extremely high ROI. We have, I believe, industry-leading ROIs on our marketing investment.
This is a capability that we have developed over the years with state-of-the-art analytics, systems and capabilities. So we intend to continue to use this disciplined approach to deploy a higher level of dollars. And so, that’s, once again, what makes us confident in our ability to deliver the plan we outlined this year.
Filippo Falorni: If I can follow-up quickly on the Skin Health and Beauty segment. That is a segment that has been underperforming over the last couple of quarters. You mentioned, obviously, this quarter, the challenges. I guess can you review a little bit more like what are you changing in the way you manage this business? And what gives you the confidence in the improvement as you get through 2024 for Skin Health and Beauty?
Thibaut Mongon: Filippo, what’s very clear about Skin Health and Beauty is that the opportunities to improve are really isolated to two areas – two important areas, but two areas. One is the China market. And the other one is, I would say, in-store performance in the US. So our plan is laser focused to improve our performance in these two areas, while we continue to fuel growth in the other areas where it’s working well, namely Europe and Latin America. So, in China, it’s not entirely in our hands, and that’s why I talked about our position to thoughtfully track how the categories are developing in that market, make sure that we do not invest ahead of the curve to get a strong return. So we are monitoring consumer sentiment.
And as we see the right conditions for our skin care brand in China, we will invest appropriately. In the US in-store, what’s different in 2024 compared to 2023 is a higher level of precision in the execution, the heightened focus. I can tell you that many people in the organization are focused on this plan. The plan that Jan, our new leader for North America, and his team, with the support of the entire organization, have put together and started executing, as we speak, is very precise. And this heightened focus, increased level of precision, and higher level of investment, again, we would expect this to deliver stronger results, especially in the back half of the year. It’s not going to happen overnight. But over time, we are confident that we are going to see the full potential of our brands being unleashed in the market.
Operator: Our next question comes from Susan Anderson of Canaccord Genuity.
Alec Legg: Alec Legg on for Susan. Lot of color, so thank you for that. But on the gross margin, you said you expect it to get to fiscal 2021 levels. I guess, what are the key drivers of those gains in fiscal 2024 versus 2021? And how should we think about how that progresses through the year?
