Thibaut Mongon: It’s a great question and one that I’m happy to talk about because this is an area of strength for Kenvue. And we’ve been on this journey of increasing our margins and enhancing our margins through a complete suite of levers that include value realization and efficiencies throughout the value chain since 2019. I would actually say that we are managing our gross margin profile in a very competitive way. And I would say, above average compared to our industry peers. If I think about the dynamics of the balance of the year, I would continue to see all those things – continued value realization, mix management, premiumization. We are starting to see some of the tailwinds of the inflation now that were previously headwinds.
Although we still have forex, something that we are mindful of, the efficiencies that we have in place and the discipline that we have in terms of managing that value chain will allow us to continue to – in this journey of driving gross margin enhancement.
Alec Legg: Potentially a quick follow-up. Are you able to comment on the acetaminophen lawsuit? It seems like the judge had a positive ruling for the defendants.
Tina Romani: We really don’t have any update there. We’re going through the process to dismiss the MDL.
Operator: Our next question comes from the line of Navann Ty of BNP Paribas.
Navann Ty: We understand low marketing expense drove the underperformance in the product activation. But was there something else, such as not the right product display, or maybe the packaging not highlighting enough the healthcare recommendation would be helpful to know. And what are the right levels of overall SG&A and maybe R&D to address that?
Thibaut Mongon: Let me take this one. I think, overall, the execution of our recovery plan in the fourth quarter fell short of expectations on a number of elements that I talked about. In a nutshell, it’s making sure that our brands are more prominent in-store, easier to shop and supported by the appropriate level of engagement activities, both at the consumer and healthcare professional level. While all these elements were included in the plan, the level of investment or the precision of the execution was not what we expected, and the outcome was not what we expected. Now lessons learned. All these lessons are included in the buildup of the plan for 2024. And that’s why you see us in the US executing a plan that is different from what we had in 2023 in these different dimensions.
And so, you will see this broad-based activation plan put in place. But I would say, if you think about the three priorities I outlined for the company more broadly in 2024, you will see a different Kenvue in 2024 compared to what you saw in 2023. It’s going to be our first full year as an independent company. And so, you will see, especially our 15 priority brands, being activated at a much higher level in 2024, with strong building blocks across these 15 brands and across our three segments. You are going to see us being much more agile and moving with speed and urgency to capitalize on all the opportunities we see in the market and unleash the full potential of our portfolio. That requires investment. That investment is going to be fueled by the continued and, I would say, accelerated gross profit margin enhancement that Paul referred to.
As we exit our TSAs with Johnson & Johnson, it’s also an opportunity for us to reinvent the way we work, work faster, better, make it easier for our teams to operate, but also do it at a lower cost base. And this combination of expanded margin and efficiencies in the organization is what’s going to fuel this investment and allow us to fuel growth in 2024. Now, the year will be a bit noisy due to the unusual compares we have in 2023. But if you look at the underlying strength of the business and the building blocks we have to drive growth in 2024 and profitable growth in 2024 and bring our long-term algo to life, we are confident in our plans.
Navann Ty: Can I ask actually a follow-up on the litigation? If you can discuss at all the next steps to end the litigation?
Tina Romani: Navann, like I said, there’s really not much I can share. We’re going through the process, now that the court has granted our motion to exclude expert testimony. So we’re going through the process to allow the court to determine whether the cases are dismissed.
Operator: Our final question for the day comes from Peter Grom of UBS.
Peter Grom: I guess I had a more conceptual question on the guidance. But over time, we’ve kind of seen some of your staples tiers that have underperformed from a top line perspective or a share perspective. We kind of rejigger investments to try and fuel growth. In many cases, that coincides with rebasing earnings to set the company up for a stronger growth, not in the current year, but more in future years. Is that what’s going on here? Like, has your thought process on the need for investment and innovation evolved versus where we were six, nine months ago? Or has this kind of earnings performance been contemplated for some time? I guess as a follow-up to Steve’s question earlier on the organic growth. Is the flat performance in 1Q a function of weaker category growth and the improvement just is something that the category accelerates?
Or is the underlying improvement assuming that your performance relative to the category improved substantially? Because it would just seem that if you’re kind of exiting the year at more mid-single-digit growth that that would imply some pretty decent share gains. So just any color on kind of the share assumptions would be helpful.
