Craig Gates: Well, if you see the peso weaken, throw yourself a party because that’s what we’ll be doing. Had we had the peso at its historical values, this quarter would have been a massive, massive payoff for all of the work we put in. So that is the biggest single driver of what’s happening with gross margin right now. And it will normalize over time back into what we were hoping was 9 plus in GM as prices get passed through and other things happen. But as it goes up like this as quickly as it has, we haven’t been able to respond as quickly. So structurally, we continue to get more efficient. We’ll continue to drive debt out by driving inventory out, and we’ll continue to take on being able to take on a more positive class of customer versus 10, 15 years ago, five years ago. So all that is headed in the right direction, but the only thing that will pop it overnight will be a change in the peso valuation versus the dollar.
George Melas: Okay.
Craig Gates: And also back to Bill’s question, if GDP is going to go up to 5%, I don’t know what the Fed is going to do with the interest rate, but sure doesn’t feel like inflation has eased to me.
George Melas: And where do you see that? Is it labor cost? Or is it — no I think you’ve said have moderated or do you see continued inflation?
Craig Gates: It’s just inflation across the board. And when inflation is going pretty fast, we’re lagging because every price increase we pass through has to be an argument with our customer.
George Melas: Right, right. Quick question about the customers. It seems that over the last two years, you have better relationship with your customers in the sense that they don’t sort of try to be too down as much as possible, but there seem to be more of a partnership. The fact that they’re willing to discuss inventory issues and take some of that inventory on their books seems to be very positive. How could you characterize your relationship with your customers?
Craig Gates: Well, it all goes back to what we were talking about is, as we are better positioned versus our competitors and versus the tides, it is easier for us to pick the customers that share our moral standards and our outlook on life. And that, as we said, will continue to have an effect over time and has had an effect over the last couple of years as we went from being the, four, five years ago, the question was, why are you guys so heavy in America and why are you so light in China? And now the question is, God, how did you guys see all this coming to get yourself so heavy in America and ahead of the curve in Vietnam? So that makes the entire process of bringing on the kind of new customers we want and the relationship with the customers we have, and all of it just makes it so much easier than it was five years, 10 years ago when we were swimming against the tide.
George Melas: Great. That’s it for me. Thanks a lot.
Craig Gates: Okay. See you, George.
Operator: We will take our next question from the line of Bill Dezellem with Tieton Capital. Please go ahead.
Bill Dezellem: Thank you. I’ll try to make this short. Relative to your conversations with customers about the peso and changing the price, how long before those price adjustments tend to work their way through? And presumably, it’s not just a couple of week process?
Craig Gates: No, it’s probably more of a six-month process.
Bill Dezellem: So the conversations that you’ve been having over the last three-plus months, we’ll start to see the benefit later this calendar year and into the second half of your fiscal year?
Craig Gates: Yep. And those have to be very delicate conversations because there’s nothing worse for a customer than raising prices. And of course, the immediate response is, well, then we’ll go find somebody else. So we have to be very careful to make sure that we’re not going above the market as we try to pass through the increased costs we’ve seen. So there are very, in fact, there are none, where we walk in and say, take it or leave it.
Bill Dezellem: That’s helpful. Thank you.
Operator: This concludes today’s question-and-answer session. I will now turn the call back to Craig Gates for any additional or closing remarks.
Craig Gates: Okay. Thanks, everybody, for your interest, and we look forward to talking with you next quarter.
Operator: This concludes today’s call. Thank you for your participation, and you may now disconnect.
