Mark Erceg: And then as it relates to your first portion of the question, I mean, I think you saw that we guided core sales for Q2 to be somewhere between a minus six and a minus four decline. We basically just posted minus 4.7 in Q1. So effectively it’s exactly the same. As far as getting within that a little bit more, the only real differential is we still expect gross margin to move forward meaningfully in the second quarter. But unlike the first quarter, there’s going to be a few additional items coming into play. A&P spending is something that we believe we need to increase, right? So you’re going to see a meaningful increase in A&P spending in the second quarter as we get support behind all those innovations that Chris alluded to.
We’re also comping a base period on the overhead side where there was a significant lower revision for management incentive comp. So those are the two reasons why we’re guiding to a much lower normalized operating margin progression in Q2 versus the 220 basis points we put on the board in Q1, despite gross margin being very strong in both quarters.
Operator: Thank you. Our next question comes from Chris Carey with Wells Fargo. You may proceed.
Chris Carey: Hi, good morning.
Chris Peterson: Good morning.
Chris Carey: I’m going to use the visibility word, again, I apologize. But maybe from a little bit of a different angle. So you’ve said in recent public remarks that one of the challenges has been – or have been that there was a pull forward of demand during COVID of categories that might have three, four-year purchase cycles and that getting beyond that dynamic has been a challenge for top line. It’s also been a challenge for inventories at retail. I fully appreciate the comments around improve execution behind a refresh strategy and that seems to be coming through. What are you seeing from this purchase cycle dynamic? Are you seeing a return of consumers to these more durable, long purchase cycle category yet? And secondly, what are you seeing from an inventory standpoint at retail in these categories?
Is inventory finally at a point where you can call your shots a little bit better from a shipment standpoint. So any comments on the sort of purchase cycle dynamics in some of these categories and perhaps relate that to where you see inventory and how that’s helping visibility?
Chris Peterson: Yes. Good question, and it’s one that we ask ourselves continuously. Let me start with – from a retail inventory perspective, we believe that retail inventories are rightsized. So we’re not seeing any significant impact from retail inventory changes to our top line, and we don’t expect any significant retail inventory headwinds or tailwinds as we go through the balance of the year. So that dynamic, I think, is now no longer a major driver of our top-line performance. On the other two drivers, which are pull forward in long purchase cycle categories, we do believe that in some of our categories, that is still with us, it’s hard to parse out how much is that driving the category dynamic versus how much is pressure on the consumer from inflation in food, housing and energy which is putting pressure on discretionary spending driving the category dynamic.
I think both of those are factors that are driving our outlook for the categories to be down low single digits. And as I said, the – our forecast for the year effectively assumes that down low single digit is true in each of the four quarters. The good news is we are seeing that begin to stabilize. It’s not bouncing around the way that it was over the last couple of years, and so we’re monitoring it, but it’s hard to parse those two out from each other.
Chris Carey: Okay. That makes sense. One follow-up, one of your strategies to improving gross margins over the longer term obviously includes productivity and operational execution. But one is also, I guess, prioritizing medium price point and high price point offerings. To your point just there on the consumer, are you starting to see any consumption challenges to that strategy today? Or perhaps we’re just too early in the importance of that part of the gross margin strategy over time. And today it’s actually much more about the first phases of execution on gross margin. So just, that balancing like a premiumization strategy with what we’re seeing in the macro? Thanks.
Chris Peterson: Yes. I think the – so actually, if anything we’re seeing more encouragement for that premiumization strategy. If you think about the Sharpie creative markers and the Paper Mate, InkJoy, Bright those are MPP HPP products, but they represent a terrific consumer value. And so the thing that we’re focused on is innovating in those spaces with proprietary technology and have it be a terrific consumer value, because most of the products that we sell are not large cash outlay products and can represent a superior consumer value even in the MPP HPP space, which enables us to have a much higher gross margin, which enables us to spend advertising dollars behind those innovations and enables us to mix the whole company up.
And if you look at our starting point in many of the categories in which we compete, we have a lot of room to move higher and still represent a superior consumer value. So that’s what we’re seeing so far. If you look at the year of creativity launch that I referenced, the gross margin on those products which are now in the top three scaling SKUs in the writing category is ahead of the writing gross margin and almost double what the company gross margin is. And so it’s a material improvement when we get it right, and that’s what we’re working on across the innovation portfolio, which if we get right, I think has a long runway for us to really improve the margins in this business going forward.
Chris Carey: Okay. Thank you.
Operator: Thank you. Our next question comes from Filippo Falorni with Citi. You may proceed.
Filippo Falorni: Hey, good morning, everyone. I wanted to ask a question on the cost environment. We’ve seen reinflation in some commodities particularly the oil complex, the residents. Can you remind us what are your expectations for cost inflation, particularly as you get into the second half? And also any, any sense of your hedging and how much visibility you have in the cost outlook? Thank you.
