Chris Peterson: Yes, let me try to provide a little bit of help. So let me start with ’24. I think in ’24, we’re likely to have — we’ve got a number of things that are effectively one-time in nature in ’23 that should allow ’24 to be a bit of a bounce back year in terms of operating margins. And I’ll just give you a few of them. Inflation, which is significant particularly in the first half of this year, largely because of capitalized variances that are rolling off, should be behind us. And as a result, based on what we’re seeing today, we expect inflation to be a much smaller number and ’24 than it was in ’23. We also expect fixed cost absorption to be a materially smaller impact in ’24 than ’23 because recall that this year, we’re dealing with the revenue decline plus we’re taking inventory down on top of that.
And so that fixed cost absorption number is somewhat one-time in nature. We also mentioned that our productivity is ramping up and we’ve got a very strong funnel that we believe is going to continue to drive very strong productivity next year. In addition to that, this year as we’re reducing inventory, we are being aggressive on what we call excess and obsolete inventory so that we end the year with a clean inventory level and some of that excess and obsolete inventory we are liquidating at a discount that we don’t think we’ll have to do as we head into next year as we’ve gotten our inventory levels better. And then obviously, the retailer inventory destocking is somewhat one-time in nature. And so all of those things would tell you that in ’24, we should have an above algorithm year certainly on margins.
And that’s what we’re shooting for. I don’t believe that ’24 is the end of the margin story though. I think we have a significant opportunity going forward to continue to build operating margins for the next really three to five years. Because a lot of the front-facing capabilities that we’re putting in place is also in addition to getting top line growth going, going to get margin going. Because when you develop category driving innovation that is focused on large leading brands that is targeted for the MPP and HPP segments, which our strategy calls for, those tend to be gross margin accretive initiatives. And that is our strategy. And so as we put this consumer-facing capability in place, we believe that our innovation pipeline will get stronger.
We believe the innovation pipeline will lead to better category growth, better market share gains and gross margin improvement from a mix standpoint. And so all of those things have us confident that the longer term margin opportunity in this business is significantly higher than where we are today.
Mark Erceg: Yes. And Lauren, if I could add just one point to that, it makes relevant. We had gross margin right around 30% in Q2. We talked about the fact that the second half is going to be considerably stronger for the reasons that Chris just reiterated. So our exit rate will be several hundred basis points beyond that. And that’s when we’re still operating 46 manufacturing sites, with capacity utilization frankly now given where we are probably in the low 30s, 90% of which are single sourced and many of which aren’t in the right geographic locations to really optimize the global supply chain. So we think we have tremendous opportunity on the cost takeout side as well as all the innovation that will be brought forward, there’ll be more MPP, HPP to push that meaningfully forward which will give us I think the ability to spend more in A&P, also expand our operating margins considerably over time while we get more efficient on the overhead line as the sales revenue starts to come back to us.
So we feel very good about the proposition of us monetizing this business over any reasonable period of time.
Lauren Lieberman: Okay, thanks so much. It was really comprehensive. I appreciate it.
