Mark Erceg: On the gross margin side, what I would say is we still believe that the right long-term target for the company is sort of the high 30s gross margin. I think we had talked previously about a number of 37% or 38%. We ended 2023 with gross margin flat versus 2022 at about 30%. If you look at the guidance for next year of 100 basis points of improvement in Op margin, we’re expecting gross margin to be up more than that. And the reason is because we’ve proactively chosen to exit structurally unattractive parts of the business, number one. Number two, we continue to drive record productivity savings across the initiative, across the portfolio. And number three, we are innovating in terms of gross margin accretive innovation.
So for example, if you look at the eight Tier 1 and 2 initiatives, that we have planned to launch this year, every one of the eight initiatives is a significant improvement to gross margin versus the business that it’s in. And so we expect to start driving mix benefit as the innovation portfolio ramps up as well. And we think those three things, when you put them together will drive gross margin higher than the 100 basis points that we’re guiding on operating margin. We are choosing to take advertising and marketing expense higher as a percent of sales in ’24 because we have an innovation pipeline to actually spend money behind and get a good return on. So, as we’ve talked previously, as the capability investments and the capability work ramps up.
You’re going to see us try to drive gross margin faster than operating margin and invest some of the money back both in dollar terms and as a percent of sales in increasing our A&P ratio, and that is part of the plan for ’24.
Operator: Thank you. One moment for your next question. Your next question comes from Olivia Tong of Raymond James.
Olivia Tong: Great. Thanks. My first question is just around if you could just sort of talk a little bit more about the different initiatives you discussed earlier to drive better sales mix, in particular with some higher advertising behind the new innovation. Could you talk about when these things hit the P&L to give us a view on sort of the quarterly cadence of the organic sales improvement as the year progresses going from that down 8% to 6% to finishing the year down 6% to 3%? Because obviously, there are a lot of initiatives, but timing would be helpful. Thanks.
Chris Peterson: Yes. So what I would say is that the eight breakthrough initiatives our Tier 1, Tier 2 initiatives that we’re launching this year will build during the year. The other thing that’s important to note about these eight, Tier 1 and 2 initiatives is they’re not just a one-and-done thing. These are multi-year platforms that will begin to build and drive growth, not just this year, but for the next several years. If you look at what we’re guiding to in Q1, we’re guiding to a 6% to 8% core sales decline, and we’re expecting the year to be 3% to 6%. So I do think you’re going to see Q1 be the weakest quarter during the year. And the balance of the year, we expect better core sales performance. I mentioned that one of the top or the Tier 1, 2 innovations, the Sharpie Creative Markers, we started shipping a few weeks ago.
That will show up in stores in March, we’ll turn on advertising, and we’ve got a full marketing campaign behind it that will start in March as well. The balance of the innovation is really sequenced more in Q2, Q3. And so you’ll see those start to build as we go through the year. Likewise, the new business development, where we’ve had some significant wins will build as we go throughout the year. And I think, so we’re pretty excited about the rate of improvement that we’re driving on the capability improvements on the innovation funnel. And I think you’ll begin to see that show up in the top line as we move through the year.
Mark Erceg: The other thing I’d like to add, if I could, because I don’t think we talked about our international business enough is the fact that our international business has been performing better than the U.S. market over the past year, and we actually are really excited because as we look at our ’24 planning process, the international business is expected to actually be up year-over-year. So we have at this point about 40% of our business outside the U.S., and there’s a really good story there to tell.
Olivia Tong: Great. Thank you. Best of luck.
Chris Peterson: Thank you.
Operator: Your next question comes from Bill Chappell of Truist Securities.
William Chappell: Thanks. Good morning.
Chris Peterson: Good morning, Bill.
William Chappell: Chris, help us understand how these businesses get back to growth? And I guess, [indiscernible] fears of that you’ve done so much cutting. Are you doing so much cutting and exiting and stuff like that that it’s years before we can really see total company growth? And I guess first question is, what’s your outlook for the actual categories to do this year? I mean, are you expecting the key be it Outdoor, be it Writing, be it Baby, be it Kitchen to be down as a category this year? Or is it more just your exits? And then the second question is do you see on the horizon kind of total company growth? Or is there any concern that you’re going too far?
Chris Peterson: Yes. Thanks, Bill. I think the thing, if you sort of parse out what we’re saying on the guidance, we’re planning the category growth rate or the market growth rate to be down low single digits. We’ve made proactive choices to exit about two points of business, and that effectively are the two drivers of the core sales growth guidance. If you back up from that, what that means is that from a market share standpoint, excluding, or excluding the choiceful exist, we’re effectively guiding that our market share is going to be flat this year, excluding the choiceful exits that we’re making. And that’s because the capability improvement actions are coming online, and we expect that to begin to show up in tangible financial results.
