Prestige Consumer Healthcare Inc. (NYSE:PBH) Q3 2023 Earnings Call Transcript

Prestige Consumer Healthcare Inc. (NYSE:PBH) Q3 2023 Earnings Call Transcript February 2, 2023

Operator: Good day and thank you for standing by. Welcome to the Q3, 2023 Prestige Consumer Healthcare Inc, Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. Please be advised that today’s conference is being recorded. I would now turn it over to your speaker today, Mr. Phil Terpolilli. Sir, you may begin.

Phil Terpolilli: Thanks operator, and thank you to everyone who has joined today. On the call with me are Ron Lombardi, our Chairman, President and CEO; and Christine Sacco, our CFO. On today’s call, we will review the third quarter fiscal 2023 results, discuss our full-year outlook and then take questions from analysts. The slide presentation accompanying today’s call can be accessed by visiting prestigeconsumerhealthcare.com, clicking on the Investors link and then on today’s webcast and presentation. Remember, some of the information contained in the presentation today includes non-GAAP financial measures. Reconciliations to the nearest GAAP financial measures are included in the earnings release and our slide presentation.

On today’s call, management will make forward-looking statements around risks and uncertainties, which are detailed in a complete Safe Harbor disclosure on page two of the slide presentation, which accompanies the call. These are important to review and contemplate. Business environment uncertainty remains high due to supply chain constraints, high inflation and various geopolitical factors, which have numerous potential impacts. This means results could change at any time from the forecasted impact of reconsiderations of the best estimates based on the information available as of today’s date. Further information concerning risk factors and cautionary statements are available on our most recent SEC filings and the most recent Company 10-K.

I will now hand it over to our CEO, Ron Lombardi. Ron.

Ronald Lombardi: Thanks Phil. Let’s begin on Slide 5. We are pleased with our third quarter results, which built on our first half momentum and what continues to be a dynamic supply chain and retail environment. Revenues of 276 million in Q3 grew about 2% organically versus the prior year. Thanks to our diverse portfolio of trusted brands. Q3 revenues were driven by a continued rebounding cough cold, which I will discuss in greater detail on the next page, the GI segments Dramamine brand, as well as a strong international segment performance. Solid revenue continues to translate into strong profitability, generating $1.4 in diluted EPS, and over $50 million in free cash flow in Q3. Even with almost $20 million in inventory investment in the quarter to support service levels and future growth.

Our consistent cash flow profile continues to enable our disciplined capital deployment strategy. These efforts resulted in a Q3 leverage ratio of three and a half times our lowest level of leverage in over a decade. We continue to anticipate gradually lower levels of leverage over time, which further enables future capital allocation optionality. Now let’s turn to Page 6 and discuss the Cough & Cold category which is experiencing extraordinary demand this fiscal year. Our Cough & Cold portfolio is comprised largely of two iconic brands, Chloraseptic and Luden’s, each with their own distinct heritage for sore throat treatment. Chloraseptic has a heritage in efficacious sore throat sprays and lozenges that began in the 50s. Luden’s goes back even further with a brand created in the late 1800s.

Photo by Devin Avery on Unsplash

Today, consumers continue to associate the product with its iconic, great tasting, cherry flavored throat drop. This long standing history with consumers has allowed us to benefit from the extraordinary demand that has driven the category this fiscal year. Year-to-date, the category has grown well beyond our start of your expectations due to illnesses throughout the year, consumers being more proactive around health treatments, and a low-level of inventory of stores due to the supply chain environment. The combination of these factors has enabled strong growth for both Luden’s and Chloraseptic beyond what we typically expect. As shown on the right of the page. Each brand has grown over 20% year-to-date, with the potential for additional growth hindered by supply chain limitations that have kept upside for us and others in the category.

We have a clear opportunity to sell additional volume, and we have taken strategic actions like adding new suppliers to keep up with this demand and refill retailers depleted stocks. Looking forward, although the category is small as a percent of total company sales, we anticipate a strong demand to continue to the balance of the year and these strategic actions, helping to position these brands for long-term growth. With that, I will pass it to Chris to walk through the financials.

Christine Sacco: Thanks, Ron. Good morning, everyone. Let’s turn to Slide 8 and review our third quarter fiscal 2023 financial results. As a reminder, the information in today’s presentation includes certain non-GAAP information that is reconciled to the closest GAAP measure in our earnings release. Q3 revenue of $275.5 million increased 40 basis points versus the prior year and increased 1.8% excluding the effects of foreign currency. North America revenues were down approximately 1% versus prior year excluding currency, with sharp increases in the Cough & Cold and gastrointestinal category, offset by declines in the Women’s Health and Eye & Ear Care category. Our international segment revenues of $38.6 million were up over 25% in Q3 excluding FX.

The performance included broad based strength across regions and product categories. EBITDA and EPS were up 4% and 5% in Q3 respectively from the prior year, with inflationary pressures and higher interest costs more than offset by higher revenues and lower marketing spent. Let’s turn to Slide 9 for more detail around year-to-date consolidated results. For the first nine-months fiscal 2023 revenues increased 2% versus the prior year on an organic basis. The performance drivers were largely similar to what we experienced in Q3, with the largest benefits coming from our international segment performance strength of Dramamine and robust Cough & Cold category growth. We also continue to experience solid year-over-year growth in the e-commerce channel, continuing the long term trend of higher online purchasing.

Total company gross margin of 56% in the first nine-months declined 170 basis points versus last year’s adjusted gross margin of 57.7%. The gross margin change was anticipated and attributable to cost increases partially offset by pricing actions across our portfolio which offset the dollar amount of inflationary cost headwinds. For Q4, we anticipated gross margin of approximately 54.5%. Advertising and Marketing came in at 13.6% for the first nine-months, down versus 14.7% in the prior year as a percentage of revenue. As a reminder, we anticipate spend for the year of about 13% of revenue, owing primarily to the timing of initiatives and reduced spending around certain categories due to strong consumer demand. G&A expenses were 9.5% of revenue for the first nine-months, we still anticipate full-year G&A dollars to approximate prior year at around 9% of revenue.

Finally, diluted EPS of $3.14 compared to $3.15 in the prior year, as higher revenues were more than offset by the gross margin compression just discussed. Our year-to-date tax rate of 23% was slightly favorable to prior periods, due to the timing of certain discrete tax items. We still anticipate a Q4 and long-term normalized tax rate of approximately 24%. Now let’s turn to Slide 10, and discuss cash flow. In the first nine-months, we generated $165.5 million in free cash flow down versus the prior year. Although quarterly variations can be affected by the timing of working capital, beyond this, we have strategically invested behind inventory in light of the current supply chain environment, finding opportunities where we can increase inventory to better support targeted service levels.

This is the primary driver to our updated free cash flow guidance for the year of $220 million. Our stable EBITDA margins enabled consistent and strong free cash flow generation and as a result, we have the ability to invest behind our brands to support increased levels of customer service through working capital investments without derailing de leveraging efforts and targets. We anticipate Q4 free cash flow of about $55 million and year-end leverage below 3.5 times reflecting our disciplined capital deployment strategy that includes debt pay down. Looking beyond this inventory step up and related cash flow timing, we anticipate a more normalized free cash flow profile in fiscal 2024 and will provide a full outlook in May. At December 31st, our net debt was approximately $1.4 billion and we maintain the covenant to find leverage ratio of 3.5 times.

We now anticipate interest expense of $69 million for the year owing to the timing of debt paid down. With that, I will turn it back to Ron.

Ronald Lombardi: Thanks, Chris. Let’s turn to Slide 12 to wrap up. With just one quarter to go in the year, we are refining our outlook. Our proven business strategy and leading consumer healthcare portfolio are enabling us to grow within our original outlook range for the year, even in the current supply chain and inflationary environment we and others are facing. For fiscal 2023, we anticipate revenue growth of approximately 3% on both a reported and organic basis, consistent with our long-term target. Q4 revenues are anticipated to be approximately 278 million to 280 million translating into growth of mid single-digits versus the prior year. We anticipate EPS of $4.18 for fiscal 2023 which implies Q4 EPS of $1.4. A disciplined pricing actions and cost management are helping to offset inflationary headwinds, while the benefits of our strong free cash flow continues to help offset the impact of higher interest rates.

Lastly, we now anticipate free cash flow of 220 million or more reflecting the strategic increases in inventory investments that Chris just discussed. So in summary, our business strategy is working with one quarter to go, we anticipate solid typical 2023 growth with record revenue and earnings that builds on our strong fiscal 2022 despite a dynamic market backdrop. We also expect this momentum to result in continued growth in fiscal 2024, which we will provide a full outlook on in May. We remain confident in our business attributes. And then our strategy is set up to reward our stakeholders over the long-term. With that, I will open it up for questions, operator.

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Q&A Session

Operator: Thank you. And our first question will come from Susan Anderson Canaccord Genuity. Your line is open.

Susan Anderson: Hi, nice job on the quarter, thanks for taking my question. I was wondering if you could follow-up on the supply chain. Obviously, there were some really strong sell-throughs and Cough & Cold. I’m curious, are you guys seeing still, supply demand imbalances in the store? Do you guys feel like – I guess maybe if you could talk about by category to, that the in stocks are getting better, and the out of stocks fewer as we kind of look forward through the rest of the year?

Ronald Lombardi: Sure. Thanks Susan, good morning. So the supply chain, we have been talking about that topic, I think just about every one of these calls for a good year now. I think the positive thing is we have been able to keep up with record demand for our business through last year and through this year so far. But we are seeing certain categories that are challenged to keep up with demand and Cough & Cold is a clear example of that situation for us and quite frankly, for many other players in the Cough & Cold category and you can see that shelf when you go to retail. I think we mentioned in the prepared remarks that we brought on some additional liquid, a liquid supplier to help with capacity there going forward. But it is clearly a category where we see limitations.

The other thing I will call out during the third quarter was our Eye Care category was another example where despite good continuity of supply so far through the year, the third quarter actually saw a slowdown an impact impacted our shipments there and something we are expecting to into the fourth quarter. So make the important note here on the supply chain is that we continue to operate in a challenged environment, we have been trying to add to inventory for a good year now we made some progress in Q4, really as a way to add buffer to the categories that are doing well and get ourselves in a good position to support continued growth next year and improve our service levels.

Susan Anderson: Great, that is really helpful, and then maybe if I could just add one more on the international business, so another strong quarter there. Maybe if you could just talk about kind of the trend you are seeing there and particularly Hydralyte and how you are expecting that to play out the rest of the year?

Christine Sacco: Yes, good morning Susan, this is Chris. So you are right international had another really strong performance coming off of a record year last year and so helped a little bit with illnesses, but we saw strong performance across all regions, not just Australia in the third quarter. So we feel good about Hydralyte, and we are up to about 10% household penetration on Hydralyte which is a few points over the last couple of years which is quite good. But obviously at 10% household penetration still plenty of room to go. So we have continued to feel good about the growth prospects internationally and we target remember a long-term growth rate of about 5% internationally and we feel pretty confident about that going forward.

Susan Anderson: Great that sounds good. Thanks so much, I will let someone else jump in. good luck for the rest of the year.

Ronald Lombardi: Thank you.

Operator: Thank you. Our next question will come from Rupesh Parikh of Oppenheimer and Company. Your line is open.

Rupesh Parikh: Good morning and thanks for taking my question. So I just want to go back to the prior year guidance, if you can just give more color in terms of the sales reduction to the lower end of the range, in terms of what drove that and it also for EPS, it looks like higher interest expense may have had an impact on EPS range? Thank you.

Christine Sacco: Hi Rupesh. So the guide – reported guide going from 4% growth to 3% growth is really FX driven. We have seen some currency headwinds, as a reminder for us that – in particular, the Australian and Canadian dollars, there has been a lot of movements, particularly in the third quarter in the Australian dollar, in particular. So from an EPS perspective, as we just talked about, right, we narrowed our original sales guy to the lower end of the range. There is some currency headwinds sitting in the P&L. It is just another expense related to the currency headwinds I just discussed. And then interest got called up just about $1 million for Q4, just given the timing of some of the rate hikes and the pay down. So those are the main drivers of EPS calling down to the lower end of the range, but still within the target range.

Rupesh Parikh: Okay great and then just in terms of the categories that you guys called out this week, Women’s Health and Eye & Ear Care, when do you expect those categories to improve? Is that something Q4 or next year, maybe it is just some thoughts there?

Ronald Lombardi: So let’s talk about those both individually starting with eye care, Eye & Ear. We actually continue to have great momentum in that category. Consumption is good. Sales are good, as I mentioned in response to Susan’s question, the issue in the third quarter for us is really all about supply chain impact and we expect a bit of that into the fourth quarter as well. And then on Women’s Health, we have actually seen a decline in the total category. Again, we continue to see consumer changes as a result of COVID and everything else that has been going on, and in particular, women going back to the doctor’s office impacting the yeast infection category, and continued impact on the go portion of the Summer’s Eve business.

So, again, it is easy to forget, but we are really in year three of three years of disrupted factors on the business and in some cases, it is comps versus a funny number last year, in some cases, it is the continuation of a change in consumer habits or continuing to chase supply to keep up with demand.

Rupesh Parikh: And maybe one last question. So I know you are not ready to provide FY 2024 guidance. But just curious, is there any puts and takes you can share at this point. And I am curious just on A&M, I know this year went down to 13% of sales, do you expect that to be a larger percent of sales next year? Thank you.

Ronald Lombardi: Yes. So let me start I guess with a comment on overall momentum of the business like I said on the prepared remarks today, we continue to feel good about the positioning of the business, the consumption trends behind many of our brands, and we feel that we are positioned for continued growth in fiscal 2024 after two record years top and bottom line in a row. And I will let Chris comment on A&M for next year.

Christine Sacco: Sure. So obviously more details to come in May Rupesh, but we always talk about our A&M plans being built up from the bottom with our marketing teams. We talked about additional A&M support being pulled a little bit this year, really related to categories where we have strong demand, regardless of our investment. And I would couple that with our ability to provide supply in this environment that we are talking about. So more to come next year, A&M spend is always driven by the timing of initiatives and new product launches and a whole bunch of variables. But we will give you more details in a few months here.

Rupesh Parikh: Great, thank you. I will pass it on.

Operator: Thank you. And our next question will come from Jon Andersen of William Blair.

Jon Andersen: Thank you, good morning everybody. I guess, on the inventory step up, strategic investment in inventory. Is that really kind of a short-term remedy for some of the supply chain disruptions or constraints I should say that you are experiencing juxtaposed against the strong demand for things like cough/cold or is there also a longer term element to it in terms of retailers looking for higher order fill rates or tighter delivery windows? I’m just trying to understand kind of the reasoning behind it.

Ronald Lombardi: The first driver is to better align ourselves to meet our retail customers, service requirements. So part of its that it is really short-term in nature, Jon. As I said, earlier, we have been looking to try to build inventory to give us a better buffer for the next hiccup in the supply chain, and supply chains out there, in general continue to be impacted by COVID impacting workforces. Not only at their own facilities, but at their, at our suppliers, suppliers, whether it is cardboard or an API, or whatever it is. All it takes is one missing thing in the supply chain to disrupt finished goods, whether it is a label a pallet or an API. So we have been focused on trying to give ourselves a better buffer for the next two to drop that we don’t know about.

As we get into fiscal 2024 and we begin to learn more about how things are stabilizing, we will adjust inventory back down over time. But right now, it is all about getting that buffer in and being better positioned, not only to meet service requirements, but to take advantage of those growth opportunities. And as I mentioned with cough/cold we brought on a second Chloraseptic, Luden’s supplier actually got the first shipments I think the last week or two of December, so we are chasing things out there, Jon.

Jon Andersen: Okay that is helpful. Gross margin stepped down a little bit sequentially again in the quarter and I think Chris, you mentioned, the gross margin you expect for the fourth quarter is kind of similar to what you just experienced in the third quarter. And I understand the math driving this, I think is the cost increases juxtaposed again against the price increases. But do you think we have kind of leveled off at this point or in terms of the gross margin performance and is there potential for some recovery as you look to 2024 and 2025, I’m not sure what would drive that recovery, per se. But any thoughts around that would be helpful.

Christine Sacco: Yes, Jon, I would just say, you know, gross margin is largely coming in, in-line with our expectations, right. And you are right, Q4 being consistent with what we saw here in Q3. I think of, so if I start with about a 56% gross margin as the base, we will continue – excuse me, we will continue to look for opportunities to take pricing actions, that can also come in the form of new product development, as it has historically and which is a big focus for our company, as you know, in addition to continued multiyear cost saving projects that we have going on. So we have talked about, in this environment, going forward, looking at things a little bit differently than we have been operating for the last few years, in that cost savings will come in many different forms going forward.

And it is certainly you know, we have talked about not having a structural issue with our gross margin. So we will be looking to increase our gross margin overtime, and reinvest those dollars into A&M to maintain our EBITDA margin, as we always say.

Jon Andersen: Great, thanks. One follow-up. I think Ron, Ron is at the start of this year, you think he talked about the possibility of perhaps shipping a bit ahead of consumption in fiscal 2023, as there was still a need to establish a better in stock levels, maybe across certain categories coming out of the pandemic, it kind of feels like, you might be in that same situation right now, as you kind of looked at 2024. Is 2024 year where, net- net, you think it is possible that you might, there might be a little bit of a benefit from restocking given where you sit today? Thanks.

Ronald Lombardi: Yes, as we started 2023, we were focused on trying to recover and improve some of the our stocks and service levels. And we didn’t make the progress that we would have liked to, hence, the focus on continuing to build that inventory buffer. As we head into 2024, we think that will likely be the case, again, where there is more opportunities or inventory recoveries or builds at retail than it going the other way.

Jon Andersen: Thanks so much. Congrats for the quarter.

Ronald Lombardi: Sure, thanks Jon.

Operator: Thank you. And it looks like our next question will come from Mitchell Pinheiro of Sturdivant and Company. Your line is open.

Mitchell Pinheiro: Good morning. Just A couple of questions here. Did that common stocks affect you in any of your categories?

Ronald Lombardi: Yes, right. Cough/cold and certain SKUs in the Ear & Eye category are the big cause for us, as well as Gaviscon up in Canada as well.

Mitchell Pinheiro: Okay and then was it – I mean in terms of having an impact on your revenue, was it significant, was it just a couple percent or any way to put a number on that?

Christine Sacco: Yes, Mitch, this is Chris. I wouldn’t say it was material to the quarter in terms of sales. And what we are seeing largely is, you know, a SKU or brand goes out of stock. We refill it. It goes out of stock again, we refill it now it is another brand. So this concept that Ron mentioned about you know, us wanting to make sure we have enough inventory on hand to provide a more consistent level of supply for unanticipated disruptions in the supply chain speaks to exactly what we are experiencing, which is a bit of a game of Whack a Mole, if you will. But despite that, I guess I would still just highlight that we had strong sales for the quarter. So having the diversified portfolio has really enabled that and helped us this year.

Mitchell Pinheiro: Okay and then also on the revenue line, what price increases accounted for what percent of the growth?

Christine Sacco: So we are still, we had originally guided pricing to be about two-thirds of our growth for the year, and we are still on target might be slightly above that in terms of pricing for the year. So but that is the way to think about pricing for the period.

Mitchell Pinheiro: Okay and then, Ron, you had mentioned that that you anticipate lower levels of leverage overtime. And I don’t understand. Does that mean that acquisition growth slows a little bit or is there anything implied there with that?

Ronald Lombardi: No and I think a great example is what we did last year with the Akorn acquisition. So we were able to do a $225 million acquisition in the year added to our Eye Care platform, and still reduced leverage by about a half a point last year. So I think really, the message is that one as we get bigger, and generate increased levels of cash flow and lower our debt overtime, it gives us the ability to do transactions and not go back to the peak levels of leverage we saw historically, as we were building the business. In terms of M&A, if there is a compelling opportunity out there, it is really our job to figure out how to get it done within the right leverage profile for the company. So that is how we think about it. It is not really describing any limiter for us Mitch.

Mitchell Pinheiro: Okay, got it. That is all I have, thank you.

Ronald Lombardi: Thank you.

Operator: Thank you. Our next question will come from Anthony Lebiedzinski of Sidoti and Company LLC. Your line is open.

Unidentified Analyst: Hi good morning. This is in for Anthony. My first question is, can you comment on the level of pricing actions that you took in the quarter?

Christine Sacco: Sure. So we had announced pricing back at the beginning of the year really, for some of our brands have gone through a second round of pricing. We talked about two-thirds of our growth this year expected to come from pricing, which is essentially the cost savings, offsetting our inflationary pressures on the dollar-for-dollar basis for the year. So we talked about that being in the $15 million to $20 million range for the year. So the pricing that rolled through earlier in the year, certainly helped in the quarter.

Unidentified Analyst: Thank you and second question is given the slower economy are you guys seeing any meaningful changes to consumer behavior? If yes, like which categories?

Ronald Lombardi: In our categories, what we have seen overtime is that it tends to be the one of the last areas that might be impacted by a slowing economy or pinched wallets by the average consumer right. You wake up and somebody is shifting your household and you don’t feel well. It is something that you generally look to postpone or forget about – it continues to be an opportunity where you look for that trusted brand to take care of your health. So it is something we continue to monitor and take a look at but at this point, we don’t see it impacting our business.

Unidentified Analyst: Alright. Thank you and how much is e-commerce now as a percentage of revenue and what was the growth rate in the quarter?

Christine Sacco: Yes, e-commerce is now about 15% of our sales and the growth has been continued to be strong in the high single-digits.

Unidentified Analyst: Thank you. And lastly, I’m not sure if you guys answered that but it looks like you guys are just a guidance and I was just wondering why you guys – why the company is adjusting to guidance with 2023? I don’t know if I missed that. I apologize.

Christine Sacco: Sure. So what we did today is we narrowed the original guide that we had to the lower end of the range on the top-line. We talked about FX impacting the top line results a little worse – and it worsened a bit this quarter, from our previous expectations and the EPS guide at the lower end of the range really reflecting the top-line we just talked about.

Unidentified Analyst: Thank you so much. Thank you for taking my questions.

Ronald Lombardi: Thanks.

Operator: Thank you. And our next question will come from Linda Bolton Weiser of D.A. Davidson. Your line is open.

Linda Bolton Weiser: Hi, good morning. So on the question of innovation I was just curious what you consider to be to a venue most significant innovation in FY 2023. And then for FY 2024 in general, do you expect a similar level of innovation to drive revenue or higher or lower? Thanks.

Ronald Lombardi: Good morning Linda. If you look across our portfolio, it is kind of hard to pick one. If you look at our Dramamine business, we have had a string of great success expanding into nausea. And in 2023, we saw a number of the nausea products continue to do really well is one example. Compound W is another example where the recent launches of technology have done well there as a couple of examples. We look to have a consistent pipeline of new products and innovation to come out every year so 2024 will be no different than we have seen over the last few years with a steady pipeline. And we generally don’t talk about the things until they get out in the market for obvious reasons. So we continue to feel good about the efforts and the results in our NPD pipeline.

Linda Bolton Weiser: Okay and then years ago, in your business, we would rarely hear about these sort of supply chain glitches and hiccups and everything, but of course, now it is becoming a little bit more of a frequent thing. Does that change your view on having more internal manufacturing and maybe you could update us do you still have that Lynchburg Virginia facility and what is going on there, what is manufactured there and what is the capacity like in that facility?

Ronald Lombardi: No, we still think that our business model of working and partnering with third-party suppliers and having the Lynchburg facility is the right mix. Lynchburg makes about 15% or so of our total revenue, it is a liquid mix and fill focused facility and does a great job for us. One thing that we have learned during COVID is that as the supply chain environment has evolved and changed, we have had to change the way that we partner with our suppliers. So over the last couple of years, we have done things like make investments at the suppliers for additional tooling or additional lines to get dedicated capacity. And we have also looked to add additional suppliers and I use that Chloraseptic liquid supplier as an example where in the past, we were comfortable with one main supplier on that Chloraseptic product offering now we want to have to.

So we are going to continue to think about different ways to partner to add robustness in the supply chain as a result of the new world that we are operating in.

Linda Bolton Weiser: Okay, thanks a lot. Take care.

Ronald Lombardi: Thank you, Linda. Have a good day.

Operator: Thank you. Our next question will come from Carla Casella of JP Morgan. Your line is open.

Unidentified Analyst: This is on for Carla. Just to piggyback off of the prior question on the gross profit margins that kind of sequential decline. Is there a component of that was related to a tick up and promotions in any category and are you experiencing any retailer pushback on pricing?

Christine Sacco: No. So in our categories, not a lot of promotion to drive consumers because there is a linked to incidences. So the answer is, no the gross margin was not impacted by the timing or increased promotional activity. I apologize. Just missed the second part of that question.

Ronald Lombardi: Gross margin really relates to the cost inflation that we have been talking about for the whole year. So that is partially offset, really dollar-for-dollar by pricing. But from a margin perspective, that still lowers the overall percentage and that is really where we are in Q3 and Q4.

Unidentified Analyst: Just the second part was any pushback from retailers on pricing?

Christine Sacco: Yes. We haven’t seen pushback from retailers on pricing. I guess the environment is such that everyone is facing inflationary pressures and everyone is going to retailers with the pricing and quite frankly, they have got cost inflation on the labor side and such for themselves. So, so far, we have not seen significant pushback from the retailers. No.

Unidentified Analyst: And just one more question, do you have any thoughts or initial thoughts on timing potentially on refinancing your 2024 term loan?

Ronald Lombardi: So the term loan goes through, I believe, 2027. So we will continue to kind of actively look at that, if you are referring to our revolver ABL that is maturing at the end of 2024 and we will continue to kind of look at that, but obviously a much different structure than the term loan, but we will be opportunistic on both.

Unidentified Analyst: Thank you very much.

Operator: Thank you and I’m seeing no further questions in the queue. I would now like to turn the conference back to Ron Lombardi for closing remarks.

Ronald Lombardi: Thank you, operator and thanks to everyone for joining us today and we look forward to providing an update in May on our first of fiscal 2023 and our outlook for fiscal 2024. Thanks again and have a good day.

Operator: This concludes today’s conference call. Thank you all for participating. You may now disconnect and have a pleasant day.