Diego Reynoso: Yes. So we always try to maximize our internal capacity. I think we’ve said before, we try to keep it around 90% to 100%. We are actually increasing from 65% internal to about 70% internal from last year to this year. So we continue to move down that path so that we maximize our assets. And as we look forward, we’re — part of the optimization is geography. So it’s not just about the assets, but also where they’re located. So we will always have a split that helps us maximize our profitability. So as we look forward, we’re trying to — one of the buckets we mentioned is network optimization. That has a lot to do with where we have our different third-party manufacturers and ours and optimizing the financial performance of that.
Robert Ottenstein: And let’s say, I mean, do you need to get to that 90% to get back to the 50% margin and that will be one of the biggest buckets to do that?
Diego Reynoso: No. No. Again, because they’re located in very different geographical areas that is not something we have to do to be able to achieve our gross margin road map.
Robert Ottenstein: Great. Thank you very much.
Operator: Thank you. Our next question is from Bonnie Herzog with Goldman Sachs. Please proceed with your question.
Bonnie Herzog: All right. Thank you. Hi, everyone. I had a question on your new FY’23 guidance. You narrowed your ranges but lowered them. And I guess it now implies Q4 shipments and depletions, I think, will be down, maybe 11.5% on shipments and down 9% at the midpoint. And I know you’ve highlighted the negative impact from lapping the 53rd week. But I just wanted to understand why you’re expecting things to be so weak in the quarter? And maybe what’s changed? And then also I did want to understand if the impairment charges you reported in the quarter were always factored into your guidance for the year?
David Burwick: Yes. I think — hey, Bonnie, it’s Dave. So I think first of all, we actually went to the higher — we actually rounded up on gross margin. Slightly down on depletions more because we’re just — we’re being cautious and prudent given the current economic environment. We’re not quite sure. So we’re just being cautious, but we don’t see any change in trajectory than we had anticipated before actually. So pricing, we went a little bit to the higher end, gross margin a little bit to the higher end and depletions and shipments a little bit just a smidge towards the lower end. So it’s not — I’m not sure where you’re seeing us go down on all of those.
Bonnie Herzog: Okay. So I guess I was just asking primarily on shipments and depletion like since you’re expecting shipments and depletions to be down 5% to 7%, correct. So minus 6% at the midpoint?
David Burwick: That’s right — that’s about right. Again I was —
Diego Reynoso: So this is Diego. I think just we have one more quarter of results. So what we did is we reduced the range. So last time we said minus two to minus eight. We’ve now come back and said, well, given we have one more quarter of results, we’re going to make that range a little smaller. So we went to minus seven to minus five, but it’s simply just because we have one more quarter information, we really haven’t changed our perspectives on the year. So that would be the first part. On the second part, the impairment was not factored into our guidance that we get last quarter. This is our regular time of the year when we’re looking at our impairments through a regular process. So that was not included in our Q2 guidance.
Bonnie Herzog: Okay. That’s helpful. And I think it’s just — as you think about you’ve got some visibility, there’s only two months left in the year. So I get it that’s great. You’ve narrowed the ranges and maybe there’s some level of conservatism. But just also thinking about the comments that you added and you discussed that, that you’re now expecting lower fixed cost absorption in the quarter based on what you’re producing in-house. So that’s a function of lower expectations on shipments in the quarter I imagine. And then just trying to think about in the context of your gross margin and what it implies for Q4, you’re also sounding pretty conservative on your gross margin in and what that new full year guidance implies, correct?
Diego Reynoso: Yes. So two points — this is Diego. First one is, yes, although the midpoint is slightly lower, we are increasing our gross margin and holding EPS. So there’s a piece there. The second piece is the impact of that weak in the quarter is about six points. So when you adjust the quarter for those six points, the trends are relatively holding when you look at the Q3 and Q4 numbers. So for me, that means that we’re not significantly seeing a significant change in the performance of the business.
Bonnie Herzog: Okay. That’s helpful. I was just trying to reconcile because I feel like we’ve known about the extra lapping next week. But it sounds like you’re feeling pretty good and the improvement as you round out the year.
Diego Reynoso: Yes. And I agree with you because we’ve always known — I think we’ve narrowed the guidance, but we haven’t significantly changed it.
Bonnie Herzog: All right. Thanks so much. I’ll get back in queue. Appreciate it.
Operator: Thank you. Our next question is from Brett Cooper with Consumer Edge Research. Please proceed with your question.
Brett Cooper: Hi. Boston has always had success in creating new brands. So I was hoping to ask on the innovation program and specifically outside of brands. I think you changed the approach to how you innovate. And I was just hoping to get an update on what you’re seeing from your innovation portfolio, how the new approach is working, expectations from innovation outside of your big brands? And whether innovation program can get enough attention from the company, distributors and retailers, given all of your other efforts? Thanks.
David Burwick: Brett, thanks, I’m going to let — I’ll let Jim jump in on that one on innovation.
