And we have all the right levers and are pulling all at the right transformation buckets in order to do that, and I feel we’re on the right path to get back to where we were coming out of fiscal year ’23.
Callum Elliott: Thanks, Linda.
Linda Rendle: Thank you.
Operator: And we’ll move next to Lauren Lieberman with Barclays Capital.
Lauren Lieberman: Great, thanks, everybody. So I was just looking back and I remember that last quarter when you were talking about the outlook and the recovery plan and expectations. That you said you expected customer inventory levels to be rebuilt by the end of fiscal 2Q. But tying to that was the conversation of mid-single-digit sales growth, right? So now retail inventories are in fact rebuilt, the main thing does it leave? But it was with sales growth that was way higher than mid-single-digit. So can you just tie those two things together for me because, I think the just the visibility in the forecasting I think is an open question. And if you go back even pre-cyber the pattern of exceeding your own outlook was incredible. But you do have to also ask the question of like what happens if it goes the other way, if this is a question of visibility.
Linda Rendle: Hi, Lauren. Let me try to paint a picture for what happened in Q2. So we’re all on exactly the same page. You are right to say that we expect it to build the vast majority of inventories by the end of Q2. What happened is, we did that faster so what you get less of a consumption loss impact in the quarter. So instead of doing that, call it, the last two weeks of December we did that earlier and earlier by categories. So you have less out-of-stocks which significantly increased our top line, and that’s really the difference that you see in the quarter. And of course that had positive impacts in terms of the merchandising, we can do and all of the fundamentals from a retailer perspective that we want to return to and gave us great confidence in the back half.
Not only do we take our outlook up because we over-delivered in Q2, but we see a stronger back half as a result of that. So that’s really the difference is we have less lost consumption because inventories returned faster in the quarter than we had expected.
Lauren Lieberman: Okay. That’s fantastic. And then just also on Burt’s, I feel like when we all saw you in December, at the time you were talking about the challenge of Burt’s and restoring that business just because of the natural complexity of SKUs and the line-up in that business and that holiday merchandising might actually be — that might be a spot where you’d fall short. When I look at the trends in Lifestyle, right, clearly, Burt’s had a great quarter. So there too kind of same story or I’m — just I’m a little confused on that one, because it felt like that was a business, that was going to be tough to be able to get that merchandising in and holiday is pretty — it’s a important seasonal time for that brand is my understanding.
Linda Rendle: Yeah, Lauren. You remember correctly from December, we highlighted one of the places that we were focused on actually two places. We talked about cold and flu, if you recall and our push to get as much of that distribution restored to ensure that we could protect cold and flu, which we feel we did. And then second exactly right is Burt’s Bees and the importance of the holiday period. We were able to do most of that. I would say for holiday, we didn’t get all of it out, but we got the vast majority of holiday out which was good. And that certainly did support a stronger performance on Burt’s than we had anticipated. But that was a big challenge, but I would say, unfortunately we didn’t get it all out, and that certainly has an impact, but the good news, it was more positive than we even expected back in December for it to be.
Lauren Lieberman: Okay, perfect. And then the final thing, sorry in this vein, but I’m just trying to put the pieces back together, if you will. Logistics that was one area, Kevin, where you had talked also last quarter about that logistics cost would be elevated this quarter because as you mentioned, Linda you’re shipping well above normal every day, right and that you’re going to end up using a lot more carriers and freight and so on, beyond what you’d normally be contracted for, and that there’ll be elevated cost with that. Again, like, I know there’s many pieces of that gross margin build, but logistics is one that really jumped out for us, it’s being pretty different. So I’m just not — that’s another area of question of kind of what played out differently there, was a retailer fine.
I think you mentioned that in the prepared remarks, but that seemed like a pretty significant difference versus something that should have carried elevated cost within the quarter itself.
Kevin Jacobsen: Yeah, Lauren, you remembered exactly correct, when you think about the gross margin for the second quarter came in higher than we expected, both the combination of stronger top line. But exactly what you just highlighted, we did not incur the up charges we anticipated. If you remember, when we were talking last quarter, we said our priority, job one is to get product back on shelf as quick as we can. And we were fully prepared to incur additional logistics manufacturing up charge to get that done. And that will take the form of running the plants more over time, less than full truckloads out of route shipments. We said that was all available and we expect to do some of that to get product there quickly. A credit to our team and as Linda mentioned, and a credit to our retail partners here, as we move more quickly getting productive retailers, we did that in a very efficient manner.
We did not have to incur the up charges, we were mostly using our carriers, we’re mostly being able to do that in full trucks. And because we got that done even faster than we expected, it didn’t bleed onto the full quarter. And so it’s really about us executing more effectively than we anticipated going into the quarter. But we went in expecting we would have to spend more and we prepared to do that as we are prioritizing getting product on shelf, it just resulted in the fact we didn’t have to.
Linda Rendle: Yeah. I’ll just maybe make another comment on our operating model. Lauren and there were some good questions on our transformation and are we continuing it. And I think one of the things really proud of is one we learned a lot in COVID that we applied to the situation. Unfortunately, we were hoping we’d never have to play it again, but we were ready to go. The second thing is, this is an output of our operating model, getting laser-focused on what matters, putting a business leader in-charge who sees end-to-end who is able to make the calls and trade-offs, and she and her team were able to do just that, to be able to restore inventories and do all those things. Kevin spoke about, not requiring a lot of overtime.
Our decision to take, our inventories up in Q1 was an important one, and we knew that we would work those down, but we made that choice early to ensure that we could do as much as we could in Q2. But I would just plug our operating model. That’s a real output of what we’ve been driving and that changed to be bought more business unit focus, more focused on the consumer and customer and fast.
Lauren Lieberman: Okay. All right. Great. Thanks. I really appreciate it.
Linda Rendle: Thanks, Lauren.
Operator: And our next question comes from Olivia Tong with Raymond James.
