Now in Q1, I expect we’ll make good solid progress. Now, not to the same degree in Q4, 560 basis points because we’ve now lapped that third round of pricing starting now. And so you should expect it to step down the benefit of pricing, but I expect to have a good solid Q1. And then what I expect to do is continue to advance margins on a year-over-year basis and as we said, we’re targeting to get to about 41% this year.
Dara Mohsenian: Okay. And are you assuming any incremental pricing next fiscal year? I’m assuming you’re not. Is that more just a pause after all the pricing you’ve taken and maybe you can return later on? And then if I’m not overstaying my welcome, Linda, can you just comment on household penetration and your performance this fiscal year, particularly in light of the comments around the ROI on marketing being at an all-time high and the personalization reaching nearly a 100 million consumers? Thanks.
Kevin Jacobsen: Yeah, Dara, I can start with our pricing assumptions. In the outlook, we have not assumed any broad-based pricing in the US similar to the first four rounds we’ve taken. Now, we will continue to price internationally because of the higher inflation rates we’re experiencing there. And we’ll also continue to focus on net revenue management activities. But in terms of broad-based pricing, we don’t have anything assumed in the US this year.
Linda Rendle: And then your question on household penetration, when we talked about this a bit over the last few quarters, household penetration, along with volume, were things we knew were going to take a hit we took the level of pricing we have over the last 18 months. And we’ve certainly seen that. And this is a category comment, not just a Clorox brand comment, but what we tend to see is people having short-term reactions from a behavior perspective, and they adjust as they see the initial shock of pricing. And, certainly, they’ve seen four rounds they’ve had to adjust to. So typically what we see is we see consumers looking to go to alternates. Maybe they use the inventory they have in their home, they delay a purchase cycle, they look — they engage in value seeking behavior.
They trade up to larger sizes or smaller sizes. And in very extreme cases, they leave the category. And then from a household penetration perspective, a number of those factors play in. We’ve seen some light users exit the category, which isn’t a big surprise. It’s typically what we’ve seen during price increases. And I think importantly to note, again, this is a category behavior, not a Clorox brand behavior. And then what we’re focused on, of course, is over time returning that household penetration. And I think it’s important to put in perspective, we’re still in nine out of 10 US households in our portfolio. But we want to be in a place where we’re growing household penetration again. So what I would think about is all the investments that we spoke about a little earlier, increase in advertising and sales promotion, as well as our focus on innovation and category growth plans are all in service of returning to volume growth, returning to household penetration growth and then, of course, our aim over the long term to grow share.
I mean we would expect household penetration to begin to improve as we get through pricing, and as we move through the course of the year and then through the course of our plan. But what I would say is, very in line with our expectation, and we feel good about the plans we have in place to continue to make progress on household penetration in fiscal year ‘24 and beyond.
Operator: And our next question comes from Filippo Falorni from Citi. Please go ahead, Filippo.
Filippo Falorni: Hey. Good afternoon, guys. Just want to ask a question on gross margin again, following up to Dara’s question. What drove the outperformance relative to your plan in Q4? It seemed like cost saving came in well ahead of expectation, and it was a record year for you guys, particularly in Q4. And, how much was the incremental volume leverage from the better — from better volume trends? And then as you think about next year, how should we think about cost savings — like, also, another year above, algorithm? Thank you.
Kevin Jacobsen: Yeah. Thanks, Filippo, for the question. As it relates to Q4 and you’re right, the over-delivery on gross margin versus our expectation. We went into the quarter targeting 40% to 41% gross margin. And as you saw, we delivered just under 43%. I would say for the most part, as you look at the various drivers within gross margin, they’re generally in line with our expectation. That was certainly true for cost savings, pricing, and commodities. The biggest variance was our top-line performance and particularly on volume. And so volume only declined 2% for the quarter. We had projected a larger volume decline in the quarter. And as a result of that, had improved operating leverage, that really flowed through the entire P&L.
It certainly benefited gross margin, but it also was the primary driver of our very strong earnings performance for the quarter. And then, as we go forward and on your question on cost savings, look, our team did some just terrific work this year. We target a 175 basis points of EBIT margin expansion each year through cost savings. In fiscal year ‘23, we delivered well north of 200 basis points. And that’s really a credit to the team and the work they’re doing to drive cost out of the system. And I fully expect to have a very strong year this year as well. So I would expect this year, we’ll have another strong year that’s probably north of 200 basis points. And that’s incredibly important because as we said, we continue to operate in an inflationary environment.
And for us to continue to grow margin, it’s really based on the good work our team is doing both on driving cost savings and driving the supply chain optimization work we’re doing. And that’s allowing us to absorb that increased inflation and continue on our progress rebuilding margin. So really good work by the team and exceeded our goals both last year and I expect to do it again this year.
