Operator: And our next question comes from Olivia Tong from Raymond James. Please go ahead, Olivia.
Olivia Tong: Great. Thanks. I just want to revisit gross margin because the pace of gross margin expansion in fiscal ‘24 versus the year just reported, obviously, a fair bit of deceleration. But I’m trying to understand, I mean, fiscal ‘23 recovery in gross margin was so meaningfully ahead of your expectations. Why is the pace of expansion slowing so much in fiscal ‘24? Because cost inflation, well, maybe not down, is certainly less of a pressure versus last year. Pricing is by and large working. The top-line is growing and gross margin is still quite a bit below pre-COVID levels, so would love a little bit more color on that. Thanks.
Kevin Jacobsen: Sure, Olivia. As it relates to gross margin, as you said, we continue to expect to make progress this year. So our commitment is to rebuild gross margin back to pre-pandemic levels. This year, we’re looking at about a 150 to a 175 basis points of progress. And that’s slowing from what we delivered last year and is primarily driven by pricing. So we took four rounds of pricing over the last 18 months, and that had a significant benefit last year. It contributed over 650 bps to gross margin. As we look at fiscal year ‘24, as I was just mentioning to Javier, we have fairly limited pricing in the plan. We’re going to get a little bit of carryover on that fourth price increase. So it’ll have a smaller impact on gross margin.
And then we’re really able to grow margin based on all the very good work our team is doing on cost savings and supply chain optimization. So in spite of still dealing with about $200 million worth of cost inflation, we believe we can more than offset that through the good work we’re doing within the supply chain and continue to grow gross margins. And so while we’re making good progress, I’d expect that to continue as we move into fiscal year ’25, I expect that progress to continue. The one thing we’ll have to look at over time is, we bought these commodities for decades. They are cyclical. At some point, they’ll turn deflationary. That’s not our expectation this year. But certainly, when that occurs, that’ll certainly accelerate the pace of recovery.
It’s just hard in this environment to predict exactly when that’s going to occur. But we feel very good about our ability to rebuild margins back to those pre-pandemic levels, and we know that’s going to take some time to get there. But I have to tell you, I feel very good about progress we’re going to continue to make this year in spite of ongoing inflation we’re dealing with.
Linda Rendle: Olivia, I’ll add just one point to that. Kevin underscored the $200 million, which is significantly better than what we had at $500 million in fiscal year ’23. But I just want to underscore that’s still three times the level of average we had before we got into this inflationary cycle on an average year of inflation. So I think the point that Kevin is making is really important to understand. This is still a very challenging environment with significant cost inflation, although certainly better than we experienced over the last two years.
Olivia Tong: Got it. And then on the top-line, as you look towards rebuilding volume as the year progresses, can you talk a little bit about innovation and what role that plays, and in your view, what kind of impact does innovation have on this year versus last?
Linda Rendle: Sure. Innovation continues to be the lifeblood of how we grow our brands over time. And we set out to deliver bigger, secure innovation platforms as part of our IGNITE strategy. And we’ve talked about the fact that we’ve been able to have more net contribution from innovation in our strategy period than we did in the prior strategy period. And we’re going to continue to focus on accelerating that this year. We have innovation across our portfolio just as we did this year. So all of our major brands launched innovation in fiscal year ’23. We would expect something similar in fiscal year ’24. We’re really focused on value and value superiority in that innovation. So we’re looking at a combination of product improvements and new innovations, as well as good claims support.
And of course, we’ll support that innovation with that 11% of sales from an advertising and sales promotion perspective. But we think as we lap these price increases, as a consumer comes under more pressure, innovation will be as important as it ever has been. And certainly our retailers are looking for innovation to help them grow their categories to ensure that we’re getting shoppers down the aisles, et cetera. So what I would say is it’s a continuation of what we’ve done. Of course, we want to have additional progress as we can and think we have the right investments to ensure that that continues in fiscal year ‘24.
Olivia Tong: Thank you.
Operator: And our next question comes from Lauren Lieberman from Barclays. Please go ahead, Lauren.
