Jennifer Fall Jung: Yes, we saw a significant improvement, as you saw, within our gross margin, as we have very limited promotions in the back half of the year. We do expect and it’s made substantial improvements over FY ’22. For 2024, as we noted in our call, we do expect to go more to a normalized basis of promotional cadence and really that is just thinking about what other consumer pressures or industry pressures we’re seeing. But we do not think it will get back to the higher levels of the 2022 and we will continue to monitor that and be very strategic about our allocation strategy to make sure that we are bringing all the margin dollars possible to the bottom-line.
Operator: Our next question comes from Andrew Strelzik with BMO.
Andrew Strelzik: The first one from me is on your comments about the wine industry turning a corner. I completely understand, obviously, that your goal and objective is to gain share relevant to the category. But, I mean, why do you think that that is the case, the turning the corner comment? Is this sustainable or is there something that’s changed? I’m just curious kind of how to frame that.
Sean Sullivan: Sure. Good afternoon to you, by the way. I think, as we look at luxury, so I think the first thing is you probably have heard us talk about on many occasions, I think a look at the total wine industry is less impactful than looking specifically at the luxury category which we define as $15 and above. The data that we see which is a mix of the Circana data which focuses on about a-third of our business, the scanner data and other data points that we have and look at for the broader industry and for us specifically show that luxury itself is turning that corner and starting to see a reacceleration. I think our viewpoint is it’s probably a function of a number of factors. Some of it is related to the macroeconomic environment.
Some of it is related to the choice of younger consumers, some of who may say, I’ll drink a little less but I want to drink a little better. And some of it might just be the sort of time of year we’re going into with the upcoming fall season and holidays. But I think if we look at it all together, I think what we feel buoyed by is an overall deceleration of the decline and now we’re seeing some acceleration. We’re cognizant that the industry as a whole won’t be a straight line. There will be some wobbles, faster growth or slower growth but we like the overall trends but we also particularly like our ability to take share and outperform our peers. And that has been the hallmark and something we’ve talked about on this call and on other calls is a very consistent long-term pattern that we have established through the work of our sales force and the organizational prowess that I think we bring to the table.
So our outperformance, I believe, will continue in addition to what we hope is an industry that really has turned the corner.
Andrew Strelzik: Okay, very clear. And then my second question is just on the gross margin outlook that you provide an understanding that kind of normalizing pricing is playing a role. But can you just talk about some of the key puts and takes across the cost buckets, the levels of inflation, those types of things, any color would be very helpful.
Jennifer Fall Jung: Yes. Nice to meet you Andrew. So as we kind of look forward to our gross margin, we did note and that we did anticipate some pressure coming into 2024. And really a lot of what underneath the covers what you’re seeing in that is we did note the trade spend, because we did see significant favorability in trade spend in 2023, particularly in the back-half. So as we look forward, that will be more normalized. And then also, there will be some puts and takes from a channel perspective. And although this all nets out at the bottom at our adjusted EBITDA, once you kind of layer in SG&A, the channel is kind of neutralized. But, as we continue to grow our out-of-state wholesale distribution network which has slightly lower margins than our in-state California wholesale network.
So as those growth rates go a little higher, then you’ll see a little bit of pressure on the margins. But it does support that growth rate in out-of-state supports our long-term growth strategy. It’s just more opportunity and white space in out-of-state than our highly penetrated California market.
Operator: I apologize. I was having a technical difficulty. Thank you again for your questions. [Operator Instructions] Our next question comes from Andrea Teixeira with JPMorgan.
Andrea Teixeira: I just wanted to first thank you, Alex Ryan, for his impressive contribution to this company and also to the California wine industry as a whole and also so accessible to investors. And welcome you, Jennifer. Looking forward to working with you. And my question is, what was the underlying depletion rate from wholesale to retail? I know the puts and takes, of course and Jennifer, you just discussed how you’re growing into that in gaining more distribution. But by the same token, of course, you had a very strong fourth quarter but your guide implies at midpoint, I think, it’s a 6% topline growth. And assuming that you had approximately 2% to 3% pricing benefit in the year that just closed, I’m assuming that is still a carryover effect or, in other words, it would take you to about 3% to 4% volume growth only.
I’m just trying to piece it together. I understand that, obviously, you tend to be more conservative but it’s slightly below guide, I mean, it’s slightly below the algorithm. So just wondering if you can elaborate more on that.
Jennifer Fall Jung: And nice to meet you as well. So the pricing that the organization took last year in fiscal 2023, the prices were effective, I think, September 1 but it takes a while for sometimes for those to take effect. And we did have a lot of buy-in early prior to the price increases in the quarter. So sorry about that. So as we look forward, we do see our growth in 2024 to be primarily driven out of volume, because those price increases have really kind of, we’re lapping those already within the quarter.
Andrea Teixeira: That’s helpful. If you can, talk about like how much more distribution gain or TDPs you’re looking to gain outside California to kind of illustrate that, because I know you’re gaining a lot with Kroger and a lot of different retailers. So if you can give us like a little bit of a cadence. And then obviously, understandably, the first quarter has that bump, not bump, I would say the opposite tough comparison. So if you can kind of help us like think about shelf resets and how to think in a more kind of cadence into the year.
