So our production units this year are down about 25% from what they were last year. So even though we are anticipating now more modest growth given the update to our forecast, we are drawing down on the inventory that we have on hand as well as, obviously, some of the actions we’re taking from a shipment standpoint to draw down the inventory that we have in trade in Asia travel retail. So there are a number of actions that we’re taking that will help gross margin. We are going through a SKU rationalization program in addition to cutting some of our smaller diluted innovation programs that were planned over the next year or 2. So there are lots of actions we’re taking. All of those actions are not finalized yet, but many of them are in flight.
They just won’t impact as much this year as they will in future years. And then, yes, we are looking at our expense base and how we operate going forward, especially given our current level of sales and the lower base that we will be growing off of.
Operator: Our next question comes from Stephen Powers from Deutsche Bank.
Stephen Powers: I guess probably, Tracey, for you as well. Just maybe you could help provide a little bit more help bridging to the implied second half revenue and profitability outlook as implied in your guidance. It’s a pretty significant step up from where you will be as of the end of December based on the 2Q guide. And that’s despite battling what sounds like it will be headwinds in Asia travel retail inventory that will extend into at least the third quarter. So again, maybe you can — just the building blocks there, your level of confidence and visibility. And alongside that, it might help just if you have a view on what consumption is for your brands through this first quarter, maybe through the first half versus what you’re actually shipping.
Because I think a big a big part of that bridge is that you start to ship more to consumption as you get out from underneath the inventory headwinds. But again, it’s a very big step up. So just some clarity and some more detail there would be great.
Tracey Travis: Yes. So no, you’re exactly right. The assumption is that we ship more towards — we’re able to ship more towards the retail trends. I mean, as we said in the prepared remarks, our retail trends are ahead of our net trends in Asia travel retail, both still down because we are destocking the trade. And so the expectation is that, that will be completed by the end of the third quarter, so in the second half of the year. So part of this — a large part of the step-up that you see in the second half of the year is our shipping more towards the retail trends that we are expecting in the second half of the year. That’s a big part of it. And when you think about what happened to us and what we’re anniversarying from the second half of last year, where we had the policy changes first in Korea that impacted our third and fourth quarter and then the policy change — or policy reinforcement in Hainan, which impacted our fourth quarter.
We had, in some parts of our Travel Retail business, very low shipments given those policy changes. And so we are anniversarying as well some of the initial shocks of that. Lastly, I would say that we are seeing travel come back slowly, so again, more slowly than what we anticipated. We are seeing lighter levels of conversion relative to what we saw certainly prepandemic or even pre- the significant changes in policy across the Asia region. And — but we are seeing traffic pick up, and we are certainly expecting that, that conversion will gradually pick up as well in the second half. So those are some of the things that are underlying our second half expectations and the reason you see that big step-up in terms of volume. It’s a combination of multiple factors, mostly in our Asia travel retail.
A bit of it is a pickup as well in China also. Fabrizio, I don’t know if there’s anything you want to add.
Fabrizio Freda: No. I just want to add that the — our retail — underlying retail calendar year-to-date is the mid-high single digits already globally. And our estimate of retail continue to be actually improving on this point. So the retail base, which is driven by the consumption of consumers, by the innovation, by the strength of the brand, by the demand from the consumer standpoint is very solid.
