Michael Lavery: I just wanted to come back to the comments on 2Q. You called out the high single-digit declines you expect from the inventory reversing. But last quarter you said how you expect double-digit EPS declines in the first half unless I missed it believe you reiterated that. But would that still apply as well?
Steve Voskuil: It does. Yes.
Michael Lavery: Okay. Great. Thanks. And then just as you think about any of the moving parts with some cocoa volatility or cost maybe uncertainty at least, you’ve also reiterated how you just think for the long term and want to approach the business that way. Would it be right to assume that, that does some amount of protection for AMC? How do you think about managing that as one of the variables? And is it something that is in play or is protected? What’s kind of the approach there as far as the marketing spend?
Michele Buck: Yes. I mean, I think strategically, we want to always continue to invest in our brands. We believe that’s a key part of the model and we know that — if you break that investment, it can take some time to rebuild to get to kind of your threshold levels again. That said, every year when we build a plan, we reevaluate the return on all of those pieces of spending. And we have to have the right news. We have to have the right increases in effectiveness and efficiency to set the right levels. So it’s not to say that we are set at a specific budget or percent of net sales. Every year, we do adjust that based on what we’re seeing in the returns, where the opportunities are, what kind of news we might have that we want to support, etc.
Michael Lavery: Okay. Great. Thanks so much.
Operator: Our next question comes from the line of Bryan Spillane with Bank of America. Please proceed with your question.
Bryan Spillane: Hi, thanks, operator. Good morning, everyone. I guess, Michelle, can you give us a perspective if you can, I guess? If you look at seasons in the first quarter and maybe just how consumers purchased around Easter and what the display and merchandising was like, does it give you any insight into Halloween maybe being any different this year or maybe needing a different approach for Halloween? And I guess I say that in the context if we think about last year with the everyday business being so under pressure, right, it put a lot more pressure on seasons in Halloween and kind of the balance of the year to sort of drive the business and trying to understand — and it seems like that every day is at least as a category or the small format stores are under a lot of pressure.
So I’m just trying to get an understanding if we have a lot of dependency on Halloween as we go through the end of the year and whether or not there’s any sort of difference in the way consumers are shopping around holidays?
Michele Buck: Yes, absolutely. So if I start with the beginning of the year, valentine’s, the category was strong and we performed very well there from a share perspective. The Easter category declined, but it was a shorter season, which always makes it more difficult, but sell-through was very good. And again, we gained share in that season as well. As we look at the second half of the year, we do feel like those trends are positive for the second half, but obviously, we had some very strong seasonal performance in ’23. So we think second half will grow, but we think the growth will moderate and perhaps be more in line with our overall growth as a company versus kind of supersized in the back half.
Bryan Spillane: Okay. Great. Thanks, Michele.
Operator: Our next question comes from the line of Robert Moskow with TD Cowen. Please proceed with your question.
Robert Moskow: Hi. Thank you. Michele, I thought I remembered last quarter you saying that once you got past the ERP conversion completely and after second quarter that’s when you would start to evaluate pricing actions to cover higher costs. Did I get that right? And is that still your strategy? And then lastly, I was wondering like how do you know — how did you go about estimating how much extra inventory the customers pulled forward? You’re expecting one thing like maybe they would take a month of inventory. And did they just say, no, we want two months instead of one month extra? And then how do you know that maybe they weren’t pulling forward shipments ahead of a perceived price increase? Thanks.
Michele Buck: So hey, first of all, our teams have done an amazing job with the U.S. and Canadian S4 implementation and we don’t take that lightly. So we’re thrilled about that and I think we are consistent with what we’ve said all along, which is, hey, we are in a pretty good position. We’re shipping products, invoicing customers, et cetera. But we do consider ourselves at the end of that ramp up phase and making sure that we have a stable system, can close the books at the end of the quarter and all of that. So yes, end of Q2 is when we believe we’re maybe officially stable on S4 and have options available to us. Of course, we never speak about any of our intentions or strategies around pricing or when we might or might not, but rather just that the capability exists to be able to.
Relative to the excess inventory, frankly, we worked closely with customers because we wanted to understand how much inventory they wanted. I think a few things happened. We had some customers who maybe had not put in as much and communicated fully their requirements. So we had some of that, that added to inventory. Frankly, I think we saw some others who in the face of other companies in the marketplace who were struggling with ERP implementations spooked some retailers into wanting a little bit more inventory. So I would say relative to what we saw and was communicated to us that’s really — and we were actually able to execute more than we anticipated. We actually thought we had to plan for some kind of disruption in the startup and assume that there’d be a cap on how much we could give retailers.
So we were actually able to better fully meet what they really wanted versus originally I think we kind of tried to cap them a little more just because we weren’t sure we’d be able to deliver. Steve, is there anything you would say?
Steve Voskuil: Yes. Where we landed in the end, we feel was a healthy level. And so in the second quarter, we’ll see the vast majority of that bleed out. It wasn’t too much and we don’t see it as a sign about trying to get ahead of price increases the way price increases these days work their way to the market. Prebuying inventory isn’t really the common practice, so not much risk there.
Robert Moskow: Great. Thank you for the color.
Steve Voskuil: You bet.
Operator: Our next question comes from the line of David Palmer with Evercore ISI. Please proceed with your question.
David Palmer: Thank you. Good morning. A question on price elasticity. What do you think your price elasticity is on the chocolate products today? And do you have a sense of how that might change if you were to — if cocoa prices remain elevated and you were to need a large price increase heading into ’25. Any thoughts about how that price elasticity might change?
Michele Buck: What we’ve seen is no material change in our elasticities over the past several months. We remain in line with historical levels, which is about minus 1 and that’s what we would assume going forward.
David Palmer: Got it. And you’re always so good on insights. There’s been this post COVID slowdown in at home snacking and perhaps there’s that overlay of the SNAP reductions causing or influencing that. But now there’s talk of a weakening low end consumer and perhaps convenience channels being relatively weaker now. I’m just wondering how you’re thinking about the net of all these things going forward. And if you’re seeing cross currents between your different channels as you go through ’24? Thank you.
