Michael Lasser: Thank you very much and good luck.
Rodney McMullen: Thank you.
Operator: Thank you, Michael. Our next question comes from John Heinbockel from Guggenheim Partners. John, your line is now open. Please go ahead.
John Heinbockel: Sure. So if we think about the old algo on comp, right, which is higher than where we are now. I’m curious, do you think 1% to 2% inflation, as we normalize to that, does that support, right, the algo that you had historically on comp? Or is math and some of the other headwinds, right, work against that? And then I think you said you saw improvement in budget-conscious comps which were negative, I think, 2% last quarter. So is that still negative? And are the higher income households still performing as they did before?
Rodney McMullen: I’ll start and let Gary talk about the longer-term stuff. But if you look at the higher income household, that growth continues. That customer is meaningfully more profitable because of buying a lot more fresh product and buying bigger-sized products and things. If you look at the budget-conscious shopper, the trends have improved, but they would still be negative, but the trends have improved. In terms of relative to the long-term TSR model, Gary, I’ll let you.
Gary Millerchip: Sure. And John I think your question maybe was leaving a little bit between the second half of the year and the long-term plan as well. So I would definitely think about it in those two buckets. I wouldn’t say that we’re changing our long-term growth algorithm view that we believe food-at-home will continue to grow in that sort of 2% to 3% a year over the long-term and we will expect to grow top line between 2% and 4% and deliver earnings growth of 3% to 5% by both achieving growth in line with slightly ahead of the market and also continuing to expand margin through the different levers that we talked about during our various Investor Days. I think in the short-term, when we think about the rest of the year, I would use the first half as a sort of decent sense of how we’re thinking about the rest of the year.
We would expect to continue to see some tailwinds in our gross margin rate around some of the areas that I mentioned in the prepared remarks on supply chain and Our Brands, sourcing benefits, et cetera. OG&A will continue to manage costs very closely given that the environment is, to your point, lower in terms of the headline growth rate than we would be expecting in our long-term models. So we’ll be managing costs accordingly. And obviously, we do continue to flex our model to make sure that we’re adjusting our plans when we have those short-term adjustments to what we see in the operating environment.
John Heinbockel: And then maybe as a quick follow-up. What is the update now on the Ocado process in terms of rollout and adoption? I mean, we’ve talked about it a bit and movement toward your profitability objective. Where are we on all of that relative to I know you talked about pickup?
Rodney McMullen: Yes. If you look at the sheds, continued great progress on the growth in the sheds and the base operating model. Right now, all the energy is focused on the ones we have and making sure that those are where we want them to be, where they need to be and on a sustainable basis. The other thing that I think is incredibly important is if you look at the repurchase rate once somebody starts using the shed and the NPS scores, they remain very high. So I would say that a ton of work is being done. We’re making progress, but we wouldn’t be to the point where we would start focusing on additional sheds until we make sure that we have a clear path on the ones we have. And we are making meaningful progress, but we still have a lot of work to do. Thanks, John.
John Heinbockel: Okay. Thank you.
Gary Millerchip: Thanks. Take care.
Operator: Thank you, John. Our next question is from Michael Montani from Evercore ISI. Michael, your line is now open. Please go ahead.
Michael Montani: Hi, everyone. Thanks for taking the question. Just wanted to ask about ESI. So one question earlier was related to market share and why that might improve towards the end of the year, thinking that could be part of it. But I wanted to ask at a high level, would you be comfortable kind of going it alone if you can’t seem to find a good partner? And then what could some of the longer-term benefits be to the business model if that is the case?
Rodney McMullen: Yes. On ESI, first of all, I am incredibly proud of our pharmacy teams. They’ve done an amazing job on being able to retain a meaningful part of those customers and it’s a combination of doing direct contracting with some companies and also leveraging our discount card for patients. So when you look at overall, I think, they’ve done an incredible job on minimizing the effect. Now with that said, it’s still over — about 1.5% or I think this quarter, I think, we shared 1.6%. We’re very comfortable with where we are but we’re always focused on trying to make sure we’re taking care of the customers and taking care of patients. But we have to be able to do that in a way where we don’t lose money on every prescription filled. So that’s really what the focus is on, and we feel very comfortable with where we are. Gary, anything you want to add to that?
Gary Millerchip: No, I think, I’m all good. Thanks.
Michael Montani: Just wanted to follow up, if I could, quickly on the potential multiple implied by the transaction for the divested stores, have had some pushback. It seems to be around 2 times to 2.5 times, which was a little less than we thought. So I didn’t know if you could discuss that potentially in the context of the ability to increase the stores divested if needed to close the deal vis-a-vis what the potential profitability might be of those locations.
Gary Millerchip: Yes. Thanks for the question. I think maybe the confusion could be around the multiple and what we were assuming because the, I think the only previous information that we’ve shared was relative to SpinCo, which was potentially a solution for a part of the overall divestiture plan. It wouldn’t have been actually a solution for all geographies, but that was the 100 stores to 375 stores that were contemplated in the SpinCo structure. And we mentioned or shared in that agreement that the multiple could be three times fall on EBITDA. So this multiple would be a little bit below that number. But that being said, as Rodney mentioned in the prepared comments, we haven’t actually assumed in our modeling that the transaction would move forward with a different number than we actually announced today.
