Joe Scalzo: All right, Chris. Have a good day.
Chris Growe: You too.
Operator: Thank you. Our next question comes from the line of Cody Ross with UBS. Please proceed with your question.
Cody Ross: Good morning. Thank you for taking our questions. You called out logistics and contract manufacturer costs as drivers of the lower-than-expected gross margin. How much did gross margin come in below your expectations? And can you just describe what’s driving those costs?
Joe Scalzo: Yes, sure for Cody. So let’s take a step back. So the Q1 miss versus our expectation was about a $1 million in a rate basis, right. So it’s about $2 million overall. Good news and bad news here. I say the good news is the miss had nothing to do with ingredient and packaging costs increase. Those were aligned with our estimates for the quarter obviously mentioned in the remarks and just talked about the we expect that to improve in the second half. The bad news is the miss in Q1, principally related to a few items we did not properly budget for in Q1 that we knew about in Q4. The recurring charges in nature and should have been included in the estimate. Specifically, they relate to some charges from our commands for PPV, or materials, they purchased directly, some normal monthly charges from our logistics provider that we didn’t properly reflect and some inventory cleanup.
We put some additional processes in place to improve the collaboration here between the groups. And we’ll make sure that those costs are reflected in the results as well as the forecast. We don’t anticipate this being an issue going forward.
Cody Ross: Great. Thank you for that. And then just one follow-up. You noted how you expect sales to be down in the second quarter due to the timing of shipments last year and lapping that. Back to the math suggests that you expect sales to be up about 10% in the back half. Is our math, correct? And then what would drive sales to be up so strong in the second half? Thank you.
Shaun Mara: Cody, that’s second part of the question? Again, I followed you on the first part, I didn’t follow that you follow you on the second part?
Shaun Mara: Just if our math is correct, I would suggest that sales would be up 10% in the second half. And then what’s just driving the hockey stick banks in sales growth in the second half this upcoming year.
Joe Scalzo: Yes, so well, I’m not sure whether you’re asking me an inventory question or a question about the overall health of the business in the second. To Be clear. So I make sure I answer your question.
Shaun Mara: Yes, more so around the health of the business.
Joe Scalzo: So look, we’re really, if you just step back as we stand here, four months into the year, we’re really pleased about where we are. So year-to-date, consumption has been strong. And as we’ve moved into kind of into December and early stages of kind of the New Years, we’re actually picking up some speed. So we feel really good about we feel really good about the progress of the business. I don’t particularly like the economic environment right now, right. And as we said is, as we’ve said, in our prepare marks, we’re cautiously optimistic about the prospects of growth, kind of as we move through the Q2 into the balance of the year, but the current economic environment facing consumers, I think warrants a fair amount of Caution as we move through the second half of the year, and we’re going to come up against a little bit more challenging comparables, and particularly on Quest.
But if you look at the dynamic of the environment — economic environment, you’re seeing in food in general category, buying has slowed as prices have rise, shopping, be how consumers are responding and how they shop. So their behaviors have shifted towards value retailers, pretty much across the store, you’re seeing the growth of private label, volume, is on the rise. And then we’re at a point least in our business, and in this category where prices are the consumers are facing or their, historic their historic high. So, why we like our business. We like our business momentum, the environments, not the greatest environments, unclear to me what the second half is going to look like, is it? Are we going to see worsening conditions are the current conditions going to continue?
So, we believe caution, like where we are from a business standpoint, like our business momentum, we think caution is warranted in the second half of the year. We’ll be keeping a close eye on our consumer response as we move through the second quarter. And then we can give you an update on how we feel about and in the next quarter.
