There was a 3 point drag to shipments and it’s from retailers running less inventory in their systems tends to be Tier 2 customers, tends to be small regional grocery, some distributors that service our small format business, but we saw drawdowns below what was typical. So we’re just going to keep our lag continue, hard to say, we’re going to keep our eye on it. And obviously it’s one of the reasons that we’re a little bit cautious about our business as we move through the second half of the year.
Cody Ross: Quick clarification and then a follow-up. Is that retailer inventory reduction embedded in your guidance going forward, meaning it does not come back?
Joe Scalzo: Yes.
Cody Ross: Okay. And then just secondly on the gross margin, I believe on the last earnings call, you talked about gross margin being down more than 100 basis points in the second quarter. It came down roughly 200 basis points this quarter. Can you help us understand the changes that you’re making, so that the cost surprises in gross margin don’t happen as frequently? And can you just help us understand what your expectations were for gross margin going into the quarter? Thank you and I’ll pass it on.
Joe Scalzo: Okay, Cody, I’ll take that one. Thanks for the question. So let me take a step back for a second, couple of context, things for you. One, yes, the margin came in about 50 basis points or say, worse than we thought it was going to be for the quarter. Just for context, that’s about $1.5 million on about a $200 million COGS number. So, I wouldn’t say it’s a huge thing. Really two major themes as it relates to our, say, supply chain or cost of goods sold. The first is the commodity environment and the evolution of this. If you go back to last year, we were seeing significant commodity increases, double-digit inflation, obviously, led to our pricing actions. That said, we hit an inflection point on this and we’re seeing a general easing of the inflationary cost environment, specifically the softening of the spot markets in most commodities over the last six months and in particularly dairy protein.
That said, our inventory valued at higher price points and burning through that slower than we anticipated. Savings are there, flowing through the P&L at slower rate. That’s the biggest change of our gross margin for the year. Second macro trend is really a shift in focus or prioritization of our supply chain. Last year, we were focused on improving fill rate, increasing capacity, inventory levels was priority one to make sure we can maximum — to get to a point where we filled our customer needs. Now we’re trying to maximize working capital inventory levels, improving the efficiency of the supply chain, and getting back to basics in my words. So bumps and bruises along the way, working with the co-man to get to the right finished good inventory levels and settling into this environment.
So we’ve estimated unanticipated charges related to production runs, purchases in the overall operating environment. So all this is a transition issue and we’re settling into where it want to be. We’re carrying about six weeks finished goods inventory on average, servicing our customers in the mid-90s, so not totally there yet, but really close. Costs are coming down, savings are there, just a slower pace than we originally thought. As it relates to the processes we put in place, reminder, we don’t own the ingredients at our co-mans, we just help them procure it overall. So we don’t have the — that on our balance sheet overall. So we’re working with them now to get a better feel for what’s out there. And we put place — processes in place in the second quarter to improve that going forward.
So we think we have that in place right now.
Cody Ross: Thank you very much. I’ll pass it on.
Operator: Our next question is from the line of Steve Powers with Deutsche Bank. Please proceed with your question.
