Unidentified Analyst: Hi. Good morning. This is actually Zane Brock on for Mark. A couple of questions. First, we’ve seen M&A start to pick up on the food service side of the distribution industry with US Food and Sysco both making acquisitions over the past few quarters? Would you expect bolt-on activity to increase in grocery distribution? And does your work on improving some of the fundamentals of the business impact your likelihood of participating near-term acquisitions?
Sandy Douglas: I think you’ve answered the question well in the way you framed it. We’re a national company. We have significant scale. The first, second and third priority is to improve our execution and our profitability. Obviously, we will take opportunities that we might see and evaluate them carefully. But our focus is on our execution and our ability to serve our customers and to do it profitably.
Unidentified Analyst: Appreciate it. And the follow-up is, I guess, at this stage, how is the promotional environment comparing to what you anticipated when you originally laid out your guidance at the start of the year? And any changes to what you’re expecting over the next quarter or two on that front?
Sandy Douglas: Yes. I think promotions are progressing in line with our expectations. They have picked up some, but they’re still below pre-pandemic levels. And we expect them to continue to increase as we turn the corner into calendar ’24.
Operator: Thank you. Your next question comes from the line of Leah Jordan of Goldman Sachs. Your line is open.
Leah Jordan: Thank you. Good morning. I first wanted to talk about inflation. Could you provide an update to your outlook there? Any change to your prior view for low to mid-single digits? And have you considered any degree of potential deflation in the ’24 outlook? Or how do you think about your ability to improve EBITDA margins in that environment?
Sandy Douglas: Sure. Good morning, Leah. Our outlook on inflation remains fairly consistent. I mean this inflation happened a little bit faster than we expected in the first quarter. But we’ve gone kind of from 11% inflation at the beginning of our fiscal, and we expect to exit around 3% or at 3% in Q1 and then exit the year around 1%. From a — we’re not seeing deflation in total, but there are some categories that are deflating. And there’s a range of potential outcomes that will happen as promotional activity comes up during the year. Our strategy here is to do our best from a merchandising standpoint to make sure that our customers are as competitive as they possibly can be. As everyone knows, the consumer is stressed right now and it’s important that they have good value.
And we see that happening by some of our merchandising programs that get at longer-term price positioning as well as promotions. And we think we’ve got a plan that will address most of the scenarios that we can possibly see. But we’ll have to stay agile from a cost perspective to make sure that we can deal with what happens.
Leah Jordan: Thank you. And then I just had one quick follow-up on volumes. You noted that they sequentially improved again this quarter. I’m curious if that’s occurring pretty consistently across all segments, or are there any notable differences by segment?
Sandy Douglas: Sure. I mean it’s hard to generalize across 32,000 customer locations. As is always the case, we’ve got customers that are doing relatively well and we’ve got some others that are challenged. And it depends a lot on their positioning and the markets that — where they’re operating in. But as a general rule, the retail market is very competitive right now and it’s favoring discount position retailers who are competing on price. And so my previous answer really is the implication of that, which is we have to work very hard with suppliers to nurture and make sure that our customers, which are very valuable customers for suppliers, are as competitive as possible and able to succeed regardless of their positioning.
Operator: Thank you. Your next question comes from the line of Scott Mushkin of R5 Capital. Your line is open.
Scott Mushkin: Hey, guys. Thanks for letting me ask some questions here. So my first question actually is I wanted to expand on the last one. Just your flexibility or leverage you can pull, if navigating the year is more difficult, if the competitive climate, inflation continue to deteriorate, looking at how you’re trying to transform the business.
Sandy Douglas: Sure, Scott. Thanks for the question. As we indicated last year, we had four areas that we’re acting on to address near-term profitability. And that was our contracts, our zero-based budgeting process, spans and layers, and SKU optimization. All four of those, along with the parallel effort to reduce shrink and bring it back into line are significant levers of opportunity. We talked about $150 million as sort of the target for the annualized number for this year. All of those are opportunities that are bigger than that. And we’re going to continue to work each of those to make sure that we’re taking full advantage of every opportunity to help the company in whatever scenario unfolds.
Scott Mushkin: Perfect. And then my follow-up and it goes to your comments about the discounters and mass guys taking share. What — how should we think about the potential to some of what you’re doing needing to go to your customers? I know there’s contracts in place and whatnot, but how much do you think — how much should we worry as investors that some of what you’re doing is going to inevitably have to go to your customers given the share changes that are going on?
