Flowers Foods, Inc. (FLO) Earnings Call Transcript & Summary

Good day, everyone, and thank you for joining us to go over Flowers Foods' second quarter 2022 results. I'm J.T. Rieck, senior vice president of finance and investor relations. Just a reminder that our earnings were issued on August 11, 2022. The earnings release and the accompanying slide deck are available, together with a transcript of these comments, in the Investors section of flowersfoods.com. Additional information has also been posted there. Before we begin, please note that what we present today may contain forward-looking statements regarding the company's performance. While we consider those statements reasonable, they carry risks and uncertainties that might make actual results differ materially. Beyond what you hear in these remarks, the key factors affecting Flowers Foods' business are described in full in our SEC filings. Speaking today are Ryals McMullian, our president and chief executive officer, and Steve Kinsey, our chief financial officer. Ryals, over to you.

Thanks, J.T. It's wonderful to have everyone with us on this call for Q2. We continue performing at a strong level across the first six months of 2022, and that pushed second-quarter sales to all-time highs. Our June price hike, implemented effectively, boosted sales and assisted in offsetting inflationary pressure. And the supply chain difficulties discussed during the prior quarter were resolved more quickly than anticipated, which explains the increase to the bottom end of our EPS guidance. Our top brands performed well even as consumers increasingly feel inflation's strain. For the quarter, Nature's Own delivered dollar sales growth that beat out all other brands in the category. Market share also grew for both Nature's Own and Canyon Bakehouse. Dave's Killer Bread picked up share in the organic category despite headwinds from regional capacity constraints and packaging shortages. Both of those issues are now resolved, and our confidence in DKB's growth potential remains extremely high. The added West Coast capacity we mentioned on our first quarter call will let the brand compete more aggressively in that market. At the same time, DKB keeps gaining share in the Northeast, which is strategically important to us. And our breakfast products, a key focus area for us, had an especially strong quarter. DKB resonates deeply with shoppers, and the mission behind each loaf—combined with superior quality and flavor—builds intense devotion. That devotion made us confident the brand could reach into other sections and sparked the launch of our DKB snack bars. During the prior quarter we noted how pleased we are with the bars' showing in test markets, where initial numbers continue to exceed forecasts, and we're busy expanding availability. A snack offering that honors the distinctive brand qualities of Dave's Killer Bread generates enthusiasm among both retailers and shoppers while expanding our room to grow. Our base business remains healthy and is expanding, yet we intend to branch out as well, leveraging the strength of our top-ranked brands to move into neighboring segments. In Q2, our total market share dipped a little—10 basis points—for a few reasons. The packaging shortfalls that struck DKB, which came up on last quarter's call, hurt sales across the whole company too, although we recovered the bulk of that effect by the middle of the quarter. Cutting SKUs as part of executing our portfolio plan reduced sales, mostly in cake, foodservice and private label; and because we raised prices somewhat earlier than normal in June to offset inflation, we were briefly in a weaker competitive spot, which also dragged on revenue. Lastly, the prior-year period included Hurricane Elsa, which we were up against. As you’re aware, when big weather events hit, we tend to beat our competitors—so that timing contributed to the year-over-year shift in share as well. Although the top-line figures looked strong considering conditions, results could have been even better absent those one-off factors, which we see as short-term. The supply chain issues we mentioned on the last earnings call weighed on performance early in the second quarter, yet our procurement team performed well and prevented those headwinds from causing greater harm later in the quarter. The price increase in June also added to an EBITDA gain during the latter part of the quarter. Our product mix dipped somewhat because the longstanding trend of share declines in private label took a breather, and price hikes in that segment outpaced other categories as we strive to improve its profitability. Those initiatives are delivering results. Thus, should those share movements persist, we anticipate they will dilute margins less than before. Now I'll move on to our four strategic priorities, which we anticipate will propel results in 2022 and beyond: building our team, emphasizing our brands, putting margins first and seeking prudent M&A. First, as always, I want to express gratitude to the Flowers team for their dedication and hard work, which has enabled our robust performance. I just mentioned the effort our procurement group put in to limit the impact of supply chain disruptions, and that is just 1 example among many showing the extraordinary efforts of Flowers team members. In an environment of unprecedented challenges, their execution keeps driving exceptional results. The labor market remains challenging, especially in our bakeries. To ease these pressures and help build a stronger Flowers team, we've put in place a mentor program that supports our newest team members as they start their career journey at Flowers. New hires get matched with a compatible mentor, who meets with them regularly and checks on their progress. Mentors act as a resource, provide encouragement and support, and intervene when a mentee encounters a challenge that could cause them to leave their job. The program is fairly new, but early signs suggest it is enhancing the onboarding process by reducing turnover. We think it will eventually help us improve our efficiencies. Our second priority is a focus on our brands. In the previous quarter, we laid out our portfolio strategy, which is designed to move our sales mix toward branded retail products with higher margins, and the results this quarter demonstrate how effective that approach is. Our Accelerate Growth and Learn and Prove portfolio roles are fueling ongoing growth. In the quarter, tracked channel sales for our top brands were robust: Nature's Own rose 12.4%, Dave's Killer Bread climbed 9.8%, and Canyon jumped 22.2%. A large share of the new consumers we picked up when the pandemic was at its peak have stayed with us, and we're aiming to extend that growth by keeping marketing and brand spending elevated. During the second quarter of 2019, our dollar share of 17.5% was 80 basis points above pre-pandemic levels. Recent launches from our innovation investments are showing encouraging results, among them DKB Epic Everything breakfast bread, Nature's Own Hawaiian loaf, Canyon Bakehouse Brioche rolls, and Nature's Own Perfectly Crafted Sourdough. We're still concentrating on boosting profitability in the Balanced Growth and Maximize Profitability portfolio roles, and I'll go into those shortly. Our third strategic priority is margins, and given the inflationary climate they remain a key area of attention. Alongside the margin expansion we anticipate from the mix shift our portfolio strategy drives, we're implementing cost savings programs and improved processes so that we operate the business as efficiently as possible. The $25 million to $35 million in savings from operational efficiencies and procurement that we're targeting for this year are on track, and those come on top of the $60 million in additional cost savings we achieved in the 2 prior years. During the prior quarter, we discussed the additional Dave's Killer Bread capacity that we brought online in the West, along with the advantages it would deliver by helping us satisfy rising demand and boosting efficiency at bakeries close by. Related to that step, we announced not long ago that our Phoenix bakery is set to close, with the shutdown scheduled for the fourth quarter. Consistent with how we manage our portfolio, we anticipate that shutting down this older facility, which runs less efficiently, will cut back production of lower-margin private label and foodservice items in the region, and nearby bakeries will take care of the remaining branded retail requirements; we will keep plenty of capacity on hand to support future growth in this key market. Under our portfolio approach, we aim to boost earnings from our Balance Growth and Maximize Profitability portfolio roles. In line with that goal—and with private label demand beginning to show early stabilization—our attention is on making that business more profitable. To offset inflation, we raised prices, and we keep collaborating with retail partners to generate efficiencies. The digital transformation initiative is proceeding as scheduled, and we are confident we can carry it out as planned. We expect the money we are putting into digital technology to produce substantial efficiency gains across our bakeries and, as we have stressed, to serve as a major factor in margin improvement over the long run. Smart M&A is our fourth priority. We hope you saw the recent investment we made in Base Culture, a fast-growing baked foods company that is female-founded and female-led, offering better-for-you sliced breads and baked goods that are gluten-free and grain-free. Those products hold both Paleo and Keto certifications and are on trend with consumers who seek those attributes. Our expectation is that this investment will let Base Culture grow distribution, scale marketing, and bolster its existing manufacturing capabilities so it can offer its products to more consumers than ever before. For some time we've been considering venture type investments as we look to enhance our internal agile innovation efforts, and we believe this is a great first move into that space. That modest outlay could become a template for later stakes in other advanced-technology businesses. Beyond that, we keep watching the transaction landscape, looking hard for candidates to buy that would bring new skills, names, or goods into the robust portfolio we already have. Our balance sheet, in our view, leaves us ready to move once we hold financial, commercial, and operational confidence, and our disciplined stance remains unchanged. With that, I'll pass it to Steve to take you through the quarter's details, and then I'll come back shortly to discuss our outlook on the present business climate. Steve?

Thank you, Ryals, and good morning to everyone. I want to add my voice to what you said about this remarkable team of ours and offer my heartfelt appreciation for all they do. As Ryals noted, we're quite happy with how the second quarter turned out. Sales overall rose 11% versus the same period a year ago. Better price/mix pushed the adjusted year-over-year gain to 14.4%, driven mainly by price hikes aimed at offsetting inflationary pressure; that improvement was partially counteracted by a mix shift away from branded retail toward store-branded retail. Volume fell 3.4%, largely reflecting SKU rationalizations in cake, foodservice and private label. Additional volume pressures came from supply chain challenges involving packaging and from the short-term effect that price increases had on how competitive we are. Broadly speaking, elasticities came in as we had anticipated; gross margin as a share of sales in the second quarter, excluding depreciation and amortization, dropped 240 basis points to 48.1%. The comparisons felt the weight of costlier ingredients and packaging, partly balanced by greater sales that leveraged labor costs along with timing differences and the sell-through of product inventories. Selling, distribution and administrative expenses fell 130 basis points as a share of sales, reaching 38.8% in the second quarter, helped by price increases plus reduced labor, marketing and distributor distribution fees, partly offset by higher logistics costs. Leaving out the items affecting comparability spelled out in the press release, adjusted SD&A expenses declined 90 basis points to 37.5%. GAAP diluted EPS for the quarter came in at $0.25 per share versus $0.26 in the same period last year. Excluding the items affecting comparability detailed in the release, adjusted diluted EPS for the quarter was $0.31 per share, a drop of $0.01 from the prior year period, reflecting the factors I mentioned plus lower interest income and a higher tax rate. Moving on to our balance sheet, liquidity and cash flow. During the first half of fiscal 2022, cash flow from operating activities fell $39.6 million to $183.8 million. Capital expenditures rose $39.6 million to $97.9 million, chiefly because of the ERP upgrade now underway, digital investments and added production capacity. Dividends paid grew $6.4 million to $93.4 million; in the first quarter, our Board boosted the company's share repurchase authorization by 20 million shares. So far this year, we've bought back shares totaling $16.5 million and put $9 million into Base Culture. We plan to keep drawing on our strong balance sheet to seize similar opportunities when they arise. Our financial position is still solid. As of the close of the second quarter of fiscal 2022, net debt to trailing 12-month adjusted EBITDA was roughly 1.5x. At quarter end, cash and cash equivalents totaled about $163 million, and we had roughly $690 million of remaining availability under our credit facilities. Now on to our 2022 outlook. We're lifting the low end of our adjusted EPS guidance by $0.05, to $1.25. The $1.25 to $1.30 range we've just issued works out to a 9.9% compound annual growth rate measured from the 2019 base, and it shows supply chain problems we laid out in detail last quarter clearing up sooner than anticipated. That guidance's midpoint sits above the long-term financial targets we've set — sales growth of 1% to 2% and EPS growth of 7% to 9%, both off the 2019 base. On the earnings cadence, second quarter results came in ahead of what we expected, driven by the bread bag shortage easing faster than anticipated. Inflation, as Ryals said, is still a headwind, and we look for its effect to reach its peak during the third quarter. The pricing moves made so far, we believe, are enough to offset those costs through the rest of 2022. Contributions from our growth and efficiency initiatives should land mainly in the second half of the year. When the second quarter closed, 97% of our key commodities were covered. Our hedging strategy will, as it always does, be executed to keep volatility low and give sufficient advance warning so price adjustments can be made. We stay optimistic that, together with our internal actions, we should keep securing the higher prices required to offset inflationary cost. Thank you — I'll now hand it back to Ryals.

Thank you, Steve. You've just heard the details on how solid execution on our part produced financial results that beat expectations. Now I want to discuss several key factors shaping the current environment, among them the economy, inflationary pressures and how the U.S. consumer is doing. Consumer sentiment has dropped to the lowest point in recent history. After the 2020 recession caused by the pandemic, sentiment recovered at first, yet unprecedented inflationary pressures have kept weighing on consumer confidence. Government stimulus funds softened the downturn and left consumers with plenty of cash. At this point, though, savings are eroding, and the consumer price index shows food-at-home costs climbed over 10% in the 12 months through June. Gasoline climbed 60%, while home energy costs increased by almost 20%, so clearly the average American consumer is feeling inflation's impact. Even though job growth has been surprisingly strong, as the labor department's report last week revealed, the participation rate remains below pre-pandemic figures and hiring rates are falling. This conflicting data makes it rather difficult to forecast how consumers will fare. Recent remarks from retailers suggest that shoppers are cutting back on other, more discretionary categories, including general merchandise. In addition to altering their purchases, consumers have been changing where they shop, getting more of their food from value-focused retailers like mass, dollar and club stores. Naturally, buying decisions vary considerably by household income. People earning less have been more inclined to switch to lower-priced items than those earning more. That pattern is particularly pronounced in the premium segment, where wealthier shoppers have actually purchased more of select items, DKB among them; on the other hand, households with smaller incomes have been buying less. We are monitoring these trends carefully and continuing our marketing spending so that our brands remain top of mind and we can win those consumers back when economic pressure lets up. In short, we think premiumization within the category is still a long-term trend, despite some near-term headwinds. Flowers is well positioned to serve consumers in this unusual environment. Our wide product range offers choices at every price point. We serve customers across many different occasions. On the retail side, our products reach everything from discount outlets to premium grocery chains, and our foodservice distribution is similarly broad. In common with other businesses, we began the second quarter facing inflation and supply chain challenges. The price increases we implemented in June, intended to offset inflation, left us in a temporarily weaker competitive position. That situation, combined with supply problems that limited capacity for certain products, Dave's Killer Bread among them, held back share gains for a time. Lately, since inflationary pressure is widespread and touches virtually every company, our pricing has become more competitive, and we anticipate continued improvement in our share performance. One item deserving attention this quarter is a halt in the long-running erosion of private label market share. At first glance, this shift looks like inflation is pushing shoppers toward cheaper options. However, those aggregate figures have been driven by a strong concentration of activity in the mass merchandise channel, where store-brand shelf prices have not yet been raised to reflect the recent inflationary pressures. The resulting large price gaps relative to branded items seem to explain a good deal of the recent leveling off in private label share. Categories where price gaps are closer to their historical norms — the grocery channel, for example — continue to post private label share declines. Investors have wondered whether additional food price hikes will be tougher to achieve, since retailers are dealing with margin pressure in certain non-food categories. Keep in mind that each of the three price increases we made recently stemmed directly from substantial, quantifiable inflationary forces that hit nearly every business in food and other sectors. Retailers never welcome higher prices, yet most acknowledged those moves were warranted under the circumstances. As a result, if inflation creates new pressure down the road, we expect to have a bit more luck putting through further price increases to offset it, and we are monitoring inflation trends and how consumers react very carefully. So far, the impact of our price increases on demand has been in line with our expectations, with elasticities remaining below historical levels; it's important to note that in our more than 100 years in operation, Flowers has been through numerous periods of inflation and a variety of economic environments. Every period is different, but we're confident that by focusing on our 4 strategic priorities — team, brands, margins and M&A — we'll be able to weather any environment and emerge stronger. Everyone at Flowers is putting in serious effort to boost shareholder value, and we anticipate continuing to produce outcomes that meet or exceed our long-term financial goals. We kept executing effectively during the quarter, pushing second quarter sales to record highs. How we performed amid this difficult consumer climate shows both the resilience of the category and the power of our leading brands. Because of our team's exceptional work, we managed to offset a large portion of the supply chain strain we mentioned last quarter. Consequently, we lifted the low end of our 2022 EPS guidance by $0.05, bringing it to $1.25. I want to express my appreciation to the outstanding Flowers team, whose effort and commitment made this solid result achievable. Our business fundamentals remain robust, and my optimism regarding what lies ahead has never been greater. Whatever conditions we face, the team stays committed to producing outcomes that meet or exceed our long-term financial goals. With that said, Michelle, please go ahead and open the Q&A.

Ryals, in your prepared remarks you touched a bit on, I guess, one competitor being somewhat slower to raise prices. I'm not sure whether that was simply a timing matter. Could you talk about any shifts in the competitive pricing landscape? Or is basically everyone, for the most part, moving upward along with commodities and input costs and so on? And then your thinking as — I believe you also had the thought that inflation would begin to peak by October, based on what you're seeing. So a bit more detail on that would be great.

Sure. Glad to do that. I'll let Steve take the inflation question. As for pricing, it wasn't really that the other competitors were late in raising price. It's just that, Bill, we moved a little earlier than usual. So I'd say most of the rest of the industry was fairly on time relative to typical points for price increases in the industry. But we went in June a bit ahead of schedule, and so — what we ended up with were price gaps somewhat larger than the historical gaps. And I think we noted that this affected our unit share somewhat in the quarter; but from then on, most of the industry has followed and raised prices as we did. Steve, would you like to address inflation?

Absolutely, Bill. So what we've indicated is that in Q3, from an inflation perspective, we'll experience our peak overall cost. In Q4 it will ease to some degree, though it will still remain elevated during that quarter; the highest point occurs in Q3, and after that it begins to come down a bit.

Understood. Now, turning to acquisitions and innovation separately — could you shed a bit more light, and apologies, the company's name slips my mind — on the investment you completed during the quarter. My assumption would typically be that you'd acquire outright that sort of business, so what's the rationale for partnering with a smaller company, and what does that bring to the portfolio? I'll stop there and let others ask about other innovation topics.

Of course. Thanks, Bill. The company's name is Base Culture; it's a baked foods business focused on gluten-free and grain-free products. Everything is keto and paleo-certified, so it's very much on trend. Our reasoning for taking more of a venture-style approach here is that Base Culture sits far, far earlier in its growth cycle than even a Dave's Killer Bread did back in 2015; and for some time we've been seeking to begin making venture-type, minority-type investments to support our own internal agile innovation efforts. This one aligned very nicely with our portfolio and with where we're aiming to go regarding healthier eating and on-trend attributes such as keto and paleo, where we don't really have much of an offering at present. So we're quite excited about it. A small investment, and — a small company, but we're quite excited about the prospects.

And when do you think we'll begin to see broader distribution of their products? And then, down the road, is there an option to own the company outright?

Yes, there is. And we'll be assisting them not just with production—since obviously we have that skill set and they don't; they're a very small organization—but also with sales and distribution opportunities, so we're already working on that front.

So should I expect to find those products in stores all over within the next two quarters or so? Or is that timeline too fast?

Realistically, getting them into every location will likely require somewhat more time than that. As I said, the volumes are quite small. Still, we'll scale them up at a pace their manufacturing capacity can handle — and down the road, that capacity will have to be increased.

Great. Maybe I'll start with just one question for you, Steve. I think you said costs might have hit their high point in Q2, stay elevated through Q3 and Q4. From what was in the prepared remarks, it sounds like you're pretty much fully hedged on ingredients for the year, I'd assume; so looking at that margin cadence, I suppose, with mix included in the back half, is there — should we take it that EBITDA is actually expected to grow, I guess, in the second half? And then could you just clarify whether that's — it sounds like it leans somewhat more toward Q4. And then I have a quick follow-up.

Yes, well, just one small correction there. We had indicated that the third quarter would carry our heaviest costs. Expenses keep accumulating as we move into Q3. Consequently, there will be some reduction in Q4, yet largely speaking, Q4 was — will stay — will still be elevated too, merely not quite as high as Q3. And you're correct that during the back half, we've noted many of our initiatives take effect. We've got pricing to offset a great deal of the inflation, plus we also have multiple cost savings programs along with productivity efforts currently underway. Regarding timing, we stated those would land in Q3 and Q4. That's going to be a major contributor to EBITDA over the latter half of the year.

And Rob, to give you a specific figure there, we remain within that $25 million to $35 million range, and every bit of it falls in the back half.

All right. Great. Yes. And the only reason I asked is that I believe one line in your prepared remarks mentioned that, once you reached the second quarter, you actually began to see EBITDA pick up. So it sounds like that may also have reflected some of the additional pricing and some of the productivity flowing through later in the quarter. Would that be fair?

Yes. And also keep in mind — I'm not sure whether the prepared remarks made this clear — that additional pricing is still going to keep arriving, Steve, approximately through the third quarter.

Okay, got it.

The bulk of it has come through already, though additional items are still arriving, mainly covering service; so that should provide a boost as well, Rob.

Okay, thanks. I've got a quick one about DKB. It certainly sounds like supply was somewhat tight in the quarter, and that seems to be mostly sorted out now. Beyond that, you also have the new facility on the West Coast. So when we step back and consider the second half of this year and really the period after that, my read is — well, you won't put a number on the West Coast opportunity with DKB, but I'd assume it remains a continuing driver for the business, maybe distinct from what you're seeing in the rest of the business. Any extra detail would be helpful.

Yeah, absolutely, Rob. Our belief in DKB and what it can achieve going forward is as strong as ever. Packaging problems during Q2 set us back a bit with DKB, and on top of that there were capacity limits — those are behind us now. True, we don't push DKB all that heavily. But the constraints were so tight that we could barely do anything, and that cost us some units. With Henderson now operational, we're able to get back to our usual playbook of expanding DKB in the western markets. That said, I want to flag something — I'm not sure if this came up in the prepared remarks — but although DKB saw a bit of unit pressure during the quarter, its breakfast segment performed exceptionally well. As you're aware, that's been a major priority for us given how underpenetrated we are there. So I'd like to highlight that as one bright spot for DKB this quarter.

Jim Salera here, filling in for Ben. I'd like to ask you, Ryals — in your prepared remarks, you said you were observing lower-income shoppers trading down toward the more expensive items, which is roughly consistent with expectations. But on the higher-income side, they'd actually been boosting their purchases of the premium products. Could you maybe unpack that a bit for us and talk about what's behind it? Because intuitively we'd think everybody just kind of shifts — a parallel shift downward — so the fact that they're increasing is, I'd say, countercyclical to what you'd expect.

Yeah. There's really a lot to discuss on that front. I know elasticity is going to draw plenty of questions, so this is as good a moment as any to address it. There are quite a few competing data points we're examining out there; on one hand, private label picked up a modest amount of unit share, 10 basis points of unit share; but when you look at the overall price level units, they fell almost 8 million units during the quarter; so much of that private label share gain was driven in mass. And what we've observed in mass is retail prices being held down, which kind of creates a somewhat bigger — a bigger gap than you might have seen historically. If you look at the grocery channel, sort of ex mass, private label lost share once again this quarter. And within that channel, price gaps were far closer to historical averages than what we're seeing in mass. Turning to DKB, specifically. DKB's unit declines came primarily from California and the mass channel. And they were — as you noted, they were concentrated more heavily among lower-income households. But DKB grew units and share in the Northeast and nationwide among higher-income households, which you might expect. And product trips also rose nationwide among both middle and higher-income households. But one caveat there is that we're seeing even those higher-income households hunt for a bit more value in the mass and club channels. So there's a bit of yin and yang when you look at the data, because I think it's still early days; but the takeaway is that, given the environment — and everyone saw the news yesterday, grocery prices are up 13.1%, the highest since 1979, and yet we still performed very, very well in that environment. Nature's Own units were up. Canyon units were up. Yes, our volumes were down, but quite a bit of that reflects our own portfolio optimization and SKU rationalization efforts. The drop in our volume matched exactly what we had anticipated. So on the whole, taking everything into account, despite a few data points that seem to conflict with one another, we felt extremely pleased with the way our brands and the company did during the quarter.

Let me add one more question to that. Would you say the reason is that, measured purely in dollars, the price is still so reachable that when everything rises, a 13% increase on a $2 product is clearly much smaller than a 13% increase on a $20 product? Is it simply that consumers have no other option, which makes spending $3 on a treat easier than spending $30? Or perhaps, then < >.

Yes. I'd certainly agree that plays a role; we've mentioned it on many, many occasions. I mean, when you consider an inflationary setting, bread remains a very, very budget-friendly option, simply because of how many servings a loaf provides, correct? And beyond that, we — despite the fact that prices have gone up, we compete at every price tier, from Super Premium, Dave's Killer Bread and Canyon right through to private label. So in short, everybody can find something there. Every household income and every household budget has an option.

Okay, thank you. And next, if you don't mind — you mentioned the A/B bars test only in passing during the prepared remarks. Could you perhaps share a little more detail about how consumers are responding to it, maybe which channels have done better or worse, and how we ought to think about the rollout?

Sure. It's still early for that. We remain in test market, though we're moving toward national distribution for the first 3 SKUs. And as we noted in the prepared remarks, the results we've seen so far have us wildly excited. It speaks volumes about the DKB brand—its meaning, its quality, the narrative surrounding it, and so on. That has us really enthusiastic. Also—this wasn't in the prepared remarks—we've just introduced 3 more SKUs that are high protein, unlike the initial 3, and we're adding those to the test markets too, and we're quite enthusiastic about that as well. So we're not sitting back. Innovation with DKB keeps going. And part of why our enthusiasm persists is the growth potential ahead.

All right, great. When — at what point should we start to see the first few SKUs showing up in stores nationwide?

Yeah, at the start of next year.

So regarding the mix shift toward private label that happened this quarter, I was hoping you could speak to what that means for margins. Specifically, how much of that 240 basis point decline came from this mix shift? And then, following up on what Ben asked, would it be fair to assume that over the next few quarters the portfolio stays a bit more weighted toward private label than it was in 2021?