Greetings, and welcome to The Hain Celestial Group Second Quarter Fiscal 2023 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Chris Mandeville with ICR. Thank you. You may begin.

Good morning and thank you for joining us on Hain Celestial's second quarter fiscal 2023 earnings conference call. On the call today are Wendy Davidson, President and Chief Executive Officer; and Chris Bellairs, Executive Vice President and Chief Financial Officer. During the course of this call, the management may make forward-looking statements within the meaning of the federal securities laws. These include expectations and assumptions regarding the company's future operations and financial performance. These statements are based on management's current expectations and involve risks and uncertainties that could differ materially from actual events and those described in these forward-looking statements. Please refer to Hain Celestial's annual report on Form 10-K, quarterly reports on Form 10-Q and other reports filed from time to time with the Securities and Exchange Commission as well as its press release issued this morning for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today. The company has also prepared a presentation inclusive of additional supplemental financial information, which is posted on Hain Celestial's website under the Investor Relations heading. Please note, management's remarks today will focus on non-GAAP or adjusted financial measures. Reconciliations of GAAP results to non-GAAP financial measures are available in the earnings release and the slide presentation accompanying this call. This call is being webcast, and an archive of it will be made available on the website. And now I'd like to turn the call over to Wendy.

Thank you, Chris, and good morning, everyone. We appreciate you joining us for my first earnings call since joining Hain. First, let me thank Mark Schiller for his leadership of the company over the past four years through a time of significant transformation of our company portfolio and operating model. In the past month, Mark has been a valuable resource in my transition into the company and the role. I'm only a few weeks into the job, but I've had the opportunity to review many of our key commercial, supply chain and brand plans across our businesses. And in the coming weeks, I will have a greater opportunity to visit our locations and connect more with our local teams to further my understanding. What I have learned thus far has only confirmed my decision to join Hain and our opportunity to build a sustainable, profitable and high-growth business with leading brands in the better-for-you consumer space. During my early weeks with our team, I have been impressed the potential of our brands, many of which are number one or number two in their category. However, while much work has been done to simplify the portfolio and generate productivity, it is apparent that a variety of challenges have prevented sustained investment to scale our brands. In fact, I've noticed our brand building spend has historically been far below industry average. And in certain instances, we have been off air for over a year on some of our largest brands. Moving forward, I anticipate committing greater support behind those brands, and eventually spending more in line with our category growth peers with sustained brand building support. I see strong potential to drive growth in our categories and brands with expanded reach across channels and geographies. But to do so, we will need…

Thanks, Wendy, and good morning, everyone. We are pleased to report a solid second quarter ahead of guidance in both adjusted gross margin and adjusted EBITDA on a constant currency basis. Importantly, we continue to see sequential improvements in both the international and North America business units. And with a better-than-expected second quarter we are reaffirming our full year adjusted net sales and adjusted EBITDA at constant currency guidance of minus 1% to plus 4% versus prior year. As it relates to the underlying health of our brands, we continue to see bright spots in our in-market consumption versus prior year period. U.S. consumption dollars in our snacks business grew 5%, driven by double-digit gains on sensible portions. We also saw double-digit distribution growth in our U.S. snacks business for the quarter as we successfully entered new markets and channels. We are particularly encouraged with early gains in C-stores as dollar growth was up 90%, and TDPs increased double-digits. With our supply chain challenges largely behind us, Terra realized positive U.S. consumption growth for the second straight quarter with velocities up an impressive 15%. Both Sensible and Terra also saw year-on-year increases in repeat buyers in the U.S. In the baby food category, Earth's Best grew over 15% in the U.S., driven by strong velocity despite persistent supply chain challenges due to continued industry-wide pouch and formula shortages. And Greek Gods yogurt remains a standout, growing 19% in the quarter in the U.S. driven by velocity growth of 11% and TDPs up 8%. Now shifting to our international end market consumption performance for the quarter versus prior year period. In the UK, total store sales grew 7% in the quarter with the categories we compete in, growing 4%. Excluding plant-based categories, our UK portfolio grew 4%. Hartley’s jams were up…

Thanks, Chris. To summarize, as we head into the second half of our fiscal year, we are tracking the guidance and showing great momentum in several of our brands, but more can be done to support their growth. As I mentioned earlier, in my first few weeks, we’ve made some early decisions to streamline our operating model, leverage our global capabilities, focus our leadership and invest behind our brands. I look forward to providing more details in the next quarter as we assess the actions needed to unlock the full potential of our brands and portfolio. And I look forward to fully unveiling our renewed plans to maximize shareholder value and return our brands to sustainable long-term growth in the late summer or early fall of this year. Now I’d like to turn it back to the operator to open the line for your questions.

Thank you. At this time, we’ll be conducting a question-and-answer session. [Operator Instructions] Thank you. Our first question comes from the line of Andrew Lazar with Barclays. Please proceed with your question.

Hi, good morning, and welcome, Wendy.

Good morning. Thanks.

Sure. It sounds as though I think your most recent sort of successful turnaround experience at Glanbia was, in many ways, similar to the work done as part of Hain’s 2.0 program. SKU rationalization and portfolio and cost optimization and I think generally, we’re moving a lot of complexity. I was hoping you could talk a bit more about your experience in sort of building brand equities, particularly as you’ve mentioned several times in the course of the prepared remarks and the slide deck, the plan to reinvest behind Hain’s brands to accelerate growth? And then I’ve just got a follow-up.

Yes. Thank you, Andrew, and it’s great to chat with you. The – as you mentioned, the experience at Glanbia was similar to the work that was done prior to my arrival in streamlining the portfolio to focus for growth. There were lots of challenges that Mark and Chris talked about last year that really prohibited the investment behind those brands relative to supply chain with those largely behind us, it opens the opportunity for us to be able to, in some of our higher growth brands, ensure that we are driving both physical and mental availability, physical availability and driving channel reach, right price pack architecture to put the right products in the right place so that they’re available for the consumer and then making sure that we have an always-on message. I was a bit surprised joining the company that some of our brands haven’t been on air in over a year, and we haven’t been in a position to be able to keep them top of mind with the consumer. So we’re in a much better position to do that in the back half of this year both because we have a supply chain that will support that, but we also have built it into our model because of the productivity savings to be able to do so.

Got it, got it. And I guess it sounds like, so obviously the step-up in brand marketing will start in the back half of this year given the business structure and supply chains in a better place. I guess is marketing spend or the increase in marketing spend in fiscal 2023 going to be higher than was in the original plan? Or is the step-up versus where you think you’re going really more about fiscal 2024 at this point?

A bit of it will be closer to the back half of this year. So think of it into quarter four and allows us to be able to start 2024 with a much stronger momentum. As you know, when you turn off marketing, it takes a while to feel the impact when you turn it back on, it also takes a while to feel the impact. So we’ll be investing in quarter three ramping up a bit more in quarter four. We won’t expect to see significant impact to that in our revenues until we get into the quarter four time period.

Thank you. Looking forward to meeting you.

Absolutely.

Thank you. Our next question comes from the line of Matt Smith with Stifel. Please proceed with your question.

Hi, good morning. Thank you.

Good morning, Matt.

Kind of taking on to the comment around an increase in marketing spend in the second half. Could you talk about your expectation that elasticity trends improve we can track the volume and pricing performance in measured channels, but that would capture the impact of the supply chain performance as well. So can you talk about that moderating elasticity expectation in relation to your increased marketing investment and the supply chain improvement.

Yes. Thank you. Good morning. From an elasticity standpoint, we’re actually seeing elasticity is about in line with what we expected. And you’ve probably heard Mark talk about this in the past that our brands and the place we play in our categories tend to be a bit more price protected than some parts of the category – price point into the premium end of some of our categories and that’s allowed us to be able to continue to appeal to a less recession-sensitive consumer. So elasticities have been in line with where we expected them to be. But as we go into the back half of this year, the investments behind marketing will ensure that we’ve got right shopper programs. In some cases, it’s shippers. It allows us to be able to have incremental points of distribution. So it’s not all just traditional marketing, but it will allow us to invest in right place, right message, right time.

Thank you for that. And just a quick follow-on. Can you talk about the price gaps today, particularly in your snacking portfolio? And is there a need to increase the investment in promotional spending there to shore up the volume performance? Or do you believe the marketing investment should lead to that improved elasticity? I’ll leave it there and pass it on after your response. Thank you.

Across the Board, Matt, the price gaps have remained with a few isolated examples both in snacks and the broader portfolio, the price gaps have remained about where they were before we started taking price. It’s something, as you’ve heard on prior calls. We monitor that very closely. Price thresholds and our prices, our gaps relative to competition. And so we haven’t really seen much of a change there, again, with the exception of a few isolated examples. And so we don’t really see that as being a major player in snacks performance right now. And again, it’s one of the reasons – one of the main reasons why elasticities have performed where we thought they would or in some cases, even better, because it’s really that gap to competition that has been stable and therefore didn’t then lead to a consumer behavior.

Great. Thank you. I’ll pass it on.

Thank you. Our next question comes from the line of Ken Goldman with JPMorgan. Please proceed with your question.

Hi, good morning.

Good morning.

When do you – with the understanding, you’re still in, I guess, information gathering mode what do you see early on as Hain’s greatest core competence? I’m asking because I think there’s some questions out there about what Hain really stands for. Given you have a diverse set of categories, you’re pretty big in Europe but also pretty big in the U.S. I think people are curious, at least the questions I’m getting. What gives Hain’s sort of the right to win overall in the market. I realize it’s a very broad question and maybe a little early to ask you that. But I’m just curious what your initial thoughts are there.

Yes. Good morning. I would say – I guess I’ll answer it with the reasons why I came to Hain less so than where I think we’re headed going forward. I think Hain has a fantastic portfolio of brands. And as I said in my opening, that are largely number one or number two in their categories. But when we look at the broader category, we’re under indexed and under shared. So can we be a bigger player in the categories around better for you fill in the blank, better-for-you snacking, better-for-you baby, better for you yogurt, better-for-you plant-based. So lots of categories that we’re in that the consumer continues to look to Hain has a credibility in that space that, in some ways, we may be under leveraged and reach across channels and reach across our geographies. So those are the reasons why I came here and those are still the opportunities that I see ahead of us. We’ve also got, I think, a really passionate group of people. And I know everybody says that, you come to a company, you say, well, the people are really interested in the company, but it’s very unique here. Every person that I met with in my early days when I asked why they came to Hain or why they stayed at Hain, all centers around a belief in where we’re bringing better for you to the consumer, and we’re all the consumer as well. So it’s really inspiring to see the people here. I think there’s an opportunity for us to align ourselves around categories where we can win with brands that can be a bigger player and get our full share, fair share and full potential across the marketplace.

Thank you for that. And a quick follow-up, as you think about getting your fair share, often, companies talk about that. It’s harder sort of I’ve found to achieve fair share that you kind of pointed out. So what do you think the steps might be? And maybe this is a little premature to ask this, right? But the steps might be a sort of getting Hain its fair share. Is it a question of leaning in on marketing? Is it a question of top-to-top conversations with customers? I’m just trying to get a sense of the plan of attack there because it has been a question for about Hain for a while about how they can expand distribution.

Yes. I think the work that the team had done over the last four years really put us in a great position along those lines. Streamlining the portfolio around where we play, brands that we should be in categories we should be in to focus the energies of the company. When you have too many small brands the entire organization and that complexity is distracted with lots of small opportunities instead of placing a few big bets. So I think we’re better positioned to be able to go after the market opportunity. It’s early days, so too soon for me to say sort of how we will do that. I will say that the – if you look at CPG-101, it’s – do you have the core portfolio in all the right places? Do you have the right pack size and right price architecture to be in the right place in the right way? Is your sales team executing across the marketplace in the way you want? And have you built a P&L shape that enables you to consistently support the brands in all the points of distribution. And then you follow that up with planful innovation that keeps fresh news around the brands, but that is sustained investment around the innovation big bets. Those are – I mean, has basic playbook around building brands and building high-growth businesses. That’s what I’m assessing where we are as a baseline and where we need to go from here.

Thank you so much.

You bet.

Thank you. Our next question comes from the line of Alexia Howard with Bernstein. Please proceed with your question.

Good morning.

Good morning.

Hi. Can I continue with Ken’s question about capabilities and competencies, but ask more about what’s missing. So you’ve been in the business for a few weeks now. It sounds as though marketing investment on the financial side, that’s something that needs to be stepped up. But are there any capabilities that really do need shoring up in your view, given what you’ve seen so far? And then I have a follow-up.

It’s really too soon for me to assess our starting point around some of those capabilities. But I’ll give line of sight to sort of what I’m poking around at to explore. I’m looking at our capabilities around insights and analytics and consumer and category insights and analytics to make sure that we’re able to see what’s happening in the marketplace and where we need to be. We’re looking a lot around our innovation capabilities, but also our ability to build strong brand strategies and even things like our agency model and support model. I’m looking at what we do around communications and public relations. So how are we not just doing paid media, but where we’re getting earned media credit for our categories and brands to be a category leader, you need to know the most about the categories, you need to be delivering great strong brand news and you need to be top of mind, even with media. So those are the things I’m looking at. On the sales side, do we have the right resources against all the channels that we should be playing in? Do we have the right customer and channel mix, are we too concentrated in particular areas, and we’ve got white space in the market where the consumer would expect to see our products and brands. So it’s looking at where those potential gaps might be.

Great. Thank you so much. And then just a quick follow-up and more specifically, I remember talking to the previous management team, and they were talking about how energy costs in Europe were a big unknown for the remainder of the year. Do you now have much more visibility into that? Are we sort of okay on that front now? And has it come through better than expected, and I’ll pass it on. Thank you.

We do, Alexia. A great question. So we have better visibility, and we have a little bit of a feeling that it’s actually going to be a bit of a tailwind in the back half, not materially changing, but maybe shoring up some places where there were going to be risk. So in both the UK and in Germany, primarily and also in Austria, the government, as I think you know, they rolled out some CAP programs and some subsidy programs so that any of the exposure we have probably now be laid off as a result of those. So better visibility and a slight tailwind relative to what we had been seeing before.

Great. Thank you very much. I’ll pass it on.

Thank you. Our next question comes from the line of David Palmer with Evercore ISI. Please proceed with your question.

Thanks. Good morning. Wendy, your comment about advertising and brand building is interesting. The advertising at Hain has been pretty low for a while, a 1% to 1.5% of sales for a pretty long time. Where do you see advertising as a percent of sales going over time? And perhaps to the pushback that some people would say, and perhaps even legacy leadership that advertising is not going to be as high for some of your categories or for some of your brands at the scale that they’re at, it just doesn’t make as much sense. What would you say to that?

Yes. Good morning. I would say that it depends on the part of marketing that you would be focused on and what’s right for the brand. So over time, we want to make sure that we are consistently investing behind awareness of the brands at a level that will allow it to break through in a category. That will differ by category, it will differ by brand, but it won’t just be advertising. Brand building holistically will be – are we using it to drive distribution? Are we doing shopper activation programs? Are we doing things that on digital that keeps our brands top of mind what’s the role of e-commerce, not just traditional e-commerce, but even our own channels that use – we can use as brand-building vehicles to keep our brands top of mind with the consumer. So I would look at it as the 360 of marketing rather than just traditional advertising. Our categories and brands and even the consumers were appealing to aren’t necessarily going to be in mass media.

So do you think your advertising, is there a certain percentage of sales that you might get to? And then maybe more specifically, are there categories where you think you’re being outspent on a category basis for nearing competitors at your size categories that would be more likely to get that spending? Thanks.

Yes. I would say it’s early for me to say where I think I want our long-term investment around brand building to be and it would also be really soon for me to say where is our spend versus the competitors we should truly benchmark ourselves against. But that’s exactly what we’re looking at. How do we ensure that we have optimum share of voice and that we are investing in a way that can provide continuous support behind the brands, not just we wouldn’t want to come out big and then be able to – and then have to be in a position to starve the brands later in the year or later in the second year. So figuring out what that right shape looks like for each brand and category will be a key part of our next phase of focus.

Okay. Thank you.

You bet.

Thank you. Our next question comes from the line of Brian Holland with Cowen and Company. Please proceed with your question.

Yes, thanks. Good morning and welcome, Wendy. If I could just ask about the second half of 2023, you reaffirmed the top line guide, but obviously, some moving parts in there, the shifting of the brand spend. We obviously had some of the retail inventory adjustments. So I guess, I’m just wondering, within the reaffirmed guidance, has anything changed around the shape of that specifically? Do retailer inventory adjustments remain a little bit of a pain through the second half or into the second half? And similarly, is productivity ahead of plan, therefore, maybe some capacity coming back a little bit faster than what you would have expected last quarter. Thanks.

So Brian, to confirm, we reaffirm both net sales and EBITDA for the full year. So we feel comfortable about that. And to your point, kind of below the service that there are a number of moving parts. So certainly, versus the original guidance, we believe we’re on track and how we’re getting there is the same or a little different depending upon the quarter. You heard us talk about kind of the view we have for what the third quarter will look like and then that relative to the fourth quarter, of course. On the retailer destocking that took place in the second quarter, we think we’re through the worst of that, that was more of an isolated thing for the second quarter. I don’t see that as continued overhang for the balance of the year. And productivity, to your point, ahead of plan back-end loaded. So I would say our productivity savings that we’ve built into the forecast right now and it’s embedded in guidance, is about 60-40 back half versus front half. So as we’ve talked certainly in the original guidance, as we talked on the last call, we believe that productivity will ramp throughout the year, and we’re seeing that come to fruition.

Great color. Much appreciated, Chris. And then if I could just ask, in recent weeks, it is a new story out that Whole Foods has talked about supplier price concessions. I’m just wondering, and I won’t – I appreciate you may not want to talk too specifically about any one customer. But just kind of curious what you’re seeing more broadly in your retail conversations, what folks are looking for from you? And really what’s possible because we’re not talking about maybe some moderating of inflation here, but not fully reversing quite yet. So just how you plan on having – or how those conversations are taking shape here as we think about where price goes from here?

Yes, good morning. I’ll start and then let Chris add in some additional color. More broadly, when I took a look at the pricing actions that we have taken to date, Hain’s taken pricing to cover for the majority of inflation but not all. And the balance of our profit delivery was through our productivity initiatives. And that’s sort of what you would want to do is you take pricing where you can, but not to fully offset inflation and then there’s some efficiency initiatives you want to do inside the company that will assure that you can cover your profit without passing it all along to customers or the consumer. And I think the team has effectively done that. We still have some inflation pressures coming at us in the space, especially around packaging, but we feel comfortable that we’ve been able to offset the majority of that through our productivity and won’t need to take additional pricing this year except for some – a few areas, especially around international. That said, I think because of that and because of the fact that we are largely an entry price point into the more premium parts of our categories, I’m not anticipating that we’re in a position where we will need to take ourselves backwards. But that’s something that we monitor very closely as Chris said. I don’t know, Chris, if you want to add any additional color?

Yes. Brian, as we said in the prepared remarks, we see inflation plateauing, but actually beginning to sort of reverse and become a significant tailwind in the back of the year. That doesn’t look like it’s on the horizon as we sit here today. And keep in mind, the vast majority of our input costs, our raw material and our packaging costs for the back half of the year are mostly locked in at this point. So even if you did start to see some inflation begin – some deflation beginning to emerge, when that will actually pass through to our cost structure and our gross margin is probably still out over the horizon a little bit. And as Wendy indicated there is a difference between what we’re seeing in North America and what you’re seeing internationally still. I think with CPI coming down month over month in December in North America, good news. And certainly, I think it supports what we said in the prepared remarks around plateauing. In international, there are still some items that are running pretty hot and no sign yet that that’s going to abate in the short-term. So we’re definitely seeing the two segments differently and managing the business differently as well.

Thank you. Our next question comes from the line of Michael Lavery with Piper Sandler. Please proceed with your question.

Thank you. Good morning.

Good morning.

You had your North America organic revenue growth down looks like just a little over 2%, but then you called out the core brands, snacks up 5%, and some of these others in the double – strong double-digits category. How much does that – Wendy, I know you’re still settling in and fairly new, but how much does that make you think about further portfolio optimization given that there’s still – you just mentioned again the value of being streamlined. How much further can you push that if you still have a bunch of these smaller brands that also are quite a bit of a drag on growth?

I think from a portfolio shape, the bigger question I’m asking is less about where we currently are or looking backwards. But as we look forward, are the categories large enough? Are they growing? What’s our relative position? What is our opportunity to be able to get a larger share in some of those categories? That’s probably the bigger focus as we go forward. So those are the things that we’re evaluating. But there are some one-time or sort of episodic events over the last year and then some because of our supply chain situation that resulted in some softness in categories. But I don’t think that’s an indication that those aren’t spaces we want to be in or that those aren’t areas that could turn around. Those are still questions that we need to explore.

Okay. That’s helpful. And just a follow-up, a little bit related to Alexia’s question. You also had these – the co-manufacturing contracts that I think renewed or reset January 1. Obviously, you’re reiterating guidance, so it must be around what you expected, but just to the extent that that also would spill into next fiscal year. Can you give a sense where those landed? Was that better than you expected? Or offset – worse, offset by something else? Or how should we think about where those landed?

Mike, are you specifically talking about the co-man contracts in non-dairy beverage on the continent?

Exactly, yes.

Yes, yes. Thanks. Okay. So yes, we are beginning to land those contracts. As you heard before, as we’ve discussed in previous calls, those tend to be full calendar year contracts. So we’ve been bidding on those throughout the back half of last calendar year. And now we’re beginning to see some of that volume come into our portfolio. It’s slow. Some of the contracts I think we said in the past that some of those retailers may move more slowly and transiting from the old contract to the new than they have historically because the new contracts have priced in some of the inflation that’s taken place over there. So we’ve definitely won some good contracts and are beginning to see that, and we’ll continue to see that ramp up over the back half of this year and into the first half of next year as well.

Okay. Thanks so much.

Thank you. Our next question comes from the line of Rob Dickerson with Jefferies. Please proceed with your question.

Great. Thanks so much. A lot of questions have been asked. So maybe I’ll just shift to capital structure a little bit. I respect your comments on further optimization or lack thereof needs in certain brands. But as you kind of speak to the ability to scale, I guess, some brands and more specific categories over time, the first question is it logical for us to think that step-up in brand investment will likely be focused on more specific categories to actually get you there? And then secondly, kind of as part of the overall review process that you’re doing internally. Is there any area where you would actually consider or think about at least adding to CapEx to maybe build a bit more internal capacity relative to doing the co-man model? That’s it. Thanks so much.

As it relates to whether we want to be self-produced or co-man, I think that really comes down to where we think supply chain is going to be a distinctive part of a brand or a category. I’ve worked at companies that were majority co-man, and it was never an issue because they were areas where the manufacturing was not what made it unique. It was the brand or it was the route to market. So it will be on a category-by-category basis, brand-by-brand basis. That said, the one thing we do need to do, and the team has done a nice job of managing our co-manufacturing relationship similar to how we manage our own manufacturing. So monitoring the same levels of plan attainment, cost structures, quality, ability to be able to service the marketplace. We need to hold our manufacturing partners to the same standards that we would hold our own manufacturing locations and some of the adjustments that we’re making in our operating model, so that we do have a full end-to-end supply chain model that has that visibility and management.

Got it. Super. Well, see you next week.

Sounds good.

Thank you. Our next question comes from the line of Andrew Wolf with C.L. King & Associates. Please proceed with your question.

Thanks. Good morning and welcome, Wendy.

Thank you.

My question is also on your marketing. You’re welcome. So as I look at Hain and I see the U.S. versus the UK, Europe, at least in my view, it’s structurally pretty different between the brands, their distribution, their maturity, their growth potential and things like that. I guess the question really is, is the structural difference enough that you have to kind of almost come up with two different kind of playbooks, one for each segment that’s quite different than Hain truly had global brands?

Well, I think today, you’re right. There are very few in our portfolio that today are truly global brands. The question though is, do we have brands in our portfolio that could be more global or could span broader geographies. And if so, how do you effectively have a global brand strategy and then local execution, regional execution? Those are big questions that we’ll be asking as we go through this strategic review is to make sure that where we can we will and how do we best get global leverage around those brands and global awareness. It’s very possible that you look at our business today, we have some wonderful regional and local gems that, as I said in my opening remarks, are number one or number two in their categories in their region. They may only stay local or regional. But we do have some brands that could span outside of its core geography, and we have a right to play there. Those will be the areas that we’re exploring and setting ourselves up to be able to go after that.

Thank you. And this is a follow-up, Chris, on the tea destocking you referenced just for my own bet, could you clarify, it was a warm winter, at least or late fall, and that can drive disappointments in demand for the category. Was it more of that? Or is it kind of brand related? Or was it just also just the fact that the retailers have been – had negative – in the U.S. have had negative volumes for quite a while and they’re just kind of readjusting. Could you just give a little clarity on what you think happened? And what’s the go-forward look from the retailer?

Yes. Good question, Andy. Definitely not brand related. We see it as being category related, and it was driven by two things. One, you mentioned the warmer weather that depressed tea sales throughout the quarter. But a part of it – the second part actually goes all the way back to earlier in the year, kind of the December, January period at the beginning of the calendar year when the Omicron surge took place. So Omicron surged right about the time that retailers would have been starting to bleed down their inventories from the prior tea season. So they bought in a second round of inventory to account for the Omicron surge, then Omicron faded and a lot of retailers were left with heavier inventories that they normally would have had coming out of tea season. And so then we arrived at this year’s tea season, they ordered again, and now they found they kind of almost had two sets of inventory, some left over from the Omicron surge and some from the new. So at that point, we started to see late in the quarter, the selected retailers beginning to reduce their tea inventories. We would believe across the category, not just on Celestial.

Okay. Thank you. That was clarifying. Appreciate it.

Thank you. Ladies and gentlemen, our final question comes from the line of Anthony Vendetti with Maxim Group. Please proceed with your question.

Thank you. So just on the comment about being cash flow positive in the second half of 2023. Wendy, if have decided how much capital will be allocated to the marketing effort? I know you said you’d probably pick up towards the back end of 2023 and then obviously into 2024. But has there been a dollar amount that you’ve determined? Or how do you look at that balance?

That’s something that we’re still really assessing both what we need, but also how we fill that into the overall shape. So I mean I think the way Chris has expressed it is right, which is a ramp up, and you’ll see it as a ramp up. But what that is in terms of dollars, we’re not final on that yet.

And then just lastly as a follow-up. So I believe North American sales were up 3%. Net sales, up 3% this quarter, in the fiscal second quarter 2023 and they were up 9% in the fiscal first quarter 2023. Is there – what do you think the reason is for the – to slow down even though it’s still up.

So we talked on our last call about some of the things that were going to be a little bit of a headwind in Q2. We had the hair care program last year that was shipped in both Q2 and Q3 last year. So we’ll see that again as negative overlap that we’ve got to replace in Q3 this year. But that was a piece of the headwind in Q2 that led to modestly lower growth sequentially. There was also a ParmCrisps program, a club store program that wasn’t repeated that led to a little bit of a headwind in Q2. So I think we accounted for most of the things in our guidance on the last call that led to lower growth – expected lower growth in Q2 for North America than what we saw in Q1. The one thing that we didn’t see and we didn’t see coming, and we didn’t include in our guidance, it was the reason why we were a little shy of guidance on North American net sales in the quarter was what we were just talking about with Andy, the tea destocking that took place sort of a one-time event that reduced tea sales in the quarter. And again, we don’t see that continuing on into the back half.

Okay. Great. Thanks so much. I appreciate it.

Thank you. Ladies and gentlemen, that concludes our question-and-answer session. I’ll turn the floor back to Ms. Davidson for any final comments.

I want to thank everybody again for joining us today to review our second quarter performance and updated fiscal year outlook. I’d like to close by reiterating how excited I am to be at Hain and about the long-term prospects of our brands and our business. And I want to thank our Hain team for their warm welcome and their action orientation in these first few weeks. I look forward to sharing more with you all on our strategic outlook and initiatives in the months ahead. Take care.

Thank you. This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.