Q1 2022 Hershey Co Earnings Call - Live Question And Answer Session
Greetings and welcome to the Hershey Hershey Company first quarter 2022 question and answer session Conference. At this time all participants are in a listen only mode. As a reminder, this conference is being recorded if you would like to register a question today you may do so by pressing star one on your telephone keypad.
I'd now like to turn the call over to your host Ms. Melissa Poole Vice President of Investor Relations for the Hershey Company.
Please go ahead.
Good morning, everyone. Thank you for joining us today for the Hershey Company's first quarter 2022 earnings Q&A session. I Hope everyone has had the chance to read our press release and listen to our prerecorded management presentation, both of which are available on our website. In addition, we have posted a transcript of the prerecorded remarks at the conclusion of today's live Q&A session. We will also post the transcript and audio replay of this call. Please.
Note that during today's Q&A session. We may make forward looking statements that are subject to various risks and uncertainties. These statements include expectations and assumptions regarding the company's future operations and financial performance actual results could differ materially from those projected the company undertakes no obligation to update these statements based on subsequent events a detailed listing of such risks and uncertainties can be found in todays press release.
And the company's SEC filings. Finally, please note that we may refer to certain non-GAAP financial measures that we believe will provide useful information for investors. The presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP reconciliations to the GAAP results are included in this morning's press release, joining me today are hershey's, chairman and CEO Michele Buck.
And Hershey Senior Vice President and CFO , Steve Law School with that I will turn it over to the operator for the first question.
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The first question is coming from Andrew <unk> of Barclays. Please go ahead.
Andrew Your line is live please make sure you're not muted on your end.
Good morning, everybody can you hear me yes.
Yes, we get that again.
Thank you.
I guess first off by our estimates it seems like you are raising our full year organic sales by essentially the over delivery in the first quarter meeting expectations for the remainder of the year Havent changed is that the way youre looking at it and if so I guess why is that given the momentum in the business and I realize you will start to lap some of the pricing as the year unfolds.
Hey, Andrew Good morning, I'm going to kick it off with a few responses and ask Steve to jump in as well. So first of all I'd say, we are we're really pleased with our first quarter results and the momentum that we see on the business, but it is pretty early in the year still and as we all know we continue to see significant volatility in the mall.
Place you know.
Whether it's record inflation, the Ukraine, Russia situation, you know continued disruption in supply chain as we dissect our business in the first quarter.
Clearly within the first quarter. The large majority of our sales were related to stronger elasticity that had been realized in the marketplace, but we do anticipate as we look further out in the year that we'll see some moderation on those elasticities, perhaps back to more historic levels.
Lot of that is driven by that reduction in government subsidies and the continued inflation pressure that we think consumers will experience. Yeah. There was another component of our Q1.
Beat there was about a race that was about dot and our ability to really get our arms around the data business.
And better understand what we thought it could deliver for the year, we have pretty good visibility into that so we feel like the number there is pretty good.
And then lastly, as we look at inventory we've been.
Really working hard to build inventory and we did get more inventory out to retail we made a decision to do that in Q1 to really try and increase on shelf availability. So from a sales perspective as we look at what we realized versus what how we think that will impact back half of the year.
We think the strength in Q1 from sale is much stronger, but Steve do you want to comment more about that and also relative to the cost and profit situation. Yeah on the top line I think you hit all the key points you know the inventory piece was about a three point benefit to the first quarter that'll come out in the back half. So that's one of the unique things I guess that drove the first quarter performance and then Michele.
Touched on the elasticity, we saw big benefit in the first quarter, we do expect to see elasticities normalize a bit as we go forward quarter by quarter through the year. So those are probably the two biggest things.
Often a little bit of the outlook on the top line.
Great and then I guess, the second one would be sort of a similar thought process, but more on the EPS side. Obviously, the first quarter came in some 40 cents higher than than the street and you're raising the full year by by seven cents, maybe can you bridge that gap for us a little bit.
It's passed are you trying to be just somewhat conservative in your thought process, given obviously, an increasingly dynamic environment, which makes total sense or are there. Some other things that are that are more discrete but we want to make sure to keep in mind on the profit side. Thank you.
Sure Yeah. The biggest driver for our first quarter earnings was that volume four five points of volume in the quarter that drop through to earnings that was the biggest factor and there were some unique pieces as well I think we called out a couple in the remarks.
One was inventory revaluation, which is sort of an unusual thing we see it in times of higher inflation, which has the impact of giving a benefit to the P&L and putting more cost on our balance sheet to reflect the cost of goods.
<unk> there so that was a 100 basis points to the construction segment in this quarter that won't repeat going forward and as you said, we do expect more year to go inflation in the first quarter saw a little bit of that incremental inflation, but as we look forward. Despite the hedging that we have in place and we're still going to have some incremental exposure, particularly to the <unk>.
<unk> impacted by the events in eastern Ukraine, So our eastern Europe sorry.
Thank you so much.
Thanks, Andrew.
Thank you. The next question is coming from Robert Moskow of Credit Suisse. Please go ahead.
Hi, Thanks for the question.
Hey, there's a lot of detail in the prepared remarks about competitive ER activity.
Cause you to lose some market share during the Easter and your capacity constraints that led to that as we head into Halloween or are you in a position to ramp up sufficiently so that you can hold your share and the reason I ask is you know I remember during the pandemic Halloween was a real tipping point for your.
Our distribution with retailers you gained a lot of goodwill. After that you gained a lot of distribution are are you in a position. So that you know that there's no risk of that reversing.
Yeah, So Rob it's clearly over the past two years, we have had some nice gains in share and certainly those have contracted recently given some of the some of the capacity pressure I think we're up about 50 basis points versus where we were pre pandemic and our share versus our next largest competitor that gap.
<unk> has clearly widened and remains pretty strong about 200 basis points ahead of pre pandemic level.
We are doing everything we can relative to building capacity investing in new line distribution.
Distribution centers hiring more people to build our supply as much as possible.
And working really closely with retailers as well on our plans for Halloween right. Now so we expect that as we go through the year. We will continue to have a supply challenges, although they will improve as we progress throughout the year and we're working hard to maximize the opportunity for Halloween.
<unk>.
Halloween our commitments are probably made pretty early can you give us any color as to what you were able to commit to right now.
So you know we we believe that just as we've seen strength in the seasons over the past two years that we will continue to see strength in the seasons throughout the year. This year, we've seen it in Easter, but at this point in time, we're not going to give any more specifics on exactly what those growth numbers.
We're going to be I guess, I would say overall, what I would say is we're not really seeing any big changes in how our competitors are operating or in their strategies. So you know really it's a focus on continuing to build supply over the past two years, we grew pounds or about 7% versus our competitors in the marketplace collective.
We had a 1% decline in pounds. So we're just a little tighter on supply and capacity than than the environment.
Okay. Thanks for the question.
Yep.
Thank you. The next question is coming from Ken Goldman of Jpmorgan. Please go ahead.
Hi, Thank you I wanted to ask about the margins and profitability.
And salty snacks.
Steve You gave a helpful explanation of all of the reasons behind.
What.
It could be considered a little sluggishness versus what people were looking for but I'm curious to what extent did it fall below your expectations if at all.
Were the key drivers of that shortfall. If there was one and you know how quickly might we see a little bit of a rebound there.
Yeah. Thanks, Ken Yeah. It was sluggish from our side as well some of the margin degradation. We expected. So the next piece that we called out obviously, if we brought docks into that portfolio, but we also have planned out higher raw materials for the portfolio for the year, but the incremental inflation that we've seen more recently again fall.
The events in eastern Europe .
Falling more into the salty snack space, so thinking cooking oil wheat, and then just a smaller business impact on oil price flowing through the P&L. So that was a that was I can say a surprise piece relative to the raw material side. We're also in the process of starting up a new distribution center that began in the first quarter will continue through the second quarter and I'd say the startup.
There has been a little bit bumpier than we expected, although we are working our way through it and expect to see improvement as we go through the next quarter.
And then we did have also some higher advertising expense in the first quarter and that will moderate that was part of the plan to spend more in the first quarter in part to offset some of the elasticity due to price increases there, which I think we've done a good job of getting that business is growing strong double digits, but we'll see that begin to moderate as we get to the next couple of quarters. So if I can.
Point to the things that were a bit unusual I would say that D. C startup the incremental inflation and probably higher advertising spend that we would normally see in that business.
Thank you and just a quick follow up I know these things are hard to sort of parse out but is there any way to think about what.
What the gross margin.
He might have been in the first quarter. If you were to exclude the inventory Phil you may have called it out and I missed it I'm just curious for an estimate there.
Yeah, we didn't go that far in the remarks and sort of back into what it might have been what I would say we talked about this a little bit on the last call as well the opportunity here is really to optimize the new snacking division. So as we look at even the work we're doing with the distribution center. That's all pointed towards driving network efficiency, we're going to be working through supply chain efficiencies and of course.
Eventually back office efficiencies as well and so we continue to be.
Excited about the opportunity to drop more margin out of that business as we gain scale and get some of those integration points together.
Thanks, so much.
Thank you.
Thank you. The next question is coming from Jason English of Goldman Sachs. Please go ahead.
Okay.
Hey, good morning folks, Thanks, Swamy and good morning, a couple.
Couple of questions. So first snack margins like you said, you're at about 500 basis points degradation from mix I imagine a good chunk of that is coming from the manufacturing housing picked up.
No question on that how much slack capacity isn't that asset and you mentioned in prepared remarks, you're beginning to lean in and have to and start producing some of your other snack items on that network.
How much can you move over and how far can you shrink that 500, bips as you improve asset utilization and presumably migrate production from outsource providers to in source.
Yeah. So a couple of things there one inside that makes US also the amortization and incremental amortization of the deal. So not all of it is capacity related that's going to be around for a while obviously on the as we look at combining supply chains.
Those assets are pretty well utilized they were a little bit less utilized in the first quarter. Then we then will be for the balance of the year, but we continue to see opportunities to continue to leverage those assets they've got some world class manufacturing asset. That's one of the reasons, we're able to bring pirate's booty asset into that mix as early as we did and we want the plan is to see.
More of that sort of consolidated manufacturing and so we would expect to see some mitigation of that mix impact as we continue to leverage those assets and drive more volume through that system.
Got it.
And back to the comments on market share attributed to our capacity constraints.
I just pulled your brand level data just to get a snapshot at like what which brands are holding you back a bit.
It's brands like Kitkat re C P CS twizzlers.
So it seemed like the types of brands you'd be capacity constrained on our they are or where are the capacity constraints.
Yeah. So our biggest capacity constraint is really unrest.
And some of them are assorted bags, but primarily as.
As you know reaches our biggest brand by far you know it's over it's a couple of billion dollars in size and when it is growing double digits as it has been.
And has had such a track record of strong growth.
That is you know that's where some of the you know the biggest rub and the biggest dollar opportunity that we're focused on and then some of our other take home brands, obviously, given the strength of consumers now consuming at home. There's a lot of pressure on some of the brands in terms of how they show up and take home and that's <unk>.
Bread across a number of different brands.
Got it okay. Thanks, I'll pass it on.
Thank you. The next question is coming from Alexia Howard of Bernstein. Please go ahead.
Good morning, everyone.
Good morning.
Okay. So a couple of questions here and the adult Pretzel acquisition, obviously incredibly strong growth a year on year I think you reported and they are in the remarks.
Could you talk about the distribution opportunity, whereas the a C V are at the moment, a way where could it get to I mean this is this something that I guess, how large is the opportunity both stopped that.
Yeah. So we are continuing to build distribution on dot. So clearly as we are we're acquiring the brand the distribution remain skewed to kind of the west coast the middle of the country and we've had a big focus on trying to close the deal.
Distribution gap on the East Coast in particular, and then to also fill in in some of the some of the key key key retailers and classes of trade throughout.
It's been a constant build we had a lot of distribution growth in Q1.
And I believe that were in the mid seventies right now on distribution. So there remains some upside.
That we're experiencing now we continue to drive through the back part of the year. Yeah. So we continue to eat household penetration as a result of that and you know that continued as more consumers find out about the brand's household.
Awareness of the brand continues to be low and we see that as a key opportunity as well.
Right and then can I ask about on a different topic on the C store dynamics there have been concerns in the past that when gasoline prices spike, but that leads to fewer trips and therefore that hits your same store sales.
Can you talk about what you're seeing in that segment and whether that's the case this time around or if you're seeing something different thank you and I'll pass it on.
Yes, so we have seen some changes in consumer behavior within convenience stores as gas prices have risen, but what we're seeing is that many consumers seem to be trying to manage the higher priced by not fully filling their tanks, so they're making more trips, but just not feeling as though and I.
To date, they have not really reduce their non gas purchases in a meaningful way and we haven't seen it impact our business remains quite strong in convenience stores. So we haven't really seen an impact on our business.
Though we do expect that these trends will continue to evolve as we see some of those pressures we talked about earlier relative to reduction in government subsidies and the continued.
Persistence of inflation and the impact on consumers.
Great. Thank you very much I'll pass it on.
Thanks.
Thank you. The next question is coming from Bryan Spillane of Bank of America. Please go ahead.
Thanks, operator, good morning, everyone.
Okay.
Just one question and it's around inflation and gross margin so.
Can you just help a little bit with you know based on the incremental inflation you saw in the first quarter, you've widened or you know.
Your expectation for gross margins changed.
As we're kind of looking at this kind of moving even past the fiscal year like.
What will you be able to do to begin to mitigate or offset that margin pressure is it going to be as some of this new capacity come on there's more efficiencies.
Was pricing potentially a lever in the mix just just really trying to understand as we move forward.
Are you going to be able to mitigate that margin pressure.
It's really all of those Brian we're certainly going to look at all our usual leverage driving productivity and efficiency from a manufacturing standpoint, and we will see more of that as we get more scale more assets coming online. So that'll be a factor, but we you know pricing is always part of our strategy. We look at it all the time, we're very sensitive to both the consumer and what's happening from a cost.
Input cost standpoint, and we'll continue to look at that as we think about our plan for next year.
Okay, but.
As it stands now you havent contemplated or you haven't.
Embedded in the guidance isn't any incremental pricing actions or other actions to offset that inflation, you're just absorbing the inflation right now.
That's right right what's in the outlook right now is the pricing that we've already announced that flowing through the P&L for the year.
Perfect Alright, thank you.
Thank you. The next question is coming from Michael Library of Piper Sandler. Please go ahead.
Oh, yes. Thank you good morning.
Good morning.
I know the gas price increases is a factor that may make it a little bit harder to tease this out or really recognize it but can you talk about mobility and just some of the consumer.
Patterns, you're seeing there.
Things are reopening more consumers are getting out more.
How does that impact some of your obviously higher margin instant consumable products are you seeing any shifts or you know anything that's notable in terms of the mix of what they are buying and where.
So yeah, we definitely are seeing consumer mobility has returned is strong.
Interesting, it's it's certainly dialed up versus what it was before and at the same time, we're still seeing a lot of interest in some of the at home behaviors, where people haven't totally return to some things like restaurants, and some activities frankly, not as much because of COVID-19 , a little bit more because of some of them.
The pressure of inflation.
We are seeing some consumers try to consolidate trips, but we haven't really seen a meaningful impact to our total trips in and we've been looking across each class of trade you know I'd say food is strong has accelerated.
C store I mentioned before quite strong, which is a key indicator of mobility.
But really across most classes of trade a dollar mass food and C store trends remain quite strong.
Okay. That's helpful.
Just on the international those margins were better than expected and very strong.
The segment has.
Some pretty significant seasonality, but can you just help us understand some of what's driving that and how to think about the rest of the year is it is it likely to keep up some of those gains or whats the right way to frame how that plays out over the course of the year.
Yeah, well the business has done really well, let you know all of our core markets had double digit topline growth. So that was a good starting point.
And then we're still seeing through the first quarter of the last bits of some of the restructuring that we did in China. So that's getting a little bit of an incremental benefit to the first quarter that I would say, it's probably I'm not going to be a year over year components going forward, but I would also come in the international team for looking at the whole P&L and managing our cost structure and executing a smart.
Our pricing strategy as well.
Okay, great. Thanks, so much.
Thank you. The next question is coming from Cody Ross of UBS. Please go ahead.
Hey, good morning, everyone and thank you for taking our question you. Just noted that you don't plan on taking additional pricing the rest of the year. However, most companies that have already reported this season discuss taking additional pricing why is that.
You know, we remain very confident in our pricing strategy and our ability to get price realization.
And as Steve mentioned, what Youre seeing in our P&L right now is the pricing that we announced last year flowing through into the business.
We all know that this remains a volatile environment.
The cost side has continued to evolve, especially with.
With continued supply chain pressure and also the the Ukraine, Russia situation and as always we will continue to look at every lever at our disposal as we always do.
To make the best decisions for the business.
Gotcha, and then you noted the Russian and Ukrainian War is affecting supply availability are there any commodities you can call out that you're having difficulty securing and do you expect to have any issues securing supply for the balance of the year. Thank you.
Yeah at this stage, we are taking the last part first we don't foresee a challenge and availability for the balance of this year, where we've probably seen the most pressure is in the cooking oil space a lot of a lot of that sourced out of eastern Europe .
But our business is resilient and we've got you know other sources and other solutions that they're working through to ensure that we be able to satisfy consumer needs. Even if we face a more pressure next year on that commodity.
Thank you we'll move on to the next question, which is coming from Chris Growe of Stifel. Please go ahead.
Hi, good morning.
Good morning, Good morning, I just had a question for you just to follow up on the fact, you were able to rebuild some inventory this quarter.
You're going to have some more in the second quarter down was more heavily favored towards the first half.
So before we have thought about that happened in the second half do you continue to build inventory in the second half and I guess, what I'm ultimately getting to is when can you start when do you will you be at a point, where you can start to market and promote more normally like you had historically.
Yeah, we're going to continue to build inventory and you know we're gonna see you should see a sequential improvement you know more for this year pulled through the first half.
But we wanted to continue to build inventory and as we as Michel said earlier, we've got a lot of capacity coming online. The first quarter was our highest production quarter ever and as we get more capacity coming online, we expect to see that build and be able to catch up both on our own internal inventory and trade and retail inventory.
And then does that marketing start like more aggressively this year or is this more like next year.
Well, we're going to make sure that we're fully participating in seasons, just as we talked about earlier with Halloween and make sure that we are.
Getting all of our products out of our inventory and onto the shelves as quickly as we can so that we can continue to support the brands, we will see more of that support pick up as we get to the back half of the year.
Okay and just one follow up question on the gross margin you you have a little more aggressive decline because of the increase in cost you expect now for the year.
Is that any differently weighted by quarter I, just Q2, when your worst or Q3.
So we have to bring my estimates calling for the remainder of the year for the gross margin given how strong it was here in the first quarter and I just wanted to get a sense of how that plays out across the rest of the year is it just the timing of inflation that will dictate sort of the quarterly progression on the gross margin.
Yeah, I'd say, it's mostly that if as we look at our plan, we probably see the most pressure in quarter, two but then begins to improve because alaska get a little bit easier.
So if I had to pick a quarter I place a quarter or two would be the worst okay. Thanks.
Thanks, so much for your time.
Thank you. The next question is coming from Steve powers of Deutsche Bank. Please go ahead.
Great. Thank you two questions actually the first one just to build on the gross margin team.
The prepared remarks suggest it's call. It the the 121 40 basis points of contraction, but then equate that with gross profit dollars increasing mid single digits.
Math may be wrong, but I think given your topline.
That seems pretty conservative.
Combination of top line or gross margin. So just wanted to get some color on the mid single digit dollar profit growth language in my prepared remarks, and then secondly, you call out seeing some impact in certain consumer goods categories from from the inflation that we're all seeing and from the declining government assistance.
It's occurring I was hoping you could just give a little more color as to what specifically youre seeing.
And how you're monitoring that going forward. Thank you.
Sure on the first part of that question.
There's no intentional conservatism between what we're seeing on the top line and what we're saying on the gross margin line.
And so we should time.
But technically we should see about 7% gross profit growth.
Kind of mid to high single digit range growth and I think that math works, but happy to take that on the side of it will go into more detail.
It makes sense, it's just the sorry mid to high makes sense with the language in the Textbox. He just says mid so okay just to clarify yes.
Yes.
And on your other question you know we are constantly looking at a couple of things relative to you know the strength of retail takeaway in other CPG categories as well as our own and also how much market share is going to private label as that has you know typically also been a predictor of the.
Humor, we're fortunate in that category not to have significant private label, but certainly in other categories, where that's present, we do look at that as well.
Okay very good thank you for that I appreciate it.
Thank you. The next question is coming from Jonathan Feeney of consumer edge. Please go ahead.
Hey, good morning. Thanks, a question maybe a follow up all at once.
The question is do you guided us although Baghdad team does too.
Retailer inventory replenishment for the full year, but how does that grow significantly with the better than expected experience in the first quarter not all of your brands, but across the categories of elasticity I can't imagine retailers and your competitor's thought uptake this magnitude of pricing would be that good I mean, maybe I'm wrong about that.
That's my first part of my first question is that how does the Easter play into that because you called out in your prepared remarks that people were buying more every day.
Product because of the shortages of Easter product that certainly seems to be borne out in the data I wonder doesn't that add to the retailer inventory need going forward and maybe augment the opportunity to to fill to greater levels throughout the year not just what you would talked about it and give it maybe pulling it forward.
From your prior guidance on inventory so thanks.
I'm, taking the last bit first yeah Easter will the Easter sell through was high we saw more everyday takeaway and that will put more pressure on retailer and trade inventory. So that will happen as we look at the full year, though.
We still like I said, we're not seeing a fundamental shift in what we had planned relative to being able to restock as we said earlier, we got a benefit in the first quarter, we pushed more out.
The elasticity would put for the full year a bit more volume through them and so that's true but also you know we have that we expect to see additional production pick up as we go through the year to help compensate that to some degree so.
I think net net it's.
Not a big change in total.
But to your point the sell through on Easter is going to put a little bit more pressure on some trade inventory.
Yeah.
Thanks.
Thank you. The next question is coming from John Baumgartner of Mizuho Securities. Please go ahead.
Good morning, Thanks for the question.
Hi, Mitch.
Michelle one stand out over the past two years has been your increases in share of distribution points, whether it be chocolate and non chocolate candy and I can appreciate the capacity constraints right now sort of work against that but putting that aside how are you thinking about the resources to sustain and grow as capacity improves I mean, just given all the upheavals over the past two years, whether it's.
More promotion more in store sales force hours more advertising investments, where or how do you see those levers are the keys to require a change in a post COVID-19 world.
Boy I'd say you know my my first answer to that question is the resources to sustain and grow our in supply chain building.
Building capacity to you know to really be able to drive against the very strong demand. So probably first and foremost I think that's the focus I believe we have the retail resources that we need from a sales perspective, our sales organization.
From a marketing capability you know I wouldn't say, it's maybe as much about people. We've continued to invest in capability with a new media partner better targeting capabilities and certainly that helps us to really maximize consumer demand and then maintaining the strong relationships that we have with retailers.
Just continuing to evolve the total bundle was an investment we have to drive against demand with our retailers and our consumers, but right now I think we're focused really on supply chain hiring more people and manufacturing facilities.
Yep engineers to execute the capacity work, that's really where the focus is.
And I guess, just sticking with that so you know on suppliers and you've done a lot of work there out of manufacturing lines fulfillment center and so on and I guess, you're a weak link is probably too strong of a term, but where do you think the supply chain still needs more work right now whether its modernization automation just your outsized physical increases on capacity, what sort of is kind of the neck.
Phase of I guess, you know evolution there.
Well clearly as well as we are executing this capacity and looking at the future. You know automation, yes is a a big lever across the business, we still have opportunities in some of our manufacturing facilities for what we call a single point of automation and the automated case pack or whatever the the basic automation is and.
Then we we kind of go to the connectivity of all the different parts of our system talking to each other and across our entire business not just supply chain. Yeah. We continue to look at opportunities where technology can allow us to operate more efficiently give us better insight etcetera, and then certainly as we look at our.
Filter business.
Now that we are gaining more scale and have many more businesses in that portfolio as Steve mentioned earlier, you know we're doing a lot of work on just optimizing the overall supply chain network and what that looks like and that's more efficient distribution. It is more efficient manufacturing you know really across.
The board and that's somewhat of a transformation.
Okay. Thanks, Michelle.
Yes.
Thank you. The next question is coming from David Palmer of Evercore ISI. Please go ahead.
Thanks, just a quick question about the scanner data it looks like.
Hershey's behind some of the competitors and pricing, although we don't always see a perfect lens into what actual list pricing is do you think that.
Hershey's behind the competition when it comes to our list price increases lately or are we just seeing some noise in there.
Yeah I don't believe we are behind them. This is a category where are you.
You know the it tends to be line priced it's really noise related to Easter and just the mix of items that vary across different competitors. During the Easter timeframe I think as we go forward, you'll see that really you know even now.
And then just a question on advertising and promotions that those were down lately, that's sort of understandable given the capacity constraints, but whats your outlook for advertising spend and then maybe you can layer on top of that your general philosophy, and what you're thinking there.
So it is you know you might layer in as your capacity increases are some more advertising, but some of the industry are talking about digital marketing, becoming more expensive and it maybe lower rois. So just any thoughts on that would be helpful.
Okay.
So you know we are big believers in advertising I think we've talked a lot about our model is we are pleased to have you know some of the strong gross margins in the industry and we believe in the model and then using some of those funds to reinvest in our brands are and be one of the highest investors in the industry. It's a highly rich.
Sponsors category with a strong impulsive nature as well.
As you look to the rest of the year. Yeah. We believe we will be up mid to high single digits, and we will continue to invest as we expand capacity wherever we can because we're big believers media efficiencies have really helped us to control the dollar cost because as a result of a new partnership and also new.
Capabilities, we've gotten more efficiencies in our media.
I think from a philosophy perspective relative to your question about digital we have not seen a decline in whats been returned and I don't know if that's if they're being offset because we built capabilities new capabilities to better target.
So we're actually seeing a stronger targeting capability.
Better efficiency.
Thank you.
Thank you.
At this time I'd like to turn the call back over to MS. Poole for closing comments.
Thank you for joining us this morning, I will be available throughout the day and tomorrow for any follow up questions. You may have thank you for your time this morning.
Ladies and gentlemen, thank you for your participation. This concludes today's event you may disconnect your lines of log off the webcast at this time and enjoy the rest of your day.
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