Welcome to the Third Quarter 2023 Stanley Black & Decker Earnings Conference Call. My name is Shannon, and I will be your operator for today’s call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Please note that this conference is being recorded. I will now turn the call over to the Vice President of Investor Relations, Dennis Lange. Mr. Lange, you may begin.

Thank you, Shannon. Good morning, everyone. And thanks for joining us for Stanley Black & Decker’s 2023 third quarter webcast. On the webcast in addition to myself is Don Allan, President and CEO; Chris Nelson, COO, EVP, and President of Tools and Outdoor; and Pat Hallinan, EVP and CFO. Our earnings release which was issued earlier this morning and a supplemental presentation, which we will refer to are available on the IR section of our website. A replay of this morning’s webcast will also be available beginning at 11 a.m. today. This morning, Don, Chris, and Pat will review our 2023 third quarter results and various other matters followed by a Q&A session. Consistent with prior webcast, we are going to be sticking with just one question per caller. And as we normally do, we will be making some forward-looking statements during the call based on our current views. Such statements are based on assumptions of future events that may not prove to be accurate, and as such, they involve risk and uncertainty. It’s therefore possible that the actual results may materially differ from any forward-looking statements that we may make today. We direct you to the cautionary statements in the 8-K that we filed with our press release and in our most recent 34 Act filing. I will now turn the call over to our President and CEO, Don Allan.

Thank you, Dennis, and good morning, everyone. Stanley Black & Decker’s third quarter performance reflects the continued successful advancement of our strategic business transformation. Our focused execution resulted in improvements versus prior year in adjusted gross margin and earnings per share, as well as free cash flow. Reflecting on our journey over the last five quarters, we have made significant progress. One, our cost and inventory position is healthier behind the momentum of our supply chain transformation and we are confident in the runway for this to continue. Two, our execution is stronger and the results now demonstrate the focus across the organization to enhance the customer experience and improve our financial position. Three, our performance today provides a solid foundation for the additional investments we are launching in innovation and market activation to capture the compelling long-term growth opportunities in the markets we serve. Four, our view is that the markets will remain dynamic. Our focus is on delivering best-in-class product innovation through our portfolio of world class brands, implementing cost efficiency measures within our control and driving share gain in our core markets. All aim to further improve margin, earnings and cash flow. While there are many important steps ahead of us on our journey, I am confident that we have the right strategy, a highly capable and motivated leadership team, and a strong competitive position to successfully execute our transformation. Shifting now to our third quarter performance. Revenue was $4 billion, which was down versus the prior year primarily due to lower Outdoor and DIY volume. The demand for our Pro Tools, as well as automotive and aerospace fasteners remained healthy and demonstrated growth in the quarter. Across our end markets, the U.S. retail point-of-sale for our Tools and Outdoor products remained in a growth position this…

Thank you, Don. And good morning everyone. I am now at the 4.5-month mark at Stanley Black & Decker and this period has really reinforced my excitement about the future for this business. I have spent my time with end-users, customers and our passionate and highly capable Tools and Outdoor organization. We have iconic brands such as DEWALT, CRAFTSMAN, Stanley and Cub Cadet, a strong pipeline of innovation, and customers and users who are eager for our newest products. We remain focused on capturing that opportunity. We are rapidly making progress with our transformation. The organization remains committed to supporting the necessary cost efficiencies as we prioritize the additional investments in innovation, brand support and commercial resources that will be most impactful to reaccelerate growth and share gain in the market. Now turning to the Tools and Outdoor third quarter performance. Total revenue was $3.4 billion, down 5% organically versus prior year as a result of lower consumer Outdoor and DIY market demand. Our Tools SPUs in aggregate were positive organically in the quarter, excluding the Russian business exit, while Outdoor, was down 23% consistent with our expectations. Price for the segment was down 2 points in the period, as we successfully regained margin accretive cordless promotions consistent with historical activity. We made substantial progress in improving adjusted operating margin to 9.3%, this was a sequential step up of 480 basis points and 250 basis points better than last year. This improvement was driven by reduced sell-through of high cost inventory, supply chain transformation savings and reduced shipping costs, which were partially offset by lower organic revenue. In terms of performance by region, North America was down mid-single digits organically similar to the overall segment North America Tools organic growth was positive, while Outdoor declined. U.S. retail point-of-sale for the…

Thanks, Chris. I appreciate the energy and perspective that you have brought to the team and I am excited to continue our company’s strategic business transformation with you as a key leader on our strong management team. Turning to the next slide, I would like to reinforce the focus areas across our company’s transformation. One, streamlining and simplifying the organization, as well as shifting resources to prioritize investments that we believe have a positive and more direct impact for our end-users and various channel customers. Two, accelerating the operations and supply chain transformation to return adjusted gross margin to historical 35% plus levels, while improving fill rate to better match inventory with customer demand. Three, prioritizing cash flow generation and inventory optimization. And then four, continuing to advance innovation, electrification and global market penetration to achieve organic revenue growth of 2 times to 3 times the market. We believe this strategy will ensure our best in class product innovation is maintained, while we continue to meet or exceed the expectations of our end-users and we dramatically improved the channel customer experience. In parallel, we will maximize cost opportunities within our control to fuel investment as we deliver our margin, earnings and cash flow goals. As our margins expand, our focus is to accelerate share gains. We are prioritizing innovation and market activation investments across our powerful brands and targeting the best prospects to maximize share gain growth and return. We continue to benefit from being a simpler, more focused company across Tools and Outdoor and Industrial, and we expect over the next 12 months to 18 months, we will find opportunities for further simplification across our businesses. As we evaluate where to invest and the best ways to maximize shareholder return, we will continue to take a pragmatic view of our portfolio of businesses. Our track record demonstrates we will act decisively when the time is right on those portfolio decisions. I will now turn the call over to Pat to share the latest progress updates on our transformation, financial insights on the quarter and our revised outlook for the year. Pat?

Thank you, Don, and good morning, everyone. We continue to generate strong transformation results and go-forward momentum. Our cost reduction program delivered approximately $215 million of pretax run rate cost savings in the quarter. Bringing our aggregate savings to approximately $875 million since program inception. This positions us well to deliver our slightly exceed our $1 billion run rate savings target this year and to deliver $2 billion run rate savings by 2025. As it relates to the supply chain transformation, strategic sourcing initiatives remain the largest contributor to supply chain savings since program inception. The early actions focused on strategic components and logistics, as well as other areas. We have now covered approximately two thirds of the targeted procurement spend, establishing a carry on savings trajectory consistent with that contemplated in the 2024 program target. Our supply chain management and engineering teams will continue to drive sourcing improvement through 2025 and beyond. Activating our Operations Excellence program has also contributed significant savings this year. In the plants where this has been activated, we are seeing increased productivity, leveraging lean manufacturing principles. Our footprint related projects are progressing on schedule with initial savings to begin this year. As it relates to complexity reduction, our teams are assisting customers as they transition to replacement products with the goal of exiting 30,000 SKUs by the end of 2023. We are confident that our transformation can support the sustainable cost efficiency needed to return our adjusted gross margins to 35% or greater. These actions are creating the flexibility to fund additional organic growth investments in our core business. Turning to our inventory reduction in gross margin improvement. We reduced inventory by approximately $300 million bringing our year-to-date progress to approximately $880 million. The third quarter inventory reduction supported the generation of approximately $360…

Thank you, Pat. We are pleased to report another quarter of progress on our journey of transforming Stanley Black & Decker. Consistent successful execution against our plan gives us the confidence to increase investments, which will accelerate organic growth behind our most powerful brands. As we continue to focus on what we can control to be successful, I am confident that we are creating a stronger and more focused company with our great people, amazing brands and industry leading end-user inspired innovation. We believe the outcome of our transformation will produce sustainable market share gaining machine. With that, we are now ready for Q&A. Dennis?

Great. Thanks Don. Shannon, we can now start Q&A, please. Thank you.

Thank you. [Operator Instructions] Our first question comes from the line of Julian Mitchell of Barclays. Your line is now open.

Hi. Good morning. And great to hear that update from Chris on the momentum in the Tools business. Maybe my question just around slide nine and some of the commentary there on margins. So, I guess, one is just, it looks like the gross margins up sequentially in Q4, but sort of operating margin down somewhat. So maybe just any sort of moving parts within that worth calling out. And then you talk about the gross margin moving higher sequentially into the first half of next year. So maybe you put that in context for us in terms of what does that tell us about the confidence in that sort of $4 to $5 of EPS number that you have mentioned in the past is perhaps some kind of framework for earnings next year? Thank you.

Thanks for the long multiple questions there, Julian. But good questions, because there are -- the things that we are very focused on as far as our margin rate improvement we are really pleased with what occurred in Q3 and what we believe will play out in Q4. And I am going to ask Pat to give us more color on your questions around margin and then tying it into the $4 to $5 for next year, we still feel that that is a good range and potential outcome for us. And Pat will give a little more color on as well. So, Pat.

Yeah. Hey, Julian. Our focus is going to remain margins and cash generation until we are back to the operating model that business has traditionally had. I’d say, gross margins you saw, both effects, the effects of the program driving the cost savings we expected to the tune of, one, 100 basis points to 150 basis points of margin improvement in the quarter. Deflation also help in the quarter mostly from shipping coming off the balance sheet of another 100 basis points to 150 basis points. And then broader high cost inventory coming off the balance sheet of around 300 basis points. And that was our expectation. It’s great to see the teams working hard together to deliver the program on cadence, but as we have been telegraphing to investors, we could see the rate at which high cost inventory was coming off the balance sheet and that came well within our expectations and drove the important gross margin expansion. From here we have a pathway to 35%, obviously, the pathway going forward, it’s not going to be perfectly linear, but it’s certainly going to be more in the range of 50 basis points to 100 basis points a quarter on gross margin. As our operating margin question, that had more to do with just, it was about $200 plus million less revenue in this quarter and that was really the driver of the operating margin difference as we continue to invest in the business. And we are going to go forward both in the fourth quarter and as we head into a dynamic 2024 focused on continued gross margin expansion and cash generation. We are going to be investing for growth and that’s part of what we are doing in the fourth quarter and that’s what we are going to plan to do in 2024 as well. But we will be mindful of the macro environment and what that means for cash delivery and de-levering along that route. And the $4 to $5, I would say, given the performance of the business in the back half of the year in a dynamic market. I would still say, we see the $4 to $5 as a reasonable range. Certainly, it’s dependent on the macro and deflation versus inflationary environment. I would say that, the $4 to $5 anticipates a stable or improving macro. If you are at the stable side of the macro, you are probably on the lower side of the range and if you are at an improving macro, you kind of go towards the higher side of that range.

Thank you. Our next question comes from the line of Tim Wojs with Baird. Your line is now open. Tim Baird, your line is now open. Please check your mute button.

Tim?

Our next question comes from the line of Jeff Sprague with Vertical Research Partners. Your line is now open.

Thank you. Good morning, everyone, and hello, Chris. Good to hear your voice again. The -- I guess, maybe a little bit of a multi partner also, but just kind of thinking about, as you pivot from just kind of outright cost reduction to reinvesting for growth and the like. Does all most of this reinvestment happened inside of COGS and the gross margin discussion. How much of it ends up kind of in selling sales force, things that you are doing on kind of developing the trades that you mentioned. And maybe just as part of that selling related question, maybe just a little bit more color on what you are seeing on promotion and just kind of the general pricing environment in the market? Thank you.

Yeah. Jeff, I will ask Chris to give a little more color on that. It clearly is going to be heavily weighted to SG&A and selling resources and activities. But let’s give Chris an opportunity to give you more color on that. Chris?

Yeah, Jeff. Thanks a lot. Nice hearing from you again. And what I’d say is that per Don’s comments, as we think about how we are going to move forward, and I would say, have focused investments in the business in the areas that we believe will drive the most leverage, making sure that we see which brands we want to invest in and what levers we want to pull there. And obviously, we have seen the strength of the Pro and there was we did, as far as near-term look, DEWALT was a positive story in the quarter, we need to keep on gathering steam with that. What I’d say is that, as far as in the investment buckets and where we are thinking we could have the most leverage. Certainly having the right products for the professional end-user is a large emphasis for us. We referenced a few of the launches that we have in the near-term, we are going to continue to double down on those types of investments for the Pro end-user, because of the strength of the brand, as well as what we see in the marketplace. Similarly, we want to make sure that we have the right commercial resources in the right markets on the ground with our customers, working with them on ways that we can grow together, because we really think that there is some great opportunities in the area -- in that area. So, that’s where really out of the gate, the emphasis is going to lie. As far as your other question on where we see, what we saw in the promotional activities? We are -- we did reference that we are going to be back in returning to traditional levels of promotion and we did that in Q3 and it started our quarter out strong and we are happy to be back in that promotional mindset, because it is an important part of the business and we think it is healthy and accretive for the business going forward. Now, we also are certainly going to supplement that with the new launches and we are going to lean into the new launches going into the back half of the year to continue that growth. But all in all, we are seeing the, in Q3, our sell-through was in line with our expectations. As far as pricing, we see disciplined in the marketplace as far as no deep discounting and we are going to make sure and continue in our healthy and traditional promotional mix. But then, like I said, also be driving growth organically through leaning into the opportunities that we see with the Pro.

Thank you. Our next question comes from the line of Michael Rehaut with JPMorgan. Your line is now open.

Thanks. Good morning, everyone. Appreciate it. I just wanted to kind of understand some of the puts and takes on the updated guidance if I may. Kind of what really in effect drove the upside in the third quarter and it seems like, on an EPS basis year in effect reiterating the implied fourth quarter guide. I think you referenced investing in growth. I don’t know if that’s something that maybe perhaps you are increasing in the fourth quarter relative to prior expectations. But would love to understand that dynamic of what drove the 3Q upside and why you are reiterating 4Q. And also, to that point, the reiteration of the free cash flow guidance relative to the raising of the EPS guidance. What’s the bridge there as well? Thank you.

Yeah, Mike. Good morning. Third quarter was a strong quarter for us. Our sales came in roughly as we were expecting and we drove the EPS be on the strength of gross margin performance in SG&A management. The gross margin is a factor of the program running a bit ahead of both pace in absolute dollar generation and that drove strength in the quarter from a gross margin perspective. Our teams are managing SG&A thoughtfully in the macro environment. Also, as you know, Chris and team came on Board and spent part of the quarter kind of revisiting current and future year priorities, there was probably a bit of SG&A that will shift from the third quarter to the fourth quarter that helped out the third quarter net. As we head into the fourth quarter, the topline is probably a bit softer, probably to the tune of around $100-ish million or so versus the expectations we would have had a quarter ago. Most of that is baking in the trends in Outdoors and Attachment Tools that we saw in the third quarter and also an expectation that unsettled UAW strike with at least two of the big auto manufacturers could pose some headwinds to our fastening business. So a softness in the fourth quarter at the topline slightly is one of the reasons that the guidance in absolute terms in the fourth quarter is there. And then we are investing, as I mentioned, some will be a little bit of a shift of SG&A from the third quarter to the fourth quarter, but we are at a point where we are confident in our margin and cash generation trajectory. We need to start investing for growth and we are doing that in the fourth quarter. And those two things together keep the EPS amount constant in the fourth quarter. And then on free cash flow, you are much of this year’s free cash flow is generated by working capital dynamics and much of those dynamics are continuing to play out according to plan and forecast and that’s largely why the free cash flow guide stays where it is for the year and the quarter.

Thank you. Our next question is from the line of Tim Wojs with Baird. Your line is now open. Tim Wois, your line is open, please check your mute button. Our next question comes from the line of Chris Snyder with UBS. Your line is now open.

Thank you. I wanted to follow up on the prior commentary of about 50 bps to 100 bps of quarterly gross margin improvement. It seems that would imply 2024 exiting up around 300 basis points year-on year at the midpoint. So, obviously, very strong growth next year. Can you just maybe talk a little bit about what that assumes from both macro and volume standpoint and also from a cost interest standpoint. I guess metal and freight maybe up? Thank you.

Yeah. We will give detailed 2024 guidance at the end of the year when we do our fourth quarter. But I can point in a few directions, especially around the gross margin, because it’s such an important point of our progress and where our focused energy is. I think on a full year basis for 2024, we would expect full year gross margins around 30%, potentially a little bit higher than 30%, obviously, that means exiting above 30%, because we come in somewhere in the 28%-ish range. And so, I think you have it right, it is an exit rate, that’s going to be somewhere in the low 30%s, we will update to what degree that is in January. I think when you talk about the macro -- the macro, while there certainly a dynamic environment, it’s probably given all that’s going on in the world held in a bit stronger than we would expect and a lot of what’s going on in our business is kind of the resetting of inventories and channel this year, the resetting of the Outdoor business post-COVID and a little bit of the shift that consumers have from buying goods to buying services. And so I think the topline next year, we are expecting a similar stablish type macro environment with some dynamic elements around it, but it’s really going to depend on our volume next year, is really going to depend on has the consumer stabilized and the rebalance between goods and services and has the outdoor business stabilized post-COVID.

Thank you. Our next question comes from the line of Nigel Coe with Wolfe Research. Your line is now open.

Oh! Hi. Thanks. Good morning. Thanks for the question. It seems like everyone is getting in three or four questions into one question. I will try and keep a bit simpler. But maybe no, who knows. I am just thinking, in the sort of a flat macro, given the imagery destocked especially in the Attachments, and obviously, Outdoor. Even unstable macro, do you think you can grow topline in that kind of setup? And then maybe my follow on question within the question is, what does the write-down at the Irwin and Troy-Bilt tell us about those brands. I mean, is this part of the SKU reduction initiative. Any kind of like insights into what’s driving those write-downs?

Yeah. I think, the -- I will start with the brand question and navigate to the macro question related to next year and thoughts about could we grow our topline. The Irwin and Troy-Bilt brands that are very good brands and they are outstanding brands in our portfolio. But as we have continued to focus on the simplification of our company, there’s a lot of aspects of that. There’s the aspects of how we do business with our customers and our suppliers. How we work internally in a more efficient and effective way. But there’s also looking at the simplification of the brands we have and how we go to market, and where we can effectively utilize them the most. We clearly have three very powerful brands that are incredibly important to our strategy in DEWALT, CRAFTSMAN and Stanley, and those would be focal points for that strategy going forward. But as you get into the next tier of brands like Irwin or LENOX or Troy-Bilt, et cetera. We will utilize them effectively but we will utilize them in a more simplified way and then you really seeing the impact of that with the adjustment to the valuation of what was on our balance sheet. It’s really nothing more than that. There’s a little bit of the SKU rationalization impact in there, but I think it’s more of the strategic way we are going to utilize it going forward. Looking at the macro for next year, I mean, Pat gave really good answers to our view is things are not, they are kind of mixed and it’s dynamic. That’s the way it is today and then we are kind of going into next year thinking that’s going to be similar to that. We have pockets of strength like our Professional…

Thank you. Our next question comes from the line of Rob Wertheimer with Melius Research. Your line is now open.

Thank you. I’d actually like to start where you just ended on, on market share and trends there. And my question, I guess, specifically, there has been obviously a change in the mix of construction in North America or you have larger projects, major projects, whenever. Maybe housing is holding in there. I am little bit curious if there are any margin or market share or go-to-market impacts from that, maybe have more Pro, maybe have more high need, high reliability, maybe not. I am just curious about whether that has any impact on the business? Thank you.

Thanks, Rob. Yeah. I think, the -- we are probably over using the word dynamic, but I think it’s an appropriate word to describe the current market situation, because there’s a lot of different shifts happening. There is certainly a great deal of construction activity, but it’s shifted quite a bit from what it was 18 months, 24 months ago where it was very heavily residential focused and commercial focus to some extent and then we went through the pandemic and the commercial activity slowed down. So, we continue to see different types of shifts. We do not see radical shifts in our business model though or how we go to market at this stage. One of the really great things about Stanley Black & Decker is that we have over the years been very focused on what are the right channels to the end-user. The professional that ultimately is the ones the individuals that use our tools and because of that history and those channels that we have very strong presence in not only North-America, but the European markets, as well as emerging markets around the globe. We have their presence to be able to ensure that we are meeting the needs of the end-user and if the end-user is shifting to e-commerce, we have the ability to serve them an e-commerce as well or if they continue to want to go to the traditional distributor that they have spent time with, we sell through that channel. So I think we are positioned well for whatever may happen in the future. Clearly, there will be a shift -- continued shift over time, we are more and more people focus on e-commerce activity. We positioned ourselves well over the last decade to be able to continue to address that. I think you will see more of that shifting as you get into some of these commercial and industrial channels with larger distributors as they built some e-commerce platforms during the pandemic to deal with a period of time where people didn’t want to get close to each other and we have been able to address that as well. So we are going to continue to do that. They will probably be an area that we will invest in overtime to make sure that we meet those needs of the channel.

Thank you. Our next question comes from the line of Joe O'Dea with Wells Fargo. Your line is now open.

Hi. Good morning. Thanks for taking my question. I wanted to ask on the sort of returns targets around investment spend. And so when you think about investing $125 million, how do you think about the returns there and tracking them. And so, both from the market outgrowth, as well as the evidence of that. So when you spend $125 million, how do you go about tracking that it’s actually achieving the targeted outcomes?

Yeah. Joe, what I would say is, long-term we want to have very productive investments in SG&A that’s mostly where these investments we are talking to you are centered. And our long-term financial algorithm probably has SG&A somewhere around that 19%-ish of the net sales. And so long-term every time we put a $1 into SG&A, you need to be getting more than five of those out of the topline at a gross margin that are above our fleet average and that’s certainly as we go into these investments, very, very much be intend. The pace at which that happens, obviously, can differ depending on where you are in your certain competitive dynamics of which investments you are making at a given point in time. But that’s our financial algorithm. Right now and maybe, Chris, might want to add some things to this, but our focus right now is on reenergizing the engineering in innovation engine and then reenergizing the activation around our pre-existing marketing investments in around that innovation. Those two together are probably 80% to 90% of the investment per spend that we are making and it’s all to get the growth of the biggest brands getting back to above market growth. I don’t know if there’s anything you want to add to that, Chris?

No. I just think that the comment that Don made about the three flagship brands that we have. And it’s not only about net incremental investment, but it’s also taking a look and seeing how we can reallocate existing dollars towards those three priority brands and the key initiatives that we see with the Pro end-user, as well as making sure that we have the right commercial resources in place to be driving those returns as well. So we are thinking at -- looking at the entirety of the spend and not just the net incremental and then driving that into measurable initiatives to be able to make sure that we are getting the types of returns above fleet average that Pat referenced.

Thank you. Our next question comes from the line of Nicole DeBlase with Deutsche Bank. Your line is now open.

Yeah. Thanks. Good morning, guys.

Good morning.

Just wanted to ask one on pricing. So I think originally you guys were kind of expecting flat to slightly down in the quarter for Tools, obviously, a little bit weaker than that. Just maybe a little bit more color on this from a competitive perspective and your thought process on pricing into 4Q and perhaps thoughts around 2024? Thank you.

Go ahead, Pat.

Yeah. Nicole, I mean, purely from a guidance and actuals perspective, I’d say, very much within the bounds. I’d say the only dynamic that played out a bit differently in the quarter is the promotional mix around margin accretive Power Tools was a bit higher, which was net accretive to the P&L, you saw the gross margin performance in the quarter. It just as you reconcile and provide out the actual color and pricing was a little bit more than we would have expect. But I think that’s kind of on the margin of just how promotional activity unfolds in the quarter. But I and Chris may want to add to this. I don’t think we see any kind of change to the competitive dynamics inclusive of the pricing related to the competitive dynamics.

No. As I said earlier, I think, we are -- we see fairly good stability in the pricing and not a lot of competitive deep discounting and our -- just to reiterate, our focus is to be healthily involved in the promotional aspect of the business, because we think it’s important to have those key brands and products out in front of our end-users and our customers and we intend to continue at kind of those traditional levels. But more importantly, we are looking through our innovations and how we think about launching new products to be able to continue to supplement and grow those margins as well.

Thank you. Our next question comes from the line of Joe Ritchie with Goldman Sachs. Your line is now open.

Thanks. Good morning, guys.

Good morning.

So, you talked about getting a normalized production in the fourth quarter. I am curious, maybe two-part question, do you expect to stay at normalized production throughout 2024 and then as you kind of think about maybe some of the one-time hit to your profitability in 2023. What -- can you quantify whether it’s the inventory piece, the production piece, how much does that help the bridge for 2024?

Yeah. I will let Pat give it a little more color on that, but we are pleased that we have gotten to a more stable manufacturing level here in the fourth quarter. And at this point the view of next year is, if we assume the environment that Pat described around the $45 of EPS, that-- for in that range, because of where the macro is we would expect it to continue to be stable. We will continue to focus on optimizing inventory next year. So Pat, maybe give it a little more color on that.

Yeah. Yeah. I think, Joe, we certainly feel like we have opportunity to get inventory much leaner, right, probably to the tune of $1 billion to $1.5 billion over the next two years to three years at a pace of $400 million to $500 million a year. I think as it relates to the production normalization, you asked about and as it relates to kind of one-time items in the cost structure. I’d say for the most part 2024, we expect production to be normalized. Obviously, as we and the rest of the Outdoor industry find the new kind of post-COVID Outdoor base, we will be mindful of the production levels in our Outdoor space. But that’s kind of $2 billion-ish of $13 billion, $14 billion T&O business. So I think those production schedules will be in tied to the market realities we see in Outdoor. But broadly speaking, in this fourth quarter and as we head into 2024, Tools production has normalized. I think as you talk about the one-time costs. Those you are kind of seeing in our gross profit as we exit the fourth quarter of this year. So, during this year, you have seen a cost of about 400 basis points in total, 300 basis points of which was roughly high cost inventory and one of which -- 100 basis points of which was kind of under absorption of fixed cost. That has played out within 2023 and you are seeing that in the gross profit margin at almost did 28% in the third quarter and will probably be at or above in the fourth quarter. And so that’s kind of behind us and we are building off of that 28% plus gross margin next year as we head into 2024 and the program continues.

Thank you. I would now like to hand the call back over to Dennis Lange for closing remarks.

Shannon, thanks. We would like to thank everyone again for their time and participation on the call. Obviously, please contact me if you have further questions. Thank you.

This concludes today’s conference call. Thank you for participating. You may now disconnect.