Good morning, and welcome to the YETI Holdings Fourth Quarter 2022 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions]

Good morning, and thanks for joining us to discuss YETI Holdings fourth quarter and full year 2022 results. Before we begin, we would like to remind you that some of the statements that we make today on this call may be considered forward-looking, and such forward-looking statements are subject to various risks and uncertainties that could cause our actual results to differ materially from these statements. For more information, please refer to the risk factors detailed in our most recently filed Form 10-Q and the Form 8-K filed with the SEC today. We undertake no obligation to revise or update any forward-looking statements made today as a result of new information, future events or otherwise, except as required by law. Unless otherwise stated, our financial measures disclosed on this call will be on a non-GAAP basis. We use non-GAAP measures as we believe they more accurately represent the true operational performance and underlying results of our business. Reconciliations of these non-GAAP measures to their most directly comparable GAAP measures are included in this morning’s press release as well as in the supplemental reconciliation, both of which are available in the Investor Relations section of our website at yeti.com. Today’s call will be led by Matt Reintjes, President and CEO; and Mike McMullen, CFO. Following our prepared remarks, we’ll open the call for your questions. And now I’d like to turn the call over to Matt.

Thanks, Tom, and good morning. YETI delivered another strong quarter and year, continuing to showcase our long-term growth and global brand potential. But before we get into our results, I would like to begin by discussing the proposed voluntary recalls regarding certain of our Soft Cooler and SideKick Dry gear bags, which resulted in a charge that we recognized during the fourth quarter. I’ll then provide some commentary on the quarter and year, detail the continued execution against our four strategic growth priorities and conclude with additional perspectives on our approach in 2023. Importantly, the work we’re doing today will position our business for strong top and bottom line growth as we exit the year and support the long-term brand opportunity. Starting with the proposed recalls, we have identified a potential safety concern with the design of the magnet-lined closures of certain Soft Coolers and SideKick Dry gear bags. This specific issue with respect to these products is that a strip of material housing the magnets of these products can fail and cause the magnets to potentially release or separate from the product, posing a risk of serious injury or death if the magnets are ingested. Since 2018, we have sold approximately 1.5 million units with this material construction, and we are aware of approximately 1,400 units or 0.1% of the units sold that have experienced issues with the magnet-lined closure. Importantly, we are not aware of any reported injuries sustained from this product at this time. However, the safety of our customers and the quality of our products remains imperative. After a thoughtful analysis of the situation, we acted decisively in January to remove these products from the market and to stop sale as we coordinate with the CPSC and relevant global agencies on a proposed voluntary recall. In…

Thanks, Matt, and good morning, everyone. I wanted to start by framing up the impact of the proposed voluntary recalls to our 2022 results before then focusing on non-GAAP measures for the fourth quarter and fiscal year. I’ll then provide our outlook for fiscal 2023, inclusive of our expectations for how the proposed recalls are expected to impact the business throughout the year. Starting with the proposed recalls. We have provided many of the financial details in the footnotes and supplemental schedules in our press release, but let me give a quick summary of the $129 million in total reserves and how it is recorded during the period. This includes a $38 million reduction in sales, primarily for estimated future returns, a $59 million impact to cost of goods sold primarily associated with inventory write-downs and estimated future customer remedies and a $32 million impact to SG&A expenses associated with the recall related costs. We believe these reserves are appropriate to cover the estimated cost of the proposed voluntary recall plans that we have submitted to the CPSC as well as other relevant global authorities. We will provide adjustments when identifiable as we progress through the year and better understand certain variables such as redemption rates, refund mix and associated costs. Any such adjustments to our estimates will continue to be reported separately to better reflect the underlying operations of our business. Now on to our non-GAAP results for the fourth quarter and fiscal year 2022. Given the significance of the reserves associated with the proposed recalls, we have updated the definitions of our non-GAAP financial metrics, including two new metrics, adjusted net sales and adjusted gross profit to exclude this impact. All of the metrics that I will discuss today are adjusted metrics to better focus on our operational…

[Operator Instructions] And our first question will come from Brooke Roach of Goldman Sachs. Please go ahead.

Good morning and thank you so much for taking the question. Matt, I was wondering if you could contemplate a little bit more about the return to your long-term growth algorithm of 10% to 15%. How do you see that playing out between your key channels and between the key geographies? What proportion of growth will be sourced internationally versus the U.S.? And then just one follow-up. Could you also discuss the competitive dynamics in the wholesale channel particularly in Drinkware? How are you thinking about selling and sell-through in 2023 for products that are not associated with the stop sale? Thank you.

Thanks, Brooke. Good morning and what I would say, as we think about the return to growth, and you heard me say it and you heard Mike say, as we look across the product portfolio we have, the innovation pipeline, the opportunity to continue to engage with consumers in the U.S. market through our direct channels and our incredible wholesale partners. And then we look at what we consider the relatively untapped global opportunity. We feel really good about how we get back to that level when you take away the proposed voluntary recall. Obviously, we expect, based on its size that international will be a big part of that growth resurgence. But as we’ve shown year-over-year, the domestic market as we continue to drive innovation, reach the brand, drive new geographies, pull more customers into this – into the brand and then really drive retention of those customers, that we can continue to drive growth in the core market. And really, that’s a broad statement across our product portfolio. So we feel good about where we’re positioning the business – where we were positioning the business for 2023 before the proposed recall and where we’re positioning the business now to exit 2023 and beyond. So I think that it’s really kind of running the YETI playbook that we have for the last 15-plus years of finding new customers, growing the brand, growing the product portfolio and driving into new geographies. And it’s a bit of why we talked about continuing to lean into the investment. I think this is a year where there’s a real opportunity to set YETI up for a great close to 2023 and a great start to 2024. As we switch to the specific and the wholesale channel and the competitive dynamic, as we said before, broadly, we haven’t seen a significant change in the competitive dynamic at wholesale or really across our channels. There are market alternatives across our product range. There have been going back to our earliest days as a brand. And I think the strength of the sell-through that we continue to see overall as YETI, the strength of the sell-through that we’ve seen through our wholesale channel, not just in Q4 but throughout the year. And I think it indicates to us that as we continue to bring innovation, as we continue to show the product portfolio as we continue to show up at YETI not a singular product, not a singular product family or category, that really continues to drive strength and resonate with the consumer.

Thank you very much.

The next question comes from Peter Benedict of Baird. Please go ahead.

Hi guys. Thanks for taking the question. I guess just kind of curious just your thinking a little deeper on 2023. Obviously, you laid out a lot here. But let’s take the revenue growth excluding the stop sale at around 8% to 10%. How confident are you that, that embraces the risk to consumer spending that could accrue both domestically and internationally. Just trying to understand how you feel like you’ve derisked that view for 2023? That’s my first question.

Thanks Peter. Good morning. I’d say a couple of things. As we thought about how the year pace is out, we’re thoughtful about the front half of the year, just how the consumer is going to behave. We’ve talked about working very closely with our wholesale partners on making sure they have the right inventory to address the sell-through opportunity. What we’re seeing in our DTC business and then our wholesale sell-through year-to-date has been really positive. And so we feel while we’re taking, we think, a prudent outlook as we go into this year, we’ve seen some positive signs that the consumer continues to hold up. Also, as we talk a lot about the price points of our products are – while premium in their category are really relatively achievable price points when you think about the absolute price point of our Drinkware, you think about the giftable nature of the products, you think about the continued innovation that we bring, whether those are colorways or extensions of sizes. And so I think we’ve put a really thoughtful plan together for the year. I think we’ve recognized the challenges that are presented with the first half of the year. And as we build strength through the year. We also think internationally, while we’re cognizant of the different markets around the world and the challenges there, the benefit of being earlier in that journey, is we can pivot and go identify pockets of strength, and we continue to drive that growth. So I think going into this year, we feel good about – we feel good about where we are, and we feel good about the trajectory it’s going to put us on as we wrap 2023.

That’s helpful. Thanks, Matt. And then just with respect to the proposed voluntary recall. Just I’m just curious if you can expand on the range of outcomes here. I mean what you’ve laid out, does that – is that the worst case? Is there an environment or a scenario where you don’t have to call back all the products? I’m just trying to maybe frame what you’ve laid out here and then what else could transpire over the next several months that would maybe adjust the impacts that you’re seeing here? I don’t know if you could help us kind of maybe understand that qualitatively, if not, and I’m certainly probably not quantitatively. Thank you.

Yes. Thanks Peter. I’ll take it qualitatively. Obviously, any time in these situations, there’s a lot of estimates and assumptions that go in. We feel like we’ve made appropriate the appropriate assessments and judgments working in collaboration with CPSC and make sure that we’re following the right approach and that we’re thinking about this thoughtfully for the business and for the brand and for our products and primarily and most importantly, for our customers, I think when you think about the – so it’s tough to put a collar on a range of outcomes because we put forward what we think is the appropriate assumptions and that’s what’s baked into our 2022 and 2023. I think there’s – the opportunities for us as we work to get those products back to market. One of the things that we said that I may have been missed in the prepared remarks is, we are planning to actually expand the range of those product lines. And so we have a team working on not only bringing those products back to market. But the future potential of more products within that category. We believe deeply in the soft cooler category, we believe deeply in the dry bag expansion opportunity. And so as we bring those back to market, those create opportunity potentially in 2023 and beyond. So I would say that we feel we’ve made very sound judgments of what we know and where we are right now and based on the appropriate estimates.

Got it. Okay. Thanks so much. Good luck.

The next question comes from Jim Duffy of Stifel. Please go ahead.

Thanks for taking my question. I’m hoping you can elaborate some on the wholesale channel inventory dynamics. Specifically, I’m curious just post-mortem [ph] how it got to the state are retailers rethinking the appropriate level of these inventory on hand? Or did they get overly ambitious with inventory positions? And then finally, I’m curious how this impacts go-to-market with things like the rollout of new colorways and so forth and the merchandise assortments that will represent at retail? Thanks.

Good morning, Jim and thanks for the question. What I would say is, and we’ve said before, we have incredible wholesale partners and very tight relationships that we spend on a weekly, if not more often, basis talking with them about strategically, how are we driving sell-through, how is the brand being positioned, how do we assort – how do we manage inventory? And as we said on our last call, we had a wonderful year with wholesale, strong sell-through, strong replenishment of their inventory. And we would end Q4 as ready as we’ve been in years and felt very good about that. The thing that I think manifests and Mike mentioned this and I talked a bit about it, is the way demand flowed in the fourth quarter really started to show up later than we expected and later than we had seen in prior years. We had incredibly strong demand right before the Christmas holiday that flowed over into the week after Christmas. It’s just that demand built later. And so our wholesale partners are in partnership with us, we’re ready to go, and we’re ready for the earlier demand. It didn’t manifest that way. And so the replenishment opportunity was shortened in the quarter. We feel good about where we’re starting off the year from a wholesale perspective. We feel good about the sell-through that we’re seeing across our channels, including wholesale quarter-to-date. But we’re also cognizant that people are taking a cautious position around their inventory. We haven’t seen it affect any merchandising strategy. We still have open conversations around not only existing portfolio, but also as we importantly roll out products that weren’t broadly available in wholesale in 2022. So our Yonder water bottle will roll out more broadly in the channel here in the next month or so. Our new wheeled coolers will be more broadly available in the channel. Our two-straw lid mug sizes will become broadly available in the channel. And they weren’t in the wholesale channel, and they weren’t in 2022. So we feel good about the relationships. We feel good about the assortment planning. We feel good about the customer facing. And now it’s a matter of just continuing to work closely with our partners as they get through their inventory management and our sell-through demand and move through the year.

Thank you for that.

The next question comes from Peter Keith of Piper Sandler. Please go ahead. Peter, your line is open. Is it muted on your end?

Sorry about that, everyone. Good morning. I wanted to dig into the topic of gross margin. And you’ve guided 2023 gross margin to 55%. But how should we think about that roadmap of getting back to prior peak, which nearly touches 58%? And could there even be a chance to you over time might exceed 58% if we just think about the mix of DTC being higher as well as some modest price increases?

Good morning, Peter, and thanks for the question. I’ll take the front end of that, and then Mike can add a little context on how we feel about gross margin over time. I would say we feel great about getting our gross margin back to 55% as quickly as we have. We talked all about that as we were facing these container costs. And as they work their way through our inventory and as we manage it down that we said through 2022, we believe the gross margin opportunity for this business was there and that the 510 basis point headwind on it was really a transient type thing. It’s – we see that playing out. So we feel great about the recovery and the strength and that – what that shows about the premium nature of the brand and the pricing power of the brand and that we continue to realize that gross margin. So as we go through 2023, that rebuild is a pretty quick rebuild and pretty quick recovery. We’re not calling a stopping point. But I think as we are on our – kind of on our journey to continue to march those gross margins back up.

Yes. Hi, Peter. So in addition to what Matt said, what I’d – I highlight – expand on that, we’ve – we’re going to get some of the impact backed from higher inbound transportation costs that we’ve seen in the last two years. But we still have more to go in 2024. So you’ll start to see that impact grow and build as we go through 2023. Other factors that could play in as we continue to try to grow D2C faster than wholesale, we’ll see a benefit from sales mix. From a product cost standpoint, we’re expecting relatively muted impact in 2023. And so we feel good about where our margins are in 2023 and we think there’s opportunity for it to run further as we go into 2024 and beyond as those lower freight costs continue to work through our P&L.

Okay. Thank you. And kind of related to the recall, but just looking at your product innovation pipeline. Does that get disrupted here in 2023 as you need to pivot to the Soft Cooler category? How should we think about that the innovation pipeline now maybe just looking at two to three years with the recall element?

Peter, I would say a couple of things. The team that is working on the Soft Cooler is the team that works on our Soft Cooler. So it won’t – we don’t see it as any impact on the planned roadmap we have this year or over the next two to three years as it relates to other products. The thing that would be the most acute impact and it was what I alluded to on a prior question was the planned expansion of our Soft Coolers and the planned expansion of our dry bags. That would have kind of come sooner, that will now follow the reintroduction of these products to the market. So I think that piece of it would be the most direct, but that’s contemplated here I think for the rest of the product portfolio, they run – or the rest of the product roadmap, they run relatively independent of this.

Okay, thank you very much. Good luck.

Thanks, Peter.

The next question comes from Sharon Zackfia of William Blair. Please go ahead.

Hi, good morning. I know you’ve talked about sell-through being happy with it in the fourth quarter and so far in 2023. But can you maybe provide more color around kind of the pace of sell-through versus what you were seeing earlier in 2022 because I think people are – there’s a lot of moving parts and folks are kind of grappling with maybe what underlying demand is for the product right now. So maybe any color on what’s going on, on wholesale sell-through, particularly in light of DTC actually accelerating in the fourth quarter would be helpful.

Yes. Sharon, I would – thanks for the question. I would say our wholesale and broadly our sell-through wasn’t markedly different than the other quarters in 2022. There were – we had some – a quarter that was higher. We had some quarters that were right around it. But largely, they operated – most of the quarters operated, so within the same target area. Things move between the channels. One of the things that we talked about on prior calls that was most interesting to us in 2022 was how as we inventoried our channels, our broad channels more fully, how demand shifted between and underneath our envelope? So what we saw in 2021 and really in 2020, with the disruption was, we had some force disruptions of the channels and then we had inventory constraints that caused us to make decisions on where we placed inventory. 2022 was the year where inventory was most broadly available across our channels. And so what we really started to study was where do consumers end up all other things being equal as it relates to inventory availability and then rebuild off that baseline. And I really think this year, absent the Soft Cooler and dry bag discussion, I think this year was kind of the first year in a couple where we were sort of bouncing off that platform of really broadly available inventory and what I would call more natural kind of consumer shopping location.

Okay. And then my second question is really on innovation because you’re clearly stepping it up this year. But it also just feels like from the outside that you guys take a pretty cautious approach to innovation. So, for example, bags introduced in early 2021, I don’t even think it was overly mentioned in the commentary. So how – I guess, how quickly do you expect new innovation to actually impact top line results? And as we think about tabletop and bags, like how has bags been progressing? How did it do at wholesale in the fourth quarter? And when you launch these new categories, are they expected to be kind of not material to results for a few years before as you learn and iterate and then become more material in years three or four? I am just trying to get some guidelines around product category cycles here.

Sharon, there’s probably a number of things inside there. I’ll try to attack at least a few of them. We are continuing to grow our innovation and the number of things in a thoughtful way we put out across product families. So if you look over a two-year stack, last year we expanded our soft cooler products. We expanded our hard cooler products and two-wheeled coolers. We expanded a number of our Drinkware products, our first foray into plastic bottles. This year, to date, we’ve expanded our cargo business, which is building off something that we launched a few years ago. And then we’ve alluded to later this year, bringing out things that are more outdoor camp, outdoor entertainment tabletop type things that can move between those environments, which will expand the definition of what we would call the kind of single-use Drinkware. So I think the cadence and pace we like because it gives us a chance to really focus and do, as you’ve seen year-to-date, really high-quality launches and give consumers a moment to understand the product portfolio. I think that certain things we pace out a little bit longer. So you mentioned bags. We launched in 2021. In 2022, we came back with an extension of our Camino line and some – which are totes and some colorways. I think as we go into 2024, you’re going to see us kind of come back and refocus on expanding bags. But it’s really this idea of driving the consistency of waves of innovation hitting the shores. So we’re never overwhelming in things getting lost. But as we scale, as we are – become more global, I think you’ll see the pace of innovation continue to grow, not just in the depth, but in the breadth of what we do.

Thank you.

The next question comes from Xian Siew of BNP Paribas. Please go ahead.

Hi, guys. I wanted to follow up a bit more on the range of outcomes for the cooler. So you mentioned that you’re targeting 4Q for the reintroduction of the product. I guess like the reason it’s taking so long that you’re basically relaunching the whole line, is that right? Because you wrote down the inventory, there is no fix or anything like that. Just trying to think about like what are the steps to get the product back to the market in 4Q? And have you identified an alternative to the magnet? Or do you still need to find some kind of new closing mechanism? Just maybe some more color on that would be helpful. Thanks.

Good morning. Thanks. Thanks for the question. It really is, as you said, we’re – we’ve removed the product from the market. We are relaunching – we’ll be relaunching a new product. We expect the closure to be similar and familiar, meaning operate the same way, but it requires us to go relook at all the features around how those – how the magnets are closed, how it’s attached to the product. And that’s the work. The time really is because we’re relaunching an entire portfolio at volume to go address the latent demand that’s out there for the product.. So that’s the longest aspect of this is, it’s not just getting a solution that works, and there’s not a rework path here. It’s really bringing a whole product back to market. The good news is the vast majority of the product is done and known because it’s the product we’ve been selling. So, we’re really focused on this one closure aspect. As I think about – that’s really the push that the team is well down the path on not only identifying the solution, but then identifying the manufacturing and manufacturing at scale and then bringing us back to market. I think the other thing in the range of outcomes here is, this is a product that has been removed from our portfolio. We think forward, what we’re focused on is how does the rest of the portfolio fill in and lean in. So, we have an incredible lineup of soft coolers that are still in the market in our flip series. We have hard cooler alternatives for consumers that are just looking for something YETI. We have bag alternatives. We have Drinkwater alternatives. So, I think you’ll see us continue to lead into some of our commercial prowess and our brand building and getting – creating customer discovery around the rest of the product portfolio while we work through the soft cooler and dry bag issue.

Yes, that’s helpful. And that was actually kind of where I was going with my follow-up. Have you seen any kind of consumer like maybe someone who’s in the market for the soft cooler or the hopper kind of up for one of the other like the flip categories or maybe, like any kind of lessons you’re starting to see of kind of leaning into that pool? Like are there any kind of data points you can share in terms of how consumers are reacting to, I guess, switching it to different product lines?

Yes. What I would say we’re early in the year, but I would take the comments that we’ve seen positive sell-through. If you look at the social response to our cargo launch, it’s been fantastic. And to a question earlier, that’s a product that we sat on one SKU for quite a while and now have brought out a family. The response we’ve had to the new colors that we just launched and not just the way we’ve seen those perform because they are the colors, but it’s interesting to look at those colors against some of our long-standing SKUs. And then those colors against some of our newer SKUs and how they perform in consumer preference. So, I think that the void the removal created, I think we believe that there’s opportunity for us to keep kind of chasing filling that in. I think it’s too early to call how that all materializes, but we like some of the positives that we’re seeing.

Okay, very helpful and good luck guys. Thanks.

Thank you.

The next question comes from Robby Ohmes of Bank of America. Please go ahead.

Hey Matt, I wanted to – you highlighted doing more with Amazon. And I wanted you to sort of – can you tell us what does that mean exactly? Maybe remind us where Amazon is in terms of profitability, working on their 3P marketplace and doing more with them, how much more? And does that have an impact on being a little more cautious on filling wholesale in the U.S.? Just more thoughts on that would be great.

Thanks, Robby, What I would say on Amazon, the doing more is primarily a non-U.S. U.S. comment. We feel good about our marketplace relationship. We don’t expect that to change or to expand beyond the marketplace. We like the reach it provides for the Amazon consumer, that’s where they start and that’s where they want to shop. So, I think getting the inventory right there and getting it optimized so that we were available to consumers was a big focus of 2022, and we feel good about where we are in 2023. As we think about non-U.S. We mentioned on the call fulfilled by merchant in Canada via Amazon. I think as we look at specific markets around the globe, we’ve gotten comfortable, as I mentioned, that we can manage it from a brand – our brand perspective. We can manage it from a consumer reach perspective. And that it gives us a really nice way to get into and complement some of the other things we’re doing in these markets. Our D2C business in Europe continues to perform well. Our wholesale business performs well. And this is a nice, I guess, in addition, our corporate sales business is a nice additional leg to the business. Now I think as it relates to profitability, I’ll let Mike take that.

Yes. Hey, Robby. So what I’d say is from a gross margin standpoint, it is equivalent with the rest of our D2C channel and yeti.com in terms of having one of the stronger gross margin profiles in our portfolio. There are additional SG&A expenses that come along with selling on Amazon, their fulfillment, their listing fees, et cetera. But overall, just the bottom line profitability or contribution margin of Amazon is accretive as strong and is a big part of just driving overall operating income strength in 2023.

Thank you. That’s really helpful. And then just one quick follow-up on U.S. wholesale, are you guys potentially reducing any doors or accounts? And are you – are you kind of moving Matt, to a more segmented product offering by account or door?

Robby, we don’t have plans to – and I know you’ve kind of watched our story over time as we’ve talked about consolidating around strength and really building what we think is an incredible stable of wholesale partners. We don’t have any near-term plans to continue to reduce that. There’s a small things that happened. We add a door. We changed the door, particularly around as we expand communities and audiences that we’re trying to reach or geographies that we’re trying to put better representation in. But I think the assortment planning, we are not merchandising narrowly at certain doors and broadly at other doors. It’s really what can that partner properly represent and handle based upon their consumer traffic and their shelf space. And so by nature, bigger doors tend to be able to hold a bigger assortment in smaller doors, maybe a slightly narrower assortment. But we still believe that YETI is best presented when you see multiple product families. And that’s why consumers come shop, and that’s why consumers engage with the brand versus product-by-product assortment.

Got it. That’s really helpful. Thank you.

The next question comes from Brian McNamara of Canaccord Genuity. Please go ahead.

Hi, thanks for taking my question. I’m curious how does this malfunction happen? Does it relate to any change in supply or manufacturing changes or anything like that? And does it pose a risk to any – the production of any other products? And then secondly, can you give us an idea how important a new product introduction like the Hopper M20 or M30, RGID [ph] in any particular year given they were either relaunched or introduced about a year ago? Thank you.

Thanks, Brian. I’ll take those. The as far as risk to other products, no, this specific thing is the strip that holds magnets on the soft coolers. So the closure on the soft coolers in our dry bags. This goes back six years, seven years ago to a design that we made for our first dry bags, and it’s been in the market since early 2018. And I mentioned the number of units that have been sold, and I mentioned the number of units that have been affected by some type of, kind of, issue here that has a relationship to that magnetic strip. So, I don’t – we don’t see a spillover. It’s not related to a specific thing beyond the impact on our soft coolers and dry bags. I think that when you think about the impact of the M20, M30, the –when we launch a new product like the M20, M30, it replaces a prior generation. So there was an M30 prior that we retired and there was a BackFlip soft cooler that was the predecessor to the M20. Both those products came out of the market, the M20, M30 came in. So if you take Mike’s comments about a 500 basis point top-line headwind for the year, these – when we launch products, we get really meaningful impact, because they pick up the momentum of their predecessor and go from there. So these are obviously big opportunities, big deals. It’s why innovation is so central to our business.

Our last question comes from Joe Altobello of Raymond James. Please go ahead.

It’s actually [indiscernible] on for Joe. A couple of quick questions here. Regarding gross margins, when do you plan on lapping the higher inbound freight? And when does that start to become a margin tailwind? And the second question, how much of a headwind can we see from product costs this year? Thank you.

So what I’d say is, we will – we’ll start to see that benefit, obviously, in 2023. What we said was we expect Q1 margins to be slightly down and then to grow sequentially from there. And so you’ll start to see – we’ll start to lap that benefit and start to see it driving gross margin improvement definitely in the first half of this year and then growing from there. From a product cost standpoint, we expect in 2023 to be – the impact to be fairly muted as things have stabilized. So that’s why we didn’t call it out as a significant driver in 2023.

Got it. Thank you so much.

This concludes our question-and-answer session. I would like to turn the conference back over to Matt Reintjes for any closing remarks.

Thanks, everyone, for joining us this morning. We look forward to updating you on the progress on our Q1 earnings call. Have a wonderful day.

The conference has now concluded. Thank you for attending today’s presentation. And you may now disconnect.