Earnings Call Transcript
HERSHEY CO (HSY)
Earnings Call Transcript - HSY Q2 2024
Anoori Naughton, Senior Director of Investor Relations
Good morning, everyone. Thank you for joining us today for The Hershey Company's second quarter 2024 earnings Q&A session. I hope everyone has had the chance to read our press release and listen to our prerecorded management remarks, both of which are available on our website. In addition, we have posted a transcript of the pre-recorded remarks. At the conclusion of today's live Q&A session, we will also post a 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 today's press release and the company's SEC filings. Finally, please note that we may refer to certain non-GAAP financial measures that we believe 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's Senior Vice President and CFO, Steve Voskuil. With that, I will turn it over to the operator for the first question.
Ken Goldman, Analyst
Hi. Thank you. And Melissa Poole, I think you're probably somewhere in the call. I think you're still there. Thank you for all your help over the years. And Anoori, congrats on your new increased role. I wanted to ask within North American Confectionery this quarter, as you mentioned, there was a 6% impact from lower retail inventory and around 2% to 3% from the Halloween shift. You seem confident that these impacts will have no real material effect on the year, which I understand. But my question is, is it unfair for investors to ask if there isn't at least a small red flag underlying this news? And I'm just asking because historically in food, destockings, and delayed orders haven't always been for benign reasons. Sometimes they're, I guess, outgrowths of softer end-user demand. So, just curious what gives you confidence there's not a relationship between the delays and demand, which seems to be implied by your commentary.
Michele Buck, Chairman and CEO
Steve, you want to take that?
Steve Voskuil, CFO
I'd be happy to. Over the past few years, we've noticed quite a bit of volatility in inventory levels due to the effects of COVID and supply chain challenges. Currently, we're observing a return to a more traditional pattern, with more shipments occurring in the third quarter compared to the second quarter. While there have been changes from the previous year, we have good visibility into our seasonal orders, with most already in hand. We have strong expectations for the upcoming seasons and significant collaboration with retailers. Therefore, we don't view this situation as a red flag; rather, it reflects a return to a typical ordering pattern.
Ken Goldman, Analyst
Okay, thank you for that. And then, quickly, I wanted to ask about your recently announced pricing. Can you perhaps give us a sense of which products it covers, the magnitude of the increase? And can you walk us through the degree to which you're comfortable taking this pricing right now, given some elasticity and that you're one of the few categories to be doing so? Thank you.
Michele Buck, Chairman and CEO
Absolutely. So, as you all know, we have experienced historic cocoa prices for some period of time now. And while we believe the current cocoa price is not sustainable, we do believe that the future prices will be higher levels than we've seen before this kind of recent historic pricing cycle. Our approach on the pricing has been to take a measured approach. We've absorbed a lot of inflation already, but we do believe we need to pass some of it on. And we're seeing the category hold up fairly well in this tougher environment. We think it's historically been very rational. We think it will continue to be. So, overall, we are not going to price the entire portfolio. We do have a robust internal process where we take a lot of factors into consideration to determine what our approach will be, but that's what gives us confidence. We will be getting about 6 points to 7 points of net price realization. At this point, we don't want to go into a lot of the specifics around the pricing. It was very recently announced, and so it is still out there being sold into customers. And we think from a competitive perspective at this point, we shouldn't go into too much more detail. We are assuming that we'll see historic elasticities, which is a little bit worse than we have seen in our recent price increases. So, we think that that's the right approach as we plan for this on the business going forward.
Ken Goldman, Analyst
Great. Thank you.
Michele Buck, Chairman and CEO
Thanks, Ken.
Andrew Lazar, Analyst
Great. Thanks so much. Good morning, everybody.
Michele Buck, Chairman and CEO
Good morning.
Andrew Lazar, Analyst
Michele, I wanted to explore the market share trends in core chocolate further. I understand that these trends have been weaker than expected, especially in everyday items, despite Hershey recovering some share losses in core chocolate from last year. Last year, there was a greater emphasis on increasing capacity, but I had anticipated that this year would see a return to more innovation and normal levels of in-store commercial activity. I'm trying to better understand what you believe is causing these share losses and when you expect to see those trends begin to improve, especially considering your plans for some incremental pricing that is justified.
Michele Buck, Chairman and CEO
Yeah, absolutely. So, first of all, I'd say we are encouraged that we continue to see category growth in that roughly 2% range. All along as we planned the year, we had expected our second half to be stronger, better than the first half due both to lapses as well as the timing of programming. And we had also anticipated Q2 to be a weaker takeaway quarter for us than Q1, given the timing of the season, Reese's Caramel and then also some programming shifts where we had some programming that prior year was in Q2 that we shifted to Q3. That said, Q2 was a bit lighter than we anticipated both from a category perspective in terms of where consumers were shopping and what they were buying, and certainly also from a share perspective. If I look at the areas of pressure in share that we saw in the quarter, sweets is an area that continued to be strong and certainly we under-indexed on sweets. As we look at the back half, we have significant incremental innovation with the Shaq launch and new forms, etc., that we think is really going to help offset that. We saw particular pressure that hit us in C-store, given some of the weakening of those C-store channel trends, as well as an uptick in take-home in club, where we're less developed. And then finally, of course, the biggest factor that we had spoken about in the past, kind of the continued reduction in key retailer merchandising, which reverses in the back half. So, as we look at the back half, we feel good about the progress that we'll have on sweets. Certainly, the strength of our programming from an innovation perspective, lapping that merch reduction at the big retailer, we have visibility into resets and we know that we're going to have an advantaged position in resets in several key retailers, that's going to be a plus for us. And also, as we look at the second half to the first half, we are a big share player at seasons. First half had the weekend Easter with a short season, and we have strong visibility to seasons in the back half. So, we know that that will drive share as well.
Andrew Lazar, Analyst
Great. I have a quick follow-up regarding the reduction in retailer merchandising that has affected the last few quarters. What were the insights gained from this situation? Typically, there are times when things swing too far in one direction, but key retailers usually come to realize that having multiple points of display in the store makes sense for impulse items. I'm curious if you expect any lingering effects from this or not. Thanks.
Michele Buck, Chairman and CEO
I would say, I think that we're seeing things neutralize. I would say that sometimes those things do go to more extremes and I think while they don't revert back to where they were, I do think that there's more neutralization down the middle a bit more.
Alexia Howard, Analyst
Good morning, everyone.
Steve Voskuil, CFO
Good morning.
Michele Buck, Chairman and CEO
Hello.
Alexia Howard, Analyst
So, can I just start with the question on the incentive comp being down? Does that imply that this quarter was something of a disappointment relative to plan, maybe because the timing of the shipments for Halloween or the retailer inventories were run down? And what should we expect to have happen on those incentive payments going forward?
Steve Voskuil, CFO
The main factor affecting the incentive side is aligned with our full-year expectations. Each quarter, we adjust based on our year-to-date performance and our outlook for the entire year. This adjustment is currently reflected in the incentive compensation.
Alexia Howard, Analyst
Okay. Is the full year guidance the same or similar? There's only a slight reduction in guidance this year. This quarter was a disappointment compared to expectations. So, does this suggest that the comparable figure will recover next quarter and return to normal?
Steve Voskuil, CFO
No, we wouldn't expect it to bounce back. Our incentives are structured to encompass more than just the headline numbers. There are additional goals and objectives involved, and different segments of the portfolio have distinct aims. Therefore, while the headline numbers may remain relatively stable, some of the underlying incentive calculations can fluctuate. We adjust these every quarter, and we do not anticipate a rebound. I see it as a step down for the second quarter that will carry through to the latter half of the year.
Michele Buck, Chairman and CEO
And that full-year reduction in guidance does have a meaningful impact on the comp.
Alexia Howard, Analyst
Got it. Okay, perfect. And then, on the gross margin, you mentioned that this quarter, obviously, you're still expecting a 200 basis points decline for the full year. This quarter, you talked about input cost timing favorability. Which input cost was that on? Presumably, it wasn't cocoa, because I thought you had that locked in at the end of last year. So, just curious about the dynamics on input costs.
Steve Voskuil, CFO
There are a couple of things to note for the second quarter. We experienced some movement in the mark to market of derivatives related to our hedging, which is consistent with past performance. We typically have some mark to market that affects segment reporting for current periods. This time, due to commodity volatility along with our business performance and the mix of instruments we use for hedging, we saw some benefits in relation to input costs. This is difficult to predict and can vary from quarter to quarter. Additionally, we made some minor adjustments in our ERP system regarding how we allocate costs to products, which had a slightly positive but minimal impact this quarter. We view these factors as timing-related and anticipate that they will balance out in the latter half of the year.
Alexia Howard, Analyst
Great. Thank you very much. I'll pass it on.
Bryan Spillane, Analyst
Hi. Thanks, operator. Good morning, everyone.
Michele Buck, Chairman and CEO
Good morning, Bryan.
Bryan Spillane, Analyst
Hey, Michele. A question we're likely to discuss for the rest of the year is consumer response to a price increase and the issue of normal elasticity. If we consider your own results, there seems to be a noticeable shift in value. Dollar stores and club stores are performing well, while convenience stores are struggling. Pepsi is lowering prices on Frito because they set them too high, and their merchandising lift wasn't strong. Mondelez is aiming for a $3 price point rather than $4. It appears many of your competitors in the snacking industry are also lowering prices to help stimulate demand. How do you view this in light of considering another price increase?
Michele Buck, Chairman and CEO
As we prepare our pricing strategy, we are indeed facing higher inflation compared to some of our competitors. However, our focus remains on the consumer. Historically, we have observed better performance with our recent price increases compared to past elasticity levels. Therefore, we are adopting a more cautious approach to elasticity than we have historically. We also approach our pricing strategy with careful analysis across our portfolio, ensuring we identify the right price points that offer opportunities for consumers. A significant portion of our products is priced below $3, and we've made strategic decisions about where to implement price increases effectively, while also identifying areas where we won't raise prices. Furthermore, we continue to optimize our reinvestment strategy, understanding that value encompasses both pricing and factors like seasonality and innovation, as well as the strategic management of promotional pricing. This comprehensive approach gives us confidence in our strategy.
Bryan Spillane, Analyst
Okay. And then, Steve, if I could just one quick follow-up, I think you mentioned it might have been in the prepared remarks, cocoa and beginning to start laying in a little bit for '25. If we think about the gross margin expectation for this year for '24, should we assume that you've got visibility or you're pretty much locked in on cocoa? So, if it moves around, it's more of a '25 versus '24 factor we should think about?
Steve Voskuil, CFO
Yeah. For '24 itself, I'd say we're pretty well locked in on cocoa. And the only caveat I would say is like we saw this quarter, there's still some potential for mark to market movements that could go through this year, but cocoa supply and largest part of the cocoa cost lapped for this year. As we get to next year, of course, as we get further into the year, we'll share more about expectations for next year. I mean, it's no surprise, current cocoa prices are still significantly up versus where they have been in the past. That's, of course, necessitating the price increase that we're talking about. So, more to come on '25, but for this year we feel pretty confident about where we're sitting from a commodity basket standpoint.
Bryan Spillane, Analyst
Okay. Thanks for that, Steve. Thanks, Michele.
Steve Voskuil, CFO
You bet.
Michele Buck, Chairman and CEO
Thank you.
David Palmer, Analyst
Great. Good morning. Just a quick follow-up on the previous question on pricing. You mentioned the 6% to 7% price increase. Is that consistent with what you would expect for North America Confection in your reported results for '25, or are there timing issues there? Just wanted to check on that. And then separately, your commentary and guidance seems to imply stabilization or at least some acceleration into the second half in North America Confection. I just wanted to get your temperature. What of the stuff that you've talked about, Shaq, the new Reese's, the channel expansion that you talked about maybe with club, and then the restoration of merchandising with that key retailer, what about that is the most important to that acceleration?
Steve Voskuil, CFO
Sure. Regarding pricing, you can't assume the full year net gain of 6% to 7% for Confection. This price increase will be implemented in phases, with some aspects taking effect later this year and others impacting next year. So, keep that in mind. Overall, we anticipate mid single-digit growth in 2025.
Michele Buck, Chairman and CEO
If I'm focusing on the main drivers for the second half, the collaboration with the large retailer on merchandising and resets is very important. I consider that a top priority, and we have a clear understanding of what to expect. The seasonal impact is also significant, with strong visibility into the sell-in for those seasons. Additionally, innovation in the sweets category is a major contributor. Lastly, while we haven't discussed it much, there is notable momentum in the salty segment. Dot's continues to perform well, and SkinnyPop is regaining its momentum, which we anticipate will carry forward in the latter half of the year.
David Palmer, Analyst
Great. That's helpful. I'll pass it on. Thank you.
Steve Voskuil, CFO
Thank you.
Operator, Operator
Thank you. Our next question comes from the line of Max Gumport with BNP Paribas. Please proceed with your question.
Max Gumport, Analyst
Hey, thanks for the question. In the prepared remarks, you discussed consumers pulling back on discretionary spending and C-store weakness. So, I was hoping to get a bit more color on what you're seeing there, particularly around the remark about seeing it really pick up over the last two months. And then, also a bit more color on how long you expect this dynamic could persist? Thank you.
Michele Buck, Chairman and CEO
Yeah. I mean, I think in times where consumers are forced to make choices and pull back on some of their discretionary spending, they're even more focused on getting the best value that they can. And so, shifting where they are making some of their purchases, where normally they may not go out of their way to do that, I think during those times, this is something they're doing, and I think that's why we're seeing some of the shift away from convenience store into more mass dollar, etc. And I think we've started to see that the first part of this year. I think I would expect to see that as we continue through the year. We do have confidence that we can continue to shift and offer the right offerings across all those channels. One of the strengths in our business is our ability to do that. And certainly, as we lap that, we will see that stabilize and/or grow.
Max Gumport, Analyst
Thanks. And then, with regard to the commentary of historic elasticity expected with the price increase on the North America Confection business, is that historic elasticity right around 1 or a 0.9? And just a bit more color on what's giving you the confidence that it will be right around that level? Thank you.
Michele Buck, Chairman and CEO
Yes, you're correct. It is approximately 1. Based on the models we utilize and the data points we have, we feel confident that this is a reasonable estimate for now. We are incorporating some conservatism compared to our past estimates. This consideration is specifically for price in isolation. There are additional factors that can help mitigate this, such as increased innovation, seasonal trends, and improvements in customer activity.
Max Gumport, Analyst
Thanks. I'll pass it on.
Operator, Operator
Thank you. Our next question comes from the line of Tom Palmer with Citi. Please proceed with your question.
Tom Palmer, Analyst
Good morning, and thanks for the question. You mentioned your view that current cocoa prices are not sustainable. And I just wanted to understand in the context of the round of pricing that you announced, how you're thinking about covering longer-term pricing. So, does this round of pricing kind of cover your view of where cocoa prices might migrate longer term?
Michele Buck, Chairman and CEO
Our strategy for pricing to address commodities remains unchanged. However, as we have previously mentioned, we do not consider this process to be completely linear; an increase in price does not guarantee automatic coverage. To start, if we examine the historical prices and keep in mind that we have some coverage for 2025, it would be reasonable to conclude that this pricing may not fully offset inflation. Steve, do you have anything to add?
Steve Voskuil, CFO
Yeah. No, that's right. We continue to manage pricing as one of many levers. And so, we're also looking at cost reduction, productivity; we're looking at formulation; we're looking at all kinds of levers that we've talked about in the past to manage cocoa price, still very volatile. And as I said before, given even where it is today, and it's down from where it was earlier this year, if we kind of took current prices and flashed ahead to the future, it's pretty still a very significant year-over-year inflation piece. And so, this pricing action will help. It's not by itself going to mean that we're already at long term covering the total cost, but it's a good first step, and you can expect we'll take other steps across all the levers that we have in the basket to address.
Michele Buck, Chairman and CEO
And we'll continue to monitor cocoa pricing. Certainly, we know there's been some positive news recently, but we also believe there won't be any significant impact in pricing until there's much greater visibility in the fall harvest, which is a bit of time from now.
Tom Palmer, Analyst
Okay. Thanks for that detail. And then, just any help kind of thinking about the puts and takes as we think about the third quarter versus the fourth quarter in terms of maybe some of the earnings cadence? Obviously, shipment timing is a big factor, but maybe any other help on kind of the progression of gross margin or underlying sales trends?
Steve Voskuil, CFO
Yeah. It's a little more tricky to probably go quarter by quarter, but maybe if I just say, hey, as we look across the back half versus the front half, as we look at the back half, we're going to expect to see more AAA savings. We've been saying most of that's back-half loaded. We'll see some of that come through and some of that does impact gross profit. We'll have our regular CI productivity that I think we said on earlier calls about $140 million target for the full year. We're right on track for that, but there's more of that to come in the back half than we saw in the first half. We'll also be lapping some incremental costs that we had in the back half of last year. Some of that was that for related warehousing and so forth. Most of the timing items, we would expect to reverse in Q3. So, I think we'll see more of those benefits reverse in Q3, but the others will continue over the back half. On the other side, as I think about back half gross margin, we'll have more commodity inflation, we'll have more seasonal mix naturally coming in, and that seasonal mix is slightly dilutive to margin. We'll have a little bit more sweets growth, and sweets growth also a little bit dilutive from a margin standpoint and the reversal of some of the mark-to-market and other timing items that we talked about, again, mostly in Q3.
Tom Palmer, Analyst
Okay. Thank you for that.
Robert Moskow, Analyst
Hi, thanks. Just wanted to know if you could kind of elaborate on your thinking for marketing support. There was a big increase last year, and I think the plan was for another increase this year. Where do you stand on your how much marketing is going to increase this year? Has anything changed? And as you get into 2025, because of these incremental costs that you're going to have to take into account, how do you think about marketing relative to sales into '25? Thanks.
Michele Buck, Chairman and CEO
Yeah. So, we don't see a significant change in our marketing support versus what we had planned. As we look to this year, still up in line with our sales growth.
Robert Moskow, Analyst
And the next year?
Michele Buck, Chairman and CEO
Yeah. And as we think about next year...
Steve Voskuil, CFO
For next year, I'd expect also to match roughly in line with sales. And we're not far enough down all of our game planning for next year. We'll get more details later in the year, but I think from a planning standpoint, assume that it's going to at least match what we're doing from a sales standpoint.
Robert Moskow, Analyst
Okay, great. Thank you.
Steve Voskuil, CFO
You bet.
Operator, Operator
Thank you. Our next question comes from the line of Jim Salera with Stephens. Please proceed with your question.
Jim Salera, Analyst
Hi, good morning guys. Thanks for taking our question. Michele, in the prepared remarks, you talked about in salty strong trends with Dot's, and then kind of improvement for SkinnyPop in the back half of the year, but the salty category as a whole has seen some pressure, and obviously more promotional activity probably coming into the category. So, just maybe walk through puts and takes on what gives you the confidence for Dot's maintaining momentum in the back half of the year and then SkinnyPop reaccelerating?
Michele Buck, Chairman and CEO
Yeah, absolutely. So, certainly, we've continued to see tremendous growth on Dot's. I'd start by saying on Dot's, we continue to have a lot of more upside on expanding our depth of distribution. There are still distribution opportunities, whether it's by geography, whether it is depth within a store, or space on the shelf given velocities. And we also have continued strong investments in Dot's relative to both marketing support and then also innovation relative to pack types and flavors. One example, the recent launch of Parmesan Garlic. So, we continue to just have all the marketing levers still present opportunity on Dot's because that brand has really still been in the kind of introductory phase. As I think about popcorn, I would say, yes, there's been some pressure on the category. We are seeing some stabilization as we lap some of the consumer concerns in that category and we continue to feel good about the stepped-up innovation opportunities on SkinnyPop as well relative to flavor pack size and also marketing investments, which we have dialed up more recently as well in combination with lapping some of the softness from last year.
Jim Salera, Analyst
Okay. That's helpful. And maybe to drill down a little bit on the Ready-to-Eat popcorn, is part of the softness there just consumer preference for like trading out or opting for another substitute good instead of the popcorn, or is there something particular with that cohort, where the consumption trends are a little bit lighter there relative to something like Pretzels or Dot's?
Michele Buck, Chairman and CEO
Yeah. I mean, what we uncovered was the satiety factor was impacting total value proposition. And so that's what we started to see some softness on last second quarter. And we're now at a point where we're really starting to lap that and see it stabilize as we head through the back half of the year.
Michael Lavery, Analyst
Thank you. Good morning.
Steve Voskuil, CFO
Good morning.
Michele Buck, Chairman and CEO
Good morning.
Michael Lavery, Analyst
You mentioned having some coverage for cocoa in 2025. While I understand you'd prefer not to be overly specific, considering we are more than halfway through 2024, can we reasonably assume that you are about half covered for the year? Additionally, how patient are you looking to be for better rates versus focusing on securing supply? Could you provide an update on how the securing of product for 2025 is going? Also, typically you provide an update in February with your fourth quarter report for the next calendar year. Is there a possibility you might give an update sooner than usual this fall, or should we expect the usual timeline for that news?
Steve Voskuil, CFO
Sure. Regarding the specifics on hedging, I can’t provide details about how far out we're hedged for 2025. Our policy remains unchanged, and we have some guardrails in place. It’s reasonable to assume we have some coverage for 2025, but we are actively monitoring the market and its volatility. We will continue to follow our usual process to assess the situation and take coverage when necessary. As we progress through the year and gain more visibility, I hope to share more detailed information. A lot will depend on the third quarter call and what we observe regarding cocoa and potentially other factors as well. That’s the goal, and we’ll see how things unfold, but we would like to provide more insights once we have reliable visibility.
Michael Lavery, Analyst
That's helpful. Given the well-known cocoa cost pressures, does that influence your approach to portfolio optimization, perhaps encouraging a move away from chocolate or affecting other aspects of portfolio management?
Michele Buck, Chairman and CEO
We are continuously evaluating the best portfolio to satisfy consumer needs. We are enthusiastic about the categories we operate in. As you are aware, we've made strategic decisions to expand and utilize our robust core capabilities, especially in snacking, which we broadened with our entry into salty snacks a few years ago. We also examine our chocolate portfolio to enhance our demand creation efforts. There are segments of the portfolio that include more cocoa and chocolate, while others, like cookies and cream, may contain different ingredients. Our objective is always to align with consumer preferences.
Michael Lavery, Analyst
Okay. That's helpful. Thanks so much.
Steve Voskuil, CFO
Thank you.
Operator, Operator
Thank you. Our next question comes from the line of Chris Carey with Wells Fargo. Please proceed with your question.
Chris Carey, Analyst
Hey, good morning. Thank you for the question. I just have one follow-up on levers, and then a clarification on the back half. Steve, just regarding the levers, in the prepared remarks, there was a statement that the pricing was the first step to cover inflation. I couldn't tell if the implication was that you're assessing the pricing in market before perhaps taking other pricing, or pricing is just one of your many tools in the toolkit to manage inflation. And then just regarding the toolkit, where is the most effort being put right now as far as levers to offset inflation, whether that's product reformulation, price pack, incremental productivity, maybe even have some tax savings. Doesn't feel like marketing will be a key source of savings. So, just you've had time to kind of prepare for this. Where is a lot of that work going right now? And then just in the back half of the year, the 4 points visibility seems about 1 point is seasonal. Is the rest the innovation, or is there any of the 6-point kind of destock in Q2 coming back in the back half? Thanks for all that.
Steve Voskuil, CFO
Sure. In response to the first part of your question, this aligns with our usual strategy. We continuously monitor the market, costs, and pricing. The comments were not meant to indicate that we are waiting for any specific pricing trigger. We are always evaluating pricing and all available options. Regarding those options, we are concentrating on various strategies, particularly PPA, as we want to ensure that we provide value to consumers where they are. We have numerous initiatives in progress, some of which relate to this price increase, while others involve collaboration with retailers for implementation over the next few years. This remains a priority. Additionally, the transformation program aimed at achieving cost savings across the P&L is another lever we can utilize, along with enhancing production efficiency through our technology investments. We have a broad range of tools, with these receiving significant attention. Now, could you please repeat that last part of your question?
Chris Carey, Analyst
The question is basically there are roughly 4 points regarding shipment visibility mentioned in the prepared remarks. I can identify about 1 point of that as seasonal. The rest, is it due to incremental innovation or other proactive initiatives you have? Or is any of that related to the 6-point retail reduction in Q2? I couldn't determine because there was a comment about retail inventory being in line with current levels for the full year. So, I wasn't sure if you would be recovering some of that or if it pertains to the rest of the shipment visibility and other aspects. Thanks.
Steve Voskuil, CFO
Sure. The back half guidance doesn't require any increase in retailer inventory. So, like I said, we're at a level now that we might have expected to be at. The end of the year would be typical, but we're not expecting any increase in retailer inventory. And as far as some of those drivers we touched on some of them earlier for the back half, and you have as well, we will have more innovation relative to the first half, season will play a role. We'll have some easier laps in a couple of businesses. We mentioned in the prepared remarks, international will have some easier last salty as well given the ERP implementation there in the fourth quarter of last year. So, those are the things that give us confidence in what we can do from a business standpoint in the back half.
Chris Carey, Analyst
Okay. Great. Thank you.
Rob Dickerson, Analyst
Great. Thanks so much. Maybe just a quick question for Steve. Just in terms of those levers, right, I mean clearly, you've outlined the $700 million in gross savings. I think it's through '26. So I'm just curious, kind of given the clear elevated cocoa cost situation, like is there a little bit more flex in those savings maybe to help offset some of those costs, or you just kind of pre-plan that too well, there are reinvestment needs that have already been earmarked, and we'll see what we can do, but not really? That's the first question.
Steve Voskuil, CFO
Yeah. I'll say we're very focused on the cost side, absolutely. And so, as we look through the transformation work, as we look through the ongoing productivity work and even now moving past ERP and some of the savings we can leverage off the back of that, so all of those things are helping us focus on costs to help make some impact on what we can do from a cost savings standpoint. And as we said, we're expecting a net $300 million savings over that period. So, if not $300 million, then reinvest portion. We want $300 million net after reinvestment to hit the P&L.
Rob Dickerson, Analyst
Yeah. I guess I would just say like, could you take the $300 million to like $350 million because maybe the cost situation changed? I mean, it sounds like you're not budgeting...
Steve Voskuil, CFO
Sure. Yeah. Well, I would just say we felt like we went pencils down on cost savings once we put that program in place. We continue to look all the time for cost savings. And believe me, all the pressure is up to find more.
Michele Buck, Chairman and CEO
Sure. I have a question for Michele regarding the ongoing decline in discretionary spending on chocolate. I'm curious because we've noticed significant and consistent growth in the sweet segment of the business, which could also be considered discretionary and is a smaller portion of the overall U.S. confectionery market. So, first, why do you think there has been a shift among consumers towards non-chocolate confections? Secondly, how extensive do you anticipate the Shaq-a-licious launch to be as we move into the second half of the year? Lastly, are there any potential acquisition opportunities that might interest you, without needing to mention specific names? Thank you. Yeah. So first of all, I'd say chocolate is still growing. And the non-chocolate growth that we're seeing doesn't appear to be sourcing much from chocolate. We do believe that there's growth in that area due to some of the kind of the emotional factors around fun, dress release, and frankly, there's been a lot of news and innovation in that segment. So, in addition to value playing a role, there are many other main drivers, I would say, that do make sweets appealing, and it's one of the reasons that we've really ramped up our innovation in that space with Shaq with the launch of a new form in the back half and continued investment in those brands.
Rob Dickerson, Analyst
All right, fair enough. Thank you so much.
Michele Buck, Chairman and CEO
Thanks.
Steve Voskuil, CFO
Thank you.
Operator, Operator
Thank you. Our next question comes from the line of Stephen Powers with Deutsche Bank. Please proceed with your question.
Stephen Powers, Analyst
Good morning. Thank you so much. So, I know we're late in the call. I wanted to ask maybe kind of a wrap-up and longer-term question. A little over a year ago, you obviously outlined a number of initiatives to drive the next phase of long-term growth for the company at your Investor Day. And a lot of news at that time a discussion around upgraded commercial capabilities, digital network and supply chain optimization, workforce planning, et cetera. A lot of that you've touched upon in bits and pieces today as well. But I guess when you step back, just given all the volatility you've experienced in the time since that day, and kind of what you see ahead over the next 12-plus months, how would you assess your ability to keep pace with the cadence of change and improvement that you had envisioned during that Investor Day? Have you been able to largely keep pace amidst all this noise, or are there areas where the honest assessment is you'll have to do some catch-up when the demand and cost environment hopefully stabilizes?
Michele Buck, Chairman and CEO
Well, I would say we have continued to drive really hard on all of those capabilities around digital workforce planning, etc. Steve referenced the transformation program. And that transformation program includes a lot of those components, and we have continued to make progress on that. So, starting with the completion of S/4, which we were able to successfully do, so that is now behind us. That was the foundation. Many of the work streams that enable us to deliver the transformation cost savings that we are on track to deliver involve technology and automation and digital solutions to enable that. So, those things are continuing to move ahead. So, I'd say it's kind of an 'and', which is dealing with the current pressured environment and continuing to drive ahead on all of those initiatives that are part of the transformation.
Stephen Powers, Analyst
Okay, great. I appreciate it. Thank you.
Operator, Operator
There are no further questions at this time. I'd like to turn the floor over to Ms. Naughton for closing comments.
Anoori Naughton, Senior Director of Investor Relations
Thank you all so much for joining us this morning. We look forward to catching up with you in the coming days and weeks. Have a great rest of your day.
Operator, Operator
This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.