GIS earnings call for the period ending March 31, 2024.
Image source: The Motley Fool.
General Mills (GIS -4.52%)
Q4 2024 Earnings Call
Jun 26, 2024, 9:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good morning, and welcome to General Mills’ fourth-quarter fiscal 2024 earnings conference call. All participants are in a listen-only mode. After the speakers’ remarks, we will have a question-and-answer session. [Operator instructions] As a reminder, this conference call is being recorded.
I would now like to turn the call over to Jeff Siemon, vice president of investor relations and treasurer. Please go ahead.
Jeff Siemon — Vice President, Investor Relations and Treasurer
Thank you, Julianne, and good morning, everyone. Thank you for joining us today for our Q&A session on our fourth quarter and full year fiscal ’24 results. I hope everyone had time to review our press release, listen to our prepared remarks, and view our presentation materials, which we made available this morning on our investor relations website. It’s important to note that in our Q&A session, we may make forward-looking statements that are based on management’s current views and assumptions.
So, please refer to this morning’s press release for factors that could impact forward-looking statements and for reconciliations of non-GAAP information, which we may be discussing on today’s call. I’m here this morning with Jeff Harmening, our chairman and CEO; and Kofi Bruce, our CFO. So, I think we can go ahead and get to the first question. Julianne, can you please get us started?
Questions & Answers:
Operator
Certainly. [Operator instructions] Our first question will come from Ken Goldman from JPMorgan. Please go ahead. Your line is open.
Ken Goldman — JPMorgan Chase and Company — Analyst
Hi. Thank you very much. I appreciate it. I wanted to make sure rather that I understood the dynamics in international.
It’s a bit of a specific question to start. But the commentary in the prepared remarks about consumer challenges might indicate that volume would have been more pressured than price/mix, but it was the latter that was down by a greater degree. So, I’m just curious if you can walk us through the dynamic there and if there were any unusual puts and takes this past quarter. And then I have a broader follow-up.
Kofi A. Bruce — Chief Financial Officer
Ken, thanks for the question. This is Kofi. So, as you know, our organic sales were down 10% in international in Q4. A bit more than half of that came from a reclassification from net sales to cost of goods sold in Q4, an adjustment that was immaterial to the company’s full-year results but, obviously, important in the quarter for the segment.
The rest of the decline in international was really a function of the difficult market conditions in both Brazil and China. Our Brazil performance, specifically both the consumer environment and value challenges at the shelf, as well as the customer environment where customers were reducing inventory levels pretty significantly versus last year. And then China, after a strong start to the year, we saw a real soaring or downturn in consumer sentiment in the quarter that had a negative impact on our shop traffic for Haagen-Dazs and our premium dumpling business. So, that’s —
Ken Goldman — JPMorgan Chase and Company — Analyst
Oh, sorry.
Kofi A. Bruce — Chief Financial Officer
Yeah, that’s about it. Yep.
Ken Goldman — JPMorgan Chase and Company — Analyst
I’m stepping on your words. I apologize, but I appreciate that. The follow-up is — and thank you for all the detailed guidance you always provide from top to bottom in the P&L every year. I’m curious if you could break out for us a little bit of the cadence of the top line and EPS growth this year, and in particular, if there’s any considerations as we think about modeling the first quarter.
Kofi A. Bruce — Chief Financial Officer
Yeah. I think the — we won’t get too detailed other than to just note that our Q1 results, we would expect to trend below the balance of the rest of the year, primarily driven by higher levels of investment as we step into the year with a focus on improved volume and then, obviously, the comparison against our strongest quarter of performance in fiscal ’24.
Operator
Our next question comes from Andrew Lazar from Barclays. Please go ahead. Your line is open.
Andrew Lazar — Barclays — Analyst
Great. Thanks. Good morning, everybody.
Jeff Siemon — Vice President, Investor Relations and Treasurer
Good morning.
Kofi A. Bruce — Chief Financial Officer
Good morning, Andrew.
Andrew Lazar — Barclays — Analyst
Maybe, Jeff, to start off, I know in the prepared remarks, you discussed sort of a clear mission to drive better volume results through reinvestment, which I know is contemplated in your outlook for ’25. And you mentioned prominently the need to improve sort of the value equation for consumers, even mentioning optimizing price points in certain areas, a 20% increase in coupon spending sort of as examples. And I know the consumer measures value in lots of different ways, not just price. So, I was hoping to get maybe a better sense of how the mix of incremental spending for ’25 is sort of broken out across what would you consider higher-quality sort of brand equity building versus, let’s say, more trade or price-oriented spend, particularly as this is such a sort of a hot button topic among investors right now.
Jeffrey L. Harmening — Chairman and Chief Executive Officer
Yeah, thank you, Andrew. That’s right. I mean, improving value is really the No. 1 mission we have to get competitiveness.
If I take a step back and look at this past year, our categories in terms of volume performance and comp performance improved through the first half of the last year, which was — they were down 2.4% in terms of volume or categories to up 0.5% in the fourth quarter. And I think that’s important because as we had talked about previously, there were a few events in the back half of our fiscal year which we thought would improve category performance. And they did. Gradually, they did, and that really is the lapping of pricing from a year ago, lapping of SNAP benefits, and the on-shelf availability of private-label and some other smaller brands.
And so, that indeed took place. And so, the job for us to do now is to increase our level of competitiveness. And the fact is that inflation has been higher than longer, higher for longer than many people assumed it would be, not in food necessarily. Actually, food inflation is actually coming down.
But if you look at the broader macroeconomic environment, we’re still seeing inflation of 3% to 4% in the broader environment. And so, the job to do is create more value for our consumers. As you rightly point out, that value can take place in a variety of ways. And I guess I would start at the point of brand communication.
And the fact of the matter is, we will have a meaningful increase in the amount of spending we have on consumer spending next year. You’ve probably done the math and seen that our productivity levels are higher than what we see for inflation, so our gross margin should be OK. And so, the job to do then is to spend the money there wisely, and we start with brand communication. And so, we have a meaningful increase, but also again some really good news.
I start with pet food and wilderness. We have some new advertising coming up next week. I just saw it yesterday. It’s fantastic advertising.
We’ve already gotten Life Protection Formula back to growth and Tastefuls, so now wilderness has a job to do in pet. If you look at what we’re doing in cereal, another big global business for us, we’ve got great taste news coming in our cereal category. The Kelce Brothers are highlighting that in the first quarter, but we’ve got more coming in the second and third quarter. We’re bringing the Doughboy back after a few years, and private label, they don’t have a Doughboy that we do.
And not only is he coming back, he’s got all kinds of news to share about flakier crust and things like that. So, we feel great about that. We’ve got a sponsor in the Olympics in many countries, and then Totino’s has some good marketing. So, we feel good about our brand investment, but also it comes down to the product themselves.
We got really good product news. We have probably twice the taste news that we did a year ago when — in our categories, taste is really king. And so, whether that’s flakier biscuits or cheesier Andy’s Mac and Cheese, or fudgier Betty Crocker or brownies or reducing sugar in our kids cereals in K through 12. Those are all kinds of great taste news.
And our new products should be up somewhere around in the neighborhood of 40%, where we’re investing in new product activity and really good ones on our big brands. So, Fruity Cheerios in the cereal category, Mott’s breakfast bars, which are off to a great start so far this year, as well as Nature Valley lunchbox, which is allergy-free. We know the moms really like Totino’s breakfast rolls. So, we got really good innovation.
And then there is — so, there are a lot of ways that we can add value, variety packs, things like that, but also we’re increasing our couponing by about 20% or so in the beginning of the year. And we have found, because we have a lot of first-party data, which differentiates us from many other manufacturers, we can target effectively with good ROIs, and not every manufacturer can do that. But we have the ability to do that, so we’re increasing our coupon spending. And we have the research that tells us that it’s highly effective when we do that.
So, we’ll do that. And are there some price points we have to sharpen? There are, but there always are. We talked about pet food, it’s wet pet food. We had to get under a price clip, but we didn’t have pricing as much as in other places.
And so, we feel good about the amount of value that we all create for consumers, and that really is job number one as we look at next year.
Andrew Lazar — Barclays — Analyst
OK. Thank you for that. And then just a quick one, Kofi. The commentary around HMM for fiscal ’25 versus cost of goods inflation suggests, as Jeff highlighted, some gross margin flexibility to reinvest.
Given the amount of reinvestment you’re planning, not just in SG&A, but reinvestment that goes against gross margin, can — does your plan, I guess, anticipate that you can at least protect, if not expand, gross margins a little bit for the full year? Or could there still be some gross margin pressure for the full year, given kind of what you need to do across both sort of trade and consumer? Thank you.
Kofi A. Bruce — Chief Financial Officer
Great question. Appreciate the question, Andrew. So, I would say we’ve got enough flexibility that we would see a modest amount of gross margin expansion even with the levels of investment. And the key here is as we look at the business, we’re going to play flexibly with an eye toward investing in growth-driving activity, some of which Jeff did an eloquent job of listing off.
Andrew Lazar — Barclays — Analyst
OK. Thank you.
Kofi A. Bruce — Chief Financial Officer
You bet.
Operator
Our next question comes from Bryan Spillane from Bank of America. Please go ahead. Your line is open.
Bryan Spillane — Bank of America Merrill Lynch — Analyst
Hi. Thanks, operator. Good morning, Kofi. Good morning, Jeff.
I have just — I have one question, and I guess it’s come in a couple of different angles to us this morning. And it really the starting point is just, have you guided low enough for fiscal ’25? And I say that in the context of there’s some reinvestment, right, that or increased investment, I should say, that’s implied in your plan for this year. If we look back over the last four quarters, it’s — we’ve been kind of waiting for the — a term to come around the corner, not that’s just General Mills. I think that’s true across the whole group.
And so, it seems like there’s just more uncertainty in planning the business this year versus most. And just given the opportunity, right, to give yourself I guess more cushion or actually more than that, just more potential money to spend back, why not take that opportunity now?
Jeffrey L. Harmening — Chairman and Chief Executive Officer
Yeah. So, Bryan, thanks for the question. The — you talk about more volatility and uncertainty. I’ve said that for like you said the last five years, so I’m waiting for the year where we don’t have volatility.
And the market does continue to evolve, so there’s no question about that. Obviously, we think we’ve given ourselves enough cushion here without being unduly conservative. And the market — you’re right, the market is — it does continue to evolve. But as I said, we’ve got really good marketing support.
New products are up. We’ve got really good news on our core brands. And so, my expectation is that we would improve our volume performance this coming year, which was down 3% this current year. We would improve our volume performance across our different segments this year.
So, I know that each of our operating segments, whether it’s North America, retail or foodservice or international or pet, are committed to improving our volume performance and our competitiveness. And I’m confident with the level of activity that we have and the news that we have that we can actually do that supported by gross margins that are already good, that are back to pre-pandemic levels already. And as you say, our productivity outstrips what we see as inflation. And so, reinvesting some of that to make sure that we have the fuel we need to drive the growth.
And we’re not counting on a change in the environment necessarily to drive our growth. It really is a change in our competitiveness, and that’s within our control. And so, we feel good about our ability to do that.
Bryan Spillane — Bank of America Merrill Lynch — Analyst
Thanks, Jeff. Maybe just a quick follow on that is, as you’ve planned this year, what’s your expectation on competitiveness? Meaning, do you expect competitors to make similar moves? And just how are you anticipating how the competitive environment would set up this year, again, given just how dynamic things are?
Jeffrey L. Harmening — Chairman and Chief Executive Officer
Yeah. The — well, I certainly can’t speak for my competitors, but we’re all looking for more growth. And what’s been interesting is that the environment has been exceptionally rational, and it’s not — it’s hard for me to see that changing. And the reason I say that is because, I mean, we still have some level of inflation.
I mean, we have 3% to 4% inflation. And so, in that kind of environment, absent leading levels of productivity like we have, it really begs for an environment that continues to be rational. If you look at the last 12 months, promotional spending is up, frequency is up a little bit, depth of discount is up a little bit relative to the year before. But if you look before pandemic, it’s kind of back to that level of promotional intensity.
And as I started out, I think it was Andrew asked a question about value, there are a lot of ways to create value for consumers, and we see that I’m sure our competitors do, too. And so, we’ll be pulling all the levers we can to make sure that consumers know the value of our big brands. A lot of that gets back to the marketing and the product news and everything else.
Bryan Spillane — Bank of America Merrill Lynch — Analyst
OK. Thank you.
Operator
Our next question comes from Steve Powers from Deutsche Bank. Please go ahead. Your line is open.
Steve Powers — Deutsche Bank — Analyst
Yes. Hi. Good morning, and apologies if you hear construction. There’s someone who started drilling as this call started behind me.
I guess the question I have to start is you talk about a roughly equal contribution from price and volume through the year at the company level, which I take to mean sort of flat to slightly positive in each case. I guess, is there any deviation from that as you think about the sequencing through the year or across the different business segments? Or do you expect that sort of roughly equal contribution to be representative kind of across the totality of the enterprise?
Jeffrey L. Harmening — Chairman and Chief Executive Officer
Yeah. The — as we look at it — by the way, I can’t hear the drilling in the background, Steve. But as we look at it, first of all, we talk about price and volume relatively the same as price/mix. And I think that mix piece is really important as we look at it.
I wouldn’t expect undue differential performance from any one of our segments. So, it’s not as to say we’re looking for lots of one thing in one segment, lots of something in another segment. Really, the job to do is really volume growth across the different segments. And I think we have opportunities to improve even in foodservice, which did really well.
We have opportunities to improve across the board. In terms of the sequencing. I guess my only comment would be, as you look at the first quarter of last fiscal year, which was the — which, in terms of sales growth, was our highest sales growth quarter, you’ll see a lot of pricing in that quarter. We’re going up against that as we go into the year ahead.
And so, that probably has an impact on what we see on price/mix in the first quarter, which, as Kofi said, along with some reinvestment, makes the comp in our first quarter the toughest of the four quarters in the year. I would expect gradual improvement as we look at our sales and profitability over the course of the year. And gradual doesn’t mean it happens even every quarter, but gradually over the course of the year with Q1 being the toughest. I would say that’s especially true in North America retail, where the comp from a year ago was quite good.
We had a really nice Q1 in North America retail last year.
Steve Powers — Deutsche Bank — Analyst
Yes. OK. Great. Thanks.
And thanks for the clarification as well. On the — Kofi, maybe going back to where you started or Ken started the call on international, you talked about some of the challenges in Brazil and China in the moment, I guess. Any perspective on how you expect those regions, those countries, those markets to develop as the year progresses? Just kind of what you’ve embedded in terms of contribution in ’25?
Kofi A. Bruce — Chief Financial Officer
Yeah. We are — to just pick up on kind of Jeff’s last point, we are expecting volume improvement in all of our segments, but as we look at international, I think the critical thing for us is Brazil. We certainly see improvement off of this year’s performance and are expecting that similarly so with China. And then continued strength off of performance in EU, AU, and our GEMS markets, which performed really well this past year.
Steve Powers — Deutsche Bank — Analyst
Thank you very much.
Jeffrey L. Harmening — Chairman and Chief Executive Officer
You bet.
Operator
Our next question comes from Alexia Howard from Alliance Bernstein. Please go ahead. Your line is open.
Connor Cerniglia — AllianceBernstein — Analyst
Hello. Good morning. This is Connor Cerniglia stepping in for Alexia Howard. Jeff, I’d like to ask about your ready-to-eat cereal segment.
Measured channel data suggests you’ve experienced a bit more challenged market share dynamics at a time when promotional spend has increased at one of your competitors. Can you talk about how you think about this segment in 2025? And do you continue to see rational pricing behavior, or is there a concern on this front? Thanks. And I’ll pass it on.
Jeffrey L. Harmening — Chairman and Chief Executive Officer
Yeah. I would — we’ve seen rational behavior in cereal, and I would expect that to continue. Our focus is primarily on our game and our competitors’ games. We — honestly, we feel like we have the best brands in the category, and the key job for us to do in cereal is get back to playing our game.
And we had — we had good new product innovation last year. We had the top five new products. Actually, I think some of our product innovation this year is better than we had a year ago. I referenced Fruity Cheerios in the first half.
We have some good new product innovation coming in the second half, but even more important than that is a lot of the news we have coming on our core brands. And our messaging, as I talked about with the Kelce Brothers, but I also think some of our merchandising like in the back-to-school period, making sure we have a big program with Box Tops, which I’m excited about rolling out, and some taste news we have coming in the second half of the year on some big brands, which I promise the brand teams I wouldn’t talk about on this call but I’m excited about coming. And so, our job really is to get back to the core growth on our big cereal brands, which was really good news, and continue the innovation and as good as our innovation was this past year and I thought it was quite good. I think our innovation this coming year has the opportunity to be even better, and early returns would suggests that that will be pretty good.
Operator
Our next question comes from Tom Palmer from Citi. Please go ahead. Your line is open.
Tom Palmer — Citi — Analyst
Good morning, and thanks for the question. I appreciate — based on your earlier comments, you might not want to be overly specific here, but I guess I’ll give it a try. If we exclude the inventory reductions and trade accrual, I think organic sales growth was down around 2%. Should we look at this as kind of a starting point as we enter the year? Or are there other considerations we should be thinking about as we move into the first quarter?
Kofi A. Bruce — Chief Financial Officer
Yeah. I appreciate the question. So, let me see if I can step back and just, if you will, give me a point of privilege here, I’ll try to give you a little bit broader perspective starting at the enterprise and then drilling down to pet and North America retail. So, while we saw the slowdown in organic net sales, I think the critical thing here is we look at our measured retail sales, they’re pretty consistent as we move from Q3 to Q4.
So, as you rightly noted, the big point on the front is three points of headwind from the comparison on the trade expense phasing from Q3 or Q4 of fiscal ’23. At the enterprise level, we also saw a modest decline in retailer inventory in NAR and pet in Q4 versus Q3, where we had a net tailwind. And then I think third and important, I’d reference again the point I made on international that, in Brazil, we had an adjustment to net sales that moved to COGS, which was worth about a point of drag on its own. So, in aggregate, about five points of drag from those three factors as you peel it back.
And then as you look at it on a segment basis at NAR, that trade expense comparison is about four points of drag. We also had — we saw the retailer inventory adjustment impact NAR at about a point of tailwind flipping to or a point of tailwind in the quarter of Q4 versus a point of headwind in Q4. And then we also benefited in Q3 from some weather patterns in NAR. Then as we look at pet, we had about two points of headwind from the trade expense comparison.
We also saw retailer inventory reductions in Q4 versus Q3. And then we did have a modest amount of headwind as well from SKU losses in a few key places. So, in aggregate, that kind of gets you the picture. I think the critical thing here is the read through for you as you’re thinking about how to look at the quarter.
Nielsen’s Q3 to Q4, roughly in line.
Tom Palmer — Citi — Analyst
Got it. OK, thank you. And then in the presentation — in the presentation, you listed M&A above share repo in terms of capital allocation priorities. I had kind of two pieces here.
First, to what extent does the 3% share count decline in guidance assume that free cash flow in excess of the dividend is deployed for share repo versus other uses? And then second — and look I know you’ve been asked plenty about this over the past year, but could you give us an update on your M&A criteria and appetite from a size standpoint? Thank you.
Kofi A. Bruce — Chief Financial Officer
Sure, sure. So, I think I’d first start by acknowledging that our capital allocation priorities have been pretty evergreen. So, I think the first is, clearly, we want to make sure we have and allocate investment for capital spending internally for growth. That’s roughly — 4% is kind of the top number, and we average around 3.5% if you look at the last handful of years.
Second, that we are allocating capital for increasing our dividend, roughly in line with our after tax earnings. And again, we paid a dividend uninterrupted for 125-plus years. And then third, as you rightly pointed out, M&A. And again, M&A is both episodic, and it’s not something we built into the plan.
But generally, as you look at our M&A patterns, unless we’ve done something big, which is pretty rare, last big acquisition was Blue Buffalo, most of the acquisitions we do are kind of in that $1 billion to $1.5 billion price range, which we can easily accommodate with a modest adjustment in our share repurchase patterns. So, share repurchase remains the most discretionary element, and obviously, we will make changes to our share repurchase expectations as we identify and act on M&A opportunities. To your second point around criteria for M&A, obviously, the critical filter for us that we start first with our strategic priorities, which leads us to look at critical occasions, which would get us to priorities around breakfast and convenience — convenient meals and snacking, as well as, obviously, pet food. And I think the criteria for us anchor around places where we can add value, leverage points around our capabilities that will allow us to unlock faster growth, but also improve margins as we execute transactions.
So, we’ve been candidly working with our always-on M&A capability throughout the cycle. We continue to look aggressively at opportunities. At the same time, we’ve remained very disciplined and have very strong filters in terms of both returns and value creation.
Tom Palmer — Citi — Analyst
Right. Thank you.
Operator
Our next question comes from Matt Smith from Stifel. Please go ahead. Your line is open.
Matt Smith — Stifel Financial Corp. — Analystw
Hi. Good morning. I wanted to dive in a little bit on the profitability or the profit performance in the pet segment. You were solidly in the mid-20s even with the volume decline in the quarter.
I know you talked about some increased investment behind wilderness as you try to stabilize that business and get it back to growth. But is this a sustainable margin performance in the fourth quarter that we should look to as we look at fiscal 2025?
Kofi A. Bruce — Chief Financial Officer
Sure. Yeah, let me start, I think we benefited this from both a more stable supply chain environment and our ability to drive higher-than-expected levels of HMM even in the face of the volume declines we saw. We continue to have and capitalize on opportunities, both to internalize production that was previously external, but also to drive HMM that was frankly less available when we were struggling to supply in the supply chain disruption period. So, we feel good about sort of the exit point, what I would — what I think is critical as we look at the business right now is we’re very focused on driving improved volume trends.
So, I think profitability, very competitive, at the 20%-plus level. I wouldn’t expect that 24% is the level we would necessarily target. We continue to expect to be able to drive strong HMM and much like we’re doing at the enterprise, I would say, our focus is going to be on reinvesting gross margin improvement back into the business to drive growth.
Jeffrey L. Harmening — Chairman and Chief Executive Officer
Yeah. To back up what Kofi said, I mean, a year ago, we were challenged both on our gross margin and with our sales growth. And I’m really pleased with the Blue Buffalo team and the job they have done to restore the margin profile, and we’ve done a lot of work over the past — over the past year to do that to get us back into a place where the margins over the last year are roughly 20% or so. And so, now the job to do is to — and that’s without volume leverage.
And so, now, the job to do is to really improve our top-line performance, and we feel good about what we’ve done on Life Protection Formula. We’re going to double down on that. We feel good about our Tastefuls cat business, and in the last quarter, we put some more advertising on that. We’ve seen that business get back to growth.
And so we’re going to put more fuel on that. And now the job to do — the next job to do is on wilderness. And we’ve been talking been talking about it for a little while, but we’re putting on advertising on here in July and good levels of advertising behind really good messaging. And so, that really is the job to do.
And to the extent that we can get Blue Buffalo back to growth, I mean, I think the rest of it will flow quite nicely. We do have good productivity, but the real job to do is maintain these really good margins while accelerating our top-line performance.
Matt Smith — Stifel Financial Corp. — Analystw
Thank you. And just a quick follow-up. You talked about some distribution losses in the pet division, any more detail to add to that? Is that something that remains a drag as we look at fiscal ’25 that perhaps keeps volume growth a little less — a little tougher to achieve as we look into next year?
Jeffrey L. Harmening — Chairman and Chief Executive Officer
Yeah. We’ve had some distribution losses a little bit on trees and a little bit on wet pet food and that was because during kind of the pandemic, there were some other competitors who couldn’t supply as well that we couldn’t, so we had some extra self-placement and that’s rolling-off, but it’s really not our big flavors or our big customers. And so, even with that, we’ve seen improved performance on increasingly good performance on our Blue Buffalo business in aggregate if you look at movement. And so, even with that, our expectation is for improved volume performance in the coming year for Blue.
Matt Smith — Stifel Financial Corp. — Analystw
Thank you. I’ll pass it on.
Operator
Our next question comes from David Palmer from Evercore ISI. Please go ahead. Your line is open.
David Palmer — Evercore ISI — Analyst
Thanks. I’ll just follow-up on pet for a second. I know one of the big areas of focus was the specialty pet segment. Clearly, it was a drag into the fourth quarter.
Do you — you talked about in the prepared remarks about revenue growth for pet in fiscal ’25. Do you also see that, that pet specialty segment also stabilizing and growing in fiscal ’25?
Jeffrey L. Harmening — Chairman and Chief Executive Officer
Yeah. So, I’m not going to get into specific channel by channel, but since you ask, I won’t avoid it completely, David. The — what I would say is that — what I would see is an improvement in that channel. We’ve actually seen an improvement in the channel.
Now, the job for us to do is improvement in our own performance, and it really is about wilderness and about getting our sizing right and about working with the retailers there to improve the performance of wilderness. By the way, they’re in on it too. We all want to improve the performance of wilderness, and so, we’re all rolling in the same direction. And so, my expectation would be improved performance for us in the pet specialty channel.
We’ll see what that yields over time. But I feel as if we have the right actions in place to improve our performance in that channel, particularly with wilderness, which is the most important thing to improve.
David Palmer — Evercore ISI — Analyst
And just a question on the baking segment. That seemed to be an area that did very well during COVID. You cited it as one of the areas that was most declining in this quarter. Are you seeing — I just wanted to get your pulse on that segment and be consumer behaviors around that and make sure that it’s not going to be an ongoing drag for you in fiscal ’25.
How are you feeling about that segment and the consumer behaviors around baking and the at-home occasions that would drive that? I know it’s a high-margin segment for you. And I’ll pass it on. Thanks.
Jeffrey L. Harmening — Chairman and Chief Executive Officer
Yeah. So, let me start with at-home occasions. At-home occasions are actually quite high, I mean, about 86% to 87% of food is now eaten at home. And given the challenges consumers are facing with inflation, we would expect that to continue.
So, I don’t see a drag on category performance for at-home eating occasions. So, that would be the first point. The second is that the category itself in terms of volume has hung in there pretty well. It’s our share position, particularly, as we look at Pillsbury that has been the challenge and after many years of remarkable growth.
This past year, we saw a return of private label to shelves some smaller competitors, but mainly private label. And so, this past year, I think is going to be an anomaly. And I think the key for us is really not a change in the environment. The key for us is our change in level of activity.
And I’ll tell you, our plans in Doughboy are quite good. As I talked about, we’re bringing the Doughboy back, but also we’ve got product improvements, taste improvements on things like biscuits, which I think will serve us very well. We have variety packs coming in cookie dough with brands like Reese’s and Oreo and Monster Cookies. And so, we have a really good plan and really good news to share on our Pillsbury business this year.
And so, it’s really within our hands to get us back to growth on Pillsbury, and I feel good about our plans there.
David Palmer — Evercore ISI — Analyst
Thanks for that.
Operator
Our next question comes from Robert Moskow from TD Cowen. Please go ahead. Your line is open.
Robert Moskow — TD Cowen — Analyst
Hey, thanks for the question. Good morning, Jeff.
Jeffrey L. Harmening — Chairman and Chief Executive Officer
Good morning.
Robert Moskow — TD Cowen — Analyst
I wanted to know, you and a lot of your peers have shifted the emphasis more to volume, and I’m not denying the importance of it right now. But it is — it just sounds different than the strategy that a lot of CPG companies have used over the years to create value through premiumization, convenience. That’s been a way to improve margins and improve mix historically. Can you do both of these things at the same time? It seems like there’s a lot of discussion on volume today.
And I’m wondering if there’s still — if the consumer can still absorb or accept more premium offerings in this environment.
Jeffrey L. Harmening — Chairman and Chief Executive Officer
Yeah, Rob. I don’t see it as a trade-off between volume and premiumization. I think it’s an and, I’ll take our Blue Buffalo, which is a premium offering, but Life Protection Formula has done particularly well behind really good marketing. And so, really, that’s one when I talked about value earlier, getting back to really good marketing and really good messaging on our big brands is really crucial.
So, I don’t see a trade-off between getting back to volume and premiumization in the categories. I think it’s an and. And Pillsbury is another example where it’s a premium offering in the category, and we’ve got really good marketing against it. And I think the reason you hear us talking about volume is obviously our volumes were down versus a year ago, and so, that’s really the job for us to do is to get back to that.
But — and I think you’re right to ask, but that doesn’t mean that we can’t premiumize. So, those things are not mutually exclusive. And in fact, I think in many cases, they go together. The key is to make sure that the value that we offer as we think about it is commensurate with the brand itself.
And so, that’s why you heard me talking a lot about the news we have on our big core billion-dollar brands because that really is going to be the key to our success. And we talk about value, a lot of people immediately go to price and that certainly is a component, but it’s not the component. I mean, if you think about it and when consumers feel pinched, one of the most important things they have to do is feed their families. And what they can’t afford is waste, and the family has to really want it, and so you hear us talking a lot of case, news and things like that in this environment.
And so, I appreciate the question. I think it’s a really good one. You hear us talking about volume because, obviously, if that’s the most important job to do, but it is not the opposite of increasing premiumization at the same time.
Robert Moskow — TD Cowen — Analyst
Great. Thank you.
Operator
Our last question today will come from Chris Carey from Wells Fargo. Please go ahead. Your line is open.
Chris Carey — Wells Fargo Securities — Analyst
Hey, thank you. I’ll just wrap it up with a couple of follow-ups. So, number one, Kofi, on gross margins, you said expansion for the full year. In the prepared remarks, you did highlight, however, that gross margin compares harder in Q1, you’ll be doing more couponing in Q1.
Should we expect gross margins to be down year over year to start the fiscal year, then improve as couponing becomes more balanced and comps get easier? Apologies if I missed that, but that would be number one. And then second, just the recurring debate throughout the Q&A this morning has been the sales reaccelerate — or acceleration implied in the outlook. If you just think about SRM, couponing, and perhaps other items, how would you frame the relative contribution of these items to the acceleration that you’re expecting in your outlook for the year? So, thanks so much on those two.
Kofi A. Bruce — Chief Financial Officer
OK. Well, let me start. I would just say on Q1, I’m not prepared to get too much more detail than I already have been, which is — effectively we’d expect the comparison on sales. Jeff mentioned the price/mix comparison component of that obviously, and then profit compared, operating profit compared to the same quarter prior year will be a net headwind.
So, we do expect the complexion of our Q1 to be lower than the subsequent quarters. I’m not going to get too much more detail below that. Obviously, I think, implied in our guidance and our expectations is that we’re going to use all the levers of our SRM toolkit. So, to the point, there’s always a lot of focus on the price component of that, and certainly, that is important in this environment, but I think there — we are using everything from trade optimization to mix will be front and center and focus as we’re pulling the levers of SRM.
Obviously, as we’ve worked through this year, it’s been clear prices — and that price/mix has been less of a driver of sales as we’ve lapped all the pricing from the prior year. But we would expect to continue to use SRM toolkit in its full totality next year. I can’t get too much more specific about the components or the complexion at this point.
Chris Carey — Wells Fargo Securities — Analyst
OK. Thank you.
Jeff Siemon — Vice President, Investor Relations and Treasurer
OK. I think we’ll go ahead and wrap it up there. I appreciate everyone’s good questions and time and attention. And as always, we’re available for follow-ups throughout the day if you have more questions that you need to get to us.
So, I appreciate the time today, and we look forward to catching up soon.
Operator
[Operator signoff]
Duration: 0 minutes
Call participants:
Jeff Siemon — Vice President, Investor Relations and Treasurer
Ken Goldman — JPMorgan Chase and Company — Analyst
Kofi A. Bruce — Chief Financial Officer
Kofi Bruce — Chief Financial Officer
Andrew Lazar — Barclays — Analyst
Jeffrey L. Harmening — Chairman and Chief Executive Officer
Bryan Spillane — Bank of America Merrill Lynch — Analyst
Jeff Harmening — Chairman and Chief Executive Officer
Steve Powers — Deutsche Bank — Analyst
Connor Cerniglia — AllianceBernstein — Analyst
Tom Palmer — Citi — Analyst
Matt Smith — Stifel Financial Corp. — Analystw
David Palmer — Evercore ISI — Analyst
Robert Moskow — TD Cowen — Analyst
Rob Moskow — TD Cowen — Analyst
Chris Carey — Wells Fargo Securities — Analyst
More GIS analysis
All earnings call transcripts