meaning of "gross margin dilution"

puk999

Pets at Home's interim H1 FY18 results issued today contain the sentence "we are accelerating our investment plans and now expect Group gross margin dilution of 200-250 bps"

The phrase that threw me was dilution. Googling that threw up loads of results about diluted EPS which isn't what I want.

Can't figure out if they're saying

1. FY18 group gross margin is expected to be between 2% and 2.5% higher
2. FY18 group gross margin is expected to be between 2% and 2.5% lower
3. Something else

The group gross margin is listed today as being 1.98% down compared to H1 FY17. Are they suggesting over the whole financial year, that gap will grow to 2%-2.5%?

bengalknights

Dilution would suggest they expect it lower that target

bowlhead99

Presumably means: as they are accelerating the investment plans they will have more new business at low or no margin (maybe just a bunch of extra costs and no real revenue to go with it until the investment starts to pay off) which will dilute the high margin that would have been getting before, so that overall their gross margin rate is 2-2.5% lower than it would have been.