Doug Black: Yes well, we saw, if you will, the drop in 2023, right? So, as it turned out for the year, repair model, at least for us, was down, it was weaker. And we saw that, kind of across the country with high interest rates, low housing turnover, and like I said, just an adjustment from the go-go days of COVID. But we really feel like that’s stabilized. I mean, that’s just talking to our customers and seeing the sales that we’re getting and backlogs, etcetera. We feel like it’s just kind of adjusted and that now it will be fairly stable. So we don’t see it getting worse. And again, we’re playing at the higher end of homes. You can see interest rates starting to come down a bit. We can see projects in the pipeline at least for the first quarter, first half of the year. So it’s just the rate that we’re getting from customers that we feel like it will be flattish in 2024, coming off of a down year in 2023.
Damian Karas: Got it. That makes sense. And then I wanted to ask you specifically about hardscapes, which continues to become an increasing proportion of your business. If my math from the slides is right, hardscapes was up something like mid-teens in 2023. Does that sound about right? And I was wondering if you’d maybe be able to give us a sense for how much of that is coming from acquisitions versus the underlying hardscaping business, how it’s been performing. Thanks.
Doug Black: I don’t know the specific math, John and Mike, but that would be mostly through acquisitions. We saw hardscapes kind of hanging in there. Obviously, hardscapes is tied to repair or remodel. So the market was going the other way for hardscapes. I would say hardscapes for us longer-term is a great product line. Net-net, it’s going to grow faster than the market because you still have some penetration going on there. It’s a good profitable part of our business and we’re excited to continue to increase the amount of hardscapes we have in our overall mix. But those types of numbers, that would have been additions through acquisitions, not an organic type of performance for 2023.
John Guthrie: Up until 2023, hardscapes has been one of our strongest growers. In 2023, it’s primarily, as Doug mentioned, tied to repair and remodel. So there was a pullback on a volume basis. The other aspect of it, just in the mixed percentages, is that one big drop was fertilizer and it’s because of the deflation. So it kind of came down. Hardscapes grew through acquisitions. Those are the primary mechanics that drove this switch in our product mix.
Doug Black: Did that answer your question?
Damian Karas: Yes, thanks guys. Appreciate it. Best of luck.
Operator: Our next question comes from Andrew Carter with Stifel. Please proceed with your question.
Andrew Carter: Hey, thanks. Good morning. Pricing got worse in the quarter, though. I know it’s not perfect, but the index price has actually got a little better. So what I wanted to ask is, is the dislocation issue getting more — did that get worse of trying to kind of price down to the competition? And if you could, there’s a headwind there from the mismatch of you have to match the market, but then not get the full favorability in input costs. How big is that headwind in gross margin? Did it grow? Does it improve from here? Anything you can help me out on that? Thanks.
John Guthrie: I would say, the price difference was similar in Q3 — in Q4 as in Q3, maybe not as tough as it was at the end of Q3, but — and maybe it got a little bit better as we finish the year than it was in the beginning of the quarter. But in general, we were still in a deflationary environment, it was 5%, which is kind of where we thought it would be and it’s — we are seeing improving so far this year, though, obviously, the year is still there. We had previously talked about kind of the dynamic where we look back on kind of price cost and that variance relative to like pre-COVID. And that dynamic, we were probably 40 to 50 basis points below kind of the price cost ratio there that we had there. And this is a variance to kind of like, I would call it, equilibrium, where we were above equilibrium and then now we’re probably 40 to 50 basis points below equilibrium from that standpoint.
We expect that kind of that kind of switch in the second half of this year, which is what we talked about on the last call. That has not changed.
Andrew Carter: Second question I have, and then if I put like the high end of your EBITDA guidance on what I think is the low end of your sales, I get a 10% EBITDA margin. You’ve said 13% to 15% in the past. So at best, we’re looking at 50 basis points EBITDA margin expansion this year. Is it going to be a slow plod consistent of getting there? Is there some kind of step change initiative once you reach some kind of scale? And is there any way you could give us kind of the margin differential by vintage, i.e., branches that have been in the portfolio for 6 years versus 2 years? Anything to help us and give confidence in that path to 13% to 15%. Thanks.
Doug Black: Yes. So I think it will be a gradual steady climb. As John mentioned, we switched from the price realization tailwind, which obviously carried us in 2021 and 2022. So 2023 becoming a headwind, that headwind will continue in 2024. We’ll make progress in 2024 despite that, but that will come back to us in 2025. So we got some juice, if you will, for 2025 that comes from that headwind going away and going back to equilibrium. And then I think you’ll just see a steady climb. There’s no one event. There’s a lot of things pointed at that. On the gross margin side, as we grow with our small customers, we drive our private label brands. And as we do some of our own initiatives and freight and otherwise, we attack that gross margin.
And on the SG&A side, with siteone.com and MobilePro and the technologies that we’ve deployed, with our TMS and freight management, which we’re now focused on the last leg of delivery, and that’s going to help us on the overhead there. As we further leverage our DCs and our center, we’re going to get SG&A leverage there. And quite frankly, as we spread best practices across nursery and hardscapes, which are the more operating-intensive parts of our business. So with the combination of those, we had kind of steadily toward that. And just to give confidence, we have whole regions that are $500 million, $600 million of sales already in that, and they’re fully loaded with our overhead and our head office overhead, etcetera, already operating there.
So we’ve got hundreds of branches already operating. We’ve got many operating above that. So we see it all over SiteOne. It’s just getting the average up to that level, and we’re very confident we can do that.
Andrew Carter: Thanks. I’ll pass it on.
Operator: Our next question comes from Matthew Bouley with Barclays. Please proceed with your question.
Matthew Bouley: Hey good morning. Thanks for taking the question. I just wanted to ask on the volume cadence. I think to the extent, your organic daily sales are down mid-single digits year-to-date and assuming you’re kind of in the same price bucket, I don’t know if that means your volumes are kind of flattish so far this year. And so the question is, as you move forward, I do think the comparisons on volumes year-over-year perhaps get a little bit tougher as your volumes did grow for most of last year. So how are you guys thinking about that cadence of volumes in Q1, Q2? And kind of what’s assumed in the guide from a volume perspective in the second half? Thank you.
Doug Black: Yes. I think, again, the near-term sales and the weather don’t give you a read on volume. So I wouldn’t take too much into — well, we’re here in January, etcetera, because the weather really moves things around in January and February, and it can change from week to week and then you hit March, and it could change even further. So I think what we believe is that the market is stronger, right? Residential is going to be stronger. We think repair and remodel will be net stronger, meaning it won’t be down. We think it will be flattish. Maintenance is solid and commercial is still solid, right? And so if we take that backdrop and we look at the comps from the prior year, we think the volume growth that we’ve seen in the third and fourth quarter is going to continue.
And as we hit the third and fourth quarter of 2024, we’ve got price, we’ve got the price headwind abating and we still have strong markets, and we’ve got stronger teams where we can drive more volume. So that’s kind of how we think the year will play out outside some of the weather movements that we’re seeing here today. So in general, we feel good about the forecast there and our ability to go generate consistent volumes throughout the year.
Matthew Bouley: Got you. Okay. That’s helpful. Thanks for that Doug. Then second one, the — I don’t know if it’s possible to kind of call the ball on gross margins beyond Q1 on a quarterly basis. But I guess my question is, given you still have some deflation rolling into the second quarter, and I know you’re saying that, that should turn positive by the second half, is it possible for gross margins to expand on a year-over-year basis when you still have deflation? And so is the assumption that really all the gross margin expansion would come in the second half because you’re past the deflation headwind. Just kind of any color on how that dynamic might play out. Thank you.
John Guthrie: I think directionally, you’re correct. I think there will be more outperformance in the second half of the year. I think Q2 is a little too early to call, but we — certainly, I would say we will on a — just on a year-over-year basis, we will be in a whole in Q1. Q2 we’ll be digging ourselves out, maybe slightly positive, then we would expect outperformance in the second half of the year.
