John Reed: Yes. We have — I mean, keep in mind, almost half of our product is made in United States, which we’ve always made our upholstery in the United States and some other products are being made here. So that takes almost half the business off the table. The other strong parts, where we’re strong in Mexico, we buy a fair amount of product, and in Europe, we buy a fair amount of product, especially Italy. None of that is affected by the Red Sea at all. Some of the Asian things were, but we just have rerouted them and we’re not seeing significant cost increases with that. So we’re not — right or wrong, we’re not worried about the Red Sea part of the business. And again, it’s maybe 20% of our business that may go through there, if that. So it’s not going to be significant.
Dawn Phillipson: Yes. Just to layer on there, I think over the last few years we have seen some slight adjustments in products coming domestic versus international. So the number is a little bit lower coming from domestic these days, it’s closer to probably 30% versus the 50% when we IPOed. But to John’s point, we have layered in some slight increases in the back half of this year for freight costs related to Red Sea just from a guide perspective. We’re cautiously optimistic that we won’t see significant increases in the cost. But I think it’s prudent just based off of what we know today and what we’re seeing, to have something factored in there. And then just to reiterate John’s point, we are seeing a few week delay in certain containers, but we’re managing that really well up front with the clients and so far haven’t seen any kind of client kind of issue or ordering issue related to the Red Sea delays.
Peter Benedict: All right. That was super helpful. Thanks so much, guys. Good luck.
Dawn Phillipson: Thank you.
Operator: Thank you. Our next question is from the line of Steven Forbes with Guggenheim Partners. Please go ahead.
Steven Forbes: Good morning, John, Dawn, Jen. I was wondering if you could expand on what’s driving the acceleration in demand trends during February. It would simply the weather compare month-over-month? Or is the core accelerating? And any early reads on how the consumer is engaging with the new outdoor collections, noting it may be early, but John, you sound super excited about the product. So really would love to hear your sort of early thoughts on how the consumer engagement is.
John Reed: Sure. The — first of all, that February versus January, it was really the first two weeks of January that we were affected. Just I mean you guys heard the news. I mean, the news scared the hell out of basically everybody in the country except California and Florida, I think, and rightfully so there was some nasty weather there. Once we got through the first two weeks, we actually saw positive trends for the last two weeks of January, and then, of course, in the February. So it was kind of a blip with weather. And we’re not giving that any worry whatsoever. Our product is strong. It’s resonating very, very strongly. As far as the outdoor products, we just launched our new and by far best catalog. Hopefully, you’ve all received it.
If not, let us know, we’ll get one in the mail to you. But it is by far the best product ever. We put together, assembled a new outdoor team about three years ago, 3.5 years ago, and they are really running at full speed in 2024. So we’ve got great product. The results so far have been incredible on us. Literally, Cadillac just hit days ago. But the response we’re hearing from the stores, from our clients is fantastic. We’ve got some very fresh things, things nobody else in the world are doing. And it’s great style, incredible quality at a fantastic price. So we think outdoor is going to be strong this year.
Peter Benedict: Thanks for that. Maybe just a quick follow-up capital structure, extremely strong balance sheet, free cash flow profile. You announced a special dividend, but maybe sort of give us some preliminary thoughts on the 2025 pipeline. Is there an opportunity here to accelerate store growth? Are you thinking about potentially accelerating store growth, or how are you sort of thinking about the right rate of store growth or square footage growth over the coming years?
John Reed: Right. Right. Well, as you know, we’ve been saying we did quite a bit of new store growth, renovations last year and also this year going into 2025 and beyond, we’re shooting to go back to our very well planned, very strategic growth plan, which is five to seven full size stores a year, and then add on a couple more of the design centers as we see fit. So we’re not looking to expand beyond what we been planning all along, and we’re going to stick with our strategic plan.
Operator: Thank you. Our next question is from Jeremy Hamblin with Craig-Hallum Capital Group. Please go ahead.
Jeremy Hamblin: Thanks. Congrats on the strong results. Just want to come back to the last point here on the showroom growth and just see if we could clarify, make sure that we’re interpreting the right way. The mid to high-single-digit showroom growth on a long-term basis that you had mentioned on. So in term — are we thinking about that on a percentage basis or are we talking about still five to seven showrooms per year FY2025 and beyond?
John Reed: Go ahead, Dawn.
Dawn Phillipson: Thanks. Yes. So I think on a percentage basis makes sense in the near-term, the five to seven feels like the right number adding on, that’s five to seven traditional with incremental design studios on top of that.
Jeremy Hamblin: I see. Okay. That is — that’s helpful. And then in terms of just looking at your gross margin profile, I think you had said that you expect to see some nice improvement on that in second half of 2024. And it seems based on where your sales levels are falling, maybe fewer pricing action, dragging on mix on a go-forward basis, are you planning for like kind of a solid step-up in your gross margin profile as well as we get into the out years?
