Jamere Jackson: We like the investment profile that we have today. And we have been very, very clear that we’re investing in SG&A at a pretty accelerated pace and have done so over the last couple of years or so, and that’s come in the form of store payroll, particularly around our commercial program, but also IT. And these are the kinds of things that are enabling us to drive the growth initiative in commercial. For example, Phil mentioned what we’re doing on delivery times. The work that we’re doing to improve our delivery times is all underpinned by investments that we’ve made in technology that make it easier for us to deploy drivers and, quite frankly, give us a better opportunity to tell our customers exactly where our drivers are in the route and how fast they’re going to get the parts.
So, those are some of the examples of things that we’ve invested in, and we’re going to continue to do that. And that investment profile is going to pay dividends for us, in terms of speed, in terms of productivity and in terms of better results, in terms of customer service.
Phil Daniele: You also — you mentioned price, specifically on the DIFM side. And although we made a price investment several years ago, today, we like our pricing strategy. Now, the pricing is always a pretty dynamic point of our business, and we’ll continue to monitor that. But we like where we are from a pricing strategy today. So we don’t see any major or deviation from our current pricing strategy.
Operator: Your next question is coming from Zach Fadem from Wells Fargo.
Zach Fadem: So when you look at the sequential uptick in your commercial business, but also a sequential downtick in DIY, can you help us parse out the impact of broader industry trends versus your own idiosyncratic factors? And as you put these together, is it fair to say that you expect Q2 and fiscal ‘24 as a whole to look a lot like Q1, or are there factors that give you confidence in both DIY and commercial acceleration as we move through the year, even if the industry is slowing?
Bill Rhodes: Yes. I’ll separate the two. First of all, we’ve been in the retail business for a very long time. We’ve had lots of periods of time where we grow in the 0% to 2% kind of range. We’re coming off a period of time in the pandemic where our retail volumes went up 25% to 30%. And we are, frankly, tickled to death to still be holding on to those retail volumes, and we believe we’ve retained about 85% of the share that we gained during that three-year period of time. So we’re very pleased with that. We always want to grow faster. We’re basically flat this quarter. We’re trying new things, but we’re pleased with where we are in the retail business. We aren’t pleased with where we are in the commercial business.
But let’s don’t forget, this quarter’s comp of 5.7% is comping against about a 15% comp last year. So while we didn’t meet our goals or aspirations in the quarter, 5% or 2%, we’re not disappointed. We’re not discouraged. We know we have a long runway to go in the commercial business. Again, we’re going to play this in decades, not quarters and years. We feel like that depending on the weather in the second quarter, it’s probably going to look similar to plus or minus 1% or 2%, similar to what we’ve seen in the first quarter. Our hope and our plan is to accelerate, particularly on the commercial side of the business as we enter the second half of the year and we continue to improve our execution.
Zach Fadem: Got it. And then for Jamere, I just wanted to follow up on the gross margin, up about 280 basis points. I think you said about 208 basis points of that was LIFO. So first question is, how do you expect the LIFO impact to trend in Q2 and going forward? And then, if we look at the other 70 basis points of benefit from the supply chain and merch margins, is it possible to talk a little more about the impact of these two individually going forward as well as the impact of mix?
Jamere Jackson: Yes. So, if you think about LIFO, we’ve got about $57 million or so that we still need to get back through the P&L before we sort of wrap up that piece of our discussions, hopefully. We expect this quarter to be in the 5 to — call it, 5 to 10-ish ZIP code, depending on what we see in terms of deflation. And the cadence going forward is likely going to be in that ZIP code. If it changes, as we’ve done in the last few quarters or so, we’ll give you our latest update and our latest guidance. And if you think about what we’re doing from a gross margin standpoint, again, if you look at our business over the long term, we typically have driven gross margin improvement from a merchandising standpoint in that, call it, 30 to 35 bps range.
And what we said after we came out of the pricing changes that we made a couple of years or so ago that we would continue to run that play with discipline and intensity and be able to drive that. From a supply chain standpoint, again, we are improving in supply chain, but it is largely because our supply chain was under tremendous pressure for a couple of years or so. So I wouldn’t expect that portion to be 40 bps every single quarter, but we’re making steady improvements there. And last quarter, in particular, was a tough quarter from a supply chain standpoint, and our teams have done a great job of turning that around.
Operator: Your next question is coming from Simeon Gutman from Morgan Stanley.
Simeon Gutman: Can you hear me now?
Bill Rhodes: Yes, we can.
Simeon Gutman: Okay. Sorry about that. I guess the AirPods don’t work. I wanted to ask about gross margin and get your temperature on this that the input cost environment is somewhat unique, forward pricing is coming in a little bit, freight costs are coming down. Is it a unique moment? You mentioned you’re not going to — you don’t see a need to reinvest in price. What happens to any excess because this industry has pretty good pricing power, do prices come down or is that potential benefit to the gross margin?
Jamere Jackson: Well, I think what we’ve said historically, and you’ve seen us certainly behave this way is that as we saw inflation in the business, we took pricing accordingly. And as we come out of that, particularly with things like freight starting to come down, that is an opportunity for us to improve the gross margin profile of the business. The pricing environment has been incredibly rational, has been for decades, and it’s certainly behaving rationally today. And so, we don’t see a need to go deliberately invest gross margin improvements and the pricing to drive demand. But if the case was that we thought that the pricing bands which we’ve established that have helped us grow our market share sort of got out of line, then we would not hesitate to go invest gross margin and be able to go do that to drive units and to drive market share growth.
But the environment that we’re operating in today is very, very rational, and we believe that the gross margin improvements that we’re seeing today are an opportunity for us to expand margins and ultimately add more calories to the bottom line.
