Keith Hughes: Thank you for the question on the actual quarter. The value-added products saw pressure with the rest of the market, didn’t really outperform the company average as much as normal. I’m just wondering about specifically in the quarter, what was going on there and what the next couple of quarters you think looks like in those products?
Peter Jackson: Yeah. No. That’s a good question, Keith. One of the things that obviously drew my attention was that number this quarter and making sure that we understood exactly what was going on in the business. I’ll start by saying, we feel very good about the number. It has performed better than expected versus the starts over the last year and it’s given us confidence that both the volume and the margins are real and sustainable. What you’re seeing in the comps, though, is that last year when the thing — when the market, when single-family starts really started to turn down, we saw a massive and meaningful impact on the lumber and lumber sheet goods, right, the core commodity component of our business. That turned down quick, but at the same time, we were still seeing growth in our value-added categories.
The manufacturer product, window stores and millwork, all still growing as we were working through all that backlog, right? The extended cycle times by the builders, the lack of product by the vendors, that was clearing. So that was a dynamic last year. This year, we’re lapping that. And so what we’ve seen is that, well, statistically or on a percentage basis a bit weaker than some of the other categories and looking worse on average. It’s actually in line. It’s just a little bit of timing in terms of the year-over-year. So, still feel good about it, still investing, still seeing the benefits, both on the profitability and the revenue line, but a little bit of comp issue.
Dave Rush: I would just add that, the thing I pay attention to is what’s the average backlog in our plants today? Very healthy, three-week to four-week backlog. That’s where we want to be because we want to be at that level of customer service as well. We’re seeing that still stay steady and healthy.
Keith Hughes: Okay. Thank you. One other question on the price deflation in the quarter. Is that all lumber or are there any other products where you’re seeing prices deflating year-to-year?
Peter Jackson: I’d say in general, it’s across the Board. We’ve talked a lot about inflation and some of the impacts there. Some of that has pulled back. We’ve seen certain categories pull back. We’ve seen the competition increase and some of those margins erode. Clearly, the bulk of it, the vast majority of it is on the commodity components, but we’ve seen a little bit elsewhere, probably value add, no, not probably, value add the least in terms of margin normalization, but across the Board, I think it’s fair to say.
Keith Hughes: Okay.
Dave Rush: Yeah. Were you asking about price or our costs from vendors?
Keith Hughes: I was — well, really both. I mean, just in general, between both coming in and out of the warehouse, besides lumber, are there any specific products that you would call out that’s seeing more deflation than others?
Peter Jackson: I think we’ve talked about it in prior quarters, there are a couple of categories that we’ve seen make some moves, probably, the better, the most obvious example is after commodities is engineered lumber. They had some pretty substantial price increases and have given a portion of that back. I would say in general, though, it’s been fairly modest.
Keith Hughes: Okay.
Peter Jackson: Good news is there have been cost increases for the most part that’s leveled out. We’re back to a regular, normal increase for cost of inflation and that’s it.
Keith Hughes: Okay. Great. Thank you.
Dave Rush: Thanks, Keith.
Operator: And we have our next question from Collin Verron with Jefferies.
Collin Verron: Hey. Good morning, guys. Thank you for taking my question. I appreciate the color in single-family and multifamily. I was just hoping you can walk us through how you’re thinking about the R&R end market in the potential 2024 scenarios, kind of what informs your assumptions around those markets and maybe how the R&R business stacks up from a margin or product mix perspective?
Peter Jackson: Yeah. I mean, R&R is fairly small for us, as you know. In that 20% of the business range, it’s inclusive of our retail and commercial categories. So that’s — there’s a lot in there. In general, what we’ve seen is that we’ve had a bit more capacity available as the overall market has slowed and that’s allowed us to focus in and we’ve had some success. So while there have been, we see it as well, some headlines out of the economists that the investment side on the R&R might be pressured, we’re feeling pretty good about what we’ve seen so far and our ability to fill available capacity by just offering our better services and product portfolio and expertise to categories of customers who want it but haven’t been able to get access to it.
Collin Verron: Great. That’s a helpful color. And then on the gross margin side, I think in the quarter it held up better than I think your previous guide would have implied. Can you just walk us through why margins were more resilient this quarter than you anticipated and maybe help us think about the step down in margins and how quickly you think that that could happen to get to that longer term guide that you’ve put out there?
