Patrick Baumann: Helpful. And then maybe just one on the balance sheet and capital allocation. So the leverage, I think, is 1.7 times as of this quarter. Just remind us what the target financial leverage is for the company and how to think about your priorities for capital allocation, especially kind of just wondering if you can update us on the pipeline from an M&A perspective? Thank you.
Mark Witkowski: Yeah. Thanks, Patrick. Yeah, you’re right. We finished the quarter at about 1.7 times net debt leverage. That’s definitely an area that we’re comfortable operating in. We’ve said before, we’d be willing to go up to 2 to 3 times leverage for the right opportunities. Our allocation — capital allocation priorities remain our organic growth initiatives that we have. This is a fairly light capital-intensive business from that perspective. M&A continues to be our next priority. Pipeline there is very strong, very active. You’ve seen what we’ve completed this year. We’ve got several other opportunities that we’re looking at currently and in the pipeline. So that continues to be a priority. And then obviously, we’ve reinvested in the share repurchases that we completed during the quarter that will also continue to be a priority as opportunities arise.
And then a little longer down the road, we’ll continue to evaluate dividends as another potential opportunity just given the amount of excess capital that we expect to be able to generate and complete those growth initiatives and potential share repurchases.
Patrick Baumann: Thanks. Sorry, just one follow-up there, just more related to cash. On inventory, how much inventory still opportunity is there from a normalization perspective?
Mark Witkowski: Yeah. I would say we’ve made a lot of good progress here throughout 2023 and pretty significant progress in Q2. I do expect we’ll continue to see inventory rightsizing throughout Q3. And then remember, Q4, typically, we’re seasonally lowering inventory — so you’d expect, I would say, even more inventory rightsizing in Q4 just to align with the seasonal nature of the business. And hard to say yet if we’ll get all the way where we want to be throughout 2023. But that could lead us to potentially some more in 2024, but we’ve been really pleased with the work that we’ve done here through the first half of this year.
Patrick Baumann: Great. Thanks so much. Best of luck.
Operator: [Operator Instructions] Our next question comes from Anthony Pettinari from Citi. Anthony, your line is now open. Please go ahead.
Anthony Pettinari: Good morning. On the ’23 net sales guidance, I guess, down 1% to positive 2%, is it possible to, I don’t know, put any finer point between price and volume in terms of the underlying assumptions there? And then I think in the past, I mean, you talked about kind of a growth algorithm of maybe sort of low single-digit market growth and then Core & Main be outgrowing that. Do you still — do you see that as still kind of intact as we think about sort of 2024 and beyond? Just wondering kind of the long-term view there.
Mark Witkowski: Yeah. Thanks, Anthony. Yeah, on the sales guidance, down 1% to positive 2% for the full year. I’d say, first, one piece of that is acquisitions. We expect that to contribute 3 to 4 points for the full year. And then from an organic standpoint, we do and have seen pricing very stable and expect that to be stable here through the second half of the year. So overall, price contributing in the low single-digit range for the full year. And then from a volume perspective, [that leaves in the] (ph) down mid-single-digit range for the full year. And again, that’s primarily due to the significant softness we’ve seen with resi in the first half. And then as we mentioned, some beginnings of some of the softening we’re seeing on the non-resi side.
In terms of the above-market growth, we’re very confident in our initiatives that we’ve got there across a lot of different product categories that long-term target of 2 to 3 basis points of above-market growth, I would say, is intact. We continue to believe we’ve got that opportunity to continue to pick up share in that way.
Anthony Pettinari: Okay. That’s very helpful. And then just following up on an earlier question, is there a way to think about sort of normalized SG&A margin or target SG&A margin as we think about the long term.
Mark Witkowski: Yeah, Anthony, I think as we think about the SG&A margin, we’ve been pretty consistent to say as we grow sales, we expect to be able to leverage that sales growth, either through gross margin enhancement or SG&A productivity at a rate of about 1.3 times to 1.5 times that sales growth. So obviously, with some of the gross margin normalization and bouncing around, it makes that operating leverage target a little trickier to look at. But overall, I’d say we expect as we grow this business to be able to leverage our SG&A and that fixed cost portion of it. So that can equate to, call it, 20 to 30 basis points a year of improvement at that SG&A rate standpoint. So I think as you look at our SG&A rate from last year and then where we’re tracking this year, as we see that, we’ll continue to leverage as we can grow the business.
Anthony Pettinari: Okay. That’s very helpful. I’ll turn it over.
Mark Witkowski: All right. Thank you.
Operator: Our next question comes from Andrew Obin from Bank of America. Andrew, your line is now open. Please go ahead.
David Ridley-Lane: Hi, this is David Ridley-Lane on for Andrew Obin. Just wanted to ask if you could bridge the change in the adjusted EBITDA guidance. I think it was up about $15 million at the midpoint. How much of that was 2Q outperformance versus the additional acquisitions versus any change in the outlook for the back half of the year?
Mark Witkowski: Yeah. Thanks, David. Yeah, you’re right. At the midpoint, we raised it from $850 million to $865 million. I’d say a good portion of it was due to the better-than-expected gross margin rate that we achieved in the second quarter. I’d say from a — I’d say, from a pricing standpoint, we narrowed kind of the guidance because we’re more confident in the stability of pricing in the sector. And then as an offset, obviously, we’ve talked about the non-resi softness there really was a primary factor in terms of why we didn’t increase the top end of that range as we kind of watch that end market in particular. But I’d say more of that increase at the midpoint was related to the gross margin beat for the quarter.
David Ridley-Lane: Got it. And just maybe more for background, but when you have your pricing or notifications from suppliers, I mean, I would imagine you have a pretty good handle on sort of what the pricing for the back half would be, but I just wanted to ask how much variability could there be in sort of your pricing expectations here over the next, call it, a couple of months?
Steve LeClair: Thanks, David. We’ve seen the pricing remain really firm, and that’s why we have some confidence that will continue through the second half. There may be some puts and takes on a couple of different product categories. But for the most part, just given the level of — from each of these suppliers, many of them are totally dedicated to the sector. So the supply/demand characteristics kind of hold true in that area and help carry a more resilient pricing mechanism. So we’re pretty confident that we’re going to see sustained pricing through the second half.
David Ridley-Lane: Thank you very much.
Steve LeClair: Thank you, David.
