Dorman Products, Inc. (NASDAQ:DORM) Q4 2023 Earnings Call Transcript

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Scott Stemper: Got it. Thank you.

David Hession: Perfect.

Operator: Your next question comes from the line of Gary Prestopino from Barrington Research. Please go ahead.

Gary Prestopino: Yeah, I think I’m going to try and ask this question on new SKUs a different way than what was asked. Historically, about 17% of your sales have come from new SKUs over the last three years. Did that change materially throughout 2023? And are you expecting that to kick up in 2024, given your ability to get new products out in the market?

Kevin Olsen: Hey, Gary, it’s Kevin. Good question. Yeah, we haven’t disclosed that number in a few years, but I would say, you know, the model has not changed nor the cadence of new products as a percent of our total business. I mean, I would say that the one — the one factor that has changed over the last few years is that our chassis business, which is a large, mature, slower growing line, is a much bigger portion of our total business. But in terms of our focus on kind of the small niche categories knew the aftermarket focus, that has not changed, and frankly, the volume has not changed.

Gary Prestopino: Okay. And then just from what you’re saying about, with your guidance, with the quarterly sequence, stronger top line in the back half of the year and continued growth in adjusted EPS in the back half of the year, despite some — you’ll have some challenging comps there, because in 2023 you pulled off some good numbers in the back half of the year.

Kevin Olsen: Yeah. Gary, I think if you look at Light Duty, we said it’s going to be relatively flattish in Q1, the improvement in Q2 into the second half and then both Heavy and Specialty, we expect to see a softer first half with improvements coming in the second half. So, yeah, I think if you look at that, the pacing is going to be the — the growth is going to come more in the second half than the first half.

Gary Prestopino: Okay. Thank you.

Kevin Olsen: Perfect.

Operator: Your next question comes from the line of Bret Jordan from Jefferies. Please go ahead.

Bret Jordan: Hey, on that same topic, I guess, as we look at flat light duty in the start of the year, and I think you said heavy duty challenging and specialty slow in the first half. Should we not factor in EBIT expansion in the first half? Most of this growth is going to come when you get sales leverage going into the second half of the year.

David Hession: Yeah. Bret, the first quarter is typically our lowest quarter, mainly driven by the Light Duty segment. But now the margin growth will be — after the first quarter will be ratable over the course of the balance of the year, but obviously coming a little bit heavier in the second half.

Bret Jordan: Okay. And then you talked about $119 million in inventory safety stock reduction. Are your fill rates or I guess, as you measure your fill rates consistent? Is your flow of product improved enough that you don’t need to carry that? Or has it had any impact on your availability?

Kevin Olsen: Yeah, I mean, Bret, it’s Kevin. I mean, our fill rates are back to kind of pre-supply chain disruption levels. You know, the reason that we had to take on, you know, additional inventory was because our lead times had just grown so much. You know, getting a product from Asia, manufactured on a boat, find a container on the ocean, getting through the ports, getting to our locations was taking a lot longer than kind of the pre-supply chain disruption. That’s kind of back to normal. So we were able to just reduce back to our normal safety stock levels. Plus you also had a lot of cost running off the balance sheet as well, that inflation that gets hung up on the balance sheet and inventory has rolled off as well.

Bret Jordan: Okay. And I guess on that same supply chain question you talked about, I think some investment in possibly source from new markets. Is that something, I guess, could you give us some updates as far as where we are, alternative low cost supply markets versus where you are today geographically.

Kevin Olsen: Yeah. I mean, it’s ongoing, right? It’s been ongoing for a couple of years now. We did talk about the investments, which I would categorize as moderate, and those investments have been going on for the better part of two to three years. You know, we have reduced our exposure — exposure to China, Taiwan over the last couple of years and we expect to continue to do that. We’re not going to give any details in terms of what percentage and what country. I’ll just tell you that it’s wide ranging, whether it’s a Pac-Rim or India or Mexico or Turkey or other locations around the globe. We continue to look to de-risk our supply chain.

Bret Jordan: Great. Thank you.

Operator: That does conclude our question-and-answer session, and that does conclude our conference call for today. Thank you for your participation. And you may now disconnect.

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