Dan Florness: As far as fasteners are concerned.
Holden Lewis : As far as fasteners are concerned. Now I think there’s some information that could be in there, right? I mean when you think about Onsites. Onsites are probably more oriented towards OEM fasteners than MRO fasteners. And so there’s some information in there about how Onsites are going. It gives you a little bit more granularity and the cyclicality because again, OEM fasteners tend to be — while the directionality may be the same, the order of magnitude may be different. So it gives you a little bit of color into that as well. So as Dan indicated, we gathered the data anyway. We saw no reason why we shouldn’t share it. Question is about to come up on the call, and so you can have it.
Tommy Moll: Appreciate it. I’ll turn it back. Thank you.
Operator: Thank you. Your next question is coming from Chris Snyder from UBS. Your line is now live.
Chris Snyder: Thank you. And I appreciate the question. Maybe first, starting on SG&A and the willingness to spend and invest in the business. I felt like the past couple of quarters the message was really tightening the belt in response to lower growth. This quarter, it seems like it’s more willing to spend to support and drive that higher growth. So is that the right takeaway? And do you feel like maybe more spend is needed to get back to the more normalized historical levels of market outgrowth and customer acquisition? Thank you.
Dan Florness: Yes. I guess, I would maybe phrase that differently in one regard. We’ve been investing to grow throughout the cycle. But we had some offsets and we talked about this in the January call, and that was we were closing locations for a decade, and that gave us a little nugget of an offset. As we went through 2023, one nugget of an offset was the fact that in 2022, our earnings grew quite dramatically. And in our incentive comp, which is linked to earnings growth, a big piece of it grew quite dramatically. That softened as we went through 2023 and quite frankly more normalized. And but as we get deeper into that, moving away from the 2022 time frame, some of that benefit isn’t there. So I don’t know that it’s a function of — and I’m looking at it from a growth standpoint and expense, not an absolute.
I think it’s probably more of a function. Our investments to grow are shining through a little bit more now than maybe they were in the last six to eight quarters
Holden Lewis : Yes. And I think really, I think what’s changed is the rate of growth, too. I often get asked, where is that delineation point where you can expand margin or contract margin. And I’ve always said it’s kind of around that mid single-digit number. I think we’ve done a nice job limiting over the last five quarters our SG&A growth to 5% or less in each of them. And at the levels of growth, which were unsatisfactory, but not first quarter 2024 unsatisfactory, we were able to defend the margin. I think part of the point I wanted to make is we’re not panicking over the deleverage. We don’t have a cost problem. But at the same time, there are some things that we’re going to continue to invest in. And when I called out 20% growth in sales travel, I don’t know that I regret that, to be honest, because I think that, that is related to the improvements we’re having in our contract business, the improvements we’re having in our signings, right?
And we’re not going to react to a 2% growth quarter, which we believe is very temporary by beginning to slash costs. I think that was the message. I think as it relates to the other items that we talked about, the Expo and sort of the opportunities we have with a certain customer group that really is just to make a point that we have opportunities that’s going to have a spend a little bit more than we might normally do in a single quarter. And we just felt that we should call that out for you because it does matter as you build your models. But I don’t think that — our approach has always been that we’re going to invest in the business, and we continue to do so.
Chris Snyder: Appreciate that. It makes a lot of sense. For the follow-up, a question that we continue to get from investors is around the impact of potential tariffs based on the outcome of the November election. So, just would be interested in your guys’ perspective and what that could mean for the business? Thank you.
Dan Florness: Our covenant with our customer is a reliable supply chain, a high-quality supply chain, a cost-effective supply chain. The biggest thing we focus on is diversity of supplier. And historically, we didn’t necessarily look at that from a geographic standpoint. We looked at it from a number standpoint. For this commodity, for this fastener for this, whatever it might be, you have multiple sources of supply. So if you have a disruption, you can pivot. The other thing we tried to do is we wanted to be a customer of an meaningful size to our supplier base, such that, if there’s a pecking order of supply constraint, we’re first in line on that pecking order, because we have — we’ve been a reliable customer and we pay with cash.
And those two things are powerful things in any environment, but especially a constrained supply environment. One thing we have been doing, and this has been going on for the last four or five years is we have made a conscious effort to continue to diversify our supply base, not just by the number of suppliers, but by the geographies from which we obtain product. That’s part of our covenant with our customer. We balance that with cost effectiveness. And because, if you — it’s sitting on the customer and saying, what’s the trade-off of what we’re willing to spend for supply chain to have that diversity of supply, because there is a trade-off there. Obviously, tariffs can have two impacts. One, it changes the math exercise of the trade-off. It also increases the expense of supply chain.
