Operator: Your next question is coming from Chris Dankert from Loop Capital Markets.
Chris Dankert: I guess Onsite sales growth in the quarter was only slightly ahead of company average rate, which is a notable slowdown versus past performance here. I mean, do you think that’s kind of a one-off due to some of the customer plant shutdowns exiting the year? I guess, how much or how little should we really make of that lower Onsite sales growth rate in the quarter?
Holden Lewis: It’s relevant. And I think what you’re seeing is we’ve talked about how our signings this year were not at the level that we expected them to be. And I think that at the beginning part of the year, you were benefiting from the signings rolling through earlier that were greater than the year prior to that, which is being affected by the pandemic, right? And so as you get the benefit of those, but then you have — you layer in another year where your signings are slower, you’re going to naturally have that effect roll through. So I think in many respects, it feels to me like it has a lot more to do just with the signings cadence, which, again, I think we’ve suggested we love the fact that our Onsite continues to grow in the mix. We love that the installed base continues to grow but the signings pace has not been what we expected it to be, and I think what you’re seeing is a byproduct to that.
Dan Florness: One thing I think I’ve shared in prior calls, I have conversations with all of our district managers throughout the course of the year. And one thing that I’ve seen that’s changed is our average DM has the opportunity for about 60 Onsites. And so we’re having these conversations. You could tell the ones that were really dialed in, the ones that aren’t. The ones that are really dialed in are sitting there with, hey, here’s my number of potential, here’s what we have, the top, the form that’s warming. And how good they are at communicating that tells me, hey, do they have a plan that you feel comfortable come into the year their pipelines to give them a couple of Onsites? With 240 district managers, if a high percentage are a really good plan to give them a couple of Onsites, maybe some have three, maybe some have one, but consistently a couple of Onsites, you’re at your number with cushion and you feel good about what’s your pipeline.
Holden Lewis: I might also say, the answer to office comments, talking about how the year was marked by two things. One was difficult markets, the other was execution. I think I described the part of it that was the execution. The other thing to think about is if you look at where industrial production has weakened, it’s really weakened in sort of the machinery and fabricated metals parts of the industrial production spectrum. And those are areas that are relevant to us as a company but they’re particularly relevant in that Onsite world. And what we saw in the fourth quarter, to give you a sense, is all year, we’ve had a fairly significant gap between OEM fastener growth and MRO fastener contraction, which is a reflection of the Onsites coming on.
In the fourth quarter, that gap narrowed appreciably. And I think what you’re also seeing is simply the relative weakness in the machinery and fab metals is having a disproportionate impact on areas that disproportionately impact the Onsites. And so I think, again, it’s a combination of market and our own execution.
Chris Dankert: And I guess maybe just touching on that last point. As those growth drivers impact gross margin, we saw mix was better this quarter. If these current trends hold, I guess I would assume kind of the same story for ’24. I guess how do we think about the impact of mix on gross margin in this year kind of as you see it today?
Holden Lewis: I think I try to predict what mix will be every year, it’s a fairly thankless effort to be quite honest. But I think I’ve used like 50 to 70 basis points in the past. I think it will be less than that, and I think it will be less than that for a few reasons. One, we talked about fewer branch closures. If we have fewer branch closures, I think the rate of attrition in our smaller customer set will also slow. So you won’t have the same order of magnitude impact from that. We have had slower Onsite signings. And again, that ripple effect, I think at least in the earlier part of the year, that’s going to put less pressure on the channel mix impact. I would also point out that over the balance of this year, you’ve had a dramatic difference in growth between fasteners and non-fasteners, and maybe there’s a little element of both comparison and market here.
But I would wager that next year that gap is not going to be as wide, and that would relieve some pressure off of the product mix element as well. And so I still think mix will be negative, it’s just the nature of our growth drivers. But I don’t think it will be as negative as sort of the normal 50 to 70 that I’ve talked about in the past, I think it could be narrower than that.
Operator: Next question is coming from Ken Newman from KeyBanc Capital Markets.
Ken Newman: Just wanted to touch on the color on some of the warehousing demand that you saw this quarter. Just curious what really drove that increase, is that really new customer acquisition, is it gaining market share with existing customers? And I know it’s small for you now, but just where do you think that could go in terms of mix longer term?
Dan Florness: Well, for really about the last five, six years, we made a really concerted effort to go after that business, because with our vending platform and our strength in the safety area, it’s a natural fit for us to be a great partner to that type of customer. And we saw really nice growth in it. And when I think of like when COVID hit that and our government business and our access to safety products were a lifeboat to helping us get through that very successfully, because the industrial business was just hammered when we went through that period. And so it’s become an ever larger piece. If I think about it discretely now, there’s a number of things going on. There’s — we had — I won’t attribute it to necessarily customer acquisition.
We’re always adding locations with those customers because they’re growing. But it continues to be deeper penetration, and we had examples where some other suppliers couldn’t get stuff to them, and we stepped up to the plate and helped, which always helps our position to be a stronger partner and to gain market share with that customer, because you rely on people you can rely on. And so those things really helped us and they have a strong business environment themselves and they’re using more products. And we had some examples where there were some products they needed that we were uniquely situated to help them with. Sometimes it was for the safety of their employees, sometimes it was moving some product around. And things just call us really well in the quarter.
