Bill Brundage: Yes, sure. At the top end, John, we would expect maybe a bit more of a supportive market. Kevin talked a lot about megaprojects if we get a little bit more of that activity coming through quicker. And then if we get more stabilization on the commodity pricing side of the world and maybe a bit of a tailwind and an easing of some of that commodity deflation pressure that we’re facing right now as we step into the fiscal year. The bottom end of the operating margin range would contemplate a bit more market pressure and a bit more commodity pressure that can’t be fully offset in the short-term from an SG&A perspective. And so that kind of frames both the top and the bottom end of that operating margin guidance.
John Lovallo: Okay, that’s helpful. And then there’s obviously been a lot of media reports about consumer savings starting to dwindle, you know, credit card balances rising, you know, student loan payments resuming. I’m curious, you know, how you guys think about the impact of these factors? Have you seen any impact so far? And would you expect more impact, if there was any, on sort of the more discretionary categories in the portfolio?
Kevin Murphy: Yes, John, we have seen some pressure on the consumer as it relates to our business, particularly in the area of our residential digital commerce business. You saw that having continued pressure quarter-on-quarter. And then we saw it play through a bit in the normal RMI or remodel side of the business. But generally speaking, we tend to skew towards the higher end of that remodel project, and we’ve seen good supportive markets. If you look at the custom builder, custom remodeler activity, we still see good growth in our showroom. Yes, it’s not a frenetic pace for that custom builder and custom remodeler like it was previously, but it’s still a good pace with good growth. The phone’s still ringing and we’re seeing good activity in the showroom. And to see that building and remodel group in Q4 being plus 2 on a plus 21 comp, we’re pretty pleased with what that looks like.
John Lovallo: Great. Thank you, guys.
Kevin Murphy: Thank you, John.
Operator: Our next question comes from Dave Manthey with Baird. David, please go ahead. Your line is now open.
Dave Manthey: Thank you. Good morning, everyone. Kevin, did I hear you right that the low-end of the guidance range would be mainly, because of revenue coming in less-than-expected, that you feel you can hold that 30% line on the gross margin and the higher-end would be better than expected gross margin? Is that how we should read what you said?
Bill Brundage: Yes, David. It’s Bill, I’ll take that. So look, there is a wide range of outcomes on either side of that broadly flat revenue guide. But so certainly a bit more pressure from a top-line perspective or a bit more benefit would move the operating margin midpoint guidance around a bit. And then really highlighting the fact that commodity pressure in general could have a more pointed impact on both gross margin and operating margins, if we had more commodity pressure in the short-term would probably move us down towards that low-end of the operating margin guide versus if commodities stabilize and return to a more normalized inflationary environment, that would help move us up. So it’s a bit of a combination of both revenue and gross margin outcomes that could impact that operating margin guidance.
Dave Manthey: Okay. Thanks for that, Bill. And then on the commodity basket, have prices stabilized sequentially or they still falling as you enter the new fiscal year? And then I guess related on inventory levels, are they where they need to be today and any categories where you’re seeing extended lead time still?
Kevin Murphy: Yes, Dave, I’ll take the second question or second portion of the question first, and that’s on supply chain and inventories. We do have inventories back to where we want them to be, and we’re making sure that we’re focused on having the right level of inventory for our branches to make sure that they can take care of customers same day, next day. If you look at where supply chain pressures are, as we discussed in the last quarter, they have pretty much normalized. And last quarter, we called out a couple of key areas where we were still seeing some pressure. Even those have normalized. There may be just a handful of products on the luxury side of the appliance market that still have some supply chain challenges, but generally speaking, we’re in a good place from an inventory perspective.
When you take a look at commodities, we did say that and we do believe we’re seeing that commodities are moving at different velocities for different portions of the business and different customer groups. I don’t think that we’ve seen necessarily the end. I won’t point to that, but we have seen some stabilization. We see some areas where even in the areas of PVC pipe where we’re seeing increases being announced and then flowing through the marketplace. So we believe that we have framed the guidance right to being pricing broadly neutral for the fiscal year, and that encompasses what we think we’re going to see from a deflationary perspective inside the commodity basket.
Dave Manthey: Very good, thanks guys.
Bill Brundage: Thanks, Dave.
Operator: Our next question comes from Kathryn Thompson with Thompson Research Group. Katherine, please go ahead. Your line is now open.
Kathryn Thompson: Hi, thank you for taking my questions today. I appreciated the color that you had on the non-res end market and the focus on megaprojects within the U.S. But if you could step back historically and look at what has been your mix for more traditional light commercial. So a lot of the follow-on post-residential construction, where that is historically, where that is today, and any additional quantification of understanding where your — what mix is of these larger projects? Thank you.
Kevin Murphy: Yes, so Catherine, if you look at the overall non-residential market, we have historically performed quite well as it relates to the knock-on commercial side of the business, call it roughly 33% of what we do from that non-res piece. And if you look at where that mega project landscape is playing out, it’s playing out with some of those larger contractors. These are complex projects that require sophisticated resources. And so that plays well to our customers, who have historically drifted to that knock-on commercial build-out, who are now focused on what those megaprojects look like. And the good part for us, we look at it as a catalyst for what the Ferguson Growth Strategy is. And that is getting closer to the owner, engineer, and driving product specification from underground water, wastewater, stormwater infrastructure up through mechanical piping systems, fire suppression, and industrial pipe valve and fitting.
And we think that, that catalyst with megaprojects really allows us to unlock what those capabilities are. And so that partnering with those large contractors for this work we think will serve us well in years to come.
Kathryn Thompson: Okay, helpful. And then as you think about your strategy outlined with expanding to HVAC, how does that strategy fit into, kind of, bifurcating the resi versus non-res in terms of your targeted mix?
Kevin Murphy: So when we look at the residential portion of the business, just over half of what we do with non-residential just being under half, that HVAC buildout, and we’ve been in the HVAC business for a number of years. In fact, we’re currently trading in over 46 states. We’ve got good exposure, but we just need to have that expertise being driven throughout all of our operations that have standard and really solid plumbing business. And so you see us doing that with a balance of M&A and organic growth. But if you look at where we think the residential trade repair market is going, we think it’s gravitating towards that dual trade, multi-trade contractor. We see consolidation in that contractor market, which we think plays quite well to a national platform that allows for expertise in plumbing and HVAC with a good partnership with equipment manufacturers, both unitary and ductless, and we think that we’re building out capabilities that will be very valuable for that trade professional.
