Perry Lin: Yes. I think, Reuben, while we are looking at our OpEx, I think our goal is to drive the gross margin dollar, also maintain a reasonable OpEx spending. The endgame is kind of increase our operating income percentage. That’s what we are doing currently and in future.
Reuben Garner: Great. Thanks guys. Congrats on the close of the year and good luck in 2024.
David Bruce: Thanks.
Perry Lin: Thank you.
Operator: Our next question comes from Greg Gibas with Northland Securities. Please go ahead.
Gregory Gibas: Hey. Good morning, David and Perry. Thanks for taking the question.
David Bruce: Good morning.
Gregory Gibas: If I could follow-up on the gross margin side. Really nice, I mean, I think you said highest gross margin in the company’s public history, 550 basis points year-over-year. What were the primary drivers of that improvement? And do you view those improved margins as sustainable? Or do you kind of see upside from here? Just kind of wondering how you expect those to trend and where you’re seeing maybe opportunities for improved margins.
David Bruce: Sure. Yes. That’s a good question. So yes, in the short-term, I think I mentioned in the release that we definitely anticipate that we’ll be able to maintain our gross margin posture – like as far as what we averaged in 2023, we did have a great Q4. I’m not sure that the Q4 number is a realistic sustainable gross margin for 2024. However, that being said, we do expect to continue to grow our margins because a lot of our growth is coming from higher margin categories, which we’ve emphasized a lot. Kitchens is probably the best example. That’s our highest margin business that we have. We continue to expand. I mean, the reaction to our kitchen exhibition at KBIS was phenomenal. Our shower business continues to grow.
We keep adding new products, growing the margin there. And then as we’ve talked about over the last couple of years, dollars, gross margin dollars, are a key focus for us as well. And as a lot of the sanitaryware shakeout in the industry moderates as far as inventory levels and ordering cadence. As we see that come back to life, that’s going to contribute to the dollar side as well. So as we scale the business, we really do feel that we’ll be able to improve gross margin going forward in the short and the long-term.
Gregory Gibas: Great. Makes sense. Cool. And then I wanted to follow-up. I know you talked about this for several quarters now, but where categories – or I guess, exactly what categories are you seeing, destocking maybe persist longer than you anticipated or even worsen, but maybe where are you seeing some improvements? Just wondering if you could address those dynamics.
David Bruce: Yes. I mean I think I just briefly mentioned. We don’t really see any material impact to our results this year from destocking. The destocking has pretty much normalized across the industry. That being said, it doesn’t mean – there’s local little small pockets at certain customers with certain categories. But from a material aspect to our business, it’s going to be minimal. I think the difference this year, and I think I touched upon this on last quarter, retail and wholesale, while their inventory levels have normalized, they’re also looking at a more conservative base level inventory. So that’s just cautionary based on what I mentioned earlier as they know that the market, their forecasts are flat to slightly down.
So their inventory levels are going to be looked at with a little more scrutiny. So I don’t think you’re going to see the big spikes, obviously, that we saw in 2021 and 2022. And everybody frets over that when they go through something like that. But that being said, there’s no abnormality to what I believe we’re going to see from an ordering perspective. It’s just going to be a little bit more conservative with a little bit lower inventory levels. But for the most part, everybody is sort of there. So I think that was the key. The middle of last year, people weren’t there yet and the destocking was impacting order cadence. But I think as we head into the beginning – as we’ve headed into this year and as we go into the middle part of the year, I think you’re not going to hear us talk about destocking as an impact of the business.
Gregory Gibas: Okay. Sounds good. And I guess lastly, just to follow-up on your commentary on strategic bolt-on opportunities. What types of opportunities are you thinking about or evaluating? And do valuation multiples make sense in a way or are reasonably attractive?
David Bruce: Yes, I think it’s a good question because we had 1.5 years ago, there was a little bit more, what I would call a flurry of activity with opportunities that came across our desk. We came close on 1 or 2. They didn’t pan out and didn’t meet some of the requirements that we had set for ourselves. And then I got quiet. And then I think, obviously, it got quiet because 2023 was sort of a rough year for people again with inventory destocking and just a very uneven market. But we are engaging in some more conversations today. And I think when you look at the multiples, yes, it’s going to – you have to look at some historicals. It’s been a rough couple of years to sort of gauge what the value of a company is. So I think part of our strength here is that we are not looking to add bolt-on opportunities for companies that are outside of our, what I would call, our categorical dominance, which is bath and kitchen, right?
So we – many of the companies that we might look at are related to our industry, quite tied in, if it’s not the same product, it’s a related product category, maybe in a different channel. So I think we have enough information based on our industry experience and then, of course, with Perry reviewing the financials and looking at how we’re going to judge those multiples, I think we’ll be able to make wise decisions as we move forward. And hopefully, like I said, we’ve been a little bit more involved in the last several months. So hopefully, something will come to fruition.
