Operator: And the next question comes from the line of Greg Melich with Evercore ISI. Please proceed.
Greg Melich: Thanks, guys. I’d love to follow-up on what gets comps better through the year. I think you said that you thought both traffic and ticket would get better. So I’d love to know what if transaction counts are going to go from negative 7% to flat, what existing home sales do you think would need to be there to get that? And then on the ticket side, how much of the expansion from negative 4% to flat is that project size? Or is it a mix shift or deflation turning to a little bit of inflation? Just help us give a little more guidepost on those two factors.
Bryan Langley: Yes, this is Bryan. I’ll take a stab at it and then get Tom and Trevor can jump in if they need to. Majority of it is actually just your compare. So the majority of the expectation of the improvement quarter-over-quarter is on an easier compare. When it comes to transactions, there is a slight improvement needed from existing home sales. So if you’re asking us that without pinning down an exact number, you need it to at least maintain where it is today, coming off of Q4 and then slightly improving. If you remember the original guidance around 4 million units to 4.3 million. And so I would say to be flat to slight improvement in transactions, you’d have to see things get slightly better from where they are today as we exit the year.
And again, we’d have to have that tight correlation as well. We alluded to it earlier, but one of the disconnects that could happen is if spending is harder on discretionary spending for consumers if they’re pressured, you could see that lag actually kind of fan out a little bit more and take more than that three months. And so that’s one of the things as we need the lag to stay compressed to that kind of two to three months, and we need slight improvement from there. Average ticket is really just the strategic retail reductions we took last year. We’re lapping those. And so that is the biggest thing that’s going to happen for us as we get throughout the year, that should help us get back to that flat. It’s not going to take a lot in the project size, maybe just a little bit of improvement there, but not a lot for us to get back to kind of flat in Q4 average ticket.
Trevor Lang: Yes. Like Q1, we were down 9% or call it, 10% in transactions last year. When we – by the time we get to Q4, we go down to 4.9%. So as Bryan mentioned, we’re just – we do – we’ve got easier comparisons. And our thesis when we originally gave guidance that we didn’t really change in this one, is that existing home sales will continue to improve throughout the year. So we are expecting the macro to help us some and then going up gives those easier comparisons.
Operator: And the next question comes from the line of Seth Basham with Wedbush Securities. Please proceed.
Seth Basham: Thanks a lot and good afternoon. My first question is if you guys have any updated thoughts on price elasticity related to those retail price reductions? Any changes in your viewpoint there?
Tom Taylor: We’re always testing. We’re – we’ll drop prices on a product or a product category and across the flooring categories themselves. We don’t see much of an improvement when we do it or a consistent enough improvement to where – we’d say, all right, that’s automatically going to be beneficial. We do see benefits in the installation materials category, when we take prices down, we have taken prices down installation material, our penetration has gone up. That’s a product that is brand recognition. It’s easier for the pro to compare and they buy it on a weekly basis. So we know that, that one is a benefit. And we’ll continue to drive that category meaningful throughout the year. And we won’t stop testing. We’re always testing and adjusting prices and kind of seeing if we can get benefits from one direction or the other.
But we just haven’t seen enough benefit. Our spreads versus the competition are significant enough that lowering the price usually just transfers a customer from one SKU to another in our store versus changing the volume of the store.
Operator: And the next question comes from the line of Robbie Ohmes with Bank of America. Please proceed.
Robbie Ohmes: Hey guys. Maybe a follow-up on that question. I think last quarter – this quarter, you kind of talked about the opportunity buys and deals of the week and value at the front of the stores and things. Last quarter, I think you guys said you were still seeing the consumer leaning towards better and best. Is that still the case?
Tom Taylor: Yes. The same trends, customers when they’re buying, we’re still leaning towards the better and best products across all of our departments. So it’s when the – when they’re opting to do the project, they’re getting what they want. Now look, we – we’re a company that’s compositive it’s whole life. So we’re trying everything, and that’s why you go in the front of the stores, we’re staying aggressive at the front of the stores that are opening price points. We’re doing – trying to make deals, trying to get customers to engage and close on sales. So and we’ll continue to do that. We’ll continue to stay aggressive and try to drive that message. But that is when someone is doing a flooring job, they’re still stepping up to the better in best.
Operator: And the next question comes from the line of Chris Bottiglieri with BNP Paribas. Please proceed.
Chris Bottiglieri: Hey, guys. Thanks for taking the question. This is a cost question. So if your whole exist since you’ve been a growth company. So imagine this downturn has been filled the stomach internally. Can you talk about the ways you’ve taken costs of the business or slowed investment as sales has declined. How do we think about incremental SG&A? When existing home sales does return to normal and comps go up? Like is there a rule of thumb you could think about when the comps go up 10%? What does SG&A do in that scenario?
Tom Taylor: If comps go up by 10%, we’re going to flow through incredibly well. Because if we learned anything – we have taken cost out. We have been much more aggressive across every line of our P&L, trying to execute upon a plan when sales aren’t working in our favor. So and we don’t plan on adding back. There’s a – you’ll add back some costs as sales go up. But in general, we should flow through incremental sales pretty well. .
Bryan Langley: And just as a reminder, we’re – a typical time period we’re 55% fixed cost, 45% variable within the stores. That’s going to drive a lot of that flow through as well.
Trevor Lang: Our cost structure has gone down, our gross margin rate has gone up. So our flow-through should be better [indiscernible] positive comping.
Operator: And the next question comes from the line of Jonathan Matuszewski with Jefferies. Please proceed.
Jonathan Matuszewski: Good evening and thanks for squeezing me in. Just a question on your most valuable Pros. I think you mentioned the top 20% of Pros were increasing their order frequency year-over-year. So maybe just if you could elaborate on that. Presumably, they’re more integrated into your ecosystem with Pro Premier and training classes and designer services, but maybe beyond that, what are you hearing from those Pros? Do they skew to a certain region? Any more color you can give us on what’s driving them to actually increase transactions with you year-over-year? Thanks.
Trevor Lang: Sure. There is a significant component of that successful Pro strategy that’s frankly just relationship. And making sure that Pro is taken care of in a way that they’re not being taken care of somewhere else. All of the other ancillary services that we have are good and sort of the flywheel approach if they add features and benefits to why they would shop with us. I just think it has a lot to do with the relationship and making sure we take care of that Pro in a way that nobody else does is probably the most important aspect that we call out for those Pros. And – but because we have good technology and just good business practices, we know who those Pros are and we do an exceptional job of taking care of them.
Operator: And our last question will come from the line of Joe Feldman with Telsey Advisory Group. Please proceed.
Joe Feldman: Hey, guys, thanks for taking the question. It was actually somewhat similar to what Jonathan has just asked, but I wanted to take a different approach. In terms of the other 80% of the Pros where – I feel like that’s a little bit of a change from the last call or two, where Pros had been holding up pretty well as a broad category. Now you’re kind of isolating it to the best Pros that are holding up. I’m just curious what you’re seeing and hearing from those other guys, presumably, it’s just more of the same, like it’s just people aren’t doing projects, but anything you can share on that?
Trevor Lang: We do, do that a lot. I mean there’s just not as much business out there. Again, we’re the best performing of all the businesses and we’ll see what our reports, but historically, we’ve been the best performing by a long shot. And we went from having sales up in the mid to low single digits for most of last year to actually having total sales be lower. And our Pros tell us, they’re just not having as many jobs. And we were – Steve and our Head of Store Operations was what we were in a store and they were talking about how they were doing plumbing work and doing fences and other things just to stay busy during this period of time. There’s just less flooring work to be done in this environment where existing home sales are down 40% from the peak.
Tom Taylor: Look, I appreciate the good amount of time for question and answer today. We appreciate that. We appreciate all of your interest. We look forward to giving you a more thorough update as we get to the end of this quarter. Thanks, everybody.
Operator: Thank you. This concludes today’s conference. You may now disconnect your lines. Enjoy the rest of your day.
