Mike Egeck: Yes. We consider, most all equipment, nondiscretionary, right? Heater is probably the one we’ve talked about in the past that you don’t have to have a heater to keep a pool maintained. And we did see heater sales down very much in-line with what we saw in Q4 as well. In terms of other discretionary categories, as you might imagine, we’ve seen the above ground pool business be very weak. Prices have come down considerably. There’s a lot of excess inventory in the market. We’re not playing a price game on that. So, we’ve seen our sales come down as well. And then recreation products in general, floats, and and things like that, have are down considerably as we anticipated. And aboveground pools as we anticipated as well. We saw that start to occur very €“ actually in the fourth quarter and then also very early in Q1.
Ryan Merkel: Got it. Those categories makes sense. Thanks.
Operator: Our next question is from David Bellinger with MKM Partners. Please proceed.
David Bellinger: Hi guys. Thanks for taking the question. First one on gross margins. It does seem to be back at Q1 of levels. And even though sales were almost 40% lower back then. So, how should we think about the mix impact going forward? Is that the largest headwind we should keep in mind as we update our models here? And is that discretionary piece also playing into that as well?
Mike Egeck: Yes…
Steve Weddell: Do you want me to take that, Mike?
Mike Egeck: Yes, go ahead, Steve.
Steve Weddell: Yes. So, remember back, our guidance in November was flat to negative 35 basis points for the year. So, we do anticipate a reduction in gross margins for the year. We talked about the first half being lower or down significantly, I should say, with some improvement in the back half. So, the core question that you’re getting at is, will the current quarter impacts persist? And if not, why might they change as we work through the year. And so, I may kind of walk through each of the individual line items, but business mix, number one, related to M&A that we completed primarily in the back half of last year. As we work through this full-year, it will be much less impactful on $1.6 billion of sales versus the first quarter sales of $195 million.
When you think about product cost, we’re in the off season. So, our expectation is that by the time that pool season starts, industry retail pricing will have caught up with industry cost increases. We have seen somewhat of a slow adoption of some of those higher costs in the current environment, but absolutely expect that to occur. And then D.C. expenses in the first quarter, those expenses will moderate as we get into the full-year as well. We talked a lot about the challenges we had in our New Jersey, DC and vendor delivery cadence last year. And since we brought forward some of the inventory receipts and movement of that inventory around our network, we’ve also pulled forward some of those expenses as well. And then again, as we look to the second half and better comps, we’re going to see occupancy normalize as well.
So, no change to overall outlook that we provided back in November, again, the basis point decline this quarter in-line with our expectations and see a path to what we previously provided.
