Leslie’s, Inc. (NASDAQ:LESL) Q2 2024 Earnings Call Transcript

Leslie’s, Inc. (NASDAQ:LESL) Q2 2024 Earnings Call Transcript May 11, 2024

Leslie’s, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good afternoon and welcome to the Second Quarter of Fiscal 2024 Conference Call for Leslie’s. [Operator Instructions] As a reminder, this conference call is being recorded and will be available for replay later today on the company’s website. I will now turn the call over to Matt Skelly, Vice President of Investor Relations.

Matt Skelly: Thank you and good afternoon. I would like to remind everyone that comments made today may include forward-looking statements, which are subject to significant risks and uncertainties that could cause the company’s actual results to differ materially from management’s current expectations. These statements speak as of today and will not be updated in the future if circumstances change. Please review the cautionary statements and risk factors contained in the company’s earnings press release and recent filings with the SEC. During the call today, management will refer to certain non-GAAP financial measures. A reconciliation between the GAAP and non-GAAP financial measures can be found in the company’s earnings press release, which was furnished to the SEC today and posted to the Investor Relations section of Leslie’s website at ir.lesliespool.com.

We have also posted our Q2 2024 earnings presentation to our IR website, and we’ll be making references to it in our prepared remarks. On the call today is Mike Egeck, Chief Executive Officer; and Scott Bowman, Chief Financial Officer. With that, I will turn the call over to Mike.

Mike Egeck: Thanks, Matt, and thank you all for joining us this afternoon. Our bottom line financial performance in the second quarter was largely in line with our expectations. Top line sales were impacted by cool and wet weather in our seasonal and non-seasonal markets, as well as a pool and spa consumer that continues to normalize their post-pandemic spending patterns. I am pleased with the team’s performance in the quarter, as we executed well against the factors within our control. We saw improved conversion from healthy in stock levels and competitive price positioning across our channels, and we delivered on our inventory goals while providing superior customer service and disciplined expense management. Since it’s been nearly 6 months since we provided our planning assumptions for the year, I want to remind everyone how we are thinking about our annual guidance.

At the midpoint, we plan the following for the year: discretionary product sales down 10%; equipment sales down 10%; nondiscretionary product sales up 1.5%; AOV down 4% driven by mix and the cycling of our June 2023 chemical price adjustments; and transactions up 3% driven by normal weather. You will hear from us today that the majority of these factors are performing in line with expectations, with the exception of weather and the associated impact on traffic and transactions. During the quarter, the weather was much cooler across key non-seasonal markets, including Texas, Southern California, Arizona, and Florida. This resulted in significantly fewer consecutive days above the critical 70-degree threshold versus the same period in the prior year and/or the 10-year averages for these markets.

Weather was also a factor in our seasonal markets, with pool openings down 19% year over year, driven by a cool and wet spring. Turning to our financial results for the quarter. Total second quarter sales were $189 million, down 11% year over year. This includes an approximately 440 basis point impact from our June 2023 chemical price actions and the Q2 calendar shift that Scott will detail later in the call. Residential pool was down 12%, PRO pool was down 9%, and residential hot tub was down 14%. Comp sales were down 12%. Given the weather I just discussed, traffic was down 10% in the quarter. Total transactions were down 6% year over year. Our focus on customer service, product availability, competitive pricing, compelling assortments, and value messaging drove increases in customer conversion that offset a significant portion of the traffic decline.

Average order value was down 5% year over year. Average order value continues to be affected by sales of high-ticket discretionary products, including hot tubs, above-ground pools, and heaters, as well as our June 2023 chemical price changes. Non-discretionary product sales were down 11% versus a year ago. Total chemical sales decreased 11%, inclusive of a negative 575 basis point impact from our June 2023 price adjustments. However, volume of cal hypo and trichlor was down only 1%, and we were encouraged by the sequential improvement in key chemical volumes each month during the quarter. Sales of equipment were down 10%, an improvement of 800 basis points from Q1, and consistent with our expectations at the midpoint of our full year guide.

Discretionary product sales were down 13%, an improvement of 600 basis points from Q1, and contributed about 24% of the quarter’s total sales decline. Of note, rain and/or snow across many of our seasonal markets prevented installation crews from delivering and installing hot tubs and swim spas. Cancellation rates remain very low, and our order book at the end of the quarter is supportive of the midpoint of our full year guide. As you can see on Page 11 of our earnings presentation, our regular analysis of select credit card data indicates that our sales underperformed the industry by approximately 850 basis points in the quarter, of which approximately 380 basis points is attributable to our June 2023 chemical price changes and the calendar shift.

However, our vendor discussions, district and store manager discussions, customer exit interviews, and data from SimilarWeb for our digital businesses all indicate our Q2 performance is broadly in line with the industry, ex the chemical price change. Looking across a longer time horizon, the credit card data indicates that specialty pool sales were down in 8 of the last 10 quarters. Over those 10 quarters, we have grown sales faster than the industry by an average of approximately 380 basis points. With respect to profitability, gross margin decreased 464 basis points, driven primarily by the impact of the chemical price reductions we implemented in June 2023 and occupancy deleverage. Gross margin was largely in line with our expectations, with the exception of the incremental occupancy deleverage associated with lower-than-expected sales.

Adjusted EBITDA for the quarter was negative $19 million and adjusted diluted earnings per share, was negative $0.17. As a reminder, our fiscal second quarter, like our first fiscal quarter, is historically a relatively small sales quarter during which we make investments and incur costs to position the company for the peak pool season in our fiscal second half. As such, we expect no profit contribution in these quarters and our performance this year was consistent with these expectations. With regard to the industry backdrop, certain categories and channels have seen some instances of deflation near to date, but overall industry retail pricing is largely stable, and we remain competitively priced across our omnichannel platform. Industry promotional activity continues to be consistent with historic seasonality, and we are using advanced analytics to be more surgical on when and where to promote most effectively.

Supply chains are operating normally, and inventory levels are seasonally appropriate. The slow start to this year’s pool season notwithstanding, we believe that the long-term pool industry fundamentals and secular tailwinds that drive industry demand remain intact, and we expect both of these factors to continue to underpin our long-term growth opportunity. Leslie’s remains the leading direct-to-consumer pool and spa retailer with unmatched scale, capabilities, and brand awareness. As we have positioned ourselves to win during pool season, we also remain focused on executing our strategic growth initiatives, which we expect to drive long-term sustainable top line growth and profitability, share gains, and operational efficiency. Turning to those initiatives.

First, our customer file improved from down 8% in fiscal Q1 to down 3% in fiscal Q2. We believe that our customer file continues to normalize from the pandemic spike, and we expect to return to growth in the second half of the year. Second, average revenue per customer was down 8% in the quarter, driven primarily by decreases in big-ticket items such as hot tubs, swim spas, above-ground pools, and automatic pool cleaners. Average revenue per customer for our loyalty customers outperformed at down 4% in the quarter. Third, with regard to our PRO initiative, we ended the quarter with 4,088 PRO contracts in place and 102 PRO locations. This compares to 3,300 PRO contracts and 98 PRO locations at the end of the second quarter of last year. PRO sales were down 9% for the quarter.

PRO Partner sales were down 7%, offset by non-partner PRO sales, which declined 26%, highlighting the importance and effectiveness of our partner program. Fourth, M&A and new store growth continue to be important initiatives for Leslie’s, and we are confident in our long-term store expansion opportunities. For fiscal 2024, we remain on track to open 15 new stores. Finally, our AccuBlue Home smart tech water testing device and membership program continues to gain momentum and is resonating strongly with customers. Our manufacturing partner is delivering product on time, and we are on track to meet our inventory targets for pool season. Our members continue to give us feedback that our proprietary software is a gamechanger and continue to respond with very positive online reviews.

As you will recall, our AccuBlue Home membership consists of a free device and a $50 per month membership subscription, which is offset by $50 per month of purchase credits that can be used online or in store. Our members have been spending at a rate of more than $1,000 per year. We remain focused on executing our strategic initiatives to capture the long-term opportunities and extend our industry leadership. In addition, we continue to take actions to improve the trajectory of the balance of the year. Number one, we are using our analytical tools and insights to drive efficiency in pricing and promotions with a focus on growing gross margin dollars. Number two, we achieved our goal of reducing our peak inventory by more than $100 million and remain on track to reduce year-end inventory by more than $50 million, while maintaining strong in-stock levels and service metrics and high NPS scores.

We will keep a laser focus on SG&A efficiency. Scott will address this later in the call, but SG&A in the second quarter was down 12% versus the same period a year ago. Number four, we continue investing in our people, fostering and promoting top talent within the organization, while adding outside talent with deep experience and fresh eyes to continuously improve how we operate. Number five, we are leveraging our omnichannel platform to connect with consumers more frequently, including through surveys, exit interviews, research, and other feedback to give us a detailed view into the specialty pool and spa consumer. And number six, we continue to invest in marketing to drive long-term brand awareness, customer file growth, Pool Perks members, and sales.

I will now hand it over to Scott to discuss our results and outlook in more detail. Scott?

Scott Bowman: Good afternoon, everyone, and thank you, Mike. Our results for the quarter were largely in line with our expectations, while unfavorable weather contributed to lower traffic and a late start to the pool season in our main markets. For the second quarter, we reported total sales of $189 million, a decrease of 11% compared to the second quarter of fiscal 2023. The second quarter this year ended on March 30th versus April 1st last year. Due to this calendar shift, we lost 2 early spring higher-volume selling days and gained 2 lower-volume winter selling days. The negative impact of this shift was approximately $4 million or 180 basis points in the quarter. Comparable sales decreased 12%, driven primarily by transaction count and spending on larger ticket items.

Comparable sales decreased 26% on a 2-year stack basis. Non-comparable sales contributed $1.5 million in the quarter, driven by acquisitions and new store growth. With respect to trends by consumer group, comparable sales for residential pool declined 12%, PRO pool declined 9%, and residential hot tub declined 14% compared to the prior year period. Sales declines are driven by unfavorable weather, softer sales in discretionary items, and the June 2023 price actions. In these shoulder seasons, weather and the timing of pool openings can cause significant sales variances due to the smaller sales base. Gross profit was $54 million compared to $71 million in the second quarter of fiscal 2023, and gross margin rate declined 464 basis points to 28.8%, which was slightly below expectations, mainly due to incremental occupancy deleverage from lower-than-expected sales.

We continue to expect meaningful back-half margin expansion versus the first half of the fiscal year, most notably in the fourth quarter, as we cycle the June 2023 chemical price decreases and higher inventory adjustments and distribution costs that pressured second half 2023 profitability. Page 9 of our earnings presentation illustrates our Q2 gross margin rate bridge in more detail. During the quarter, gross margin was affected mainly by lower selling prices and deleverage in occupancy costs due to lower sales. SG&A was $85 million, a reduction of 12%, or $11.5 million, compared to the second quarter of fiscal 2023. The reduction was primarily due to declines in merchant fees, lower payroll and executive transition costs, and lower store expenses.

Adjusted EBITDA was negative $19 million compared to negative $8 million in the second quarter of fiscal 2023, and adjusted net loss was $32 million compared to a loss of $26 million in the second quarter of fiscal 2023. Interest expense increased to $18 million during the quarter from $17 million in the same period last year due primarily to higher interest rates, and our effective tax rate increased to 29% compared to 25.7% in the second quarter of fiscal 2023. Adjusted diluted earnings per share was negative $0.17 compared to negative $0.14 in the second quarter of fiscal 2023. Diluted weighted average shares outstanding were $185 million. Moving to the balance sheet. We ended the quarter with $786 million outstanding on our secured term loan facility and $97 million on our revolving credit facility.

This compares to $794 million and $172 million, respectively, in the prior year quarter. Our debt levels were lower by $83 million versus a year ago, and our leverage ratio was 6.0 times. Availability on the revolver was $142 million at the end of the quarter. As a reminder, this is our peak debt quarter before we generate all of our profitability and free cash flow in the seasonally important second half of our fiscal year. The applicable rate on our term loan was SOFR plus 275 basis points in the second quarter, and our effective interest rate was 8.2% compared to 7.3% in the prior year quarter. Our total cost of debt for the quarter was 8.1% compared to 7.2% in the second quarter of last year. Additionally, last month, we successfully extended the maturity date of our revolving credit facility to April 2029.

Cash and cash equivalents were $8 million at the end of the quarter, compared to $9 million for the same period last year. Inventory ended the quarter at $379 million, a decrease of $113 million, or 23% compared to the prior year quarter, while our in-stock position, service metrics, and Net Promoter Scores remained very strong. Our stores are well-stocked with the full assortment for the pool owner and PRO as we gear up for the peak pool season. And now turning to our fiscal 2024 outlook. After a first quarter that was consistent with expectations, our second quarter was below our top line expectations, mainly due to unfavorable weather that resulted in a slower start to the pool season. We are now 5 weeks into our third quarter. During the first 3 weeks, weather continued to be a challenge.

However, over the last 2 weeks, we’ve seen improved trends with improved weather. Ultimately, our biggest volume weeks lie ahead, and with our consistent, seasonable weather, we believe we are on track to deliver a year within our outlook ranges. Moving to capital allocation, our first priority continues to be the paydown of debt, with the goal of achieving a leverage ratio of 3.5x to 3.7x in fiscal 2024, and a longer-term goal of reaching a leverage ratio of 3x or less. Regarding our footprint, we are planning 15 new store openings in fiscal 2024, with the majority of these stores expected to open prior to Memorial Day ahead of the peak pool season. We also plan to convert 6 residential stores to our PRO format this year. At this time, we are not including any sales or EBITDA contribution from M&A activity in our full year guidance.

And with that, I’ll hand it back over to Mike for closing remarks.

Mike Egeck: Thank you, Scott. To conclude, results this quarter continue the recent trend of softer sales for Leslie’s and the industry, from persistent unfavorable weather and normalizing pool and spa consumer behavior from a period of significant growth. In light of that, we continue to aggressively manage SG&A and inventory while focusing on customer service. We believe we are set up to win in pool season. Our employees are excited and engaged, our stores and DCs are well stocked and ready to go, our omni-channel presence has us positioned to service residential and PRO customers in the way that they choose, and our PRO Partner and Pool Perks loyalty program are leaders in the industry. We have an unmatched set of capabilities to serve our customers, and with AccuBlue Home, a clean, safe, and beautiful pool has never been easier to achieve.

With the majority of our sales and all of our profitability still to be achieved in the back half of the year, we are focused on superior execution, and we remain confident in our long-term prospects for growth and profitability. With that, I will hand it back to the operator for Q&A.

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Q&A Session

Operator: Thank you. [Operator Instructions] Our first question comes from Justin Kleber with Baird. Please go ahead.

Justin Kleber: Yes, good afternoon, everyone. Thanks for taking the questions. Just to follow-up on near-term trends. Can you give us a sense of just how you are tracking 5 weeks into the quarter relative to the comp that you put up within fiscal 2Q? That’s just my first question.

Mike Egeck: Yes, Justin. I think the best way to characterize the last couple of weeks of the quarter is a material improvement in the trend.

Justin Kleber: Okay. Got it. And that’s just as weather has normalized?

Mike Egeck: Yes, exactly. We finally are seeing some consistently warm weather in our major markets, and that’s making a material difference.

Justin Kleber: Got it. Good to hear. Secondly, maybe on the SG&A front, Scott, you were previously talking about a slight decline in dollars year-on-year. It seems like you are tracking well ahead of that target, at least in the fiscal first half. So, just wondering if your guidance implicitly is implying a lower SG&A dollar figure, maybe relative to when you gave the initial outlook.

Scott Bowman: Yes, Justin, I think the whole team is doing a really good job, and I would say that we are probably ahead of the progress that we thought we would be making at this point in time. As the back half goes on, we’ll see if anything changes. I do not expect major changes in the back half, but what I do see is that we’ve improved a little bit faster than I thought, and that’s on many different fronts. So naturally merchant fees and things like that come down with sales, but just really good control on labor, but still having a high level of service. And a lot of that is store labor, and what we are doing is we are just taking advantage of this shoulder season where the traffic is very low, and so we’ve just adjusted our hours according to the customer traffic.

Now, as we get into busy season, we’ll be more fully staffed, okay? And so you may not see as big of a decline there because we fully intend to be fully staffed. But just other store expenses, everybody in the store is incorporating and just watching expenses and controlling those very well. And then we just have less addbacks, the executive transition costs and strategic projects, things like that, that we had last year. Some of those are more favorable this year as well.

Justin Kleber: Alright. That is good to hear, and if I could just sneak one more in. Just as we enter the pool season, do you guys have a sense as to, I guess, the magnitude of chemical carryover that still needs to be worked through, or is that not really part of the story this year as we enter pool season? Thank you so much.

Mike Egeck: Yes, Justin, good question. We put out another pool owner survey in February, so pretty recent information, and based off the results from that survey, we do not think there is any challenges around consumer stockpiling this season.

Operator: Next question, Jonathan Matuszewski with Jefferies. Please go ahead.

Jonathan Matuszewski: Great. Good afternoon. And thanks for taking my questions. The first one was on equipment. I wanted to dig in on that category a little bit. So, down 10% this quarter, but can you provide any color on some of the moving pieces there? I think historically, or at least last quarter, heaters and automatic pool cleaners were underperforming. I think variable-speed pumps were relatively more healthy. Has there been any change there that would lead you to believe that maybe the higher end or the lower end of that midpoint you shared for the year could be realized? Thanks.

Mike Egeck: Yes, Jonathan. Look, first thing I’ll do is point out, like I did in the prepared remarks, we were really pleased to see the 800 basis improvement from down 18% to down 10%, and we saw improvement across most all the categories. I would say heaters has actually improved materially, and we think that’s a really good sign, and more in line with what I would call pre-pandemic seasonality. As the pool season starts to approach, people start thinking about heating their pools. They turn on their pool heater for the first time, and it doesn’t work, they either replace it or fix it. So, we consider that a good sign. APCs are still a little challenged, though robotics have been performing better, and salt systems are a little challenged for us. So, a little bit of change in the mix. Heaters a little better, robotics a little better, variable-speed pumps continue to be a nice, stable business.

Jonathan Matuszewski: That is helpful. And then my second question is on pricing. I think heading into this year, the plan was for chemical pricing to be down low-single digits year-over-year. Equipment pricing, I think, was planned to be in maybe that 3% to 5% range that some of the vendors were talking about. Recognizing the first 6 months are light in terms of contribution for the year. Are the midpoint of those ranges still relevant? And as we’re tracking pricing going into pool season, is there anything we should be aware of in terms of the pricing strategy and any volatility, or are the prices we’re seeing from a consumer perspective generally where we would expect the pool season to play out? Thanks so much.

Mike Egeck: Yes, Jonathan, I think, we are pleased to see retail, particularly specialty retail pricing, for chemicals to be quite stable. I am going to say stable from when we made our price action adjustments in June 2023. Since that time, it’s been quite stable. And even with a slow start to the season and, what I’m going to call, very unfavorable weather, we haven’t seen people breaking price in the residential market. I will say there has been a little bit more pressure on the PRO side of the business, but we’re still within that low-single-digit range for chemicals overall. So we think we’re well within our guide on chemical pricing to be at our midpoint. And similar with equipment. I think, you quoted 3% to 5%.

I think we quoted maybe 2% to 5%, but yes, midpoint of that is well within range. The softness we’re seeing in chemicals and equipment is really based on volume. And right now, we’re tying that volume very much to traffic, and we’re tying traffic very much to weather. We just, in the second quarter, hadn’t really seen the season kick off. And I’ll tell you, it’s gratifying to see the last couple of weeks with some consistent warm weather start to move like we would expect it to.

Jonathan Matuszewski: Very helpful. Best of luck.

Mike Egeck: Thank you.

Operator: Next question, Shaun Calnan with Bank of America. Please go ahead.

Shaun Calnan: Hi, guys. Thank you for taking my question. Just first, following up on the chemical pricing. So last quarter, you were able to offset the pressure in gross margin. And then this quarter, it was a headwind of about 130 basis points. So are you seeing higher promotional activity, is this what you were just talking about on the PRO side? What’s driving the downside year over year in the second quarter versus the first quarter?

Scott Bowman: Yes, I’ll take that one. Basically, what we’re seeing is we did have some chemical price impact in the first quarter. The difference was that we were able to offset that with pricing actions in other categories, okay? And so for Q2, we didn’t have those additional price actions that we were able to offset. I think the other thing to think about is that our mix has changed as well. And so, with equipment getting better and chemicals off a little bit more than Q1, there’s a mix effect there that’s a bit unfavorable.

Shaun Calnan: Okay, got it. And then the second one, just on the order book comments you made last quarter, I believe you guys said that orders were flat year-over-year on hot tubs, and then the hot tub sales came down 14% year-over-year. Can you just talk about how the orders flow through over time?

Mike Egeck: Yes, Shaun, the average price of the hot tubs we sell is about $10,000. And they are predominantly custom ordered. So customer places an order, the tub is built, and then it is scheduled for delivery. And the challenge we ran into in second quarter and in first quarter as well is particularly wet weather in our hot tub markets was just keeping people from keeping us from being able to pour pads, install the hot tub, hook up the electricity. We had people pushing out their appointments for reasons, rain and even snow. So, what we consider good news is very low cancellation rates. People still want their tubs. And now that we’ve seen the weather break, and particularly like we own Valley Pool & Spa in the Pittsburgh area, and we were in Pittsburgh last month, a group of executives, and it was hail storms, tornado warning, 52 degrees, rain, and it was pretty clear why we weren’t delivering tubs.

Now that we’ve seen the weather break there, and we’ve been rather consistently in the 70s or low 80s, we’re starting to see that order book come to fruition with deliveries. So, we consider that a positive sign. And I would say that our order book is very supportive of the discretionary business being down no more than 10%.

Shaun Calnan: Okay, got it. So, would you say that there’s potential for hot tub sales to be up year-over year-in the second half?

Mike Egeck: Yes, look, we have a very good trend. We have a order book that is in better shape than our mid-year guidance, but there’s still a lot of volume to be done. So, it’s too early to speak to upside.

Shaun Calnan: Okay, thank you.

Mike Egeck: Yes.

Operator: Next question, Kate McShane with Goldman Sachs. Please go ahead.

Kate McShane: Hi, good afternoon. Thanks for taking our question. We wanted to ask about market share. It still seems that you’re underperforming the industry based on what you put in the slides for today, and it might be widening. Can you speak to that at all in terms of what happened during the second quarter?

Mike Egeck: Yes, Kate, we said in the first quarter we were surprised by what the credit card information was saying. I’m going to say we’re a little bit surprised this time as well. And, look, we think that’s good, and it’s important data, and we certainly pay attention to it. On the last call, we had talked about some of the changes in our assortment and value messaging that we had done in the stores to try to drive greater conversion. And we were really pleased this quarter to see that conversion increase materially. But the traffic was really a challenge this quarter, and traffic, we really connect to weather. And it’s surprising to us that our performance would be under that of the industry given the weather impact.

And then the second thing is I said in the prepared remarks, we’ve talked to our vendors regularly, we’ve talked to our store managers, we’ve talked to our district managers. This last quarter, we did comprehensive exit interviews for non-purchasers to see if we were missing something. And all of that data, in addition to similar web data, which tracks our proprietary online businesses, that data actually showed that our market share increased 200 basis points online in the quarter. So, seems to be a disconnect between the two. We’re taking it seriously. And if we have given back some share, we’ll be focused on winning it back in pool season proper.

Kate McShane: Okay, thank you.

Operator: Next question, David Bellinger with Mizuho Securities. Please go ahead.

David Bellinger: Hey, guys. Thanks for the question. Another one on this material improvement in trend over the last couple of weeks. So has that been broad-based across geographies? And just recognizing this is an incredibly short period of time, just 2 weeks, if that trend were to continue through the balance of the quarter, could you potentially see a positive overall comp within the Q3 period?

Mike Egeck: Yes. Look, we’re not going to give Q3 guidance like that. I will say this, it was mostly broad-based in its recovery. One of the things we find positive is we’ve got material improvement despite, what is it, 50 million people in the U.S. being under severe weather alerts right now and the flooding in Houston. And Houston is our single largest metro market. So, despite those two very adverse weather conditions, we saw really nice improvement. And we saw the business respond as we would expect it to with appropriate weather. And that’s as much as we’re going to say about that.

David Bellinger: Fair enough. And this is my second one on the inventory being down more than 20% year over year. Maybe just help us unpack that a little. Could you talk about units versus price? And are there certain categories that are down more than others in terms of units?

Scott Bowman: Yes. I can take one. There is always a bit of a mix effect. But units are actually down a little bit more than dollars. And I think it’s the effort that the planning team has put forth using our Blue Yonder tool to really start off on the right foot on the front end with a much better plan and executing that plan very well. And also from our suppliers as well, the lead times are fairly short on most of our items, and so, that helps as well. And so as you look across the categories there’s showing some fairly large decreases in some of our chemical categories and equipment, cleaning and maintenance categories, which if you look at the turns profile, there was definitely room to do that. And so, we continue to find more efficiencies, but also, we’re really concerned also with in-stocks and service level.

And fortunately for us, we’ve executed to the point where the service levels and in-stocks are much better than they were last year. So, we’re really pleased with the performance overall.

David Bellinger: Very good. Thank you, both.

Scott Bowman: Sure.

Operator: Next question, Steven Forbes with Guggenheim Securities.

Steven Forbes: Good afternoon, Mike, and Scott. I was curious maybe if you could take a step back and maybe just talk about the customer file, if there’s any green shoots that you’re seeing, whether it’s your most loyal customers. I think you mentioned loyalty members trends better than the file as a whole. But like, what are you seeing within the file that gives you confidence to reiterate the guide for the back half today? Like, are there any green shoots? And can you help us better understand what you’re referencing in terms of file growth expectations for the back half, and what you’re implying in terms of improvement in spending trends within the file as well?