Second quarter, not as much deleverage. And then, as we get into the back-half of the year, Q3, probably more flattish. Q4, we should see the biggest improvement as we start to lap those extremely high inventory adjustments that we saw and as DC costs are more moderate without all the off-site storage facilities and movement of goods, and the DC capitalization expensing should be much lower in Q4 as well.
Garik Shmois: Got it. Thanks for that. And then, just on the discretionary piece. It sounds like you’re expecting sales to be down 10% through the year. I mean, you talked a little bit about the buckets there, but any additional color as to how you expect discretionary sales to track and maybe kind of where you’re seeing the largest, maybe, incremental change in fiscal ’24?
Michael Egeck: Yeah. Garik, the hot tubs have been soft, and the higher priced hot tubs have been softer. We haven’t seen that have any material change either in Q4 or so far through Q1. So that’s been relatively consistent. The one change we have seen is, in some of the more discretionary equipment businesses, specifically heaters and some the robotic APCs, that was more challenging in fourth quarter. Equipment sales were down 17% versus 12% for the year, and started out Q1 also relatively soft. We’re starting to see some improvement there, which is encouraging, but not enough for us to plan discretionary sales other than we have planned them, which is down 10% at the midpoint.
Garik Shmois: Understood. Thanks for that and I’ll pass it on.
Operator: Thank you. Our next question comes from the line of Jonathan Matuszewski with Jefferies. Please proceed with your question.
Jonathan Matuszewski: Great. Thanks for squeezing me in. First question was on the 2024 sales guidance. So, this past year, PRO was an outperforming customer segment, flat relative to kind of residential down in the mid to high-single-digits. So what is your topline guidance assumed in terms of relative performance between PRO and residential?
Michael Egeck: Yeah, Jonathan, thanks for the question. We’ve got PRO and residential planned fairly similarly for 2024, really based on the forecast of increased transactions, as I talked about, with some continued pressure on AOV.
Jonathan Matuszewski: Got you. That’s helpful. And then just a follow-up in terms of SG&A for next year. Scott, I think you mentioned that the opportunity for slight decline year-over-year. Can you just expand on kind of the areas you see to kind of further rationalize that line-item in a potentially soft demand environment? What are the buckets that you haven’t used yet, the levers you haven’t pulled? Thanks.
Scott Bowman: Yeah, so as I kind of look at SG&A for this next year, you know, we’ve done a really good job of kind of tightening up labor, and so we’ll see some benefits from that come through. Our marketing will be a little bit lower this year as we continue to test and learn on marketing and understand kind of best uses of the dollars and continue to optimize that. There’s some room to bring that down a little bit. Really the biggest pressure for SG&A that I hope that comes true is incentive compensation. That was extremely low in 2023. So if it would come back to more of a normalized incentive payout, then that’s actually the biggest pressure point that we have. Outside of that, our expenses are down, just kind of on the core SG&A.
And then we’ll have the added benefit of about $14 million of what I would call non-recurring, with some severance costs and some other write-offs. So as we lap that and kind of unadjusted the SG&A, we’ll actually be lower than prior year.
Jonathan Matuszewski: Very helpful. Best of luck.
Scott Bowman: Thank you.
Michael Egeck: Thanks, Jonathan.
Operator: Thank you. Our next question comes from the line of Peter Keith with Piper Sandler. Please proceed with your question.
Peter Keith: Hey, good afternoon, everyone. So, it sounds like on the M&A front, you’re not anticipating any acquisitions. But could you just comment on what you’re seeing with the M&A backdrop? It seems like it’s been pretty good the last couple of years. Has anything changed on that front?
Michael Egeck: Thanks for the question, Peter.
Scott Bowman: Yeah, I can. Yeah, go ahead.
Michael Egeck: Yeah, thanks, Scott. I’ll start, you can follow-on. Look, we think M&A is still very attractive, and we’re pleased with the prices, we’re pleased with the returns we’re getting. In our current situation and with our debt and with the interest rates, as Scott had mentioned, our first priority is going to be debt pay-down in terms of capital allocation. In terms of M&A, our focus this year is really going to be on building the pipeline and finishing the integration of last year’s acquisitions. So we still think it’s a big opportunity, going to work on building the pipeline. A lot of these deals with entrepreneurial-minded founders and owners, they take some time to work through. So that will be the focus. And then now, get ourselves in a position from debt levels and leverage where we can get back on the M&A cycle.
