And as the Tools & Outdoor portion of the business or the company continues to improve and EBITDA continues to grow as we improve our gross margins back up to 35% or more. As we get back to gaining market share and organic growth in a much more substantial way, it will provide us more flexibility further down the road to decide ultimately what do we do with the entirety of the Engineered Fastening business. But I think if you think about it in chunks of time in the next 18 to 24 months, there’s probably opportunity to do a little pruning in industrial. And then beyond 24 months, it’s a question of do you do something more substantial from a capital allocation point of view? Time will tell.
Operator: Thank you. Our next question comes from the line of Adam Baumgarten with Zelman & Associates. Your line is now open.
Adam Baumgarten: Just a question on POS, what you saw throughout the quarter and into April at this point.
Chris Nelson: So POS was, I’d say, in Q1, it was negative, but in line with our plan are — largely in line with our plan. And we remain fairly confident in supporting the outlook that we have for the balance of the year. As noted, we have seen some progress and pick up with a little bit earlier start to the season. from the outdoor perspective that as of late has given a little bit more strength of POS and what we’re trying to see now is how much of that carries through and how that continues to ramp up as we get further into the season. But the highlight would be that we’re fairly in line with projections from what we’re seeing with POS, and we’re encouraged with the areas of progress we’re seeing from some nice movement on growth with some of our key brands.
Operator: Thank you. Our next question comes from the line of Joe O’Dea with Wells Fargo. Your line is now open.
Joe O’Dea: Hi, good morning. Thanks for taking my question. Just wanted to ask on Outdoor and as you see a more traditional start to the season, just any context on how you’re thinking about 2024 demand in outdoor relative to 2019. And trying to understand whether this is a return to a more normal demand environment? And then also thinking about what a normal environment means for Outdoor margins relative to where we are today to appreciate how much margin upside there could be there on just volume coming back.
Don Allan: Yes. So there’s a lot of good questions in there related to the Outdoor business. And as a commentary on the margin, the — I would say that in my presentation, we talked about 80% of the company being above kind of line average right now, at or above. And the other 20%, which is really made up of outdoor and CAM our aerospace fasteners. The outdoor portion of the business, yes, it is below line average, but there’s an opportunity to do a couple of things. One, right now, we’re really adjusting the cost base for the new demand environment of what we’ve experienced over the last 12 to 15 months and dramatically lower demand in outdoor, that’s taking place over the next quarter or 2. The second phase of this will really be looking at some of the pruning activities that I described, what portions of the business do we want to be and which portion do we not want to be in.
We think that the path to continue to improve the profitability of outdoor. And that’s something we’ll continue to focus on over the coming quarters and into next year. As far as the more detailed questions, I don’t know if Pat or Chris, if you want to grab that?
Pat Hallinan: Yes. I’d say on the volume, this year is certainly still going to be down substantially versus 2019 even if the shape of the trend line starts and starts to look more like a normal trend line. The absolute volume in dollars will be down substantially from 2019. And I would still say that most likely next year would be below 2019 as well, but starting to recover. And to Don’s comment the big headwind in this business has been the volume retrenching more than we would have anticipated a year or 2 ago. And so a lot of our actions are both around the fixed cost base and then what we can do with product cost structure to drive profit improvement in that business.
Operator: Thank you. Our next question comes from the line of Nicole DeBlase with Deutsche Bank. Your line is now open.
Nicole DeBlase: Yeah, thanks. Good morning, guys. Maybe just focusing on pricing a little bit. I think the original expectation was for a price to be kind of slightly negative in Tools & Outdoor in the first half, and it looks like maybe it came in a bit better than that in the quarter. So can you just talk about the expectation for price for the rest of the year as well as what you guys are seeing from a competitive perspective? Thank you.
Chris Nelson: Yes. This is Chris. So Nicole, I’d say overall, what we’re looking at for the year is price cost neutral. And if we look at all the — we try to sum up all the basket of goods and input costs we have, I’d say that we’re looking at what would be a mildly inflationary environment, but we’re going to be price cost neutral in that environment. And as I take a little bit of a broader lens on that from a price cost perspective, I think it’s important to remember that we had a pretty unique set of circumstances in 2022, where we were really hitting the peak of some historically high inflationary environments as -and those input costs were going up significantly as our volume was peaking and starting to retrench. So if I take a broader look and a longer duration, we’ve still kind of only recouped 85%-ish of that overall cost that we’ve absorbed.
So we’re certainly working on making sure that we can improve our pricing processes to be more quickly reactive to inflationary environments as well as more importantly, driving innovation so that we can be putting products in there that earn because of their differentiation accretive margin rates. So — and then as I think about the competitive environment that we’re seeing, thus far, we’re seeing a stable environment. We’re continuing to look at getting back to and are more back to historical promotional levels, but that’s healthy. And we’re looking at those promotions in some important categories to us. And specifically, we’ve talked about the importance of being able to be promoting our cordless DEWALT products. So we feel comfortable where we are, and we think that the environment remains stable.
Operator: Thank you. Our next question comes from the line of Rob Wertheimer with Melius Research. Your line is now open.
Robert Wertheimer: Hi. I have another question on the Outdoor side. I think you made positive comment on market share for DEWALT, I suppose more on the tool side. I wanted to hear how you think you’re positioned on breadth of portfolio and status of innovation, et cetera, on Outdoor? Do you need more investment to kind of achieve the same share gain? What do you think the season hold? And then it may be very early for the second part of the question, but any split on big ticket versus small ticket Outdoor? Just budget sensitivity among your customers? Thanks.
Don Allan: So I think that we feel well positioned with our outdoor portfolio. And I think, as I’ve stated previously is what we’re really wanting to do is make sure that we’re driving the prioritization of our innovation dollars into the categories that we think that we have the biggest opportunity for share gain as well as that are margin accretive. And specifically, we’ve been really looking at growing our presence in the outdoor handheld electric market. And that’s showing great lines of progress. And I would say that we’re — year-to-date, we’re feeling good about where we are from a market perspective. And with some of the listings that we’ve picked up, we feel good about where we are trending from a share perspective as well.
As far as bigger ticket versus small ticket, certainly, in today’s environment, we’ve seen that there are some levels of hesitation from the consumer and from any end user in the bigger ticket items. And we’ll continue to monitor that. But like I said earlier, we’re cautiously optimistic with how the season is starting, and we’re going to continue to make sure that we’re driving innovation into those areas that we believe are going to be important and accretive for us in the future.
Operator: Thank you. Our next question comes from the line of David MacGregor with Longbow Research. Your line is now open.
David MacGregor: Good morning, everyone. Thanks for taking the question. I guess I just wanted to ask a question relating to progress on supply chain transformation and specifically tariffs. And can you just talk about what’s changed in your sourcing and procurement operations since the last time around on tariffs? And if hypothetically, I guess if all of the import tariffs that were imposed back and I don’t know, 2017, 2018 when all that was going on, they were all reimposed tomorrow, how much different would your total tariff expense be versus what you reported last time around?
Don Allan: Sure. So I’ll probably have a little PTSD thinking about tariffs back in 2016. But if we can maybe do a little bit of history here. So we experienced about $300 million of tariffs back in that time frame and made substantial production moves in response to that which mitigated it down probably to about $100 million, maybe a little less than $100 million. And that $100 million or so was offset by price increases in the marketplace. Those tariffs are still in place today and have not changed even in the new administration or Biden administration. As we think about potential changes in the future, that could occur if there’s a change in the administration in early ’25. The landscape for us has changed. So back in that time frame, things that came — that were sold in the U.S. that were made in China was about 40% of the U.S. revenue.
Today, it’s closer to 20%, 25%. And — so it’s substantially lower. And as we continue to drive our supply chain transformation, I mentioned on the call last quarter, that we continue to build out what we call centers of excellence for manufacturing that are in different geographies around the world. Some of them will be in Asia, not necessarily in China, but in other parts of Asia. Some are being built or have been built in the Americas and some in Eastern Europe. And we will continue to build upon that, to try to — if something changes with tariffs in ’25 or beyond, we will be able to mitigate that through supply chain moves or actions. At the same time, we likely — if that occurs, we’d likely have to do some surgical price actions as well as another lever to address.
So we continue to build on the plans of what we could do or would do as we head into ’25. We’ve started that planning about 3 months ago, and we will continue to work on that. The good news is it’s really embedded more into the supply chain transformation program than it is some separate activity that we’re looking at.
Operator: Thank you. Our next question comes from the line of Eric Bouchard with Cleveland Research. Your line is now open.
Eric Bouchard: A follow-up, if I could. Hand Tools down 7%. I’m just curious, a little bit more color there. And then also as you think about where retail inventories are now and the path forward, what retailer’s mindset is about inventories and what they’re ordering relative to what they’re selling.
Chris Nelson: So I’ll start with the second question first. As far as our inventories in the retail channel, we’re at essentially at historical levels, if not in some areas, a little bit below. So we’re seeing a pretty good direct read on the correlation between what we see in POS and what we see going in from sales. And I think that’s a good position to be in. And we’re like we said, we’re on relatively on plan for what we’re seeing from POS. As far as Hand Tools, I would say that there’s nothing that’s a tremendous outlier there. I would say that there are some parts that are in the Hand Tools and Storage business that are to the earlier comments, some larger ticket buys. And those have been more sensitive in the short term to some of kind of the consumer environment. But overall, we feel good about where that business is tracking. Good about the POS as well and as well the inventory levels are similar to what we’ve seen across the business.
Operator: Thank you. I would now like to hand the conference back over to Dennis Lange for closing remarks.
Dennis Lange: Thanks, Shannon. We’d like to thank everyone again for their time and participation on the call. Obviously, just please contact me if you have any further questions. Thank you.
Operator: This concludes today’s conference call. Thank you for your participation. You may now disconnect.
