Bhaskar Rao: Absolutely. So when you think about the first quarter, the uniqueness of it is that we have new distribution that we’re very excited about really that begins in the second quarter and beyond. And just as a reminder that new distribution is through our OEM channel. So when you think about what’s going to be different from the rest of the year versus the first quarter is I would think about that OEM mix. Again, what we’ve said, we’ve highlighted on open mics is, on an annualized basis, that’s about $100 million of revenue. We’re not going to get all that in the current period. Think of that happening from Q2 through the end of the year. However, when you think about mix overall and being a gross margin driver is that’s not going to show up in a bridge.
And the way I think about that is when you think about that revenue mixing in, as Scott said, with the Tempur and the Stearns & Foster business, it’s not a big needle mover. Also what that OEM does for us is it’s more units through a plant which makes every other unit cheaper.
Operator: Thank you. [Operator Instructions] We will take our next question from Laura Champine with Loop Capital.
Laura Champine: Thanks for taking my question. It’s a follow-up on the international business, which did decelerate sequentially. It seemed like that deceleration was worse in the direct business. I’m wondering if that might have to do with higher price points in that segment of your business. But just any color you can give us about the decel on the international side would be helpful.
Bhaskar Rao: Laura, great double tap. So here’s the way I would answer that. If you think of the, let’s call it, legacy international business, which is everything outside of Dreams. If you go from 4Q to 1Q and you were to remove the impact of the floor model comp, the growth that we saw in the fourth quarter, that momentum continued in the first quarter. So no deceleration there. The one — the item I would call out is, as Scott mentioned, is the UK market. The market is when you think about the totality of the world and what geos are more than others is the UK market is going through something. And we still continue — Dreams continues to perform well and performed outsized from an outperformance standpoint versus the competitive set. However, it’s a highly competitive market.
Operator: Thank you. And we will take our next question from William Reuter with Bank of America.
William Reuter: Hi. I just have one. In terms of the weakness you’re seeing, that the US is seeing in existing home sales, when you’ve looked at existing home sales historically what do you think that the correlation is between that data and your sales? And do you think we really need that to pick up to see a little bit of a rebound?
Scott Thompson: Yes, and no. We think about housing is, it’s either a little bit of a headwind or a little bit of a tailwind. It would be helpful if there were more housing formation. I don’t have an exact percentage or correlation number. But it’s probably — housing starts are probably in the top — sure top five, maybe top three things we look at. But really consumer confidence is — would be number one. And number two would be things like innovation quality of advertising that stimulates demand. And then you’d probably bump into housing maybe number three or number four. So what I’ll call a slight uptick in housing or a slight downtick in housing, isn’t something that we feel a lot of, but we would rather more housing formation than not. So I don’t think we have to have it. especially considering the low level we’re working from. But it would certainly be helpful.
Operator: Thank you. And we will take our next question from Bobby Griffin with Raymond James.
Bobby Griffin: Hey, guys. Thanks for letting me jump back in here. Just wanted to quickly ask on 2Q. Anything you want to call out as we think about the model, I know we still have some carryover in the new product launch costs. And then with the new distribution wins is the timing of those pretty clean for the quarter were — I mean I think that would imply North America revenue could flip positive if the industry stays about the same. Is that fair? Or am I thinking about it wrong?
Bhaskar Rao: No, great question, Bobby. So the way I would think about that is let’s call our expectation for the second quarter on a consolidated basis would be let’s call it flattish. The call out there, you’re exactly right from an OEM standpoint we dosed that new distribution. That will spark in the second quarter and then from the back half of the year continue to gain momentum. When you think about the uniqueness of the second quarter on a year-over-year basis is there was a fair amount of floor models that flowed in 2Q of 2023. And think about that as about a 3% headwind. So when you think about on a consolidated basis what would our growth be without those four models? Absolutely reasonable that we would see some growth.
However, all in, the expectation is, is that we would be flattish. If I just do a little bit more landscaping from a P&L standpoint, the gross margin is that we would continue to, on a year-over-year basis is we would continue to expand in the normal seasonality that you’d see from going from Q1 to Q2. And then as you think about the advertising, it’s a big period. We’ve got Memorial Day and the timing of the 4th, some of that spend gets pulled into Q2. So advertising, as we called out, is we’re going to make some investments in there, not only to support our retailers in this very important period, but also the new products that we have, the Adapt in the U.S. as well as what we’re doing internationally.
Operator: Thank you. And we will take our last question from Brad Thomas with KeyBanc Capital Markets.
Brad Thomas : Hi. Thanks a lot letting me get back in here. Two quick follow-ups here. Maybe Scott, wondering if you could talk a little bit about — once the Mattress Firm deal closes, assuming it goes as planned, a little bit what year 1 looks like for you? And then Bhaskar, in case I missed it, did you give us an update on commodity and raw material inputs in the year? Thanks so much.
Scott Thompson: I think that’s a great question that I’m not going to answer. Look, we have — we’re not going to roll out too much detail on the first year business plan until things are a little more set and set. Other than to say, we believe that, that business unit would run separately and decentralized. But we’re going to keep the plans and the forecast and the accretion detail and all that until we finish this little exercise we’re doing in D.C.
