John Morikis : Yes. I should be careful in making general statements like that because to characterize an entire industry like that can be challenging to say the least. But yes, I would say that many customers that have in the past not been able to even return phone calls on bids. Bid requests are now either returning those calls or looking for some of those bid requests. There’s an understanding that there’s an opportunity to continue to grow. If you look at the homes in the U.S., they are aging. The residents of those homes are aging. And while many of those people may choose to move into a new home, many are choosing to stay in those homes and paint remains relatively inexpensive, yet highly impactful project, and those painting contractors are pursuing those.
So again, I mentioned earlier, I would describe it as a more normalized market. Contractors are looking and doing a lot of work, and they are also probably a little more aware that having a marketing aspect to what they’re doing is an important part of their future success, and we’re helping them with that. It’s an element that most people don’t recognize. And when I say it’s not just what’s in the can, we’ve been at this for over 150 years, obviously, and our ability to align with our customers, help them to understand not only that they should be looking around the corner, but how to prepare for that. They might have been great painters. Now they own a paint company. And when they started the business, they put a sign on a project and every person in the neighborhood came to them.
We’re helping them to understand how to reach out and grow their business, how to, in some cases, specify products, in some cases, even how to interview potential painters. So we’re lockstep with these firms, helping them to grow their business in ways that most people wouldn’t understand
Joshua Spector : And I guess if I ask about the repaint demand side of things, just we’ve been in this downturn now for the last six, nine months or at least when starts come down and some of the housing turnover softened. Given the higher DIY demand during COVID and where interest rates are and more people staying put, I guess how do you square all those to say, is repaying that 75%, which is more defensive, is that staying defensive? Is that less defensive, more defensive now? Any way to characterize how you’re thinking about that based on what you’re seeing today?
John Morikis : I’m not sure I quite understand your question, but I might say that we see this residential repaint business and have seen it as an important element to offset some of the softness in the market coming out of the last downturn. Al, myself and many of the leaders that are currently running the company sat and reviewed during a slowdown like we had experienced then, what would we like to have going forward. And it was a larger, more meaningful residential repaint business, and we’ve been successful in doing that. We were successful in growing new residential, our position there. We love our position there. And we’ve over-indexed now given the success that we’ve had. And so the offset to that has been the residential repaint, the property management and on the Industrial side, businesses like our Automotive Refinish and some other even sub-segments within some of our areas.
So we manage this business with a long-term view, and we’re always looking at the war game of if this happens, then what? And residential repaint right now is an important element. If you look at our DIY business, our DIY business was up double digits, but it’s because the comparisons were so small. Last year, we made the decision to deemphasize We weren’t making our DIY product. And the reason we did that is that we were allocating that to our DIY retail customers that are important. We want to maintain that long-term relationship. We took a hit there in last year’s sales in DIY to help our large and important customers grow. As a result, our DIY comps look good now, but it’s on a small base. The residential repaint business is an important element that we expect to continue to grow.
DIY, we’ll take that business, but our focus is on the 90% of the professional through our stores.
Heidi Petz : Josh, one more thing I would add to that on the residential repaint side. I think if you look at — back to your question on the backlogs and how we think about this business offsetting some of the other softening demand, we’re introducing new products. So if you think about these contractors going in, largely focused on the walls, we’ve introduced a new professional cabinet coating. It’s essentially a one component that performs much like a 2-component epoxy. So excellent chemical and moisture resistance and allowing these contractors to go in and essentially help to complete an entire kitchen from the walls to the cabinet. So really trying to arm them with the ability to take advantage of while they’re in the home, where else they can generate revenue.
Operator: Your next question is coming from Alex Yefremov at KeyBanc Capital Markets.
Aleksey Yefremov : I have two questions on the cost side. One is on the labor cost. What are you seeing in terms of trends? Any signs of inflation leveling out there? And the second part is on the real estate. As you sign new leases or renew existing leases, are you seeing any cost moderation there?
Allen Mistysyn : Yes. Let me — I’ll take the first one on our labor costs. We talked about mid-, high single-digit labor costs through our nonfactory distribution facilities. We do expect that to level out, especially as we get into our second half in our factories and distribution centers. I would say the rate of increase has been higher to attract and retain those individuals and our sites. I would say on that side, Alex, we’re going to continue to do specific market studies to make sure we don’t get out of bed, if you will, or outside of the market in any given area. I think what I would admit to as we maybe got a little behind. Previously, we’re not going to let that happen. So I believe it’s leveled out as we see more unemployment rates tick up, it will put less pressure on wage inflation going forward.
But I think we’ve got to be diligent in the manufacturing distribution areas to — each market is a little different. Each one is going to be more specific to what’s happening in that market, and we’ll be more diligent there. But I do expect them to level out.
John Morikis : And on the rent side, I would tell you that for the most part, I’d say, rents seem to be relatively flat. We make a very good tenant. We try to use that and leverage that. The fact that as the predominant or premium brand here, we like to talk about what it is that we bring. We talk about our financial strength and the fact that we’re investing in our industry, while others are closing stores, we think, plays well to those tenants that are looking for a long-term tenant that can pay their bills, and we fit that bill.
Operator: Your next question for today is coming from Arun Viswanathan at RBC Capital Markets.
Arun Viswanathan : So first question, I guess, was you guys have obviously many, many businesses. If you were to characterize maybe the top 2 or 3 that are performing better than expected or have the capabilities of performing better than expected, what would those be? Would that be maybe Commercial and maybe new home — new resi potentially not being as bad as you initially thought? Or how should we think about that?
John Morikis : Well, I would say that Commercial certainly has performed better. Our property maintenance has performed better. Our protective & marine has performed better. I think that our residential repaint is, we had high expectations of that going in. So we — I think — I would never say they’re meeting our expectations. When they meet our expectations, we raised our expectations. On the Industrial side, I think our Automotive business is really doing very well. And I’d say that — there are some others that — it’s hard to answer this question, Arun, because in each of our businesses, there are opportunities. So in our business, the way we look at it, it’s not a 1 or a zero. When our teams come in and talk about — if you’re looking at our Paint Stores Group, you can come in and talk about new residential being under pressure, but then the focus is on where are the opportunities.
And so even within new residential, we know there are opportunities there for growth. And so there’s — I often say there’s no finish line. In each of these businesses, there are opportunities. And the role of our leadership teams that have been through many of these in the past is to find those opportunities and they exist in every single business. Even Industrial Wood, where there’s a lot of pressure, there are opportunities for growth, and we expect the team to find those opportunities, grow in those segments while improving their position within the segments — the sub-segments that we play in now so that when the market does return that we are that coiled spring and we take advantage of it. But we expected them all to grow faster than the market.
