And we believe we’re in a very similar environment. So there are years where we are going to get SG&A leverage. And I believe you’re right, we’re going to annualize the investments, the strong investments we made in the second half and maybe have some deleveraging in our first half. But as we get back to the more normal cadence of investments, we’ll see deleveraging. And then as the market normalizes and demand normalizes and we take an outsized share of that demand, we’ll see leverage on our SG&A going out.
James Jaye: Thanks, Duffy.
Operator: Your next question is coming from Kevin McCarthy with Vertical Research Partners.
Kevin McCarthy: Yes, thank you and good morning. About two weeks ago, the trade press reported that one of your competitors Kelly-Moore, is essentially going out of business as I understand it. And so my question would be, does that open the door for Sherwin to gain a little bit more share than you otherwise would perhaps on the West Coast? And if so, are you allocating resources any differently? Or might anything change operationally to take advantage of that void before your competitors act to do so?
Heidi Petz: Well, Kevin, I would tell you that that void is absolutely our opportunity. And I won’t get into details here, but I can share with you that you should expect us to be very competitive with that announcement.
James Jaye: Yes. I think a very aggressive approach, as Heidi says. We’ve been making the investments. And I would tell you, Kevin, Kelly-Moore, amongst all of our competitors, we’re competing with all of them all of the time. And so they’ve certainly been on our radar, certainly been aggressively going after them for many years. We’re going to continue to accelerate here and see that as a great opportunity. Thank you, Kevin.
Operator: Your next question is coming from Garik Shmois with Loop Capital.
Garik Shmois: Hi, thanks. Just a clarification question for me. It sounds like you have the Paint Stores price increasing your guidance in advance of the Feb 1st implementation date. Just hoping you could confirm that. And then maybe just speak to the pacing of gross margin expansion as the year unfolds?
Allen Mistysyn: Yes, Garik. We absolutely have the price increase for Paint Stores as well as targeted price increases across each of the other segments in our full-year guidance. The — when you look at our gross margin and the expansion, we expect it’s probably going to be a little heavier in our first half with, like I talked about, the stronger raw material deflation that we’re going to see in our first half plus the pricing in our first half. And so we’ll see a little bit more expansion in our first half. And then although we do expect our second half to continue with the expansion, it just won’t be as much year-over-year. Plus we’re going against a tougher comp on our second half when it comes to our gross margin.
James Jaye: Thanks, Garik.
Operator: Your next question is coming from Adam Baumgarten with Zelman.
Adam Baumgarten: Hi, thanks for taking my question. Just on the new res market, can you maybe remind us what the typical lag between a start and when the paint sale gets made? And I guess, beyond that, have you at least been seeing the declines in that market for you guys to moderate as you move through the back half and into the first half of next year?
Heidi Petz: Yes, Adam. The lag that we’ve traditionally described would have traditionally been about four months. And I think that’s elongated a bit, probably in another two months, largely due to labor shortages and some other factors that are weighing in there. In terms of the other piece, Al, I’ll hand it over to you. You can make some comments on that.
Allen Mistysyn: Yes, Adam. I think what our expectation is as new single-family starts, it continued to improve. Our first half will be — one, just to be clear, if you look at 2023, the new single-family up starts were down significantly. As Heidi talked in the opening, we were down only slightly, which tells you we’re taking share in that market, and we expect to continue to take share in that market. Our national account team, along with the field of Paint Stores Group field organization, do a terrific job at servicing those customers and adding tremendous value to those large national, regional builders and even local custom builders. So that being said, we are going to go up against a tougher comparison in our first quarter. So we do expect to be not as strong in our first half. But then as we see these completion — starts coming to completion where painting is at the end of that project or that house, we expect to see a stronger second half.
James Jaye: Thank you, Adam.
Operator: Your next question is coming from Eric Bosshard with Cleveland Research Company.
Eric Bosshard: On the price increase, I appreciate the headline. Al, you’re pretty clear on the price increases in the guidance for Paint Stores and then the other segments. I’m just curious in terms of implementation of this, Heidi, as you get started and take a price increase to market. The feedback on that, and I’m also curious related to that, I know over the cycle that the mix gets better. But I’m curious if you have any observation of a different mix experience in any of the areas now in the current environment?
Heidi Petz: Yes. I would say the conversations, as we mentioned in the earlier prepared remarks, we do this with our customers. And so as we took this out towards the end of last year, it was making sure that they understand why we’re going out with this, but also making sure that they’re prepared to pass this along and make sure that they’re not absorbing that. I think the conversation here quickly becomes making sure that there’s a greater outcome here for a focus on the premium products. And that’s what we’re going to continue to focus on.
Allen Mistysyn: Yes. Eric, I think to your point on the mix, I mean, we can point to across each of the segments and the opportunity that each of our painting contractors have. As you know, paint is a small portion of a painting project, and that goes for — when you think about the cost of painting a new house or cost of painting a commercial job. So it’s like really a small portion of the overall cost. But if you — as you elevate to the higher qualities, they get such a great efficiency improvement. They can get on and off jobs faster. And over the last three or four years that we’ve been talking about labor shortages, it really is a big driver of that mix shift. So again, opportunities across all of the segments. And our painting contractors are understanding, boy, I can get more top line and bottom line growth with the same number of workers by moving to a higher quality product.
Heidi Petz: The other piece I would mention on that is we talk about value and that we’re out demonstrating our value to these contractors every day. And so when we bring a price to them, Eric, it’s — we’re not having a price conversation. We’re making sure they understand holistically. Again, I’ll go back to my earlier comments in terms of access to the rep, the store-to-store consistency and our ability to help with them with leads, help them with bidding activity. So it’s a very different discussion than I think many others in our industry are having.
