Bryan Fairbanks: I don’t know. It’s probably not fair to say they really want to go after it. They want to ensure – it’s the same thing as we do, we want to ensure that we have the right amount of product in the market to serve all of the needs that are out there. But as the year moves on, if we go back to the historical way the industry has run, that inventory starts coming back down again. There is no reason to hold that level of inventory at the end of November and December. Then we enter into the next early buy season. That inventory builds all over again. So I don’t see that part of the channel necessarily changing, and I don’t think that’s unhealthy either.
Phil Ng: Okay, that’s helpful. One of your larger competitors called out last night that they won a fair amount of shelf space in 2025. Any major losses on your end, or is that someone else, I guess effectively?
Bryan Fairbanks: Yes, we picked up a number of the pro channel locations that we’ve worked with as exclusive locations for us as we moved into this year. We’ve picked up some additional stocking within the home centers as well, on a year-over-year basis.
Phil Ng: Okay, so when we think about 2024, no big negative event on the horizon, right?
Bryan Fairbanks: Correct.
Phil Ng: Okay, awesome. Thank you. Appreciate it.
Operator: Your next question comes from John Lovallo with UBS.
John Lovallo: Good afternoon, guys. And thank you for taking my questions. The first question is one of your competitors had talked about inventories in the channel being about 15% below historical norms. I think you characterize it as kind of being appropriate. I mean is that suggesting that you believe that the channel is just going to carry less inventory as we move forward?
Bryan Fairbanks: Well, I guess what I would suggest here is we have appropriate inventory in the marketplace as we serve, going into the busy part of the season. We see that it’s appropriate to serve the type of growth that’s expected in the marketplace. And then if we see higher levels of growth, Trex has the ability to service that out of our inventory. So, I am not as exactly familiar, but there may be a little bit of difference in strategy of how inventory is being managed between balance sheet and the channel.
John Lovallo: Okay, that’s helpful. And then how are you guys thinking about price cost as we move through the year? Where you – how much deflation are you thinking is likely, and is there an opportunity for pricing if – input costs firm a bip?
Bryan Fairbanks: We are seeing some price pressures, as you’d expect, we’ve had labor go up this year. There have been another – a couple of other items that we’ve gone up, of course, capital equipment is more expensive, all of those sort of things. Energy costs out west are more expensive than they were prior. That’s why we have such a highly developed, continuous improvement process that we know that every year there are going to be those known increases that come out and hit us. We have to have the ability to be able to offset those increases. Now, there may be situations where the cost increases are so large that you do have to take some pricing in the marketplace. So we are not necessarily afraid to take pricing in the market when it’s the right time to do that. And if we see costs are, well, expanding, our ability to be able to offset through our own continuous improvement.
John Lovallo: Thank you, guys.
Bryan Fairbanks: Thanks.
Operator: Your next question comes from Jeffrey Stevenson with Loop Capital.
Jeffrey Stevenson: Hi, thanks for taking my questions today. I was wondering what feedback you heard from channel partners regarding the shift in early buy to the January start date, and whether you view it as a success and plan on replicating the strategy in 2025.
Bryan Fairbanks: We are not sure what the plan is for 2025 as of yet, but for 2024, it was absolutely a success. We gave the channel plenty of advance notice of how we were going to run the program, given that they’ve come off of some volatile years pandemic, and dragging out inventory, wanting to get as low as possible. So we wanted to work with our channel as much as possible. While we also laid out the expectations of what we need to deliver jointly to make sure that our consumers are always able to get their hands on the Trex products that they need. And that’s what drove the inventory targets that we have at the end of the first quarter. And I think the channel did an excellent job across the board, getting prepared for the season and extremely encouraged about the demand that I am seeing the comments from our TrexPro contractors and from our dealers, as well as from the home center channels.
Jeffrey Stevenson: That’s great to hear, Bryan. And then how receptive have your distribution and dealer partners been to working with Trex to increase the attachment rate of Trex railing products as you continue to grow your railing product portfolio, just kind of, given how fragmented the railing industry is right now?
Bryan Fairbanks: So I take you all the way back 15 years ago, there were probably 20 decking manufacturers in the marketplace. There were still a couple, three larger ones in the marketplace, but then there were a lot of smaller ones in the market, whereas today in decking, you have three manufacturers out there that make up the majority of the industry. Railing is a little bit like decking was 15 years ago. Trex leads with a share, this is on a dollar basis, with about 6% of the overall marketplace. And we see a significant opportunity of using the leverage of the Trex brand. So when that consumer is putting on a Trex deck, they are getting a Trex railing along with it. We don’t have all the options today that a consumer is looking for.
So we’ve got a significant opportunity, product development wise, to provide those options. It gives our channel also the opportunity to have more of their sales through a single supplier rather than multiple suppliers. And you heard me say it, I said, there is 20, 30, 40 different railing suppliers. That’s a lot of additional overhead to be able to manage all of those additional SKUs, training your staff on how to install, how to sell, how you’re going to stock them, versus buying from one supplier, we can put it all in one truck together, bring it out of the same location, and have the same sales team there to help them build their business.
Jeffrey Stevenson: Great color, thank you.
Bryan Fairbanks: Great, thank you.
Operator: Your next question comes from Trey Grooms with Stephens.
Sid Ramesh: Hey, good afternoon. This is Sid Ramesh on for Trey. Thanks for taking my question. So on SG&A, leverage was pretty strong in the quarter. Any color as to how we should be thinking about leverage going forward? I think 20 to 30 bps of leverage was what you guys mentioned for the year. Is that still a good number?
Brenda Lovcik: That’s correct. Yes, that is a good number. So, yes, we again, continue to see the return on the investments that we are making in the marketing and branding space. So we’ll continue to invest in that throughout the quarter or throughout the remainder of the year. But even with those increased spending, we expect to see that leverage of 20 to 30 basis points that we had highlighted.
Sid Ramesh: Got it helpful. And then, Bryan, how did the pro channel kind of perform compared to the wholesale in the quarter? Anything meaningful to call out there?
Bryan Fairbanks: Well, the pro channel has a more consistent season on an overall basis. So, they’re going to be building through the fourth quarter and first quarter. They are probably more impacted by weather. If you’ve got heavy snow or heavy rain, they can’t be outbuilding, but otherwise they are out quoting and they are outbuilding all year long. Whereas the home center channel is much more seasonal. That DIY consumer is coming in to a much larger degree during the second quarter and third quarter. And of course, the home center channel is focused on that pro as well. So over time, it probably won’t be quite as seasonal as they continue to execute the strategy to gain more of that pro share.
Sid Ramesh: Helpful. Thank you, guys.
Bryan Fairbanks: Thank you.
Operator: Your next questions come from Keith Hughes with Truist.
Keith Hughes: Thank you. Back to the question on SG&A on the 20, 30 basis points of leverage that would imply there would be deleverage the remaining quarters of the year. Is that what you’re signaling or is this more just a function of some of the conservatism we talked about so much on this call?
Brenda Lovcik: I would first say, right, as a percentage of sales view in Q1, right, we had a very high revenue. Q2 will continue to have high revenue. You start to see that decline a little bit in Q3 and Q4. So as a percentage, that might look like deleverage, but for the full year, you will still see that nice 20 to 30 basis points of leverage.
Keith Hughes: Okay, so the dollar spent in SG&A year-over-year, I guess it’ll be up…
Brenda Lovcik: Exactly.
Keith Hughes: The far reduced rates what we saw, for example, last year, is that directionally what we’re doing?
Brenda Lovcik: Sorry, say that one more time.
Keith Hughes: So you were going to see year-over-year spend of SG&A up, but not what you’ve seen in past years when you were ramping up.
Brenda Lovcik: Correct.
Keith Hughes: I guess the point I’m trying to get to is there has been a reinvestment in SG&A that you talked about many times. Are we reaching a top on that at this point? Maybe extend that question into 2025.
