Kim Scott: So from a demand perspective, we’ve been very focused on cross-selling existing customers in products and services that they’re currently self-serving. So there — for us, there’s plenty of demand that can be created. We are seeing in our retention numbers as we look at customer trends, we are seeing some closures of business. We’re seeing sale of businesses taking place in that business changing hands. And that feels pretty stable. So nothing erratic to report there as it relates to kind of customer behavior we’re pretty well diversified, as you guys know, across many different end markets. So we feel pretty comfortable that we’re insulated around any kind of 1 particular segment or industry that might be declining.
And if we continue to harvest share of wallet with existing customers. There’s plenty of space here regardless of what might be happening from a macro environment perspective. You guys will recall, I’m sure in Analyst Day, we sized this market out at a $48 billion market across all of the products and services that we offer. So there’s a lot of room to to find places to grow as we’re looking at various trends across the end sector. So we feel pretty good about that from a macro perspective. We feel good about having a solid understanding of the cost drivers in our business and what we think is happening from a macroeconomic perspective related to those drivers, whether that be energy or labor or other of supply chain costs related to our formats.
We think we’ve got a good view of that. So we see a pretty path forward for us through FY ’24 with a good understanding of the things that might be headwinds that are facing us. We think we’ve got great plans to offset any of those headwinds through good operational efficiency actions that we’re taking. And also, we’ve demonstrated our ability to price as appropriate as we may see those inflationary impacts emerge. Rick, anything that you would add there?
Rick Dillon: I think I would just say we haven’t assumed in the plan broadly a market downturn. We’re certainly not the looming recession. And so all the things that Kim described, is kind of how we would respond to we’re not recession proof, but we do like our mix in that environment of workplace supply, we’re less employee-centric still actually more margin accretive. So we feel good about where we’re positioned, but we take all the necessary actions, as Kim described, to preserve profitability should that occur.
Kim Scott: Yes. I mean, we’ll be agile and monitor closely what’s happening in various end markets and adjust our kind of targeted sales activity to move and flow where the demand exists.
Ronan Kennedy: That’s very helpful. And then if I may, as a follow-up. Can you just reconfirm with regards to the progression for the targeted margin expansion after ’28. How we should think about that kind of sequentially year-to-year and the key contributors, if it’s initially, it will be leveraging that sales growth until you start to see more benefits from the field and the workforce optimization or the operating efficiencies, et cetera.
Kim Scott: Yes. So as we’ve talked about before, we didn’t build this thing as a hockey stick. So there’s no massive kind of betting on the comp in the back 2 years and assuming that we’re going to generate 500 bps of margin in 2 years. This is a slow and steady wins the rate base hit game for us. In FY ’24, which is really the first year of our 5-year plan that we’ve articulated to the market, as I mentioned earlier, we are ingesting our public company costs, and we’re ingesting that very effectively and we plan for that. So we’re really pleased to see that we are going to, at a minimum, hold the line on margins from FY ’23, through FY ’24 while absorbing those pubco costs. But what you’ll also see is there’s some really good strong underlying performance taking place here with 50 to 60 basis points of margin expansion happening to the underlying business, and we’re using that to offset the ingestion of those patco costs.
But if you look at what’s happening, you can definitely see margin coming through, and you can see operating leverage emerging in the business. As we are taking advantage of cross-selling the customer base and leveraging fixed assets. And so we are getting flow through on that revenue. That revenue is creating margin expansion. And we’re also working very steadily around our flow optimization and driving efficiency through these logistics initiatives that we’ve talked about. All of these things are in motion. So there’s not new initiatives that need to gain traction or that will start taking place 3 years from now to help deliver that plan. All of the initiatives required to get to that FY ’28 margin are moving down. So we are optimizing flows.
We are cross-selling the customer. And it just gets stronger and stronger as we add revenue every stop. We just continue to leverage those fixed assets and get the flow through. So you should think about this as a very slow and steady wins the race base hit game. You’re going to continue to see us just turning away at these initiatives and the margin is going to continue to flow and operating leverage will continue to open. So you’ll see, again, it’s muted in ’24 purposely because we’re ingesting the patco costs but the underlying performance is there, and you’ll see that just continue to move through ’28.
Operator: Our last question will come from Scott Schneeberger with Oppenheimer.
Q – Unidentified Analyst: It’s Dan for Scott. Just a quick 1 on the trends you’ve been seeing in to medium-sized enterprises versus national accounts. If you can please discuss recent trends there and how you see that develop into next year?
Kim Scott: Thanks for your questions, Scott. It is good to hear from you. So we are very focused on both groupings of customers. As we’ve talked about earlier, they dose add great value. So our national account customers can really form the backbone of your supply chain and create density. So we’ve got a team out there hunting and harvesting national account customers. And those customers, as you know, stay more than 20 years with us. So they’re very valuable customers and the lifetime value is great. But we also know that small to medium enterprise customers are very margin accretive and there’s great propensity to cross-sell the base once you bring those customers into your house. And so we continue to focus very heavily on the experience in creating an outstanding customer experience with those SME customers.