But we’re going to continue to get core productivity. It’s an evergreen initiative for us to look everywhere in the business. And I think we’ve got a whole bunch of things teed up to improve the productivity of the core business.
Jacob Levinson: That makes sense. And your comment about the 35% expansion in the square footage in your supply chain — square footage isn’t everything, maybe that’s not the best way to measure it. But is that really you guys catching up to the growth you’ve seen over the last couple of years or preparing for the next couple of years or maybe it’s a mix, but just trying to get [Technical Difficulty].
Donald Macpherson: It’s a mix. It’s a mix. And I think it just practically, if you thought about it, we’re a lot bigger than 2019. There was almost no way to actually build buildings productively during the pandemic, you couldn’t get things going. And so we were a little bit behind. We talked about that in 2022. So a part of it is catch-up but a part of it is planning for the future growth as well. And I would say the square footage isn’t exactly capacity because the bulk warehouse portion of those is lower cost and doesn’t quite give you as much capacity as does the other buildings, but certainly, Houston and Portland are added capacity similar to the other capacity of the number.
Operator: Our next questions come from the line of David Manthey with Baird.
David Manthey: First off, a couple of quick ones for Dee. What specifically is the range of price expectations you’re baking into the 2024 guidance range? And second, on Slide 20, you talked about stable gross margins. I’m not clear if you’re referring to segment gross margins are consolidated. Could you help me with that?
Deidra Merriwether: Yes. So Dave, I will start with the U.S. price that we’re focusing on when you think about that outline of flattish, we’re expecting price to be between 0% to 1% for the year in the U.S. And on Slide 20, specifically, stable gross margins really is applying to the total company, and you can also apply that to High-Touch in some ways as well.
David Manthey: And then, D.G., could you talk about what opportunistic M&A would look like to Grainger today?
Donald Macpherson: Yes. I mean first and foremost, I would reiterate that we are an organic growth company, and that’s where we are focused on most of our energy. We get a lot of looks at things and opportunities. I would say that we get 2 types of looks of the distributors, which probably haven’t been as interesting to us. And then there are some potential technology investments and things that might be more interesting to us. So we continue to look at a wide range of opportunities in areas that we think are really important to the success of the business, particularly some specific domains that we think we need to be really good at going forward, and we might invest in those areas. But as I said, we are primarily an organic growth company at this point.
Operator: Our next questions come from the line of Chris Snyder with UBS.
Christopher Snyder: I wanted to ask on the investments that the company are making. And D.G., I appreciate all the color that you provided. And there’s a lot going on, but is there any way that you could maybe bucket or talk about the investments between the capacity additions and the efficiency drivers that you’re making versus the more demand generative investments like the sales coverage and the marketing. Any way to just kind of think of those 2 respective buckets?
Donald Macpherson: Yes. So without getting overly detailed, I would say that the demand generation investments are typically SG&A investments, so marketing and seller ads or SG&A investments. Whereas a lot of the capacity investments we’re making in productivity investments or AI investments or technology investments, most of this showing capital, some shows up in expense for sure. But if you think about — when we talk about spending $450 million, $550 million in capital, the vast majority of that comes from supply chain investments and capacity increases and in technology. And so I would think of it in those terms. And technology is building capabilities and advantage in information assets and supporting the growth initiatives in the core business as well versus marketing to our more direct spend that go into demand generation.
Christopher Snyder: I appreciate that. And then if we think of the SG&A investments, that are kind of more of that demand generation. Can you just maybe talk about the ability to leverage those and grow operating margin over time? Because in 2024 has guided to be a pretty supportive year for gross margin, but operating margin is kind of flattish despite the top line growth and the stable gross margin because it seems like in some capacities, investments that you’re making, do you think that over time, you’re able to leverage those and grow operating margin? And then maybe ’24 is just kind of a pause year.
Donald Macpherson: Yes, it talked about it. Yes, we do expect to get SG&A leverage over time, and we are probably making more incremental investments in this year than others. Yes. So that is probably true. We’re also — just I would just point out, in a fairly flat price environment, that SG&A is — its more difficult to get SG&A leverage as well. So there’s a number of factors going on. Dee, do you have any?
Deidra Merriwether: Yes. The other thing I would point to is just our improvement in return on invested capital. I think that was one of the reasons why that’s one of the metrics that we talk about track and are focused on is ensuring that the investments we make, whether they are CapEx investments or SG&A based upon how we calculate ROIC, we are very focused on ensuring that they help us deliver and grow at least not operating margin, operating dollar growth as well for us.
Donald Macpherson: Yes. And the other thing I’d add to that is that both in marketing and seller coverage, we are very well measured. So we are — everything is tested. We don’t make the investments lightly. We know exactly what returns are getting. So if they’re a positive return, we will make them even if in the year, they might slow down our SG&A leverage because it is the right thing to do for the overall profitability of the business.
Christopher Snyder: I appreciate that. All makes sense. And if I can squeeze one last one in. When I look at price mix in the quarter for high touch, I think it was only up 40 basis points I have to think that customer mix was a drag on that. I guess any color on what that customer mix headwind was? And any way to maybe think about what price as a stand-alone was in Q4?
Deidra Merriwether: Yes. I mean it was really small. And I think if you go back to — we forecast — and it should be no surprise with our price cost outcome will be in Q4. We’ve been looking at this and talking about it for the last 2 years. If you go back to 2022, we noted that we were going to be significantly price cost positive in that year, and it would unwind in 2023 and it did, and you saw that and experience that in the second half of of 2023. And so a lot of it is timing, as we know we talked about price and cost in our business is very lumpy being north of 70% of our business will contract customers and the timing of those things. And so on a 2-year stack being essentially neutral and exiting this year and start in 2024, the neutral footing, I think was really important.
Operator: Our next questions come from the line of Deane Dray with RBC Capital Markets.
Deane Dray: Love to go a little bit deeper on the comments about January getting off to a slower start. And we’ve heard this recently from a number of companies pointing to the weather as really hampering some of the activities. So if you could size for us what you think that weather impact was. And a related question is the underlying assumption of MRO for activity for 2024, down 0.5% to up 1.5%. Just given the trends we’re seeing now in the ISM coming back, new orders going back above 50, just it seems like you could see a risk to the upside in that and maybe that’s a bit conservative and just take us through that assumption as well, please.
Donald Macpherson: Yes, sure. So I can take the — I mean, I can try to take both of them. I guess the first one I think there were 2 factors that made January slow start. One was that most of the schools were shut, which show some activity in the first week of January, which last year, schools opened in midweek. And we noticed that and we noticed that in some of the schools we serve as well as just the broader economy. And then obviously, the cold weather week. What I would say is that the last 2 weeks of January were very normal for us. And so while there was some slowness, it wasn’t — in the course of the quarter, it will be very, very small in terms of the impact, but noticeable in a month, of course, because it’s many weeks, but it’s not huge in the grand scheme of things, it’s just noise.
