Guidance Amid Macro Pressures
Q: Is any change in macro needed to achieve your guidance?
A: Management reaffirmed their guidance, stating that no change in the macro environment is needed to achieve their targets. They acknowledged the delayed start to spring but emphasized that they manage the business in halves and expect spring to come eventually. -

SRS Acquisition and Complex Pro Efforts
Q: Does acquiring SRS indicate challenges in complex pro efforts?
A: Management believes that while building wholesale distribution capabilities is challenging, they are succeeding and remain optimistic about their organic efforts. They view the SRS acquisition as a separate opportunity, opening up $50 billion in new addressable markets across roofing, specialty trade, pool, and landscape verticals where SRS holds strong positions. - -

Transaction Trends and Market Share
Q: Are improving transactions due to industry or market share gains?
A: The company believes they are taking market share, citing third-party reporting. Transaction trends are improving, and units per basket are up. They attribute this to lapping COVID pull-forward effects and managing the impact of decreased housing turnover on transactions. -

Weakness in Discretionary Projects
Q: Any signs of stabilization in big-ticket discretionary projects?
A: Discretionary large projects, especially in kitchen and bath, remain the single biggest pressure point. Management observed some trading down in these categories due to decreased housing turnover and higher interest rates impacting financed projects. They expect this pressure to pass over time as these dynamics stabilize. - -

Average Unit Retail Pressure
Q: What drives the expected second-half sales improvement?
A: The primary driver is the abatement of pressure from Average Unit Retail (AUR). The company experienced about a 2% year-over-year pressure on AUR in Q1, which is expected to halve to 1% in Q2 and diminish further by year-end. This pressure is due to year-over-year comparisons rather than current pricing changes. - -

Shrink Impact on Gross Margin
Q: How is shrink affecting gross margins?
A: Shrink, driven by organized retail crime, remains a pressure on gross margins. Management noted that despite the external environment not improving, their teams are succeeding in mitigating its impact through significant investments, yielding returns both financially and in associate and customer safety. -

Spending Patterns Across Income Cohorts
Q: Are there changes in spending between income groups?
A: Spending pressure is more about project size than income cohorts. Larger, debt-financed projects are being deferred due to interest rate concerns, affecting customers across income levels. Smaller item purchases are performing better in comparison. - -

Promotional Environment and Margins
Q: Has the promotional environment changed, impacting margins?
A: The promotional environment remains rational and similar to pre-COVID levels. The company runs events to drive excitement and customer traffic, not as a response to increased promotional pressure. Categories like appliances have normalized to pre-COVID promotional activity. -

Pro Segment Performance
Q: How are pro customers performing compared to DIY?
A: Both pro and DIY segments were negative for the quarter at similar rates. However, larger pros, especially those engaging with the company's ecosystem, are outperforming. In markets where they've expanded capabilities like supply chain and sales teams, they've seen positive comps. - -

Spring Season and Weather Impact
Q: How is business tracking with the delayed spring?
A: Where weather has been favorable, the company has seen great customer engagement and strength in outdoor projects. The first weeks of May showed similar trends, and management remains optimistic as their biggest selling weeks lie ahead, hoping for drier weather and sunnier days. - -