Margin Guidance and Drivers
Q: Is the lower EBITDA margin guidance due to SG&A deleverage or gross margins?
A: Both SG&A and gross margins have been impacted, primarily due to sales. We've reduced SG&A expenses more than originally guided but haven't fully offset the drop in sales. Margins are trending positively but are delayed because of sticky pricing. We expect margins with acquisitions to be positive in the second half, though less than initially anticipated. "

Volume Growth Expectations Revised
Q: Are lower volume expectations due to softer R&R demand or other markets?
A: The softer remodel market and flat residential construction have led us to revise volume expectations from positive growth to flat or down low single digits in the second half. We initially expected an upswing from housing starts but now foresee the residential market remaining flat and remodels being weaker, along with sticky pricing affecting full-year sales. "

Deflation Outlook into 2025
Q: Will deflation persist into early 2025?
A: We don't expect deflation to be significant in 2025. PVC pipe and fertilizer prices have stabilized, and we anticipate Q3 deflation at the higher end of the 2%-3% range, with Q4 possibly less than 2%. We expect normal price increases from other products next year, returning to typical pricing patterns. "

Remodeling Market Outlook
Q: What's driving the high-single-digit decline in R&R, and will it remain a headwind in 2025?
A: The decline is due to decreased consumer confidence, high interest rates, reduced housing turnover, and inflation causing consumers to defer projects. The middle-income segment is particularly affected, while the high-end remains solid. We believe lower interest rates and controlled inflation will help, but these headwinds may persist into early 2025. "

Pioneer Acquisition Performance
Q: What's the timeline and magnitude of improvement for Pioneer, and do older acquisitions show better EBITDA margins?
A: Market headwinds have dampened Pioneer's expected improvement this year. We're integrating their point-of-sale system by September, which will enhance efficiency and reduce SG&A. Over the next couple of years, we expect Pioneer's performance to reach our company average. Consistently, older acquisitions show improved EBITDA margins and returns, enhancing with age like fine wine. "

SG&A Leverage and Sustainability
Q: How sustainable is the reduction in SG&A relative to sales volume?
A: Our flexible local teams adjust rapidly to market conditions, allowing us to reduce SG&A even with flat volumes. While we can continue being adaptable, we avoid compromising long-term growth for short-term gains, ensuring we're sized appropriately for current markets while building for the future. "

Underperforming Branches Focus
Q: What's the scope and opportunity in focusing on underperforming branches?
A: We're targeting the bottom 20% of our branches, addressing issues like leadership, organic sales, product mix, and high SG&A costs. Actions include consolidating branches for synergy and rightsizing SG&A. By elevating these branches to company averages, we aim to enhance overall performance, especially as some haven't adapted well post-COVID. "

Sales Trends into July
Q: Has the June volume pickup continued into July?
A: In July, sales trends are similar, down about 3%-4%, consistent with the 3% decline in the quarter. The year has been choppy, with strong months like March and June and weaker ones like April and May. July appears average, following this pattern. "

Price Deflation Outlook
Q: How was the 2%-3% deflation guidance for H2 determined?
A: We considered recent trends and uncertainties. Pipe prices took another leg down but seem to stabilize; fertilizer has stabilized at a firm base, though lower than last year; and seed prices dropped 15%-20%, returning to 2020 levels. We anticipate deflation down 2%-3%—2% reflects current trends, while 3% accounts for potential further declines. "

Gross Margin Headwind Quantification
Q: Can you quantify the gross margin headwind from deflation in Q2 and assumptions for H2?
A: While we don't fully break it out, in Q2, acquisitions increased gross margin by about 40 basis points. The negative difference is primarily due to price impacts from deflation. "

PVC Pipe Price Outlook
Q: Are pipe suppliers seeing any PVC price increases?
A: We haven't observed upward pressure on PVC prices. The market is more stable this year compared to last year's consistent quarterly drops. We expect to move past prior price decreases from late last year and early this year, with PVC prices remaining stable. "

Grass Seed Deflation
Q: What's causing continued pressure in the grass seed market?
A: The pressure results from increased supply due to good growing conditions and possibly overproduction. While we may sell more grass seed by volume, excess supply is causing prices to revert to normal levels, adjusting from heightened demand during the COVID period. "