Q1 2022 PGT Innovations Inc Earnings Call
Good day and welcome to the P. G. T innovations, Inc. First quarter 2022 earnings conference call. All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions.
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Please note. This event is being recorded I would now like to turn the conference over to Brad West Senior Vice President of corporate development and Treasurer. Please go ahead.
Thank you good morning, and welcome to the PTT innovations first quarter 2022 Investor Conference call.
With me on the call today are president and CEO , Jeff Jackson, and our Chief Financial Officer, John codes on the investors section of our company website, you'll find the earnings press release issued earlier today as well as the slide presentation, we have posted to accompany today's discussion.
This webcast is being recorded and will be available for replay on the company's website.
Before we begin our prepared remarks, please direct your attention to the disclosure statement on slide two of the presentation.
As well as the disclaimers included in the earnings press release, and our SEC filings discuss forward looking statements.
Today's remarks contain forward looking statements, including statements about our 2022 financial performance outlook.
Those statements involve risks uncertainties and other factors that could cause actual results to differ materially.
Additional information on factors that could cause actual results to differ from expected results is available in the company's most recent SEC filings.
Additionally on slide three note that we report results using non-GAAP financial measures, which we believe provide additional information to help investors compare prior and present performance.
A reconciliation to the most directly comparable GAAP measures is included in the tables attached to the earnings release and in the appendix of the slide presentation. At this time I will now hand over the call to our company's CEO and President Jeff Jackson.
Thank you Brad and good morning, everyone and thank you for joining us on today's call.
We started off the year by delivering a record quarter I'm very proud of the PTT innovations team and everyone's efforts to go above and beyond to service our customers.
Our growth each quarter is a result of our steady efforts to improve <unk> innovations.
From our hiring and training supply chain management manufacturing and automation processes. We have done this while never losing sight of safety for our team members is our number one goal.
Turning to the key messages for the quarter on slide four.
We hit the ground running in 2020 to carrying forward the strong growth momentum from the past year, our net sales increased 32% to a record $359 million in the first quarter compared to the prior year.
This includes organic growth of 17%, reflecting the strength of our existing brands, while our latest acquisition aniline windows and doors added another $32 million and closed a record quarter performing above our internal acquisition model estimates.
Despite inflationary pressures on material and labor costs and overall supply chain challenges, we were able to expand adjusted EBITDA margins by 90 basis points compared to the first quarter of 2021.
The main drivers of our improvement include.
A series of pricing actions taken throughout 2021, including 612% price increases for new orders net originated after November one of last year.
Our operating performance improved substantially during the quarter with a 25% reduction in lead times for certain brands.
As always we work to control cost whenever possible through a consistent focus on marketing spend quality and our manufacturing processes.
Additionally, our ability to increase production, while improving margins would not have been possible without the successful management of our supply chain.
We have worked hard to obtain required volumes of aluminum and our hedging programs helped minimize the impacts of pricing on an extremely volatile market.
Our teams continue to monitor this closely and we'll take pricing actions to offset any sharp increases in spot prices.
Additionally, our EKO acquisition has provided additional glass manufacturing capacity minimizing the impact of the shortages of glass, we have seen in our industry.
We ended the first quarter with a cash balance of $104 million and an adjusted run rate net leverage of two seven times.
Our balance sheet strength gives us the flexibility to effectively allocate capital as we look to continue to grow both organically and through strategic acquisitions.
We are well positioned to meet strong demand across our key markets and we will continue our growth over the balance of 2022 and beyond.
Slide five presents our first quarter sales trends.
Organic sales for the quarter grew 14% in our southeast region, while organic sales in our Western region grew 39% versus the prior year quarter.
New cell continues to perform very well with sales growth of 17%.
Our three new stores opened in 2021 helped contribute to this growth.
We are currently in various stages of opening new stores in Atlanta, Dallas Fort worth and San Antonio.
This will bring total store count at the end of the year $2 17.
For both our Dallas and Fort worth the stores' leases have been signed and store operators are finishing up their training alright.
Alright, Atlanta store has already taken orders of $2 $7 million and we are planning our official ribbon cutting in July .
Well our focus on improving manufacturing performance has allowed us to decrease our average lead times and improve our on time in full metrics continued strong demand has resulted in a backlog of $347 million.
Down slightly from our $356 million backlog at the end of the fourth quarter.
Our backlog declined during the quarter is mostly a result of continued improve operations, resulting in shorter lead times.
In the Florida region, we did see a reduction in order growth rate during Q1, primarily due to the impact of a prior year price increase pulling forward demand into Q1 of 2021.
We are seeing strong recovery in Q2 of 2022 ahead of our most recent price increase.
Our Q2 quarter to date orders are up 30%.
Perhaps one of the most exciting pieces of information I would like to share with you today is last week, Florida Governor Rod The Santos signed House Bill 70 71.
This bill provides tax relief in Florida for a number of building product categories for.
For the first time ever Floridians will receive a two year sales tax exemption for impact resistant windows and doors and garage doors among other items.
This important home hardening initiatives provides tax relief to homeowners, allowing them to harden their homes against the devastating storms by installing impact resistant products.
I want to also thank Florida, CFO , Jimmy Petronas I first mentioned this concept to him over two years ago. He worked with us to get this approved in both the Florida Senate and house.
This is a great benefit for homeowners in Florida to improve the safety and value of their homes and we think this program will be incremental positive for impact resistant building products in the Florida R&R market.
Slide six summarizes our strategic and operational framework for profitable growth as we seek to create long term value for shareholders, while servicing our customers and communities.
Our first pillar is customer centric innovation, which allows us to offer products with features performance and value our builders and customers demand.
Our second pillar is investing in talent and since the beginning of 2021, we have invested heavily in bringing new team members on board.
We support our new hires by providing the training to enable them to be successful by working safely and meeting our high quality standards.
Having the right team members in the right manufacturing locations is a consistent focus in today's tight labor market.
We continue to attract and retain talent by offering competitive benefits and maintaining a culture where employees know they are value.
Over the past 12 months, we have increased our average starting hourly rate by 14%.
Given the significant inflation our countries experiencing this helps our team members maintain a good quality of life.
During the quarter, we launched a new training location for Adventist team, which provides a controlled learning environment for our team members.
All new Ventas team members will start their PDD innovations careers at Cookie World name for George could be a longtime leader who started our first training programs back in the 19 nineties.
We believe this facility will result in a higher level of job satisfaction improved quality and greater safety.
In addition, we expanded our partnership with our local Venice High School.
Our pathways to Pee GTI program provides an opportunity for students to explore potential career paths.
And gains skilled trade experiences in the manufacturing environment by partnering with <unk>.
We are excited about the program's potential to help our high school students and we are in the process of rolling out this program at all our locations.
Our third pillar is scaling our business.
For several quarters, we have been intently focused on improving our manufacturing processes. So.
So that we can reduce our lead times and meet growing demand.
Just this quarter. This has resulted in lower lead times more efficient warehousing operations and less back orders will be experienced a 50% improvement in our venous site.
Our fourth pillar is allocating free cash flow to achieve profitable growth.
We are consistently evaluating opportunities to grow through new product development improve production processes are the right strategic acquisitions.
We will continue to be disciplined in our capital deployment. This year as we look for accretive opportunities to grow our business, while delivering above market results.
Currently we are evaluating a number of possible acquisitions.
All of our acquisition targets have come from relationships built over time as part of our strategic planning processes.
Now I'd like to turn the call over to John to review, our first quarter results in greater detail John .
Thank you Jeff as reflected on slide seven we were able to generate $359 million in revenue for the quarter of 32% increase over the prior year quarter. This increase was driven by 17% organic growth from our legacy businesses, including new South and continued growth.
From our recent England acquisition.
Our pricing strategy actions and process improvements implemented during 2021 had been successful and allowed us to offset rising costs in.
In the first quarter, our sales breakdown was 58% R&R and 42% new construction.
Organic R&R sales grew 12% compared to the first quarter of 2021 and organic new construction sales grew 25% due to the strength of our legacy brand.
Gross profit for the quarter was $134 6 million or 43% increase from the prior year quarter, reflecting increased volume and pricing, partially offset by labor and input material cost headwind.
First quarter gross margin was 37, 5% 280 basis points higher than the prior year quarter, driven by price increases manufacturing process improvement and continued unit growth.
Recent investments in our talent helped generate improved operational efficiency across the portfolio and we believe those actions will continue to benefit our gross margins through the balance of the year. We will continue to strive to be an employer of choice and grow our company with high quality talent.
We were hedged at 60% of our aluminum needs during the quarter, which helped mitigate overall cost pressures as of today, we have contracted approximately 77% of our estimated aluminum needs for 2022, we continue to see considerable volatility for aluminum and we will continue to monitor aluminum and other <unk>.
Port costs and take actions as appropriate.
Selling general and administrative expenses increased in the first quarter compared to the prior year driven by the SG&A from our recent acquisitions and the expansion of our new South operations and the increase in our revenue.
We will look to leverage these costs in the coming quarters as our revenue continues to grow our adjusted EBITDA was $59 1 million, 40% higher than the prior year quarter.
Our tax expense in the quarter came in at 25% in line with our expectations we.
We reported adjusted net income of $25 1 million or <unk> 42.
For diluted share compared to $16 5 million or 27 per diluted share in the first quarter of 2021, an increase of 56%.
Turning now to our balance sheet on slide eight we ended the quarter with net debt of $531 million, we had total liquidity of $178 million, including a cash balance of $104 million and $74 million of unused capacity on our revolver.
Trailing 12 month run rate net debt to adjusted EBITDA ratio was approximately two seven times at the end of the quarter.
Next on slide nine you can see that we have grown EBITDA, both through acquisitions and organically, while maintaining a conservative leverage profile with our historically conservative financial policies. We had used our strong cash flows to reduce leverage after significant acquisitions, our long term leverage target remains within 2%.
Three times.
On Slide 10, you can see our long term capital allocation priorities at a glance. Our first priority is to reinvest in our business, which includes allocating capital to projects that we expect will drive margin and revenue for growth.
For example, we have invested in strategic selling initiatives to improve efficiency and operational metrics and to reduce cost.
These investments will allow us to enhance our margins and continue to grow our revenue.
Our capex target range is 3% to 4% of sales.
While we are committed to maintaining a strong balance sheet and conservative capital structure, we would expect acquisitions to play a role in our future growth. We will continue to target strategic acquisitions that are aligned with our growth priorities and are expected to grow shareholder value over the long term, we will look for opportunity that will enable us to expand into.
New regions channels or products <unk> is a great example of this.
In addition, we will continue to seek out strategic acquisition that will give us access to technology enhance our manufacturing capability or to strengthen our supply chain as we did with echo.
We expect to integrate our acquisitions and de lever while carefully evaluating other possible acquisition opportunities as part of our overall strategic plan.
And now I would like to turn the call back over to Jeff.
Thanks, John next I'll review, our outlook for 2022 on slide 11.
Given our strong performance during the first four months, we are narrowing our EBITDA range to 225 million to $250 million. We believe that our recent results coupled with a strong order book gives us optimism that we can land in upper end of the range for both.
Sales and EBITDA.
Based on the results through April .
Mishel indications for the second quarter show continued operational improvements along with increased sales and profitability.
We expect to continue our recent trends of improving our sequential EBITDA margins.
The modeling assumptions are reflected on slide 11.
Turning to slide 12.
To close our prepared remarks, I would like to reiterate what I believe the <unk> innovation has never been better positioned to execute our strategy for creating long term value for our shareholders.
First we are a national leader with strong brands that have been further boosted by recent acquisitions our products continue to gain penetration both in impact resistant and in the indoor outdoor living markets.
Additionally, we serve geographies, which continue to show strong population growth.
Second our product portfolio is diversified and poised to capture profitable growth in both the new construction and the R&R channels.
From the southeastern Texas and to the West coast, including our growing direct to builder business out West which has seen a nice growth in 2022.
We remain focused on continually improving our operations, which drives efficiency and margin expansion over the long term.
We have a long history of innovation and new product developments that provide customers with innovative premium products to meet their changing needs and we plan to continue investing in both R&D and talent.
Last on the list, but certainly not an afterthought sustainability has long been a part of our company culture, we will seek to further elevate our commitment to conducting business in a socially and environmentally responsible manner.
And as we have demonstrated we are always focused on the health and welfare of our team members in fact for the first time ever PDT innovations was named by Forbes as a best place to work.
I will close my prepared remarks, how I started in.
And that is by thanking our entire 5500 strong team member family for what they do day in and day out at this time, let us begin the Q&A operator.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
If you are using a speakerphone please pick up your handset before pressing the keys.
If at any time your question that's been addressing you would like to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
And our first question will come from Keith Hughes with Truest. Please go ahead.
Thank you.
I'm wondering if you talk more about price and units.
In the quarter what was the what was the makeup.
How you got to be organic growth.
Sure the breakdown we had.
Meaningful price increase or price improvements.
Remember in our call. We said, we added six months to 12% overall price improvement.
That we had and then we also had some volume growth in there, but that wasn't a signal call. It in the mid single digit range. So.
That's sort of the breakdown of what we had between pricing and unit.
Okay.
You talked about that what you were hedged on aluminum.
I guess you could talk more on your plastics.
Obviously some increases.
Are they starting to plateau out or do you think you'll see more sequential increase and inputs in the cycle.
No what we're seeing on the vinyl side of it is really a flat and its really occurred since Q3 of last year late Q3 into Q4, it's really steady around that dollar a pound that range. So we haven't seen much volatility and thats been relatively flat for us.
Okay.
And I guess.
Final question.
If you could just talk.
Anecdotally on the.
Pace of business as you head into the quarter and specifically around your ability to sort of out of your have your lead times come down versus.
Some of the struggles we had last year.
Yes, Keith this is Jeff.
Definitely our lead times have came down versus last year, and we've cut some of our products and half on lead times. So it depends on which brand, but certain brands actually have a four week lead time.
And impact some of our aluminum brands, we still have some pressures on the vinyl side in terms of lead times. They stretch out up to 12 weeks still so we've got more capacity, we're adding there.
To address that but as we ended the year. We ended the year on a strong note. So I think first quarter didn't surprise us.
Frankly with.
The volume, we saw and the increase increases we saw and like I'd mentioned.
If you compare it to last year's first quarter, we have a we had a big price increase so we are actually comparing ourselves against pretty tough comp.
And we've.
As we entered the second quarter as I also mentioned.
So it was a solid month of another 30%. So we're feeling good about the second quarter volume as well.
Okay, great. Thank you you bet.
Our next question will come from Phil <unk> with Jefferies. Please go ahead.
Hey, guys, it's Maggie on for Phil.
Yeah, I guess first on.
Adjusting for the color on the April order trends.
<unk>.
Could you give any type of breakout between end markets and regions, if anything is saying outpace strange there.
And then again on the lead times I guess it varies by product, but can you give us a sense of how far off you are from getting.
All your products back to a more normalized lead times.
Sure. If you look across our brands I think the most robust volume we've seen is out west the western product portfolio has grown tremendously and like I also mentioned, our aniline acquisition in the first quarter of Amazon They had.
Solid growth at inland as well.
<unk> growth not only is obviously are driven more so towards our ability to service the market better.
Our on time and in full metrics are above 80% and last year. They treat now into the 40% level. So we weigh improved on time and full metrics, we've organized a warehouse and if you recall the investments we made last year in order to pull off the volume levels. We are seeing this quarter this coming quarter.
We made the investments in the warehousing.
We opened up Fort Myers, we hired over 800 people.
And as I also mentioned, we increased our average hourly rates and starting pay in general for our hourly folks up to 14% on average. So so we've made a ton of investments in our folks we've made a ton of investments in infrastructure and quite frankly, all of that is paying off.
With our lead times coming down.
It's still I'd say around vinyl.
We should see better vinyl lead times as we enter in the third quarter.
With all the different initiatives, we have on tap.
We resolved our glass issue quite frankly with the acquisition of Echo that doubled our glass capacity internally and Cardinal has performed very well for us this year as well so from a supply chain standpoint, we're seeing very favorable.
Indicators, there as well so if you really look.
At the performance Shirley in Venice, the turnaround we've seen over the last four months is really driving a lot of that volume because again the backlog is still there, but our lead times are down and our average sales per week is up probably almost 25%.
Okay, Great that's really helpful.
And then my next question the new tax exemption sounds pretty exciting how are you thinking about the incremental demand opportunity there and maybe the timing of that coming through and should we expect a step up in marketing or anything to try to really get the word out.
All of that benefit yes.
Yes, I mean, if you look at Florida, roughly half our business is R&R.
If you look at our total mix is what are we at 58% R&R, but of that we also have islands. All R&R. So you just called out Florida alone, which is this impact is a significant portion of our business, let's call. It half of our business in Florida, and basically that's a 6% savings to the homeowner so.
The state of Florida, as always I'd say being cutting edge when it comes to code development and enforcement and.
This is just another example of the state's official proactively thinking how do we help our floridians to harden their homes and save on insurance and I think youll see a tremendous push too hard and homes because of this initiative again, it's 6% savings right off the bat is almost like a 6% price decrease in a sense to that.
Customer. So if you look at our business, we're incredibly well positioned a look across our brands. We have R&R, obviously here at PBT, but the whole new cell is R&R the whole new soft brand. So new south is a great position PDT and this mix is positioned very well as well as our south Florida.
With CGI and Echo I think it's going to have tremendous potential as a two year program. So I don't see this big.
No rush to get it all in in the first couple of months are I think I think people will be able to stage that out and so I think from a capacity standpoint, we're going to be in great shape to meet that demand, but I do think it will be significant demand for us over the next couple of years and help offset some of the quite frankly some of the headwinds that the bill.
Industry's had whether it's interest rate or inflation or various other issues that we're facing this is a nice breadth of relief for us.
Okay, great. Thank you very helpful.
Our next question will come from Kenneth <unk> with Keybanc capital markets. Please go ahead.
Good morning, everybody.
Everybody.
Morning, Ken.
Okay.
Lead times going down not for the R&R, but for the new side Windows had been.
It is.
A point of.
Delay or a bottleneck.
Do you feel obviously, we'd have to weigh down that indicate maybe in the right direction, but do you.
Is your product going to those homebuilders also.
Our bottleneck would you say for their construction cycle times.
I know that they're out there we hear the homebuilders talk about it I'm just interested is that manufactured do you feel like where you are in the new markets.
That would apply to you or has your lead times got down to such an extent that you're able to manage that.
Sequencing.
In your factories.
Yeah, Ken that's a great question I would say in 2021, yes, I think every window and door company was the problem and the main problem in the construction cycle, that's not the case for us now.
If you look at our new construction business is growing and we actually are now what our dealer base is telling us they want a product and now they are waiting to install that product for other.
Portions of a home that needs to be installed first where theres trusses, which I've heard is the biggest issue in new construction right now is actually getting the trusses.
Concrete cement all of those are much more prevalent now at least for our builders that we serve here in Florida, I would say the majority of actually the majority of our dealers dealing new construction are sitting on some.
Finished orders waiting to install those for the builder to be at a point to accept windows. So we are no longer I can officially say we are no longer the issue when it comes to the.
Okay.
I guess that.
That's where all of our partners yes.
Just FYI again, we have various lead time buckets.
If you look at our lead times for our production builders there are three to five weeks and.
And we take care of them and the lead times are three to five weeks.
Excellent.
I do appreciate that.
Maybe if you could give us a little context.
Bob.
Related to obviously, you've been very good about pushing price through and you can see that I talked.
<unk> talked about low single digits in volume, 13% price in the quarter are.
Our 17% organic growth that would imply a 4% volume is that.
That's about right, yes, or yes, that's good math.
Oh My God.
Could you maybe give us.
A little and I don't know if you have this in front of you, but could you give us like just kind of an LTM. Just so we know how much of that how that volume trend has moved because.
In the past the high volume growth created.
Last year, a big need for you to hire people with your integrated.
Very well.
Didn't have really the cost takeouts that you've had perhaps you know 13, etcetera, etcetera, but I'm trying to get a handle on the volume and then.
Within that context, because that obviously will you have to ask for price.
Volume isn't challenging you do we see a lot of volume swings, if we think about western windows.
Because that's more focused on.
Out West and obviously had an win could you give us a little sense of how that volume might be different by region, if youre comfortable with that.
The context, the volume L. P. M. If you have it and then how that volumes had a definitely.
If you recall the extreme price contribution thank you.
Yeah, I'll try to take a piece of that and John will take a piece of that question, but in terms of how we see it based on geographic location.
Can tell your western has started off their strongest year ever we've averaged over $1 million a day in sales in western show.
That trend continues that would be north of $250 million just in western we don't think that trend will continue necessarily but hey, if it does we're ready.
And we're actually from a production value standpoint, we're hitting about $1 million of production value out of Western now again due to technology expanding our capacities in hiring folks. So so western growing very nicely from a volume standpoint, and like I'd mentioned earlier on the call.
<unk> just finished its most its best quarter ever in the company's history in the first quarter of aniline. So that's more volume driven as well so the volume out growth.
Growth out west is probably a little bit more robust.
If you will than the southeast.
With that said, our new south their volume has been taking off.
Again, we are opening up new stores.
Just sign the Dallas and Fort worth lease and so we will be actively into Dallas and Fort worth in the next I'd say three months.
The operators are already trained and they will be going out to those locations. So so from a volume standpoint, new south is growing tremendously well.
Here in Florida, I think we have started given our performance. We've actually started taking back market share and that really has started in the builder corporate builder market as I've mentioned to you our lead times it in core builder anywhere from three to five weeks and so we literally some some some okay.
We lost in 2021 quite frankly due to our performance we've got those accounts back and so we've been able to get more volume on the new construction side on that end.
The R&R market again is stable for us and we think with this new initiative to harden homes, and then send them to the state of Florida is given where the sales tax break we think the volume there is about to take off in the R&R side as well.
You want to add anything no I think.
You you hit it pretty well.
The only other point I'd mentioned is if youre looking at LCL I know youre trying to look at LTM.
When you look at our top line revenue.
The growth in the most recent quarters I guess last two quarters has been influenced obviously by price because we took price last year took price again this year, but our volume we've seen we've seen that continue to see that volume growth. So that volume growth has been in there like I said, it's that mid single digit range for.
Where we are in Q1, we would expect that type of growth to continue.
I can probably get you an LTM volume number.
But I don't have that right.
Thank you very much that was very good I appreciate it sure.
Thanks, Ken.
Again, if you have a question. Please press Star then one.
Our next question will come from Michael Rehaut with Jpmorgan. Please go ahead.
Thanks, Good morning, everyone and thanks for taking my question.
Alright.
Hum.
First I wanted to kind of delve a little bit into.
New south and western.
In terms of.
Just.
<unk> growth over the past couple of years.
And how much of you know if you can kind of give us a sense how they've been growing.
We kind of alluded to the $250 million run rate.
Implies roughly a double although you said that it might not you know kind of continue at that rate for the rest of the year, but how.
How do you see the growth.
In those businesses over the next couple of years and relative to what you've seen over the past couple of years.
Particularly as you kind of continue to execute.
Your strategy in those in those segments.
Yeah.
Yeah, if you look at.
Let's call it our western business unit. The goal there was basically to duplicate what we've done here in Florida that is both new construction and R&R markets.
More platforms of choice vinyl and aluminum for instance are more heavy concentration on doors, because that's where more of the margin resides. So so by adding aniline. We think we've done that so so in the future, which youll see with western and the other thing we did was to buy a one of our district one of our dish.
<unk> and installers call Cri, we did that last year and so what we're now doing is rolling out and actually controlling that whole process for certain of our corporate accounts for instance toll brothers.
We actually are.
The window door, and we actually install it through our Cri division. So there's we think there's tremendous growth potential there.
To take that Western brand.
Have a portion of this call it direct to the builder that we install.
And then also with the acquisition of Aniline. The goal there was to be able to get western's product portfolio in an R&R market.
<unk> provided that and we think there is tremendous upside as we start pushing the western product through that aniline distribution R&R distribution. So those are probably the two biggest initiatives.
If you will for <unk>.
Our western business unit, so hopefully hopefully that helps.
Yeah.
Certainly helps.
I guess, maybe just to drive a little deeper there.
Any thoughts around how you think about these different initiatives.
Our resulting in an inorganic growth rates over the next couple of years as well as like I said, you know for new South just kind of curious as you continue to execute.
New store strategy, you know what.
What that might represent in terms of growth for that unit as well.
Yes, I mean for instance, those two initiatives, it's hard to say our growth over the next couple of years for western.
Q1, gross order growth rate was 35%.
So so I mean.
That in and of itself and they are not in the R&R channel yet so are.
We think theres tremendous execution, our growth possibilities in the execution of those two strategies I just laid out for.
Western is going to be hard to call that out. This early in the game again, we just bought Cri last year and were implementing that kind of.
New model if you will.
In terms of new South we've been opening up stores by the end of this year, we will have 17 stores open.
When we bought new south they were roughly call. It 90 ish brand $90 million in retail I'm, sorry, <unk> 70 million in retail and last year their retail business was 140 <unk>.
Almost doubled and I'll call it that business and that's both the what we call legacy stores executing well.
In R&R environment. We're currently in in Florida, which again that tax credit is going to help that to continue.
And Thats also opening up new stores so.
The Atlanta for instance, Atlanta has taken off for us already this year.
Wrote up to almost $3 million in sales in Atlanta alone So and that's just in the first.
Four months of being open so we think as we go into Texas.
We were basically going to concentrate in that.
Most of the population is that triangle between Dallas.
Fort worth and Houston.
And you have almost 23 million people.
And that kind of triangle area of Texas. So our plan is to open up the new <unk> store locations within that area and.
We started off in Houston last year. This year, obviously, you'll be Dallas and Fort worth and there will be closely followed by other locations in Texas. So are based off the growth we've seen.
We think new south continue to be one of our top performers as we expand into new geographic markets, where that model and again that model is a direct to consumer the darden manufacturing, we install heavy advertising, you'll see us on television.
And we've seen success in other companies.
I won't necessarily name on the call, but we've seen other success would that similar model for some of our competitors and we're kind of following that roadmap.
No that's great. Thanks for that Jeff I guess, one last one just to think about.
Okay.
And just to think about.
Gross margins and SG&A.
You know you've been operating in around.
25, 26% SG&A rate and trying to push the gross margins to the high thirties.
Over the last few years is that the right way to think about those two metrics going forward or you know.
As you continue to grow could you see a little bit of leverage on the SG&A side and a little further improvement on on gross margin.
Well I'll start with the SG&A side, we definitely could see a little bit leverage on that SG&A side.
This year and particularly even in the first quarter by the way we invested heavily in marketing is it on the new sales side of the business.
That business unit alone is going to be close to 8 million plus in marketing.
So thats basically doubled our marketing historically since we bought yourself, but thats how they go to market. So you will see as those markets.
Mature that leverage will come in the marketing with a mature market for instance in Texas. Once we start getting sales there we start leveraging that SG&A investment and marketing. So theres various other triggers I think within SG&A will start to leverage whether it's consolidating our call centers to leveraging our field service across all brands.
Which is currently an initiative, we have going underway in terms of.
Gross margin gross margin, we need to we're trying to reset that base again.
PDT last year had a tough go of it.
With inefficiencies warehousing issues. So so what we've done so far in the last four months is level set that and gain back the traction we've lost from that point, we're going to try to improve margins and we're going to not rely on pricing, even though we've demonstrated we have pricing power every pricing increases.
<unk> has taken and stuck so so that's been demonstrated but what we want to do now is more concentrated on how do we take cost out long term and whether thats innovative glass technology.
We're looking at to.
How we are more technology in terms of labor the labor side of the equation had adding in more machinery into and making this more automated plant. There's various initiatives we have underway on the operational side of things to drive enhancements in gross margin. If you look at your mix I think we also try to do that.
Quite frankly by keeping that balance of new construction versus R&R, we've seen way too many window and door companies tilt towards that new construction and when that goes down the margins are taking we like to keep that balanced mix between the two and so as you see changes in the economy, we will focus more on one or the other.
For instance, right now we tried to win back that share. We gained we lost apologize we lost last year, we're winning back that share in the new construction market here in Florida substantially and.
That's what we're concentrating on here with our lead times by doing that.
Will.
We can do that either in R&R and new construction as the market shifts.
Okay. One last one if I could I really appreciate all the detail Jeff.
Just how to think about SG&A.
On a full year basis versus 2021 would.
Would you expect there to be a little bit of.
On a net basis deleveraging or you know an increase on a percentage basis due to the marketing investments or should that straightened itself out over the rest of the year and maybe you are flattish year over year for the full year on a percent basis.
Yeah on a percent basis I think we're in that 25, 26% range and I think.
Full year, that's probably about right, we are going to try and leverage that as Justin mentioned all the programs that we're doing that drive at all.
With respect to it we.
We do anticipate leveraging at a little bit more in the coming quarters, but we are continuing to make those investments. So that range that you have by 25% or so makes it makes sense, where 26 seven I think in Q1. So we wish we should see some leverage off of that yes, I would just add to that that 26 of them was a little heavier like I said, we we did invest in a lot of them.
Marketing, especially when you sell side with the opening.
Are laying the groundwork for the opening up the stores in Texas and continuing to invest in Atlanta in that market as well, but even with that.
We still produced 68, 69% EBITDA by $59 million.
And I'll remind you that and you know this you've been tracking us a long time Q1 is not our strongest quarter Q1 is that I would say Q1 and Q4 arguably are usually around the same in Q2 and Q3 are our strongest quarter.
So you can just do the math.
So if we hit $59 million in Q1, you can imagine the potential this year as long as things keep going the way theyre going so and thats leveraging the marketing that's a combination of improvements in gross margin and continue to drive that top line.
Great. Thanks, so much guys I appreciate it you bet. Thank you.
This concludes our question and answer session I would like to turn the conference back to John Kim CFO for any closing remarks.
Yes. Thank you for joining us on the call today to review our first quarter earnings.
Look forward to your participation in early August to review, our second quarter call.
Thank you again and you may disconnect operator.
Thank you. The conference has now concluded. Thank you for attending today's presentation you may now disconnect.