Q4 2023 Global Industrial Co Earnings Call
Good afternoon, ladies and gentlemen, welcome to the global Industrials fourth quarter 2023 earnings call.
Operator: Good afternoon, ladies and gentlemen, and welcome to Global Industry Week. Next time, I would like to turn the call over to Smargiassi, of the Please go.
At this time I would like to turn the call over to Mike Smart Jossey of the Pumpkin Group. Please go ahead.
Thank you and welcome to the global Industrial fourth quarter 2023 earnings call.
Mike Smargiassi: Thank you and welcome to the Global Industrial fourth quarter 2023 earnings call. Leading today's call are Barry Litwin, Chief Executive Officer, and Tex Clark, Senior Vice President and Chief Financial Officer. Formal remarks will be followed by a question and answer session.
Leading today's call will be Barry Litwin, Chief Executive Officer, and Tex Clark Senior Vice President and Chief Financial Officer formal remarks will be followed by a question and answer session.
Mike Smargiassi: During the call, we will reference both GAAP and organic metrics. Organic reflects the performance of the global industrial business exclusive of the May 2023 Indof acquisition. Today's discussion may include certain forward-looking statements. It should be understood that actual results could differ materially from those projected due to a number of factors, including those described under the forward-looking statements caption and under risk factors in the company's annual report on Form 10-K and quarterly reports on Form 10-Q. The press release is available on the company's website and has been filed with the SEC on a Form 8K. This call is the property of Global Industrial Company. I will now turn the call over to Barry Litwin.
During the call we will reference both GAAP and organic metrics organic reflects the performance of the global industrial business exclusive of the May 2023 and off acquisition today.
Today's discussion may include certain forward looking statements it should be understood that actual results could differ materially from those projected due to a number of factors, including those described under the forward looking statements caption and under risk factors in the company's annual report on Form 10-K, and quarterly reports on Form 10-Q.
The press release is available on the company's website and has been filed with the SEC on a form 8-K.
This call is the property of COBOL Industrial company I will now turn the call over to Barry Litwin.
Barry Litwin: Thanks, Mike. Good afternoon, everyone, and thank you for joining us. In 2023, we continue to execute against our ace strategy. Revenue reached a record $1.27 billion as we benefited from the acquisition of Endor, while Organic Revenue Performance reflects the soft start to the year. We enter 2023 with an uncertain economic outlook, cautious customer purchasing behavior, and deflationary prices. However, as we moved through the year, the demand environment improved, pricing pressures eased, and we delivered solid second-half results, growing organic revenue 4%. In fact, Q4 produced our best top-line growth of the year. Total revenue was $320 million, an increase of 22.9% year over year.
Thanks, Mike Good afternoon, everyone and thank you for joining us in 2023, we continue to execute against our Ace strategy revenue reached a record one point to $7 billion as we benefited from the acquisition of <unk>, while organic revenue performance reflects the soft start to the year.
We entered 2023 with an uncertain economic outlook.
Customer purchasing behavior and deflationary pricing.
As we move through the year, the demand environment improved pricing pressures eased and we delivered solid second half results growing organic revenue 4%.
In fact Q4 produced our best topline growth for the year total revenue was $320 million, an increase of 22, 9% year over year on an organic basis, we posted our second consecutive quarter of growth as revenue improved five 1%. These.
Barry Litwin: On an organic basis, we posted our second consecutive quarter of growth as revenue improved 5.1%. These gains reflect continued volume improvement and strength in our e-commerce channel. Gross margin was 33.8%, a 100 basis point uptick on a sequential quarterback. We ended the year with a modest increase in our cash position, even after fully funding the $72 million Indof acquisition.
These gains reflect continued volume improvement and strength in our ecommerce channel.
<unk> margin was 33, 8%, a 100 basis point uptick on a sequential quarter basis.
We ended the year with a modest increase in our cash position, even after fully funding the $72 million in golf acquisition.
Barry Litwin: Given the strong cash flow generation of the business, today, we announced a 25% increase in the quarterly recurring dividend to $0.25 a share, the eighth consecutive annual increase. Looking back at 2023, I'm really proud of how our entire team executed against the key pillars of our customer-centric strategy, from Distribution, Web, Marketing, and Sales to Merchandising and Customer Service. Across the company, we advanced operational excellence and strengthened our long-term competitive position. We expanded our go-to-market channels with the addition of Indof, made enhancements to the user experience in our e-commerce platform, which helped drive web performance and grew the enterprise offering, while making investments in sales resources to support both new and existing customers.
Given the strong cash flow generation of the business today, we announced a 25% increase in the quarterly recurring dividend to <unk> 25 cents a share.
Eighth consecutive annual increase.
Looking back at 2023, I'm really proud of how our entire team executed against the key pillars of our customer centric strategy from distribution.
Marketing and sales merchandising and customer service across the company, we advanced operational excellence and strengthened our long term competitive position.
We expanded our go to market channels with the addition of <unk> made enhancements to the user experience and our E Commerce platform, which helped drive web performance and grew the enterprise offering while making investments in sales resources to support both new and existing customers. We remain committed to making the investments that will drive our future.
Barry Litwin: We remain committed to making the investments that will drive our future performance. As we look to build upon the progress of last year, we have a number of customer-focused initiatives to ensure we further enhance the buying experience and take care of our customers at every part of their journey. First, we'll continue to elevate global industrials' ability to solve problems for customers and bring a more comprehensive, solutions-based approach to our offer. Internally, we look to be solutioneers for our customers, delivering product content, support, and knowledge to help them make informed decisions and succeed. We are enhancing product training for our subject matter experts and leveraging INDOS project management and installation capabilities to expand the service offering. And through our voice and customer feedback process, we will drive alignment of these efforts with the needs and solutions customers are looking for.
<unk> performance as we look to build upon the progress of last year, we have a number of customer focused initiatives to ensure we further enhanced the buying experience and take care of our customers at every park their journey.
<unk> will continue to elevate global industrials ability to solve problems for customers and bring a more comprehensive solutions based approach to our offering internally, we look to be solution years for our customers delivering product content support and knowledge to help them make informed decisions and succeed we.
We are enhancing product training for our subject matter experts and leveraging endorse project management and installation capabilities to expand the service offering.
Through our voice of customer feedback process, we will drive alignment of these efforts with the Nielsen solutions customers are looking for.
Barry Litwin: Second, we'll prioritize a renewed focus on the quality and value we provide, from the extra chip in the cookie we deliver through Global Industrial's exclusive brand to a new quality team to evaluate, improve, and monitor our processes. We will emphasize the quality of the buying experience every step of the way from product sourcing to delivery to the customer. We will also fine-tune our product assortment to ensure we have the right selection of core products and complementary consumables for our customers. Through these initiatives, we're improving the quality of our offering and highlighting the value we bring to the market. Third, it is our aim to make it even easier to do business with global investors.
Second we will prioritize a renewed focus on the quality and value we provide.
The extra chip in the Cookie, we deliver through global industrials exclusive brands through new quality team to evaluate improve and monitor our processes. We will emphasize quality of the buying experience every step away from product sourcing to delivery to the customer.
We will also fine tune our product assortment to ensure we have the right selection of core products and complementary consumables for our customers with these initiatives, we are improving the quality of our offering and highlighting the value we bring to market.
Third it is our aim to make it even easier to do business with global industrial you've heard us talk about providing an exceptional end to end shopping experience that delivers a frictionless transaction. We have several ongoing efforts to improve category merchandising and drive shop ability and a new customer service agent training program all.
Barry Litwin: You have heard us talk about providing an exceptional end-to-end shopping experience that delivers a frictionless transaction. We have several ongoing efforts to improve category merchandising and drive store ability and a new customer service agent training program, all designed to deliver a five-star experience. Finally, we are making further investments in sales, marketing, and profit performance areas to improve the tools and the team we have to grow, retain, and deepen customer relations. This includes technology investments to drive efficiencies in sales, optimize digital marketing, and enhance pricing intelligence and analytics.
Zion to deliver a five star experience.
We are making further investments in sales marketing profit performance areas to improve the tools and the team we have to grow retain customer relationships. This includes technology investment to drive efficiencies in sales.
<unk> digital marketing.
Pricing intelligence and analytics.
As we enter 2024 I believe we have the right plan in place to build upon the progress last year initiatives across the business are designed to elevate and highlight global industrials positioned as an indispensable business partner and the value we bring everyday to our customers' investment in key performance areas are designed to strengthen our competitive position.
Barry Litwin: As we enter 2024, I believe we have the right plan in place to build upon the progress of last year. Initiatives across the business are designed to elevate and highlight Global Industrial's position as an indispensable business partner and the value we bring every day to our customers. Investment in key performance areas is designed to strengthen our competitive position, drive operational efficiencies, and help us capture share. The market environment remains one of caution, and we have seen modest organic growth to start the year. With strong cash flow from operations and an exceptional balance sheet, we remain well-positioned to execute on our strategy, invest in our growth drivers, evaluate strategic opportunities, and build long-term value for our stakeholders. I'll now turn the call over to... Thank you, Barry.
Drive operational efficiencies and help us capture share.
The marketing environment remains one of caution and we have seen modest organic growth to start the year with strong cash flow from operations and an exceptional balance sheet, we remain well positioned to execute on our strategy invest in our growth drivers evaluate strategic opportunities and build long term value for our stakeholders.
I'll turn the call over to tax.
Thank you Barry fourth quarter revenue was $321 million up 22.9% over Q4 of last year organic revenue was $273 $9 million or five 1% year over year, our largest growth rate of the air growth.
Thomas Eugene Clark: Fourth quarter revenue was $320.1 million, up 22.9% over Q4 of last year. Organic revenue was $273.9 million, up 5.1% year-over-year, our largest growth rate of the year. Growth was consistent throughout the quarter, with volume up and price headwinds in the low single digits. Organic U.S. revenue was up 5%, and organic revenue in Canada was up 7% in local currency. eCommerce and broader digital sales were once again our leading channel and ended the year representing more than 60% of total annual order volume. Private brand demand remains robust and represented approximately 50% of total sales in 2023. Gross profit for the quarter was $108.2 million, up 15.4% from last year.
Growth was consistent throughout the quarter with volume up and price headwinds in the low single digits organic U S revenue was up 5% and organic revenue in Canada was up 7% in local currency.
E Commerce and broader digital sales were once again, our leading channel and ended the year, representing more than 60% of total annual order volume.
Private brand demand remains robust and represented approximately 50% of total sales in 2023.
Gross profit for the quarter was $108 $2 million up 15, 4% from last year.
Thomas Eugene Clark: Gross margin was 33.8%, down 220 basis points from the year-ago period, primarily due to the contribution mix of Indof and its relatively lower gross margin profile. Indof's gross margin was 21.5%, and in line with their historical performance. The organic gross margin rate was 35.9%, in line with the year-ago period, and up 140 basis points sequentially. Organic margin performance benefited nearly 40 basis points from a one-time settlement with a former LTL freight carrier in the quarter.
Gross margin was 33, 8% down 220 basis points from the year ago period, primarily due to the contribution mix of end off and it's a relatively lower gross margin profile.
And off gross margin was 21, 5% and in line with their historical performance.
Organic gross margin rate was 35, 9% in line with the year ago period, and up 140 basis points sequentially.
Organic margin performance benefited from nearly 40 basis points from a one time settlement with a former L. P. L freight carrier in the quarter.
Management of our margin profile remains a key area of focus.
Thomas Eugene Clark: Management of our margin profiling remains a key area of focus, and performance will continue to reflect the impact of proactive promotion and freight actions as part of our competitive pricing initiative. As a reminder, given Indos' impact on our composite margin profile, we expect a consolidated gross margin decline in the first quarter as compared to last year. In addition, as a result of shipping disruptions in the Red Sea, we have seen double-digit increases in ocean freight costs in the first quarter.
Performance will continue to reflect the impact of proactive promotion and freed actions as part of our competitive pricing initiatives.
As a reminder, given endorse the impact to our composite margin profile, we expect our consolidated gross margin declined in the first quarter as compared to last year.
In addition, as a result of shipping disruptions in the Red Sea, we've seen double digit increases in ocean freight costs in the first quarter.
Thomas Eugene Clark: This is something we are closely monitoring and may be a gross margin headwind in future quarters, depending upon the duration of the disruption. Selling, distribution, and administrative spending for the quarter was $86.8 million, or 27.1% of net sales, an improvement of approximately 210 basis points from last year. SD&A primarily reflects the benefit of Induf's lower cost structure, as well as general cost controls within the organic business.
This is something we are closely monitoring and maybe a gross margin headwind in future quarters, depending upon the duration of the disruption.
Selling distribution and administrative spending for the quarter was $86 $8 million or 27, 1% of net sales an improvement of approximately 210 basis points from last year.
SG&A, primarily reflects the benefit of enough to lower cost structure as well as general cost controls within the organic business.
Thomas Eugene Clark: Operating income from continuing operations was $21.4 million in the fourth quarter, and operating margin was 6.7%. Organic Operating Margin was 7%. With the addition of INDOF and its comparatively lower operating margin rate, our composite operating margin may remain lower than in the historical period. During the quarter, we generated operating cash flow from continued operations of $8.2 million. Total depreciation and amortization expense in the quarter was $1.9 million, including approximately $0.8 million associated with the amortization of intangible assets associated with the Indof acquisition, while capital expenditures were $0.7 million.
Operating income from continuing operations was $21 $4 million in the fourth quarter and operating margin was six 7%.
Organic operating margin was 7% with.
With the addition of <unk> and its comparatively lower operating margin rate our composite operating margin maybe may remain lower than historical periods.
During the quarter, we generated operating cash flow from continuing operations of $8 $2 million.
Total depreciation and amortization expense in the quarter was $1 $9 million, including approximately zero point $8 million associated with the amortization of intangible assets associated with the enough acquisition, while capital expenditures were zero point $7 million.
Thomas Eugene Clark: 2023 capital expenditures were $3.9 million, and we expect 2024 capital expenditures in the range of $6 to $8 million, which primarily includes maintenance-related investments in equipment within our network. Let me now turn to the balance sheet. We have a strong and liquid balance sheet with a current ratio of 1.9 to 1. As of December 31st, we had $34.4 million in cash, no debt, and $101.2 million of availability under our credit facility.
2023 capital expenditures were $3 9 million honest and we expect 2020 for capital expenditures in the range of $6 million to $8 million, which primarily includes maintenance related investments to equipment within our network.
Let me now turn to our balance sheet.
We have a strong and liquid balance sheet with a current ratio of one nine to one.
As of December 31st we had $34 $4 million in cash no debt and $101.2 million of availability under our credit facility.
Operator: We maintain significant flexibility to fully execute on our strategic plan and to continue to fund our quarterly dividend. As a result, our Board of Directors declared a quarterly dividend of $0.25 per share of common stock, which reflects an increase of 25% from the previously declared quarterly dividend. This concludes our prepared remarks today. Operator, please open the call for questions. We will now begin the question-and-answer session. If you have a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the button.
We maintain significant flexibility to fully execute on our strategic plan and to continue to fund our quarterly dividend as a result, our board of directors declared a quarterly dividend of 25 cents per share of common stock that reflects an increase of 25% from the previously declared quarterly dividend.
This concludes our prepared remarks today operator, please open the call for questions.
We will now begin the question and answer session.
To ask the question you May Press Star then one your telephone keypad, if you're using a speakerphone. Please pick up your handset before pressing the keys.
Operator: To withdraw from the question queue, please press star. We'll pause momentarily to summarize. Our first question will come from Anthony Lebiedzinski with Siddhoti and Company. You may now go. Good afternoon, gentlemen.
To withdraw from the question queue. Please press Star then two at.
At this time, we will pause momentarily to assemble our roster.
Yeah.
My first question will come from Anthony Lebed, since key with Sidoti and company.
I'll go ahead.
Hey, good afternoon, gentlemen, good afternoon, and thank you for taking the questions.
Anthony Chester Lebiedzinski: Yeah, thank you for taking the questions. So I was just wondering if you guys could comment on the pace of your sales in the fourth quarter. Maybe give us some more details as well about the first quarter's trends so far. I know a couple of your peers have talked about some severe winter weather in January disrupting sales. So if you could comment on that, that would be great. Yeah, I mean, from a Q4 exit period for us at Organic on a 5.1 basis, we were pleased with that performance, you know, as it relates relative to the winter season. The winter season, I think it was kind of short; it had a quick burst in the early phase.
So just wondering if you guys could comment on the cadence of your sales in the fourth quarter or maybe give us some more details as well about the first quarter to date trends I know a couple of your peers.
You talked about some severe winter weather in January disrupting a sale. So if you could comment on that that'd be great.
Yeah, I mean, I think from a you know from a Q4 exit paired for us that our organic on 501 basis was are we.
We were pleased with that performance.
You know as it relates relative to the winter season.
Winter season, I think was was kind of short and I had a quick burst in the early phase and certainly we have a seasonal business for winter products that gets helped by that.
Barry Litwin: And certainly, we have a seasonal business for winter products that gets helped by that. We didn't see a tremendous amount of disruption, to be frank, in that area. So we felt we fared pretty well with those products. So, it was a relatively good season for us.
We didn't see a tremendous amount of disruption to be Frank in that area. So we felt we fared pretty well with those products.
So it was a relatively good season for us.
Barry Litwin: You know, as we kind of go through exit Q4 and into Q1, we certainly see some modest organic growth flowing through. So, I think, Anthony, in general, I still think we see a fairly cautious sentiment in the market relative to where customers are today. I think they're still prioritizing price, so I think there's always going to be some headwinds there. I also think that from a growth perspective, industry-wide, we certainly see kind of MRO being in low single-digit, you know, growth in general. But it's a fragmented market, so we think we have an opportunity, you know, to continue to grow. But it's certainly a competitive market, you know, relative to price and freight. So right now, you know, our prospects are, you know, very, very reasonable. We continue to run halfway through the quarter, and we, you know, we'll continue to pursue our initiatives to get us to a good result. Understood. Okay. And I just wanted to follow up.
You know as we kind of go through exit Q4 and into Q1, we certainly see some modest organic growth.
Flowing through.
So I think Anthony in general.
I still think we see a fairly cautious sentiment in the market.
Relative to where customers are today I think there still.
Still prioritizing price so I think there's always going to be some headwind there.
I also think that from a growth perspective industry wide, we certainly see kind of MRO being in low single digit growth.
In general.
But it's a fragmented market. So we think we have opportunity to continue to continue to grow.
But it's certainly a competitive market relative to pricing freight. So right. Now you know are our prospects are very very reasonable we continue to only halfway through the quarter.
You know, we you know.
We will continue to continue to pursue our initiatives to to.
To get us to a good result.
Understood. Okay, and then just just wanted to follow up so.
Anthony Chester Lebiedzinski: So, on your third-quarter call, you guys talked about caution, especially with large orders. Some customers, I think, were spreading their orders through multiple shipments. Did you see less of that or kind of more of the same as far as just the large orders? Just curious to get your take on that.
On your third quarter call you guys talked about the caution, especially with large orders of some customers I think we're spreading there.
Waters through multiple shipments did you see less of that or kind of more of the same as far as just the large orders just curious to get your take on that.
Uh-huh, Yeah, I I I think it's been fairly consistent Anthony relative to two large orders.
Barry Litwin: Yeah, I think it's been fairly consistent, Anthony, relative to large orders. You know, like we said in our remarks, e-commerce has been a very good channel for us. And typically, that drives a little bit lower order size. But I think we've seen fairly consistent performance on large orders, even through the last reporting period.
You know, we like we said in our remarks I mean, our E. Commerce has been a very good channel for us.
And typically that drives a little bit lower lower order size, but I think we've seen fairly consistent performance on large orders even through the last reporting period. So yeah, that's absolutely right Barry if it had been very consistent Anthony on that approach.
Anthony Chester Lebiedzinski: This has been very consistent with that approach, Anthony. Gotcha. All right. And then, Barry, you talked about highlighting several initiatives that you guys are focused on, you know, as far as, you know, out of the three or four that you outlined, I mean, which one out of those do you think will have the most immediate impact on the business, and kind of which ones out of those initiatives kind of will take longer? layout
Got you Alright, and then Barry you talked about you outlined several initiatives that you guys are focused on as far as other with three or four that you outlined I mean, which one of those you think will have the most immediate impact on the business and the kind of which ones are out of those initiatives will take longer.
Lay out.
Yeah, So great Great question I think.
Barry Litwin: Yeah, so great, a great question. I think with our focus this year, we're really putting a huge emphasis on quality, you know, across the organization, one that I'm really excited about. Being a company that typically ships big and bulky items, you're always suspect to damages, and damages have a, you know, impact on long-term retention. And although our acquisition and retention rates right now are very good, I've been very pleased with them. We're investing as an organization to make sure that the end-to-end experience, from the time we source a product, from the time it comes into our warehouse, that we have a quality team that's inspecting those goods and based on being able to reship those items back out to customers, making sure that we have the appropriate quality audits and programs in place to really drive a great experience for the end user. So we've been focused on quality since ACE was created back in 19.
With our focus this year, we're really putting huge emphasis into quality.
Across the organization, one that I'm really excited about.
Being a company that typically ships big and bulky items.
You're always suspect to damages and damages have a you know impact on long term retention and although our acquisition and our retention rates right now are very good and very pleased with them.
We're investing in as an organization to make sure that the end to end experience from the time, we source of product from the time it comes into our warehouse.
But we have a quality team that's inspecting those goods and based on being able to reshape those items back out to customers, making sure that we have the appropriate quality audits and programs in place to really drive a great experience to end users. So we've been focused on quality since ace was created back in 19 and we continue.
Barry Litwin: And we continue to improve our processes and invest in that experience. And we believe that as that continues to get better, that will continue to increase retention rates for the company and drive long-term customer value. Gotcha. Okay.
To improve our processes and invest into that.
Experience and we believe that as that continues to get better that will continue to increase our retention rates for the company and drive long term customer value.
Yeah.
Gotcha, Okay, and then lastly, just a quick housekeeping I guess thinking so your tax rate was a little bit higher in Q4 anything there to call out.
Thomas Eugene Clark: And then lastly, just a quick housekeeping thing. So your tax rate was a little bit higher in Q4. Anything there to call out? Anything you can say as far as 24 tax rates? Yeah, I think I'll take that one. I think it should be a little bit more consistent next year. This was related to some Canadian income and some foreign income and the treatment of NOLs. But ultimately, we would expect a more consistent and normalized tax rate right under 25% for 2024. I'm sorry, yeah, for 2024.
Anything you can say as far as 24 tax rate.
Yeah, I think Andy I'll take that one I think it should be a little bit more consistent in next year. This was related to some Canada in comment from far some foreign income and treatment of Nols, but ultimately we would expect a more consistent and normalized tax rate right right under 25% for Ford.
For 2024, I'm, sorry appetite type work.
Perfect Alright, well, thank you very much and best of luck I'll pass it onto others.
Anthony Chester Lebiedzinski: Perfect. All right. Well, thank you very much and best of luck. I'll pass it on to others. Our next question will come from Michael Francis with William Blair. You may now go. Hey guys, this is Mike Francis on for Ryan Merkel. Thanks for taking my questions. I hate to start.
Our next question will come from Michael Francis with William Blair You May now go ahead.
Hey, guys. This is Mike France is soft for Ryan Merkel, Thanks for taking my questions.
Michael Francis: Yeah, thank you. I think to start, I'd like to ask a little bit about gross margins in 24. I know you're lapping Indof and you had a little bit of headwinds there organically. But how should we think about the business overall, with a full year of Indof involved? Is there going to be any accretion with that acquisition or growth with that acquisition coming in the next year? Yeah, Barry, if you don't mind, I'll take that question.
Yeah. Thank you I think to start off like that <unk> gross margins in 'twenty, four I know, you're lapping and off and you had a little bit of a headwind is there a ghastly.
How should we think about the business overall.
The full year involves involved is there going to be any.
Accretion with with that acquisition.
Growth with that acquisition coming in the next year.
Yeah, Barry if you don't mind I'll take that question. So in regards to gross margin I mean again, we're right now we're breaking out gross margin and sharing it and I'd say with the market both organically and then on a consolidated basis and off for a long time at a very stable margin profile, but there's definitely activity that we're working on with the with those with their sales reps and their sales partners to be able to move there.
Thomas Eugene Clark: So in regards to gross margin, I mean, again, right now, we're breaking out gross margin and sharing it, obviously, with the market, both organically and then on a consolidated basis. Indolph, for a long time, had a very stable margin profile. But there's definitely activity that we're working on with those sales reps and those sales partners to be able to move their gross margin up over time. But again, it's naturally a slightly different business model that will have a little bit lower gross margin rate. In regards to the organic business, which we think about, I mean, this quarter, both the third quarter and the fourth quarter were fully consolidated businesses.
Our gross.
Gross margin up over time, but again it is naturally a different slightly different business model that will have a little bit lower gross margin rate.
So the organic business, where we can think about I mean this quarter was the both the third quarter in the fourth quarter were fully consolidated businesses. So if you look at our gross margin in the second half of 'twenty to 'twenty three we should expect to see that continue in is where we're always focused on maintaining that gross margin profile that you said, there's always some headwinds that we face in the marketplace right now ocean freight as we can.
Thomas Eugene Clark: So if you look at our gross margin in the second half of 2023, we should expect to see that continue, as we're always focused on maintaining that gross margin profile. Like you said, there are always some headwinds that we face in the marketplace. Right now, ocean freight, as we called out, I mean, currently, some of the disruptions in shipping lanes around the world are driving some rates up. But we think that's going to be fairly short-lived, and we'll be able to work through that. And that's really why we invest so heavily in our pricing team and pricing analytics to make sure that we can capture price where appropriate. But maintaining gross margins is always a key priority of the company.
Called out I mean currently with some of the disruptions in shipping lanes around them around the world are driving rates up but we think that's going to be fairly short lived and we will be able to work through that and that's really why we invest so heavily in our pricing team and pricing analytics to make sure that we can capture capture price where appropriate but maintaining gross margin. It's always a key priority of the company.
Okay, and then I also wanted to ask you about a private label little bit you mentioned, 30% of sales.
Michael Francis: Okay, and then I also wanted to ask about private label a little bit. You mentioned that 50 percent of sales is private label. Is there a target that we should think of when we think of where you want to get with that? Are you happy with where you're at now, or is there more room to grow there? You know, a couple pieces.
Is there a target that we should think of when we think of where you want to get with that.
Are you happy with where you're at now or is there is there more room to grow there.
A couple of pieces I'll take that Mike.
Barry Litwin: I'll take that. Mike, I think one is, you know, we're usually not providing long-term guidance on private brand penetration. But I can tell you that we do believe that there's upside, and I think it could come in two ways.
Mike I think one is we're.
Usually not providing like long term guidance on private brand penetration, but I can tell you. We do believe that there is upside and I think it could come in two ways I think one relative to global's organic business today.
Barry Litwin: I think one, relative to global organic business today, we really take a good, better, best approach in the assortment. And we continue to refine the assortment, where we see private brand to be the best fit, because private brand, in our minds, really creates an added advantage in terms of the capabilities that we offer to the product. And if we can continue to provide that at a best value price in the marketplace, we'll continue to emphasize those sales going forward. The other piece, where there's upside, I think, is relative to kind of what Tex covered. I think the Indof business model, which typically was, you know, really a drop ship model. Part of our approach there is to be able to penetrate that assortment with our own brand.
We really take a good better best approach in the assortment.
And we continue to refine the assortment, where we see private brand to be the best fit because private brand in our mind I'm really creates.
An added advantage in terms of the capabilities that we offer to the product and if we can continue to provide data at a best value price in the marketplace will continue to emphasize those sales going forward. The other piece, where theres upside I think is in relative to kind of what <unk> covered I think the indoor business model, which typically was you know really are.
A drop ship model part of our approach there is to be able to penetrate.
That assortment with private brand and so between all the efforts, we have relative to training and educating on the product and our new product development.
Barry Litwin: And so, you know, between all the efforts we have relative to training and educating customers on the product and our new product development, we think that will create some upside and additional expansion in the private brand. So we absolutely think there's growth upside, where we are certainly beyond the 50% business today. And, you know, that's a core strategy of ours going forward.
We think that will create some upside in additional expansion in private brand. So we absolutely think there is growth upside where we are certainly beyond the 50% of business today and.
That's a core strategy of ours going forward.
And then one last one here.
Thomas Eugene Clark: You talked a little bit about the Red Sea and shipping up. How much of your shipping is coming through that, or your product is coming through that chain? You know, very little is actually coming through that channel.
Talked a little bit about the red sea, it and shipping up.
How much of your shipping is coming through that area products coming through that channel.
You know what actually I was very very little bit, it's actually coming through that channel. However, that's increased the overall rates across the industry as as the overall container flow has been disrupted with people moving around the.
Thomas Eugene Clark: However, that's increased the overall rates across the industry as the overall container flow has been disrupted with people moving around the Cape of Africa and other areas. We've seen just an overall increase in rates. So we're not actually seeing delays due to our product coming through there, but the overall market has had rate increases. I think that's not unique to us.
Keep in Africa and in other areas. We've seen just an overall increase in the rates. So we're not actually seeing delays due to our product coming through there, but the overall market. That's had rate increases I think that's not unique to us that that's fairly I mean readily available information in the market about the different that the current rate increases that at ocean carriers are passing.
Thomas Eugene Clark: That's fairly, I mean, readily available information in the market about the current rate increases that ocean carriers are passing through. Again, we think that it's ideally transitory in terms of the cost increases. And after Chinese New Year's, we hope that that will also begin to settle out as demand normalizes as well. So it's an area we're monitoring, but it's something that we have a key focus on trying to mitigate that where we can.
Again, we think that it is it's ideally transitory in terms of the the cost increases and after Chinese new year as we we hope that that will also begin to settle out as demand normalizes as well. So it's an area. We're monitoring but it is something that we are we have a key.
Focus on trying to trying to mitigate that where we can.
Alright, I'll pass it on thanks, guys.
Michael Francis: All right, I'll pass it on. Thanks, guys. Thank you. This concludes our question and answer session. The conference is now concluded. Thank you for attending today's presentation.
Thanks.
Yeah.
This concludes our question and answer session. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Yeah.
Okay.