Good morning. My name is Camilla and I will be your conference operator today. At this time, I would like to welcome everyone to the Fortune Brands First Quarter 2023 Earnings Conference Call. [Operator Instructions] I would like to turn the call over to Leigh Avsec, Vice President of Investor Relations and Corporate Affairs. Leigh, you may now begin your conference call.

Good afternoon, everyone, and welcome to the Fortune Brands Innovations First Quarter Earnings Call. Hopefully, everyone has had a chance to review the earnings release. The earnings release and the audio replay of this call can be found on the Investors section of our fbin.com website. I want to remind everyone that the forward-looking statements we make on the call today, either in our prepared remarks or in the associated question-and-answer session, are based on current expectations and market outlook and are subject to certain risks and uncertainties that may cause actual results to differ materially from those currently anticipated. These risks are detailed in our various filings with the SEC. The company does not undertake any obligation to update or revise any forward-looking statements, except as required by law. Any reference to operating profit or margin, earnings per share or free cash flow on today's call will focus on our results on a before charges and gains basis unless otherwise specified. Please visit our website for a reconciliation. With me on the call today are Nick Fink, our Chief Executive Officer; and Dave Barry, our Chief Financial Officer. Following our prepared remarks, we have allowed time to address some questions. I will now turn the call over to Nick. Nick?

Thank you, Leigh, and thank you to everyone for joining us today. On this call, I will walk through the highlights of our first quarter performance, give some color on the drivers of this performance, and offer some thoughts on the macro environment. I'll then turn the call over to Dave for a discussion of our financial results and how we're thinking about the remainder of 2023, including the increase to our full year 2023 EPS guidance. As a reminder, this is our first quarter as the new fully separated Fortune Brands Innovations. Our results in a tough market are a testament to our compelling new investment thesis. We are a resilient and growth-focused company, powered by secular tailwinds, underpinned by leading brands, innovation and channel management and fueled by our Fortune Brands Advantage capabilities. All of this has enabled by our new organizational structure, which was thoughtfully designed to accelerate growth. Our company is driven by a highly focused, aligned and motivated team who are keen to bold even further in our long history of market outperformance. Collectively, over the last year, our teams have led through a period of immense change to emerge as an even leaner and more ambitious growth engine, and I thank them for their dedication. Turning to our first quarter performance. Our teams delivered solid results amid a challenging external environment. As anticipated, reduced demand and return to typical seasonality impacted our industry, thanks to the proactive steps we took in preparation for the downturn and the inherent strength of our newly refined portfolio, our brands performed well. As a result, sales margins outperformed our initial expectations for the quarter. Net sales of $1 billion were down 9% versus the prior year, and our operating margin was 13.1%. Our sales and margin performance generated…

Thanks, Nick. As a reminder, my comments will focus on income before charges and gains to best reflect ongoing business performance. Additionally, comparisons will be made against the same period last year unless otherwise noted. Let me start with our first quarter results. As Nick highlighted, our teams executed well against a challenging and dynamic environment. Sales and operating margin came in higher than what we initially anticipated during our call last quarter. Sales were $1 billion, down 9%, and consolidated operating income was $137 million, down 22%. Total company operating margin was 13.1% and earnings per share were $0.69. Our first quarter performance was driven by higher-than-expected sales in our Water and Security segments and resulting margin flow-through. However, we are still anticipating a volatile remainder of the year and we will remain agile and proactive in response to any changing market conditions. For the quarter, the 9% sales decline included a 3% unfavorable impact from our China business on our consolidated results. Excluding China, sales were down 6%, with POS down low single digits and a mid-single-digit unfavorable impact from current year channel inventory reductions and prior year service recovery, predominantly in our Outdoor segment. As we discussed last quarter, we expected first quarter operating margin to be most acutely impacted by production inefficiencies and stranded fixed costs related to our inventory reduction efforts. As Nick mentioned, we have made very good progress against our near-term inventory reduction target of $175 million. We remain focused on driving outperformance, including above-market growth, preserving and enhancing margins and generating cash. Our teams continue to focus on appropriately managing our P&L and balance sheet while maintaining key strategic growth investments. Now, let me provide more color on our segment results. Beginning with Water innovations. Sales were $594 million, down $49 million…

Thanks, Dave. That concludes our prepared remarks. We will now begin taking a limited number of questions. Since there may be a number of you who would like to ask a question, I will ask that you limit your initial questions to 2 and then reenter the queue to ask additional questions. I will now turn the call back to the operator to begin the question-and-answer session. Operator, can you open the line for questions?

[Operator Instructions] And our first question is from John Lovallo with UBS.

Maybe just starting from a high level strategic one first. Nick, I mean, in your opening comments, you talked about construction starts and consumer spending, how they've moderated. But there's been some positive green shoots in different housing metrics, whether it's mortgage apps or new home sales, even in some renovation initiatives. Curious how Fortune sees demand for both R&R and new construction evolving over the coming quarters, given its presence in both markets, R&R and new construction? And how you view Fortune as being positioned to capitalize on this?

John, happy to talk about that, and I'll give you some perspectives. Dave may want to add a few other perspectives here. But look, without a doubt, 2023 is a challenging environment, and we've prepared the business to navigate a challenging environment. And I think it's going to remain so as long as you have economic uncertainty, as well as this return to seasonality I am sure all the quarters that we're experiencing. You got lower consumer spending, you've got lower starts. But if you step back for a second, I think, and put it into context of the macro demand levels, I mean, as we see it from a number of Advantage points, the fundamental demand that we all talk about is still there. For starters, as I think Dave said in his remarks, organically, this quarter is still 24% up on same quarter in 2019, pre-COVID, right? And so notwithstanding all the noise and all the economic uncertainty and everything we hear in the marketplace is still 24% increase, and it tells you that it takes a consumer to be there, it takes pros to be there in order to drive that. And then were you seeing any sort of positive -- a little bit of positive inflection certainly around traffic, orders and even new home sales, you see the consumers have shown up even with a little bit of easing. And so we take that -- and I mean we just remain pretty sanguine about the whole marketplace, stepping back and looking at the fundamentals, the demographics, expect the markets to be underbought. The fact that a lot of existing home product is very old out there and that you have an environment that I think is primed for consumers to spend against. And I think there's…

John, this is Dave. Let me add a bit about our market view for the rest of the year. And if you recall, our market guidance that we gave last quarter was for the global and U.S. markets to be down between 6.5% and 8.5%. With U.S. R&R down 4% to 6%, and U.S. single-family new construction down 18% to 22%, as we look at the first quarter and some trends into the rest of the year, I think there's probably a bit more momentum in single-family new construction that maybe leads us more towards the better end of that range. And while R&R was better in the quarter, especially in the first half of the quarter, I think it's too early to call any full year improvement on our R&R market right now, even though the first quarter was a bit better than expected. And I'd remind you, as we talked about last quarter, I mean there's a pretty significant [ lap ] in our POS that we see in our data from March through June. And so we want to get through that period of time and understand how the business is performing because we're comping 2021 stimulus effects that were then lapped in full by 2022 price and demand. So I think too soon to kind of give any new color around R&R, but single-family seems to be a little bit better.

Okay. And then the second question is, the first quarter decremental margins were around 40%. And I think you articulated last quarter that the first half would be under more pressure, particularly in the first quarter, given production curtailments and stranded costs. With that said, though, it looks like inventory only came in by about 9% sequentially. And just curious if you guys reduced the production as much as you anticipated, and how we should sort of think about the progression of decremental margins as we move through the year?

Yes, John, this is Dave. So as we said on the last call, when we gave a bit more color around the first quarter than usual, we expected margins -- operating margins to be between 12.5% and 13%. We came in at 13.1%, so a bit higher than the range, really driven by better sales. On the inventory side, we're actually a bit ahead of our plan in what we were able to take out in the quarter. Now some of that was because of our internal efforts and some of that was because of the sales being a bit better. So we're kind of ahead of inventory coming down. And as we look forward, I think we set up the year on the last quarter, first half, second half, talking about first half sales declined between 7% and 9% with operating margins between 15% and 15.5%. And we still see that as the right expectation for the first half. And then similar with the second half, with sales down 3% to 5% in operating margin, 17% to 18%, still feel like that's the right expectation for the second half. In terms of your question on decrementals, we're targeting 25% to 30% OI decremental margin for the year and still see that as the right range for the business. And I think we look to achieve that even if the market were a bit softer than what we're projecting. So that's how the company and the portfolio is geared towards that 25% to 30% decremental.

Our next question is from Matthew Bouley with Barclays.

Maybe a question on Outdoors. You had the 5% margin result there in the quarter. And I think I heard you say at the top that you still expect that to improve to mid-teens by Q2. And correct me if I misheard you. But -- any sort of detail on what kind of underlies that confidence in the sequential margin improvement in that business? And then how you think about the margin progression in Outdoors through the balance of the year?

Yes, Matt, this is Nick. I'll just kick it off a little perspective on Outdoors and then hand it to David to walk you through the margin story. I would say Outdoors' POS was down around mid-single digits. And that business is probably, of all the businesses, sort of mostly impacted by kind of return to seasonality. And the fact that with respect to the Doors business and to a degree the decking business, you're lapping a period where things are not just going full bore, but we're on allocation and people are taking everything that they could. And so that's a little bit of the effect we saw last year, also in the business kind of now rolling through here because it's the last thing to come off of allocation. But as it does, it's good to see sort of POS kind of hanging in there. But I would just add to that as a reminder, this is a materials conversion business, right? Whether it's on the door side, on the decking side or even on the millwork side, like it's all about that material science, investing in the material science and having the capacity. And so as we work through this, we've continued to, I think, be very strategic about how we feather in capacity increases. But with the long-term view that this is a growing category, we need to be able to capture the growth. And so in a period where you're going to have inventory coming off for some lower volume, you're going to see the impact through the bottom line. But over the long run, we're very confident in the margin progression that we expect this business to make. So Dave, you want to give a bit more detail?

I think that's it, Matt. It's really a quarter with some volume deleverage. If we look at the sales results for Outdoors, down 16%, as Nick said, POS was down mid-single digits. Volume was actually down mid-teens from a POS perspective. And then there was a low double-digit impact from channel inventory. So as we've signaled a quarter ago, we expected Outdoor margins in the first quarter to be high single digits. They were mid-single digits. I think a bit more channel inventory came out than expected, and we're anticipating some of that in Doors and that occurred. So looking forward, this would be the lowest volume quarter of the year. And as volume returns to that business, we'll gain operating leverage pretty quickly and get that margin back up into the mid-teens.

Got you. Okay, that's helpful. And then I guess, on that topic of channel inventories, I mean it sounded like you still saw destocking, certainly as you just mentioned, and -- in the Outdoors business and I think in Water as well. So where are we in that cycle of channel inventory rebalancing? Where does it feel like there still need to be a little bit more to come versus where are we closer to the end of that destocking?

I think -- Matt, this is David. I think we're pretty close to the end. So Outdoors, if we look at the quarter, so Outdoors, as I mentioned, had the biggest impact in the low double digits. Within Water, it was really only a low single-digit impact from channel inventory. And then Security was pretty well balanced. And so as the teams continue to look at our data and do channel checks, we feel like we're entering the second quarter -- so we're relatively balanced to this rate of demand in this macro environment, and we really have finished comping the prior year service level recoveries that are also creating some noise in the year-over-year reported results. So the team feel like we're in a pretty good place and that sell-in and sell-out will be more approximate to each other going forward.

Our next question is from Stephen Kim with Evercore ISI.

Just touching on the downtime. I think you had said last quarter -- I think you had talked about maybe $50 million to $55 million or something for the year, with about 80% of that in the front half of the year. I just want to make sure that, that is still what your expectation is. And I believe the reason why you would describe the downtime effects sort of lasting throughout the entire year was because that was basically going to be how it flows out of inventory. But are the actions that have sort of generated that headwind, are those actions at this point pretty much complete?

Yes, Stephen, this is Dave. In fact, on your numbers question, that's right. We said full year P&L impact, $50 million to $55 million. First quarter, roughly $30 million. As I said earlier, we're actually a bit ahead of our inventory takedown expectations. And so there was a low single-digit million incremental impact to the P&L in the first quarter. Still probably within that $50 million to $55 million range for the full year. And so the actions to drive the results mostly taken at this point. I mean, if you consider in Water and Security, where we have long lead time supply chains and we started pulling levers in the third quarter of last year to kind of get those supply chains normalized. And then where we're more vertically integrated in Outdoors, those levers are a bit more real time, and we're pulling those kind of in the first quarter, beginning in the second quarter. And you're correct, the spread of that cost through the year is just the impact of those stranded costs flowing from the balance sheet into the P&L.

Great. Yes, okay thanks for that. Second question relates to mix. And I was curious if you could just sort of across your businesses talk about where, if anywhere, we might be -- or you might be experiencing or anticipating a change in the mix profile that would be worth calling out? And then just a quick housekeeping item. I think there was a $6 million number or something in other. I was just wondering what that was related to.

Okay. I'll kick off with some thoughts on mix. And then, David, can -- $6 million plus, any other thoughts he has on the mix. And then just I'd say as a reminder, my comments earlier about we really try to gear the portfolio to be at the heart of the market then capture consumers, up and down the spectrum. We've done so through a lot of our initiatives in a way in which we've also kind of maintained, I would say, very similar percent margin profiles, no matter where the mix lies. Really leveraging volume at the lower price points and kind of more bespoke stuff at the higher price points. Yes. It was interesting in this past quarter to see some of the higher-end products kind of hang in there as they did. I think House of ROHL is a good example of that, that we saw POS that was actually up just on an organic basis in the U.S. market. And I think that speaks to the resiliency of that consumer for a price point. And then from a channel perspective, I would say as a general rule, you saw retail mix be pretty strong, as Dave pointed out, kind of up until about March and then when you hit the [ lap ], that really goes kind of March, April and a bit into May. We saw the consumer come off, so that was as we expected. And the wholesale mix was a little bit more favorable than we expected. And I think that is going to probably continue a little bit here with some of the results that we've seen.

And Steve, on the other items, so a portion of that is interest income, which is something we haven't had in a while. But it's nice to be able to generate some interest income with our cash. And the other portion is pension income. And as the team is going to finalize pension for the year post cabinet separation.

Our next question is from Tim Wojs with Baird.

Maybe just on the wholesale side. I mean, Nick, maybe just if you can step back and maybe kind of give us some color on where the channel inventories are now within wholesale? And have you started to see like a meaningful restock in that channel? Or is it just that the destocking is kind of subsiding?

Yes. I would say, as Dave pointed out, the inventories are much healthier than they were. And just as a reminder, a lot of the inventory that we saw accumulate and then come out in 2022 was not where we would normally look for inventory. It was kind of our customers' customers, particularly in the Water business where we serve a lot of production builders who are in turn served by large plumbers. And so that's where a lot of that inventory was built. And our sense is in taking these sort of numbers again, most of that's out. We saw a bit of regional inventory in the Doors business, a bit in the Water business. As I've said, Security pretty balanced at this point. And so we think it's in a pretty healthy spot. That said, we've not seen much restocking. If anything, I think, we maybe expecting to see a bit more in the quarter. If you take something like decking and dealers are continuing, I think, to keep things pretty lean, understandably with the economic uncertainty out of there. So we'll just watch that as that goes.

Yes. I think, Tim, just some color I'd add. So as Nick mentioned, the wholesalers really started to rebalance inventory last year and single-family new construction slowed down. So they kind of saw that coming and got out ahead of it in the quarter. Low single-digit impacts in the Water business from inventory is predominantly in retail and a bit in e-commerce, which were expected heading into the year.

Okay, good. And then just maybe bigger picture on China. Could you just give us a little bit of help or just a little bit of background on just where the business is in terms of transitioning that towards more of a R&R-type business? I don't know if it's a percentage of the sales at R&R today versus where it might end up. But just a little bit of color on what the progress of that might look like over time.

Yes. So I'll just start with kind of the big macro, right, which is, as you obviously know, like China has been a big new construction powered market for a very, very long time. And while we had a lot of exposure to that, we worked very hard to stay away from the very speculative building, like the Tier 3 or 4 cities with like empty buildings that you read about. And we really kind of focused on Tier 1 and Tier 2 cities. So while we peg even our share, say, like around a 10%-ish mark, our Shanghai shares are probably closer to 25%. And so that's just how we constructed the business. But still even a market like Shanghai over the years, a lot of new construction, those buildings are aging now and spaces were scarce. And so what you're starting to see is a pivot now. A while ago, people were just buying empty concrete boxes and then go and decorate them, that's evolving to what's called a -- either a finished unit or a decorated channel where you work with the designer to go in and finish the new construction unit. And now, as you imagine, that's becoming a bigger and bigger part of R&R. And so it's not a huge market yet, but it's a growing market, and we think it's one that's going to become very important in the future as these consumers need to start refreshing these units. And so focusing on those bigger markets that are more established where we have stronger share, and focusing on that channel is a big part of that strategy. Now we want to see some of the bottoming out of new construction, because it's just been certainly part of the business. We think -- we're seeing that now, and we're being cautious about how long it may take for that positive inflection it starts to then translate into decorated units down the road. But the team is managing the business incredibly well, kept it quite profitable and focused on building out these new growth channels, as well as being an innovation engine for the entire company. So they continue to serve our products that we're launching into other markets. And increasingly, with our new Fortune Brands Innovations' structural organization and all the work that we've done to sort of simplify the business breakdown silos, it can have an even bigger role working across all of our businesses to help drive business both in China as well as innovation into markets like North America.

Our next question is from Truman Patterson with Wolfe Research.

Last quarter, you all suggested that freight and material deflation would be about 1%, but that would be offset by other inflation in the business. Could you just talk about what you're expecting kind of by segment, give an update there, as well as maybe the cadence through the year is kind of 1Q peak inflation, and then it levels off kind of sequentially? Or how are you all thinking about it?

Yes. Truman, this is Dave. I'll tackle that one. So yes, you're correct. We kind of said, hey, 1% freight material deflation offset by labor, some other items. I'd say that's pretty consistent with what we're seeing today with a few puts and takes. I mean labor remains pretty sticky. There's actually some upward pressure on brass in the quarter, driven by copper, although that was offset by some incremental freight deflation, primarily ocean freight for the year. And so I think pretty sticky -- across the segment is really pretty consistent across the segments in terms of input cost and inflation, deflation. So if we kind of look at the margin goals for the year, I don't think there's a big deflationary tailwind in any of the margin goals in any of our segments. And that's really true long term as well, Truman, looking at our Investor Day target that Nick mentioned, we see most of that path there through help -- self-help, 75% to 80% of that path is self-help. And so not banking on big deflation and our view of the world today is pretty consistent to what it was about a quarter ago.

Okay, perfect. And then you all have mentioned the consumer being a little softer moving throughout the quarter, but I think that was primarily in plumbing. There are a lot of offsets with destocking, et cetera. I'm really just hoping you can help us understand, just overall, for the company R&R demand trends, just the cadence kind of through the quarter? And if there's any way you can help us understand exit rate March, kind of POS or early April indications?

Yes. I'll be happy to try to put some context around it. And so if you think about the shape of the year, and interestingly, you look at '21 and '22, and they had very similar shapes, which is you start out the year and then you built a big head of steam starting in March and into the early summer, the first head of steam '21, I think, very stimulus-driven. And if you recall, we said we were quite surprised that the consumer really tracked almost dollar for dollar. A little bit less in 2022 as they move through that same period. We plan for an expected -- that this year the consumer would be beneath that. What we saw for the first part of the, before you got to that big [ lap ] was actually the consumer sort of held in there, pretty flattish for most of the quarter. And then as that big lap started, that's where we saw a relative slowness in the consumer compared to that 2021, 2022 hill that I would say kind of comes off as you get more towards the middle of the summer in line with our expectations. And so if I go back to, sort of our business, most impacted, Outdoors is kind of down mid-single digits. But Plumbing down low single digits, really low single digits, and Security up low single digits. So still kind of hovering in -- better than we might have anticipated at the beginning of the year. Dave, I don't know if could add anything.

That's that here.

Our next question is from Adam Baumgarten with Zelman & Associates.

Just talking about the higher end kind of holding up better, at least relative to the other parts of the business. I guess, did that part of the portfolio also decelerate throughout the quarter and into April, alongside some of the broader business, but just still is relatively better from a growth perspective?

Yes. That's more of a, sort of that deceleration I was referring to, was what we were really seeing through retail. And this being a much more wholesale and [indiscernible] focused business, not -- we didn't see any particular deceleration there.

Okay, got it. And then just thinking about pricing, are you seeing any channels or products where pricing is perhaps softening or promotional activities picking up? Or are you largely holding on to the price that's been put through the system over the last year or plus?

Well, as a reminder, I mean, big, big focus for the portfolio, right, is brand and innovation, and then bringing the insights to the channel that allows both us and our channel partners to do very well from a price and margin perspective. And with that in mind, I mean, we've certainly seen other categories that were commoditizing some pricing pressure. We're probably seeing a bit more real estate for private label. By the way, that seems to sway between 10% and 15% market share at any given time over a long period of time. But there are lines that consumers and pros will draw around brand recognition, but also service and backing, that sort of people feel they need to have in the products. And so I wouldn't say, at this point, we're seeing undue pressure in any of the lines is certainly keeping an eye open. But we will continue to focus, I would say, all this maniacally, on driving the brain and driving innovation and getting paid for it. And I sort of referred to my prepared remarks, like in the case of Moen, we've taken a lot of products over the last few years and raised the brand perception, both in terms of premiumness, but also probably price ratio. The consumer feels they're getting a better deal notwithstanding the price that we've taken than they were a few years ago. And that is really the engine that we want over all of the brands. And so if I go back to all design changes that we made towards the end of last year is really to unleash all of those Fortune Brands Advantage capabilities: brand building; category management; innovation across the entire portfolio, because with -- specially with our restructured portfolio now, if we're going to be in the business, we're going to be in the business with brands that drive value where we can come on good price to get paid for it.

And then, Adam, just as a reminder, last quarter, we said that our guidance -- sales guidance incorporated low single-digit positive impact from price with 50% of that carryover and 50% new. That's still be appropriate in the guidance for the year. We don't see any change to that. And we will -- as we always do, monitor competitiveness on the shelf and POS rates and elasticities and promote and reposition as needed, both up and down, depending on what we see with our elasticities. But no real broad change to our expectations around price realization.

And our final question is from Susan Maklari with Goldman Sachs.

My first question is, can you talk a bit about how you're thinking of capital allocation? Obviously, with the ASSA deal out there, that will have some implications for it. But in general, how are you thinking about the ability to generate cash this year as things normalize? And then some of the opportunities for it.

Okay. I'll just start broadly, and Dave can take you through some of the details. But I would say at the highest level of capital allocation strategy remains unchanged. We continue to invest in ourselves. Those are our surest and highest return investments. And the teams continue to bring some great ideas forward for great returns. And so we'll put capital first and foremost. And the second to corporate development, there where we can generate value. And we're very -- as you know, from our long history, we're very disciplined about that part. And then we will return to shareholders, which doesn't go into the first 2 buckets. And that certainly has not changed. Now we do have the ASSA deal pending. We're very excited about that. We think we're a great home for those brands and can really build them in a very exciting way. And so we're being mindful of that as we move forward. But while maintaining a conservative leverage, particularly in this environment, you saw like in this quarter, an opportunity, as the teams did a really nice job generating cash to be opportunistic about share repurchase at wonderful values. So we stepped in and we did that. And I think that's very consistent with how we've approached it in the past and we'll continue to approach it in the future.

Yes. And Sue, just to put some points around cash flow has been a focus for us, as we mentioned on our call prior. But we were cash -- free cash flow positive in the first quarter, which is unusual for us. It's usually a cash bleed quarter as we're ramping up inventories for the building season. So it really demonstrates that our initiatives to right-size working capital and inventory are working. And in fact, our free cash flow was $270 million better quarter-over-quarter this year versus last year. So as long as we can continue to generate cash in this environment and as we've talked about in the past, this business in a downturn does generate a lot of cash as we shrink the balance sheet. So we'll have opportunities to deploy that capital effectively.

Okay. That's very helpful. And then turning to Water innovations. When you think about the trajectory for the margins in that segment, how should we think about the relative cadence as we go through this year? You talked about China being weak, but obviously seeing new construction there pretty strong, and maybe R&R sort of in between those two. How do you think about the dynamics and especially maybe as well as you think about the strength in House of ROHL relative to Moen?

Yes. Sue this is Dave, I'll handle that. So just a reminder, our full year target for Water is 23% to 24%. And as we look at their margin cadence through the year, improving sequentially, I'd say, first quarter to second quarter. And then second quarter to third quarter before probably a seasonal step back a bit in the fourth quarter, that's back to kind of a seasonal pattern for this business quarter-to-quarter. And then within the portfolio, as we've talked about on the call, our China business is profitable, it remains profitable. And in fact, it was going to add the Fortune Brands Innovation average for the first quarter on much lower volumes. So the team there is doing a great job. And then House of ROHL as it grows, becomes an accretive piece to the portfolio overall as well. So we feel like the business is performing as we would expect it to, and we'll see some of the sequential seasonal margin builds that we've had in years past.

That concludes our question-and-answer session. Thank you for joining today's conference call. You may now disconnect.