American Woodmark Corp (AMWD) 2021 Q1 法說會逐字稿

Good day, and welcome to the American Woodmark Corporation First Quarter 2021 Conference Call. Today's call is being recorded August 25, 2020.

During this call, the company may discuss certain non-GAAP financial measures included in our earnings release such as adjusted net income, adjusted EBITDA, adjusted EBITDA margin, free cash flow, net leverage and adjusted EPS per diluted share.

The earnings release, which can be found on our website, americanwoodmark.com, includes definitions of each of these non-GAAP financial measures, the company's rationale for their usage and a reconciliation of these non-GAAP financial measures to the most comparable GAAP financial measures.

We also use our website to publish other information that may be important to investors, such as investor presentations. We will begin the call by reading the company's safe harbor statement under the Private Securities Litigation Reform Act of 1995. All forward-looking statements made by the company involve material risks and uncertainties and are subject to change based on factors that may be beyond the company's control.

Accordingly, the company's future performance and financial results may differ materially from those expressed or implied in any such forward-looking statements. Such factors include, but are not limited to, those described in the company's filings with the Securities and Exchange Commission and the annual report to shareholders.

The company does not undertake to publicly update or revise its forward-looking statements, even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized.

I would now like to turn the call over to Paul Joachimczyk, Vice President and CFO. Please go ahead, sir.

Good morning, ladies and gentlemen. Welcome to American Woodmark's first fiscal quarter conference call. Thank you for taking the time to participate. Joining me today is Scott Culbreth, President and CEO. Scott will begin with a review of the quarter, and I will add additional details regarding our financial performance. After our comments, we'll be happy to answer your questions. Scott?

Thank you, Paul, and thanks to everyone for joining us today for our first fiscal quarter earnings call. And our hope would be that you and all of your loved ones have remained safe during these unprecedented times.

Our team did an exceptional job of delivering results in the quarter that were ahead of our expectations. Before I get into the details of our performance, I want to first thank our extraordinary group of employees that have allowed American Woodmark to operate through this period as an essential supplier. Thank you all for making that happen.

As a reminder, during the month of April, we experienced a 2-week disruption in our Mexico operations. This ultimately led to disruptions in our stock kitchen and bass supply chains, and we continue to focus on recovering those segments in our business.

Our first quarter sales were down 8.7%, which was significantly better than what we imagined at the start of the quarter and in alignment with our revised outlook issued in the company's 10-K.

Within new construction, our business declined 4.8% versus prior year. Our Timberlake direct business comped positive, while our frameless PCS business continued to comp negatively.

Most of our national builders are optimistic for the remainder of the calendar year due to their most recent month sales activities, and they have projected for this to continue in both starts and completions for the remainder of fiscal year '21.

Builders have also expressed concern about the capacity of the manufacturing trade base to keep up with demand for the balance of the year, which can impact their build rates.

Looking at our remodel business, which includes our home center and independent dealers/distributor businesses, revenue was down 11.4% in the prior year. Within this, our home center business was down 12.5%.

Our made-to-order remodel platform has been the most impacted by the pandemic and was down over 20%. Our stock business was down low single digits. We focused on recovering the 2 weeks of lost production due to our Mexican closures and we're challenged with labor recruiting retention.

Our frameless offering continued to grow high single digits. Our incoming order rates for the MTO platform did improve throughout the quarter, which should yield a better fiscal second quarter.

With regards to our dealer/distributor business, we were down 7.6% for the quarter. As of home centers, consumer demand has improved with dealers and distributors reporting elevated consumer and building interest.

Adjusted EBITDA margins were 14.6% for the quarter with EPS of $0.97 and adjusted EPS of $1.66.

The overall market uncertainty continued to impact our balance sheet, and we remain focused on capital preservation. Our cash balance increased from $97.1 to $128.1 million at the end of the first fiscal quarter, and the company has access to additional $93.6 million under its revolving credit facility.

We made no debt payments in the quarter and maintained net leverage of 2.1x adjusted EBITDA.

I believe the company is well positioned to take advantage of the favorable housing environment. Customers are spending more time at home. Consumers have additional discretionary funds to spend now and existing home sales and single-family starts improving.

Going forward, our focus will be to take advantage of these trends, while also managing our cash and expenses to manage demand levels. We must permanently improve efficiencies across our footprint while investing wisely in the future.

Investments will be made in product, technology and labor. Our marketing team has some exciting product launches scheduled this year, along with needed discontinuances that will allow us to refresh and simplify our lines.

Technology investments we've made in the finance and procurement function is allowing us to operate as one company and become more efficient. Investments in labor such as wages, retention and absenteeism programs will be needed to meet our customers' needs.

I don't believe there's one single issue impacting our efforts, it is a number of factors: the CARES Act, heat, masks, schooling decisions for families, et cetera. Some programs will be short-term in nature with others long term, but there will be an impact on fiscal Q2 margins for these investments.

We will also be expanding our warehousing capability in Texas to allow for additional stock production. Demand remains strong in this category and additional warehouse will allow us to better manage overall staffing levels across the platform.

Finally, before closing, I wanted to address a common question I've received over the past 6 weeks from employees, customers and shareholders, is the vision of strategy changing for American Woodmark?

My answer has been clear that our 2025 Vision has been set, along with our strategy and our focus is now on execution. The tactics that will allow us to achieve the vision may change, and that would be true regardless of the leader of the organization.

Culture, connection and focus have been key themes I've emphasized with our teams, and I'm confident we're making progress.

I will now turn the call back over to Paul for additional details on the financial results for the quarter.

Thank you, Scott. The financial headlines for the quarter. Net sales were $390 million, representing a decrease of 8.7% over the same period last year. Adjusted net income was $28.2 million or $1.66 per diluted share in the current fiscal year versus $36.1 million or $2.13 per diluted share last year.

Adjusted net income was negatively impacted by lower sales due to COVID-19, deleveraging of our fixed costs and the declining efficiency.

Additionally, we incurred restructuring charges related to the closure of our Humboldt manufacturing facility for $1.8 million and corporate actions for $1.7 million. These were partially offset by an unrealized gain on a foreign exchange forward contracts of $1.3 million.

Adjusted EBITDA was $57 million or 14.6% of net sales compared to $69.6 million or 16.3% of net sales for the same quarter of the prior fiscal year. The new construction market remained strong during the first quarter of fiscal 2021, recognizing a 60- to 90-day lag between start and cabinet installation.

The overall market activity in single-family homes was down 9.4% for the financial first quarter.

New construction net sales decreased 4.8% for the quarter. Timberlake direct business comped positively and was offset by price and mix and negative comps in our frameless business. The remodel business felt the impacts of states limiting access to people's homes to install cabinets versus our new construction business, which was deemed essential.

The combined home center and independent dealer and distributor channel, net sales decreased 11.4% for the quarter, with home centers decreasing 12.5% and dealer/distributor decreasing 7.6%.

The company's gross profit margin for the first quarter of fiscal year 2021 was 20.5% of net sales versus 22.1% reported in the same quarter of last year. Gross margins in the first quarter of the current fiscal year was negatively impacted by lower sales volumes due to COVID-19, deleveraging of our fixed costs and declining efficiency. One of our focus elements is keeping our employees safe during these unprecedented times.

Total operating expenses were 12.8% of net sales in the first quarter of fiscal 2021 compared with 11.7% of net sales for the same period in fiscal 2020. Selling and marketing expenses were 5.1% of net sales in the first quarter of fiscal 2021 compared with 4.8% of net sales for the same period in fiscal 2020.

The ratio increased as a result of higher display and incentive costs combined with the deleverage from lower sales in the first quarter of fiscal 2021.

General and administrative expenses were 7.7% of net sales in the first quarter of fiscal 2021, compared with 6.9% of net sales for the same period in fiscal 2020. The increase in the ratio was primarily driven by the deleverage from lower sales, higher incentive costs and severance that was not part of restructuring.

Free cash flow totaled $32.2 million for the current fiscal year compared to $56 million in the prior year. The decrease was primarily due to changes in our operating cash flows, specifically lower net income and cash outflows from customer receivables and inventories.

Net leverage was 2.1x adjusted EBITDA at the end of our first fiscal quarter as a result of our increasing cash balance and stable debt position. The company chose not to pay down any of its term loan facility during this quarter.

As a reminder, there are no term loan debt maturities due until December 2022.

Echoing what Scott said earlier, we are continuing to make an investment back into the company around products, technology and labor to help balance the macroeconomic impacts from COVID-19 and to position the company for future growth.

Starting with our workforce. We continue to invest in our workforce to drive long-term employment satisfaction and meet our customer needs. Focusing on technology. The company will start the journey to standardize the finance and procurement processes and systems to help drive further improvements and efficiencies.

Lastly, related to our products, investments will be made to refresh our current product lines. Concurrently, we will be removing targeted products that no longer fit the current market trends.

Due to the impacts of COVID-19 and the evolving macroeconomic uncertainty in the current remodeling and homebuilding environment, we are unable to provide a full fiscal year 2021 outlook.

Shifting our focus onto the second quarter of fiscal 2021, we expect low to mid-single-digit net sales growth versus the prior year. This growth rate is very dependent upon overall industry, the economic growth trends and consumer behaviors.

Margins will be challenged with increases in labor and product launch costs, we expect adjusted EBITDA margins for the second quarter of fiscal 2021 to decrease versus prior year results and be less impacted than our first quarter of the fiscal 2021 EBITDA drop in comparison to the prior year.

The company has taken actions to improve its cash position. And as of July 31, 2020, we had $128.1 million of cash on hand and access to $93.6 million of additional availability under its revolver. Liquidity and margin management are priorities for our teams.

In closing, I want to thank all the employees that make it happen every day while maintaining a safe work environment during these unprecedented times. I'm amazed that what the team has been able to accomplish during the increasing demands and challenges that the business faces daily.

I look forward to continuing to execute the company's 2025 Vision and strategy.

This concludes our prepared remarks. We'll be happy to answer any questions you have at this time.

(Operator Instructions) Our first question comes from Garik Shmois with Loop Capital.

Just first off, can you provide a little bit more color and perhaps quantify some of the investments around labor, technology and products that you called out. I'm just wondering, is the cost headwind that you anticipate into the second quarter, is that going to be limited to 2Q? Or is there expected to be some follow through to the balance of the fiscal year?

Yes. So a couple of comments on maybe the long-term nature of things first, and then we'll step back and talk about Q2.

So specifically around product launches, our product launch windows tend to be in our fiscal Q2, Q3 period. So we'll see some launch activity in both of those periods. With respect to the wages, as my remarks -- our opening remarks addressed, there will be an aspect of that, that I think will be more onetime in nature, specifically around some retention programs in the quarter.

But elements at overall wage increases and absenteeism programs, I think, is something that could continue as we go forward. We'll get the warehouse up and running towards the end of the quarter, but we believe we've got incremental revenue to be able to offset and mitigate the cost associated with that. So you got a little bit of start-up around that. If I had to boil all that down and say, you're probably looking at 100 basis points of headwinds inside Q2.

Okay. My follow-up question is actually just on your sales outlook, the low to mid single-digit growth. Can you perhaps break out how you see the new construction versus the repair model piece within the guidance?

Yes. So specific -- I won't have exact percentages to break that down, but when you look at each of the end markets, our builders are obviously very optimistic based on how they just wrapped up the most recent months.

And you've seen the starts data as well, improving significantly over the last 2 months. So we expect that to continue as we go forward to be really strong for our business. Our stock platform, both in the kitchen and bath space continues to perform very well.

We think that will be strong inside the home centers. Our MTO platform, however, the special order business, I think, it's going to continue to lag. We did see an improving trend in incoming order rates throughout our first quarter. So I think that will help us into the second quarter, but I think we'll still continue to be challenged there. And then with respect to dealers and distributors, we've seen an improve in trends in that particular space as well.

So when we take all that together, that gives us a bit of a wide range. I do recognize low to mid is a bit of a wide range. But some of the variables are our ability to actually be able to recruit and retain individuals to be able to meet the demand is one of the factors that will determine how much we actually will ship inside the quarter.

Okay. I guess my follow-up question on that and my last question would be just with respect to some of the labor bottlenecks. Is there a concern that -- not just on this quarter, but would you anticipate some of these potential bottlenecks to continue in the mid to long term?

So I think the -- specifically around 2 of the items that I addressed, the CARES Act, obviously, that is still a bit in flux. The initial $600 weekly payment has stopped. Obviously, the President has asked for the $400. I think Arizona is still the only state that's actually executed and started making payments specifically around that. That's a factor. And we'll see exactly how that plays out here in near term and medium term.

Heat is going to be something that will help us. And the heat is an impact when you're having to wear a mask in a facility, and it's difficult work. So our folks are really taxed from that perspective. So as the heat mitigates, I think, that's an opportunity that will improve as we get into the fall and winter months.

The next question is from Truman Patterson with Wells Fargo.

First, just wanted to follow-up -- first, just wanted to follow-up on the new res portion of your business. You all have heavy exposure there. How is your backlog looking? And could you just help us with the cadence of the new res revenue trend.

If you look at calendar 2Q starts, they were a bit softer. But now we're hearing builder orders are very exceptional over the summer months. So any way you can help us kind of walk through that over the next several quarters would be really appreciated.

Yes. I'm not going to lean in on the couple of quarters' worth of data treatment, but certainly, we can talk about what the trends have been since the start of the fiscal year. And just as a reminder, on new construction, we lag 2 to 3 months after starts.

And so inside our most recent fiscal quarter, of course, we were feeling the impacts of really most of the closures and shutdowns that were experienced back in March and April. So now as we've seen new construction demand increase -- starts to increase end of June and into July.

2 to 3 months from that, we'll start to see the benefit associated with those particular orders. So it will start to help maintain with our Q2 and then really play a bit more of a role inside our Q3.

Okay. Okay. To asked another way, have you seen the construction cycle extend past that kind of 2 to 3 months when you recognize revenue? Or has that still been pretty consistent?

It's still been pretty consistent for us.

Okay. Okay. And so speaking of cost, not on the SG&A or employee side, but softwood lumber futures are up 125% year-over-year, but it actually looks like hardwood prices might be down year-over-year recently based on the data we look at.

I know that they're different products, have different uses, et cetera. But can you just give us an update whether you think hardwood costs are going to remain a tailwind for you all going forward? Or whether pricing will start to creep towards that softwood as has been mentioned?

Yes. And just as a reminder, we really don't procure any of the softwood lumber. As you highlighted there specifically, we're only going to be procuring the hardwood lumber. We've seen those prices really mitigated, flattish to down slightly, I think, now for a couple of quarters.

We don't have anything that's telling us there's going to be upward pressure or downward pressure, against that going forward. So we're currently still assuming kind of a model of flattish prices in that space.

The next question is from Steven Ramsey with Thompson Research.

Maybe just to start with any regional color on Q2 demand and how it evolved? And maybe with some color on states that saw increases in cases during that time frame?

Yes. So you mentioned Q2, but I think maybe you're wondering a bit more about how our Q1 revenue trend played out across new construction. Specifically in that, we talked about our PCS business being challenged.

That is predominantly Southern California. When you look at our Timberlake direct business, which was up in events for the quarter, when you break that apart, really strong results in the Southeast, Atlanta as well as the Southwest and Texas.

Where we had a bit of a challenge was in Northern California and the Northeast. And if you reflect back earlier inside of what would have been our fiscal first quarter, those were some of the states that were a bit more restricted with some other particular procedures around COVID. So it lined up pretty well from that standpoint.

Great. And then I may have missed this in the commentary, but would be curious to hear more on promotional activity in the retail channel, given strong demand and retailers broadly being less promotional, wondering how that played out in cabinets? And maybe how you see that impacting the second quarter?

Sure. Yes. And you did not miss anything. We actually didn't have a prepared comment on that, which is a positive. That means it's fairly neutral. So from our perspective, promos, essentially in the retail space, we're flat to slightly lower for the most recent period.

And currently, our thought is that's going to continue into the future quarter. We're not seeing anything that would tell us anything different.

Great. And then lastly for me, maybe can you clarify on the product launches that are upcoming. Is that going to be on the stock side of things? Or a different price point? And maybe how you're thinking about those products strategically? And what customer segment you're going after?

Yes, that's a great question, Steven. So most of my comments were specifically around the MTO platform, where we do have a number of new colors and door styles that are being introduced. And then we need to do some pruning in that particular product space as well overall.

Inside our stock business, we will also have some new launches, but it's just not as significant an outcome on the front end to be able to launch those. MTO, you're dealing with displays, you're dealing with selling center doors, you're dealing with a lot of literature and material, and that's where some of the incremental costs really come into play.

The next question is from David MacGregor with Longbow Research.

A couple of questions. Just first of all, on the investments that you're making. Can you just talk about paybacks, expected paybacks. You mentioned some are short term, some are long term. So I realize there's a variance there.

But how should we be thinking about the payback for the P&L? And then secondly, if you just talk about gross margins, you had 160 basis points decline, and you called out the deleverage fixed assets and the reduced efficiencies.

But it sounds like price cost, just in your response to a previous question, was relatively flat, so maybe just confirm that. And then the impact of mix, but I'm just hoping you can kind of unpack that gross margin, 160 basis points, and give us an idea of kind of the moving parts in there.

Yes. I'll let Paul jump in here in a minute. He'll talk specifically about some of the margin element inside the quarter. With respect to investments, unfortunately, it's all of the above. So some are going to be near term and some are going to be long term in nature. Specifically, when you look at things like launches, as an example. So I'll just pick that one as my example, I'll walk here.

We're going to have some incremental costs inside the quarter to be able to set that material up to be able to sell. But it's going to be many months later before you actually are going to record a sales transaction for that. So in one quarter, you take the cost. In future quarters, you actually get the revenue gain associated with that.

With respect to efficiencies around our systems, there will be some upfront work necessary to get the tools and technology implemented. Once we do that, we're expecting the efficiencies out of the gate to be able to help mitigate really the subscription cost associated with the cloud service in that space.

Other than that, what I'll do is I'll ask Paul to just kind of jump in and talk about margin pressures that we felt inside the quarter.

Yes. Thank you, Scott. And David, if we look at the quarter, the sales were a big factor in this. We have a large fixed cost portion across our manufacturing platforms. And really, as the sales go down, that is -- it creates a deleverage event for us.

But also just looking at kind of the workforce and how COVID-19 and the challenges that were out there, it did create some challenges to keep our employees safe during that period of time, and creating extra spacing, extra distancing, it just allows for a decline in overall efficiency. Nothing material, but it does allow for a little bit of a change and that impacts our margins.

Okay. And then, Scott, just back to your question for a moment. Is there any way to elaborate a little further on whether these launches become more impactful to revenues or to margins or both? How do we think about that?

See, I'd say both, but it's principally going to be around revenue. We're looking for product styles and finishes are going to be more relevant to consumers' taste. So as we launch colors or door styles that are more attractive for consumers and take some of the old ones out, I would expect that to lead to a revenue gain, which ultimately should lead to an enhanced margin profile.

The next question is from Julio Romero with Sidoti.

You mentioned earlier that you saw an improving trend in made-to-order through the quarter. Can you maybe talk about the sequential trend you've seen there from May through July? And maybe give us the run rate of what you've seen so far in August?

Yes. So I'll just give you a couple of remarks here, Julio. So overall inside the quarter, if you were to take that revenue, our May revenue was down 20% plus, so that was the most severe impact for us in a long time in a fiscal quarter. If I take June and July combined, we're down about 2%, those 2 particular periods, we did see, again, the incoming trend improve on MTO.

We've seen new construction improve. It's going to set us up nicely inside our second quarter. As we go forward, I don't really have a percentage to quote for you specifically around, say, August or September. But it leads back to Paul's remarks earlier about low single to mid-digit growth overall for the quarter.

Okay. That's helpful. And I guess you did note earlier, you've seen strength in kitchen and bath within the home center, I guess, in the past, I think, you've noted if you've seen kind of single-digit growth or double-digit growth. So I was hoping you could provide, perhaps, a little more color there on what you're seeing?

Yes. So within the home center, again, really 2 books of business. You got your special order business overall, which for us was down pretty considerably inside the quarter.

And my prepared remark was, we were down over 20% in that space. Our stock business, which is both kitchen and bath, was down low single-digit inside the period.

I can tell you that we could have performed better there. If we were able to staff our lines appropriately, and we could have got our production out -- sorry, production up, we would have had likely a low single-digit growth rate overall for the quarter.

Understood. And then I guess just last one for me is, would you have any update on CapEx expectations for the year?

Yes. Our CapEx expectations, Julio, will remain unchanged. We'll still be in the 2% to 2.5% range.

The next question is from Josh Chan with Baird.

I just wanted to ask about some of your mentality or approach to sort of the new construction cycle now. Obviously, we saw a slowdown, but then a pretty rapid recovery.

So are you thinking of the cycle as a new cycle where you've got multiple years of growth and you're willing to kind of invest ahead of that in the new construction side? Or are you still a little bit more tentative in terms of the trajectory and kind of picking out a wait-and-see approach there?

Yes. I would still say, wait and see. It's been a pretty volatile 4 or 5 months overall for the business, the economy, we've got an election coming up, et cetera. So we'll see how things shake out.

Near term, feel good about where starts are, feel good about what our builder contacts are telling us and customers, and we're seeing the orders there. So we'll obviously invest in that ensure that we can meet our customer needs in that space. Longer term, what do I think, next year or the year beyond looks, I think, it's still too early to call that.

All right. Yes, that's definitely fair. And then on sort of your margin comments, Scott, about the headwind from sort of the different items, would you expect there to be other factors that can partially offset some of those headwinds, like volume leverage or cost saving productivity, things like that to mitigate the impact of those headwinds in the second quarter?

Yes, absolutely, Josh. The biggest one there that you did already hit would be around volume. So if we can get our staffing to the level we need, we get the output that we need, that's going to give us some incremental revenue, which will be nice leverage overall to try to help mitigate some of those headwinds.

(Operator Instructions) The next question is from Justin Speer with Zelman.

Just a few questions. One, on the frameless PCS business, how much of a headwind to the new residential channel was that piece of the business? And what's the status there?

Yes. So on that one specifically, let's talk about kind of the status. And our PCS business serves both single-family and multifamily.

Just as a reminder, Justin, it's really the only kind of multifamily business we've got. We've talked over the last couple of years around is that a platform that we can expand and grow and have a more meaningful presence in multifamily.

We do have some challenges in that space around product price, quite frankly, even logistics. We've recently recalibrated and charged the team to revisit what we think is going to be necessary to win. And when I say that, it could be what's necessary to win just specifically in Southern California, so that we recover some of the share loss there, or win more broadly outside of Southern California in regions like Texas or maybe even the East Coast.

So we still got some work to do in that space. Headwind inside the quarter was pretty meaningful. We were down double digits, and yet it was a meaningful headwind inside the space. It basically wiped out most of our new construction direct Timberlake business gains.

Excellent. And then the next -- I guess, the next line of questioning on the margin side. I know that last year you had some onetime incremental headwinds that I don't think we're going to repeat.

I think for the full year, it was close to 100 basis points if memory serves me, and then you also have the restructuring items that you've already discussed last quarter, I guess, how do those offset? Or do those items at least partially offset the incremental step-up costs in the second quarter, the 100 bps that you mentioned?

Yes. So there really were 3 things that were inside that, Justin, you're referencing. First is the restructuring actions that we took at the end of Q4 last fiscal year and in the first quarter of this year. Obviously, that's opportunity for us, and we've executed on those plans and that's a benefit as we push forward.

Last year issues that we had, they're really 2, I think, you maybe are thinking about 1 within the transition out of our Mira Loma facility into Riverside, where we had to move that PCS production facility.

And that leads to incremental cost overall from a lease facility cost, et cetera. So that's one that is still with us. That doesn't really go way or mitigate. The second was around particle board. And just as a reminder, particle board last year was pretty choppy because we had some quarters where we were getting recovery against the actual cost incurred and then others, well, we were feeling really the full negative impact associated with that.

I'll be honest, I don't recall off the top of my head exactly what that headwind was inside Q1 last year. I don't think it was meaningful. I think most of the impact came into the back half of our fiscal year.

On the particle board side, I can tell you that we've seen additional capacity come online, there's another mill that looks like we'll be opening here shortly, here in North Carolina.

So we've seen stability in that particular space, so that's not continuing to be a challenge for us as we push forward.

So as you step back and look at a very complex environment, you mentioned the inefficiencies with absenteeism and having to retain and recruit talent investments in growth.

But with the channel tailwinds that we see, recognizing you're looking for low to mid-single digits. If that was to cascade into the balance of the year based on these -- as you see it today, just where does -- how does that project up for you towards that kind of mid-teens EBITDA margin target that, I think, you've espoused over time? Is it -- is that possible in this kind of environment?

I still think there's too many unknowns, Justin, to make that commitment specifically around fiscal year '21. Certainly, as you think about next calendar year and even beyond, that's certainly what we're driving towards.

We've talked about that mid-teens being in the 15.5% range for quite some time. We've had quarters where we actually been able to demonstrate and perform at that material level. So that's what we want to get back to.

We've got some short-term headwinds we're going to get through. But if the demand environment stays strong or it continues to improve, as you were just alluding to, that certainly sets it up to be an easier path forward into the first part of the next calendar year.

And we'll continue to work our teams from a productivity perspective, we'll get efficiencies in the program, we'll get share with, et cetera, that will set us on a path to be able to get back to those levels.

And then just one follow-up on that. Just the import competition, and recognizing the antidumping duties were installed a while ago, but Chinese imports have really fallen, but we've seen some offsets from other parts of the world. Just curious on what you're seeing there? And if the game has changed in terms of pricing power in this new landscape ex Chinese imports?

Yes. Specifically on the import data, the most recent information I saw, Justin, was through June. And at that point in time, at least on a year-over-year basis accumulative impact, I think, China was down mid-60%, it's been backfilled somewhat out of Malaysia and Vietnam, but still, in total, down 15% to 20%, which is meaningful on that base of business.

We believe that shows up in 2 places for us. It's showing up in the dealer/distributor space, which I already highlighted as being a bit more robust areas of late. And then secondly is in the stock business. And certainly, we believe that's a benefit that's playing out across that platform in the home centers.

(Operator Instructions) The next question is a follow-up from Truman Patterson with Wells Fargo.

Just a couple of follow-ups here. Scott, if I heard you correctly, you said retail promotional activity was flat to down year-over-year.

That's right.

Can you just give us a little bit of color as to what's happening? One of your competitors sold their cabinets business. Are we seeing just a more rational environment? Or is it just some give back in costs from lower hardwood costs? I mean, what are you seeing there and what's driving it?

I guess, I would just answer that. It's been a stable, rational environment. We've not really seen anything significantly from either competition or customers that are driving significant changes versus prior year promotional cadence.

Okay. Got you. But the inflection is clearly a bit more positive than prior year is pretty safe to say?

I'm sorry, could you repeat that? I couldn't quite hear the whole question.

Definitely, the shift is an improvement versus prior years, correct?

No. I would say our promotional cadence, again, was flat to slightly lower than the prior period. So let's just make it closer to flat, I think, is the appropriate answer.

Okay. Okay. The reason I'm asking this is that the prior year, we'll call it, 2 to 3 years, it seems like promotional activity was extremely high and even increasing. And now it's actually flattish to maybe even down slightly. So in my mind, that would suggest an improvement. But -- okay.

No, I agree with that.

Okay. Okay. Fair enough. On the R&R side of the world of your business, just a little bit of clarity here. Has that continued to improve throughout the summer months? And is it actually trending up year-over-year recently, call it, July or August?

So specifically, in the R&R space, our stock business, again, continues to perform quite well. It's the MTO area that's been a bit more of a challenge, and we did see incoming order rates improve throughout the quarter, and we expect that to be a better result in Q2.

I don't know if I can commit to that, that's going to be a positive comp at this point in time. And then on the dealer and distributor space, we have seen that trend improved as well, I believe, in April -- kind of the March, April, May time period, all 3 of those months in that space, we were down double digit, and we've seen that come back quite nicely in June and July.

As I do not see as there is anyone else waiting to ask a question, I would like to turn the line back over to Mr. Joachimczyk for any closing comments. Please go ahead, sir.

Since there are no additional questions, this concludes our call. Thank you for taking the time to participate.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.