Operator: Our next questions come from the line of Chuck Grom with Gordon Haskett. Please proceed with your questions.
Charles Grom: My question is on the recent uptick in rates. And if that’s having any impact on what you’re hearing from the Pros and current plans for projects over the next, call it, six to nine months?
Trevor Lang: We have talked to a lot of pros over the last several months. And they still have decent backlogs is what they tell us. We’re talking hundreds and hundreds of Pros across the United States. They saw decent backlogs, but it has slowed a little bit. And when you’re turning over 5.5 million, 6 million homes, there’s a lot bigger projects that are being done, right? There’s — when someone is going to sell a home, they may have invested in multiple bedrooms and bathrooms and kitchens. Now that existing home sales is bumping along at $4.1 million, which again is one of the lowest we’ve seen in last 50 years. People are just doing much smaller projects as opposed to doing a whole floor, maybe they just do a bathroom or a kitchen.
And so they’ve also said the size of their projects has come down too. That’s probably the biggest thing that’s changed for us relative to when we started the year, our transactions are pretty close to what we thought. The ticket is pretty close to what we thought. But some of the square footage size of the jobs has come down, and I don’t know that we would have thought to think that was going to happen. So that’s probably the biggest changes people are just doing smaller jobs as a lot less houses are turning over.
Charles Grom: Okay. Great. And then my second question is just on new store productivity. You opened 9 stores. I think you said three within a month of each month of the quarter. And I think there was one store that you opened up on the last day. But the NSP is much lower than it’s been — were calculated around 61%. Just — so is there anything going on there that that would drive lower?
Trevor Lang: The way I always think about that is we disclosed in our 10-K. We think new stores should do anywhere from $14.5 million to $16 million, $16.5 million in sales in the first year. And we sort of build our portfolio of stores around those metrics. When things were incredible, we doing $16.5 million as you look at the class of ’19, ’20 and ’21. The class of ’22 and early in ’23, that number is probably more around $14.5 million in sales. And so as you’ve seen our same-store sales come down just because there’s less people in the market. You’ve seen our new store sales productivity come down. So do I think that number is going to go back up to — I think as the economy recovers, it will. And those stores are those stores we’re making probably over — they were making over $3 million in full all EBITDA in year 1.
And now that you’re going to do $1 million or so less, maybe a little bit more million or so less than that in this current environment, you can pull that through kind of in the mid- to high 30s, and so they’re going to make still a really good just under $2 million or just over — just under $3 million, maybe $2.5 million, but they’re still very productive stores, and they’re going to give us a return on invested capital well above our cost of capital.
Bryan Langley: And this is Bryan. It gives us more of a maturation curve as well they mature.
Trevor Lang: Yes, because they’re an ultimate get to the same. Ultimately get to the same to your point.
Operator: Our next questions come from the line of Simeon Gutman with Morgan Stanley. Please proceed with your questions.
Simeon Gutman: I want to ask first about gross margins. They’re still benefiting, and I think you mentioned there’s a little bit of a benefit through the back half of the year. Does it flip to a headwind? I think part of the question is what happens with price? And you mentioned there were some selective, I guess, taking price down. But curious how it wraps into ’24. I know it’s early to talk about it, but curious if it does flip over.
Tom Taylor: Yes, it is early to talk about ’24. We’re — our margin — I’ve been very pleased with our ability to protect our value pass some price along back to our professional customers who saw us taking price up and just continuing to improve margin, like as I said in the script, and we’ve been able to do it sequentially and then year-over-year. And I think that that goes into 2024. I do believe we have the ability to continue to improve our margin rates. We’re going — we’re watching where we have taken price down and measuring unit elasticity seen if we’re getting a benefit. It’s inconclusive now, but we’re watching it. But I think between our own initiatives are selling better and best products and design initiatives and continuing to watch our supply chain do a great job of getting costs out.
Our merchants buying better. I think we have the ability to exceed our historical gross margin rates. How quick that comes, that is yet to be determined. We’ll talk about ’24 as we get closer to it, but I do think we’ll have improvement.
Simeon Gutman: Yes. And then it’s actually — it’s another ’24. I’m hesitant to talk about it, but it’s more about the housing market because Trevor mentioned that the consumer just spending a little bit less. There was a debate in this industry that the wealth and homeowners that lock in or stay in effect would continue to drive the industry, not necessarily support it, but create not avoid negative comps. But it looks like, let’s say, existing home sales don’t grow in ’24, which some are forecasting. Like how do you — I know it’s early again, but how do you think about this wealth effect, is there enough for this business or the industry to grow or it could be a longer transition period.
Tom Taylor: I mean I think that’s difficult to answer. I’ll take a stab. We’re kind of looking at each other who’s going to answer that one. I would say — I mean as I look into next year, even if we just need — existing home sales have been running in the negative 20% range. So if we get to — as we start lapping as we get into the fourth quarter, there won’t be — if they stay at this 4.1, 4.2, like we think we’re going to exit the year, then they’re not negative 20%. They’re flat or slightly up. And as we go into next year, we think that could get better. And if existing home sales are better than they were year-over-year, we think that benefits us. Now — and I also think there’s going to be some pent-up demand with this amount of slowdown in the business as you get to next year, I think people will become more inpatient and they may take on more projects.