n n n ‘. concat(e. i18n. t(“search. voice. recognition_retry”),’n
Christopher John Nelson; COO, Executive VP and President of Tools & Outdoor; Stanley Black & Decker, Inc.
Dennis M. Lange; VP of IR; Stanley Black & Decker, Inc.
Donald Allan; President, CEO and Director; Stanley Black
Patrick D. Hallinan; Executive Vice President and Chief Financial Officer; Stanley Black
Adam Michael Baumgarten; MARYLAND; Zelman
Christopher M. Snyder; Analyst; UBS Investment Banking, Research Division
Eric Bosshard; Co-Founder, CEO, Co-Director of Research & Senior Research Analyst; Cleveland Research Company LLC
Julian CH Mitchell; Research analyst; Barclays Bank PLC, Research Division
Michael Jason Rehaut; Senior Analyst; JPMorgan Chase & Co, Research Division
Nigel Edward Coe; MD and Senior Research Analyst; Wolfe Research, LLC
Robert Cameron Wertheimer; Founding Partner, Research Director and Research Analyst; Melius Research LLC
Timothy Ronald Wojs; Senior Research Analyst; Robert W. Baird & Co. Incorporated, Research Division
Operator
Welcome to Stanley Black’s Fourth Quarter and Full Year 2023 Earnings Conference Call
Dennis Lange
Thank you, Shannon. Good morning, everyone, and thanks for joining us for Stanley Black & Decker’s 2023 Quarter and Full Year Webcast. Here today, in addition to myself is Don Allan, President and CEO; Chris Nelson, COO, EVP and President of Tools & Outdoor; and Pat Hallinan, EVP and CFO. Our earnings release, which was issued earlier this morning and a supplemental presentation which we will refer to, are available on the IR section of our website. A replay of this morning’s webcast will also be available beginning at 11 a.m. today. This morning, Don, Chris and Pat will review our 2023 4th quarter and full year results and various other matters followed by a Q&A session. Consistent with prior webcasts, we are going to be sticking with just 1 question per caller. And as we normally do, we will be making some forward-looking statements during the call based on our current views. Such statements are based on assumptions of future events that may not prove to be accurate, and as such, they involve risk and uncertainty. It’s therefore possible that the actual results may materially differ from any forward-looking statements that we might make today. We direct you to the cautionary statements in the 8-K that we filed with our press release and in our most recent ’34 Act filing. I’ll now turn the call over to our President and CEO, Don Allan.
Donald Allan
Thank you Dennis and hello everyone. The functionality of Stanley Black
Christopher John Nelson
Thank you, Don, and hello to each and every one. Now let’s move on to the fourth-quarter operational functionality of Tools
Patrick D. Hallinan
Thanks Chris and hello. Let’s move on to the next slide. I would like to highlight the progress we have made, streamlining our activities and making our relationships coherent. We are on track to achieve our goal of $2 billion in pre-tax cost savings by the end of 2025. We achieved approximately $160 million in pre-tax cost savings in the fourth quarter, bringing our overall savings to more than $1 billion million since then. the launched program. This functionality was slightly greater than that of be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be be Be Be Be Be Be Be Be Be Be Be Be Be Be Be Be Be Be Be Be Be Be Be Be Be Be Be Be Be Be Be Be Adding up during the fourth quarter. Strategic sourcing projects remain the primary contributor to our supply chain transformation to this day. In addition to the program, savings in freight rates and divisions also contributed to the margin improvement since the beginning of 2023 and which was maintained throughout the year. Based on the conditions set at the beginning of the transformation, we expect strategic sourcing to be the largest contributor to savings, and we will be be be be be be expecting this to be the case in 2024. Our consistent national excellence program continues to leverage the principles of lean production to improve productivity in any of the sectors of activity. This paint flow will be expanded in 2024 and will improve the profitability of our production base. Projects similar to the footprint are progressing as planned and production transfers to centers of excellence are in various stages of qualification, testing and execution. Likewise, logistics network optimization systems are also underway with the review of regional distribution systems underway. In terms of alleviating complexity, our groups have learned of approximately 85,000 SKUs that have been discontinued and are helping customers transition to replacement products. We have effectively eliminated more than 45,000 SKUs through the end of 2023, with more expected in 2024. These moves are expected to generate approximately $500 million in savings in 2024, helping to fund additional expansion investments in our core business. As we enter the next phase of our transformation, changes to footprint and products, such as platform likenesses, will become more significant and result in a more inconsistent load savings trajectory than expected. We are confident that our transformation can contribute to the sustainable profitability needed to push our adjusted gross margin back to 35% or higher. Let’s move on to the next slide. Two of our key areas of focus in 2023 were flexible cash flow generation and gross margin expansion. We trimmed shares by approximately $240 million in the fourth quarter, adding approximately $100 million attributable to infrastructure businesses held for sale. This brings our equity relief to approximately $1. 1 billion in 2023 and $1. 9 billion from mid-2022. Our disciplined equity relief efforts throughout the year have helped generate $853 million of free cash flow, which we used to fund our dividends and reduce our debt by approximately $280. million compared to last year. We remain primarily focused on optimizing current capital, as well as achieving greater profitability to generate significant cash flow. In 2024, we plan to reduce inventories by $400 million to $500 million, while continuing to prioritize working capital efficiency. Capital spending is expected to be between $400 million and $500 million, a buildup from 2023, primarily to assist carbon footprint transformation projects planned for 2024. These, combined with biological cash generation , a variety of loose cash flows of 600 million dollars help our entire year. at 800 million dollars. As a reminder, we anticipate a typical profile for our working capital as we build up inventory for Tools & Outdoor’s spring 2024 promotional season, which will result in a consistent typical first quarter with no cash outflow. Our capital deployment approach remains consistent, making transformative investments, reversing our long-standing commitment to supporting percentage value through cash dividends and further strengthening our balance sheet. Let’s move on to profitability. Fourth quarter adjusted gross margin of 29. 8% increased 10. 3 points year over year, driven by lower clearance prices, benefits from source chain transformation and lower shipping costs, which more than offset the effect of decreased volumes. Adjusted gross margin was achieved ahead of schedule as we deliberately accelerated upstream transformation moves in 2023 while facing weak external and customer demands and channeling stock conservatism to achieve our profitability and cash flow targets. money. Additionally, prices increased 0. 5 times more than our expectations due to a weaker promotional mix during the quarter. We will continue our measured and disciplined cost control strategy to moderately improve our adjusted gross margin earnings from the second part of 2023 to the first part of 2024, while managing margin pressures involving the outdoor sales season. This is notable given that we were able to deliver adjusted gross margin for the second half of 2023, 1 point above the upside limit of our initial 2023 guidance, demonstrating that the transformation is on the trajectory we seek. We forecast an adjusted gross margin of around 30% for the full year 2024 and expect to finish the year in the 30s, consistent with previous operations. We are taking advantage of our $500 million in upstream transformation charge discounts and working hard to navigate another year without macroeconomic tailwinds. We have made significant progress around 2023 in our quest to repair our historic adjusted gross margin of over 35%, and our efforts enable additional investments to drive long-term biocoin expansion. Now let’s move on to our 2024 forecast and other key assumptions. To reiterate, we expect 2024 to be another year where we prioritize generating cash flow and improving gross margin. We are initiating a $600 million to $800 million full-year free money flow management system, a $1. 60 to $2. 85 percentage range GAAP system, and a $1 GAAP currency system . 60 to $2. 85. adjusted from $3. 50 to $4. 50. We expect demand for professional equipment to be relatively strong in some of our advertising markets. On the contrary, we are expecting weakness in the client and in the open we call to resist consistently. Together, those dynamics result in a slightly negative overall outlook for our market. We expect biocoins to be relatively strong at the midpoint, aided by a consistent targeted market with percentage gains across our businesses. Our EPS spread predicts roughly two points of volume expansion, with the variation representing the market requiring scenarios in the plan. Outdoor Bio Tools and Coins expect to be relatively strong at the midpoint, driven by our focus on winning over professionals through cutting-edge innovation, cash resource investments, and percentage-consistent earnings. products for our customers, taking advantage of our solid portfolio of brands. Industrial segment coins in is being expectedinginginginginginginginged to be relatively flat to slightly positive biologically, mainly driven via the recovery of the aerospace marketplaceplaceplaceplaceplaceplaceplaceplace as well as leveraging our core business style and electrification to generate marketplaceplaceplaceplaceplaceplaceplaceplaceplace consistent with centage gains . Industrial expansion in 2024 deserves to be moderated by reducing infrastructure stocks in the first quarter before the final of the signed sale and by expecting a slowdown in the overall advertising fasteners market. We will continue to invest for long-term bio-based expansion and percentage growth through 2024 and plan to invest an additional $100 million to drive innovation, market activation and support our strong DEWALT, CRAFTSMAN and STANLEY brands. Our manufacturing forecast is that SG&A as a percentage consistent with sales in 2024 will remain in line with our recent fourth quarter around 21%, which comes with capital spending. Let’s move on to profitability. We expect the company’s overall adjusted EBITDA margin to increase to around 10% for the full year, helped by benefits from the transformation program. The margin of the outdoor tools and activities segment is expected to increase year on year, also driven by the continued momentum of our ongoing strategic transformation. Industrial sector margin is expected to remain stable or slightly higher year-over-year, with steady, national improvement in Engineering Fastening offset by dilution of the previously announced divestiture of the Infrastructure business. For further context regarding infrastructure, our guidance assumes sales of approximately $100 million in the first quarter and final divestiture at the end of the quarter. We have subsequently excluded the profit and assume that the proceeds will be used to decrease our advertising package in line with the debt balance. With those assumptions, we established a diversity adjusted EPS of $1, with the main factor being variability in market demands. We will work to optimize adjusted gross margin through our transformation program. We will manage general and administrative expenses comprehensively throughout the year given the macroeconomic uncertainty, but we will strive to maintain investments to position the business for long-term expansion. Let’s move on to the other elements of orientation. GAAP currencies come with non-GAAP pre-tax changes ranging from $290 million to $340 million, largely similar to the source chain transformation program, with approximately 25% of those expenses being non-cash rationalization prices of the footprint. Our adjusted tax rate is expected to accrue in 2024 to 10%, with the first 3 quarters generally in the mid-20s. Discrete elements of tax preparation plans to reduce the rate for the full year are expected and lately we expect them to happen in the fourth quarter. Additional guidance assumptions for the medium term to 2024 are indicated on the slide for ease of style. We expect the first quarter adjusted currency percentage to be around 13% of the full year at the midpoint. First quarter earnings per share are impacted by the fiscal profile I mentioned earlier and a higher contribution from advertising-related interest expenses in line with the debt balance in the first quarter. First quarter adjusted EBITDA as a percentage consistent with the full year is expected to be above 20%, consistent with pre-pandemic history. The company’s overall bio sales expansion in the first quarter is expected to decline by single digits, primarily due to the same points that caused the slowdown in the fourth quarter of 2023. Adjusted EBITDA margins should be expected to stacked up sharply compared to last year, taking credit for the program’s benefits and offsetting the mess of consistent losses. In summary, 2024 represents a new milestone in our transformation adventure with continued focus on gross margin and cash flow while targeting the market consistently with percentage gains. in a solid but complicated macroeconomic environment. We believe our moves continue to position the company for long-term expansion consistent with shareholder pullbacks. With that, I’ll now call Don back.
Donald Allan
Thank you Pat. We embarked on a transformation in mid-2022 to put Stanley Black.
Dennis Lange
Thanks, Don. Shannon, now we can start with the Q&A please. Thank you.
Operator
(Operator Instructions) The first comes from Julian Mitchell’s lineage with Barclays.
Julian C. H. Mitchell
Maybe it’s just a question to me about the rate of improvement over the course of the year. I guess I’m just trying to understand, specifically, the gross margin delta and also the progression of loose cash flow. What’s the confidence that this gross margin can be accumulated sequentially over the course of the year up to that low exit rate of the 1930s?And in terms of available liquidity, what is the weight of this $700 million midpoint worth compared to the second half of the year?
Patrick D. Hallinan
Julian, it’s Pat. Thanks for the questions. Our focus next year is on both of these topics, gross margin and cash delivery. And as we moved through ’23 and made very strong progress on gross margin, we certainly had the benefit in ’23 of that progression being the consumption of high-cost inventory out of the balance sheet. So throughout ’23 you saw a very, very significant degree of progression throughout the year. Throughout ’24, we’re confident in our plan, and we’re targeting the 300 basis points roughly of progression throughout the year. It will be back half weighted. And part of that is the low volumes that we saw the back half of ’23 and expect to see the front half of ’24, but we have every confidence we’re going to deliver it. And as we started talking to investors in the back half of last year, we guided people to measure our gross margin progress in half year increments. And if you look at the back half of ’23, we were about 28.7% for our back half of ’23 progression. And we expect to be in expansion mode, the front half of ’24. It will be modest in the 50-ish basis point range. And we’ll be stepping up more significantly in the back half of ’24 as we accelerate some of the savings efforts we have on the docket for the year quickly to offset some of the volume softness we’ve been experiencing in the last 6 to 12 months. But we have every confidence we’re going to get there. In terms of cash, the main difference in cash year-over-year is really the difference in the transformation initiatives that are planned for 2024, where we’re doing a bigger proportion of the footprint moves, which are going to drive more CapEx during ’24 than during ’23 about $100 million and more cash-oriented restructuring charges around $50 million. So the big difference year-over-year in cash drivers are the restructuring agenda. If you look at the rest of the cash drivers, we’re still targeting pretty meaningful inventory reduction, but less than the $1 billion that we drove off the balance sheet in ’23. We’re going to be in the $400 million to $500 million range. But that difference in inventory reduction is made up by a higher operating profit. So those two things roughly offset each other, and the drivers are really the difference in year-over-year CapEx and the difference in year-over-year cash restructuring targets.
Operator
The next one comes from Tim Wojs’ lineage with Baird.
Timothy Ronald Wojs
Nice pictures with margins. Maybe just. . . I had two questions about the charges. First of all, just about investments, Pat. What are you explicitly making an investment in, or at least what are you planning to invest in 2024?And to what extent do you plan to manage those investments over the course of the year?And secondly, in terms of charge inflation, could you give us an idea of what you’re seeing and the main inputs in terms of charges?And then also, what is explicitly incorporated into the price-charge??
Patrick D. Hallinan
Yes. So on the investment side, we continue to invest basically in innovation and then in the cash and the market, putting resources to activate it. So of the $100 million we’re targeting for 2024, I’d say three or more quarters are around that number. Obviously a lot of this is our larger business, our equipment and our outdoor activities, but also part of the commercial sector, so it’s basically a matter of innovation, market activation and resources on the ground to help them. Maybe 20-25% is some other capacity building that makes us a more productive organization. And then as we move into the year, I mean obviously we’re entering a year with a pretty subdued macroeconomic scenario and the uncertainty that we’ve had over the last 12 or 18 months, we’re definitely transitioning to paying a lot of attention to the macro and manage our charge design throughout the year to stay in sync with that macro. But we’re really focused on the long-term expansion of this business, and we’re working hard as a control team and as an organization to maintain those investments even if the macroeconomic scenario creates some more headwinds than anticipated. They are not going to completely give up 24’s investments under the threat of seeing the long-term suitability of lopass and its share of the market gain strength. In terms of inflation and deflation for the year, our plan predicts stagnation for curtain and merchandise types. Obviously, some battery metals have decreased by significant percentages. But in dollar terms, those don’t weigh as much in our basket as others. There have been recent increases in the metals and resins sector, and we will most likely face marginal stresses from Red Sea shipping. But overall, it’s bringing in a pretty strong metals and freight mix, even in a high-drag environment, but that’s factored into our gross margin and SG&A assumptions. And finally, the value of the value, again, almost neutral. We will have remaining values in the commercial sector, which is intelligent, compensated by the undeniable generalization of the promotional cadence in equipment and exteriors. Again, don’t forget the second part of ’23, we’re returning to a general promotional cadence as our home network recovers, and that will continue through the first part of ’24 as well. But I would say that those two forces combined, on a corporate level, lead us to more or less solid price dynamics for the year. And once again, the inflationary context is sometimes strong.
Operator
The following is from Chris Snyder of UBS.
Christopher M. Snyder
I just wanted to get back to the expected gross margin stagnation in the first part of the year compared to the fourth quarter exit rate. It turns out that there are a lot of savings on the balance sheet that have not yet been reflected in the income statement source. And I think we expect them to arrive a couple of quarters late. So maybe why this doesn’t happen in the first part of the year? And I perceive that the output of the combined doors will improve. But I also think the team’s gross margin is improving from the fourth quarter into the first part of the year as we move beyond the holiday promotion. Therefore, any color in the gross margin delta between those product lines would be helpful to help understand this mix.
Patrick D. Hallinan
Yes, yes, no. Like I said, we expect a modest expansion from part one to part one. During 2023, and we saw that volumes were low, I think we commended the team for still achieving over $500 million in savings in the context of the year’s volume, about three hundred or 400 foundation emissions below what we had achieved. We will be waited. And we beat the top of our guidance with gross margins of 23. So we went out at a pretty strong speed. As you point out, the trajectory of the first half is positive if a bit muted. And I would say that the few strengths that stood out are that it has a more powerful outdoor combine in the first part. And you’ve got some of the under-absorption that. . . That was related to the low volumes in the current part of 23. And those are the two forces, and they play in the first part by damping some of the speed of that ProgressArray yet they don’t divert us from the trail of savings over the whole year.
Operator
Next up is Rob Wertheimer of Melius Research.
Robert Cameron Wertheimer
My question has to do with the dynamics of the retail channel. And if I don’t understand correctly, they had slightly weak volumes. They’ve had a drop in promotional activity, which is a smart thing. And I’m just curious. about how that translates in terms of market share, whether the festival intensifies its promotional activities, whether channel stock is standardized and whether there is less promotion. Maybe just give us a comment on market share, on promotions, on retail dynamics.
Donald Allan
Of course. I think the competitive landscape didn’t change between the end of ’23 and the birth of ’24. There is modest movement in some brands among retailers, but other than that, we don’t see unusual costs or discounts. And for the most part, it’s all of us who are lately navigating and being born in a somewhat slow market, proceeding to position ourselves to gain market share. But I’ll ask Chris Nelson to add a little more color to what we’re seeing.
Christopher John Nelson
Yes. I would say that if you think about. . . just referring to the point of sale, I would say that the point of sale performed pretty similarly to what we would have expected in the fourth quarter, where we saw it decline year over year. still above the points of 2019. And if you think about the type of scenario they are in, we have noticed the strength of the professionals and the expected point of difficulty that we will see from consumers in the DIY segment. So that is what is expected, and that is what we are looking for, as we said, for this year, because it will be a fairly solid macroeconomic scenario that we will bet on as a backdrop. As Don mentioned, we are not seeing primary adjustments in competitive dynamics. What we are seeing and excited about is returning to our general promotional rhythms because we have been able to take care of our consumers and satisfy our fulfillment rates have been proven. And that has made a big difference in our ability to compete in the retail industry. And then I think the last component of your query that you referenced was about stock points. And in fact, globally, while other people contemplate what is a dynamic or tepid macroeconomic situation, other people are looking to resize their actions based on that environment. And we are seeing this somewhat anecdotally in countries like Europe and some of our professional channels. But if we look at the largest portions of stock for which we have clear data at our major retailers, we are at historic highs. We feel smart about where we’re positioned and we think it’s going to be kind of an even-handed dynamic through 2024.
Operator
The following comes from the lineage of Nigel Coe of Wolfe Research.
Nigel Edward Coe
Believe it or not, it was at World Concrete. Vi the new products. Pretty awesome, I’d say, so congratulations on this release. In terms of costs, they were markedly higher than the last quarter in the Tools and Foreign Sector category. So I was wondering if. . . He talked about the standardization of promotional activity. And I wonder if I would have subsidized until the fourth quarter and maybe that would have alleviated some of. . . maybe the weakness of Tools.
Donald Allan
Yes. So Nigel, I’ll have Chris answer your first question, and then I’ll take the second question after you’re done.
Christophe John Nelson
So, from a pricing perspective, Nigel, it’s smart to hear from you. I’m glad you were able to see the new products. I’m sorry, I missed you. But no, we haven’t noticed a significant decrease in promotional volume. What we saw was overall, as we saw, as we said, a bigger challenge in the overall macroeconomic environment that I think contributed to that more than anything else. As we move into next year, we expect this value momentum to remain stable. We are satisfied with our plans there. And overall, I think it’s fair to say that, as Pat pointed out, we’re in one: we’re in a more or less unbiased value. We don’t expect peak inflation. And if we look in the rearview mirror, we have recovered a significant portion, though not all, of the prices we have incurred as a result of inflation. Therefore, it is also vital to maintain this unbiased cost value in the long run. throughout our gross margin trajectory.
Donald Allan
Yes. The comment on the footprint, I mean, yes, the geopolitical dynamics continue to be intriguing and interesting for sure, what may play out in the future. But as it comes to our footprint transformation, we started with an overarching strategy of finding ways to get closer to our customer with our supply base in our manufacturing operations is certain types of products that are high volume in particular. Other products, you have to focus more on the low-cost location. And so you end up with a mix geography of where you’re manufacturing and how you’re serving your customers. That hasn’t really changed. What we continue to do as part of the transformation, though, is develop centers of excellence for power tools, certain types of hand tools, certain types of outdoor products that leverage the expertise we have in these geographies in Asia, in Mexico and in the United States and Eastern Europe. We will continue to build upon that, which gives — eventually will give us the ability to flex supply from different geographies if the geopolitical landscape changes radically. That will take time to do. That’s not something that will necessarily occur in the next 6 to 12 months. But as we continue on this journey and finish this transformation in the next 2 to 3 years, that’s an outcome that we’re looking to achieve. And so we believe that’s the appropriate way to address what’s happening in the dynamic geopolitical space and we’ll continue to evaluate that going forward as things shift in countries like the United States if they shift and make pivots as necessary.
Operator
Our next comes from the lineage of Adam Baumgarten of Zelman.
Adam Michael Baumgarten
Just in terms of SKU rationalization, did that affect volumes in Q4 or even Q23?
Christophe John Nelson
Go ahead, Pat.
Patrick D. Hallinan
Yes, Adam, no. I mean, this program has been very thoughtful to eliminate complexity that doesn’t create a price for end users or for our shareholders. And it doesn’t cause any primary disruption, one can imagine. . .
Operator
The next one comes from Michael Rehaut’s lineage at JPMorgan.
Michael Jason Réhaut
I had a question on the growth investments and just how to think about the cadence of that longer term. I think you talked about it a little bit earlier in the call. But when you talk about in totality, I think alongside the 35% plus gross margin and enabling $300 million to $500 million of growth investments, I was hoping just to get a sense of what those investments were in ’23, what you expect them to be in ’24 and ’25. And how much of that is going to be kind of an ongoing level of investment and if that would all be on the income statement in the Tools & Storage or if there would be some in corporate?
Patrick D. Hallinan
Yeah, Mike, I’ll give you some points. I’d say 23 was a little over $100 million, and it’ll be around $100 million for 24. And as I mentioned in a previous query, that’s about 3/4 of the innovation, then the marketing and on-the-ground resources to power it. effectively. And the rest is capacity building, some in our business sectors, a relatively small component in the business sector. And I think if you address the broader question of you’re sitting there with a style and you’re looking to perceive whether SG&A is permanently 21% of sales or something else, whether that detracts from it To the essence of your question, I would say that as we start to profit percentages and bring our brands and innovation to life for a few years, I hope that in the medium term diversity will be greater than 20 percent, if that. sort of what you’re looking for to unpack. But I would expect us to be ahead in 24 and potentially in 25 and 26 depending on the macroeconomic scenario and some of the things that we prioritize in the medium term around that point of around 20%. And then I think beyond the medium term, to the extent that we can be exceptional at improving gross margin, SG&A will grow with the rate at which we can improve gross margin.
Operator
The following comes from the lineage of Eric Bosshard of Cleveland Research.
Eric Bosshard
You talked about normalizing promotions and, I think, you talked about volumes compared to 2019. I’m just curious if you could give us a little bit of insight into promotional activity compared to 2019, where you are right now and what’s being incorporated into the recommendation and what you’re seeing in the market in terms of customer appetite for promotions, professional or retail.
Donald Allen
Yes, Eric. So I would say that the point of promotional activity that we are at now and that we expect in 2024 is probably pretty consistent with what we experienced in 2019. So we are back to where we were, which, I think, was a healthy balance between activities general sales operations and promotional activities. When we reflect on the year, our consumers aren’t really communicating to us what I would call unusual degrees of promotional activity. They are looking for the general set of activities. And I think that’s probably going to be the case all year long. And we tend to – in markets like this that are kind of strong in the sense that there’s not a lot of expansion and there’s not a lot of recession, the promotional environment tends to be more general in that sense. setting. If demand decreases in particular, promotional activity decreases especially because the effect of promotions is not as great. If we see an improving momentum during the year, as we communicated in our presentation, our guidance does not necessarily come with that. But if the demand environment at the moment improves, we may see an increase in similar promotional activities. But at this point, based on our advice, I think it’s probably conservative to say that our view is that promotional activity will be consistent with what we saw before the pandemic.
Operator
Thank you. This concludes the question-and-answer session. I would now like to hand the conference back over to Dennis Lange for closing remarks.
Dennis Lange
Shannon, thank you. We would like to thank everyone for their time and participation in the call. Of course, please feel free to contact me if you have any additional questions. Thank you.
Operator
This concludes the convening of today’s convention. Thank you for your participation. You can now log out.