Good morning. Thank you for joining The Sherwin Williams Company's review of First Quarter 2020 Results and our outlook for the Q2 and Full Fiscal Year of 2020. With us on today's call are John Marikis, Chairman and CEO David Sewell, President and COO Al Nesyshen, CFO Jane Cronin, Senior Vice President, Corporate Controller and Jim Jay, Senior Vice President, Investor Relations. This conference call is being webcast simultaneously in listen only mode by Issuer Direct via the Internet at www.sherwin.com. An archived replay of this webcast will be available at sherwin.com beginning approximately 2 hours after this conference call concludes and will be available until Wednesday, May 13, 2020, at 5 pm Eastern Time.
This conference call will include certain forward looking statements as defined under U. S. Federal Securities Laws with respect to sales, earnings and other matters. Any forward looking statement speaks only as of the date on which such statement is made, and the company undertakes no obligation to update or revise any forward looking statement, whether as a result of new information, future events or otherwise. A full declaration regarding forward looking statements is provided in the company's earnings release transmitted earlier this morning.
After the company's prepared remarks, we will open the session to questions. I will now turn the call over to John Marikis.
Thanks, Jesse. Good morning, everyone. I hope you and your families are remaining safe and healthy during the pandemic. Given the extraordinary circumstances over the last quarter, we've changed our typical format a bit today to provide you with some additional perspective. After my opening remarks, I'll turn the call over to Jim Jay, our Senior Vice President of Investor Relations, for some short comments on our Q1 results.
David Sewell, our President and Chief Operating Officer, will follow Jim and provide you with details on how we're responding to the pandemic. After David's remarks, I'll share some color on what we're seeing across our various end markets before turning it over to our Chief Financial Officer, Al Mistishen, who will provide you with our revised outlook for the year. Let me begin today by thanking the more than 60,000 employees of Sherwin Williams for their courage, determination and resilience in the face of the COVID-nineteen pandemic. Their extraordinary efforts to serve each other, our customers, our company and our communities during this challenging time truly has been inspiring. This wonderful team has my deepest appreciation and my deepest respect, and I'm confident in their ability to meet the challenges ahead of us.
Clearly, we're in a much different economic environment than anyone could have imagined when we provided our 2020 outlook back in January. More than $26,000,000 have filed for unemployment benefits in the U. S. Alone since mid March and other geographies also remained under significant pressure. Sherwin Williams is not immune from these realities.
We are seeing major near term impacts to demand in most of our end markets. We have a long tenured and experienced management team that has successfully managed the company through a number of challenging times. Recession in the early 2000s, the 2008, 2009 financial collapse and the integration of Valspar, the largest acquisition in the company's long history. Our entire global team remains undaunted and has taken actions to navigate this crisis. We remain very confident in our ability to manage the near term impacts we are seeing, while positioning ourselves for continued long term success.
We've developed and are executing a comprehensive response to the pandemic focused on the safety and well-being of our employees, our customers, our company and our communities. We are implementing multi phased contingency plans across our businesses to adjust to the near term business environment. We are well positioned from a balance sheet and liquidity perspective. We've adapted in order to stay connected to our customers through this crisis, including modified operations in our stores and increased use of e commerce and other technologies. We believe we're seeing a pause in demand in many of our end markets rather than destruction of demand.
We believe the long term fundamentals remain intact. We intend to continue strategic investments that support profitable growth. These include continued investments in our stores, our products, our e commerce platform and other initiatives as we look for opportunities to expand our business. But before moving ahead, I'd like to thank our team again for remaining focused and delivering on our Q1 plan, even as the COVID pandemic began to impact us. Let me now turn the call to Jim Jay for some additional comments on the quarter.
Thank you, John, and good morning, everyone. In addition to this morning's press release and our commentary on today's call, we've provided a slide deck on our website with additional information. All comparisons in my remarks are to the Q1 of 2019 unless otherwise stated. Overall, Sherwin Williams delivered a strong Q1 that was in line with our expectation with year over year improvement in sales, gross margin, profit before tax, EBITDA, diluted net income per share and net operating cash. 1st quarter 2020 consolidated sales increased 2.6 percent to $4,150,000,000 and consolidated gross margin increased to 45.6% from 42.9%.
Consolidated profit before tax increased $93,400,000 to $392,300,000 Diluted net income per share for the Q1 2020 increased to $3.46 per share from $2.62 per share. The Q1 of 2020 includes acquisition related amortization expense of $0.62 per share and the Q1 of 2019 includes acquisition related costs and other adjustments of $0.98 per share as described in the Regulation G reconciliation table included in our press release. Excluding these items, 1st quarter adjusted diluted earnings per share increased 13.3% to $4.08 from $3.60 Adjusted EBITDA increased $48,000,000 to $623,100,000 or 15 percent of sales. Cash from operations was $54,900,000 an increase of $91,000,000 year over year in the quarter. As is typical for us in the Q1, we used cash to build inventory levels in advance of the busier spring and summer selling season.
We continue to monitor the demand environment closely. From a segment perspective, the Americas Group grew same store sales by 7.4% and improved segment margin by 140 basis points. Consumer Brands Group and Performance Coatings Group also delivered improved segment margin performance. Additional details on our segment performance are included in the slide deck I referenced previously. Let me now turn the call over to David Sewell for some specific comments on how we are responding to the pandemic.
David?
Thank you, Jim, and good morning, everyone. Let me also add my sincere thanks to our entire global team. Without a doubt, our incredibly talented and dedicated employees remain our most important asset, and we have implemented a wide range of temporary policies and protocols over the last 2 months to protect their health and safety. These actions include enhanced paid sick and or family leave, alternate flexible and remote work arrangements, visitor and employee screening protocols, social distancing best practices, additional PPE and sanitary procedures, and we have established a global crisis response team among many other measures. We also took the unprecedented step of temporarily closing our paint stores sales force to further protect employees as we move to serving customers with curbside pickup and delivery options.
As for our customers, we provide essential products and services that are helping painters create and maintain clean and healthy living environment at healthcare facilities, manufacturing plants, residences and for other vital infrastructure. Many of these contractors have expressed their gratitude to us for keeping our stores open and enabling them to keep their businesses running, doing their jobs, generating income and supporting their family. We're also supporting industrial customers in mission critical areas such as food and beverage packaging, healthcare equipment, food manufacturing, water treatment and energy infrastructure. During the crisis, we have delivered critical coatings product to producers of ventilators, oxygen tanks and hospital bed frame. At this time, all major architectural and industrial plants and distribution service centers are in operation.
Utilization rates vary based on manufacturing site and customers served. We have had no significant issues with raw material availability or supply. We've had a very small number of North American stores closed intermittently during the crisis related to varying government orders. The vast majority of stores remain open. All of our businesses have developed and are executing on multi phased contingency plan to adjust to the near term business environment.
We have taken targeted action to reduce costs, pause or eliminate certain programs, cut general expenses and delayed filling open positions. We've also made adjustments to a small percentage of our workforce through involuntary leaves and reductions in force. We have additional levers we can pull if necessary. Through all of this, our employees continue to support the communities where they live and work. To date, we have donated 100 of 1000 of masks, gloves and lab coats to those on the front lines fighting the virus.
We have also manufactured and donated hand sanitizers to many hospitals throughout the country. Our entire team remains focused and determined as we manage through this crisis, and we're confident we will emerge from this as a stronger company.
Thank you, David. As I mentioned in my opening remarks, we believe we are seeing a pause in demand rather than destruction of demand, and we continue to feel confident in the long term trajectory of our end markets. While some economies cautiously begin taking steps to reopen, the pace and scale at which this will happen is far from clear. We believe April will be the most challenging month of our Q2 from a comparison perspective, with some gradual improvement as the quarter progresses. Whether the recovery gains momentum in the second half of twenty twenty or not until 2021 remains to be seen.
We believe providing additional granularity on our end markets and how they might begin to emerge from the current environment may be helpful to investors. Let me begin in the Americas group with our North American stores. Again, 1st quarter trends were very strong with same store sales up 7.4%, reflecting robust underlying demand. We've seen a dramatic near term pause brought on by the pandemic, with all end markets except DIY being significantly impacted. In residential repaint, customers are delaying interior work related to social distancing concerns and having painting contractors in their homes.
We expect this demand to return gradually as the pandemic subsides and customers and contractors implement appropriate protective measures. We expect exterior repaint work to gain momentum near term, which will help to offset some of the interior softness. In new residential, starts were up strong double digits to begin the year. As workers return from stay at home orders, work on these homes should resume. Our national homebuilding customers remain positive long term, though cancellations have increased and order rates have softened near term.
Activity should eventually improve as mortgage rates are low and the supply of homes is limited. As a reminder, there's about a 90 to 120 day lag from the time construction begins to the painting phase. In new commercial, many of our customers were reporting strong backlogs and our first quarter sales were up mid single digits. Construction has been deemed as essential in most locations and jobs in progress will be completed. Work is largely continuing, albeit at a slower pace due to increased job site restrictions and labor challenges.
We expect starts to be delayed in the 2nd quarter, but we're optimistic that they will pick back up as the economy begins to reopen more broadly. In property maintenance, overall renters demographics are favorable, though apartment turns have slowed dramatically near term. Management companies remain positive and expect renter movement to begin quickly once the economy reopens. Maintenance related to hotels and restaurants is likely to return more slowly. Some CapEx projects have been put on hold in some areas due to local mandate.
Our DIY business is strong as consumers are nesting and using stay at home time to work on affordable home improvement projects such as painting. We expect our DIY business to remain solid in the second quarter before returning to more normal low single digit rates as stay at home orders are lifted. In Protective and Marine, approximately 40% of our sales are tied to oil and gas, which has fallen sharply over the last quarter. Major oil and gas companies have suspended or delayed capital expenditure projects, which have and will continue to impact our results. Conversely, our sales in other end markets such as water and wastewater treatment, pharmaceutical, flooring, rail and marine remain as planned, which will help to offset the softness from weaker oil and gas business.
While we're seeing short term disruptions and headwinds, the long term drivers we have cited in the past remain intact, including household formations and demographic trends. Given these long term drivers, we intend to continue to invest in our business. We anticipate opening approximately 50 new stores this year, while continuing to focus on sales reps, management trainees, innovative new products and productivity enhancing services. Moving on to an update for Consumer Brands Group. DIY demand in North America continues to be strong as stay at home mandates have increased home improvement demand.
Sales to home centers and other retail channel partners continue to perform well, and we are encouraged by growth prospects with multiple customers in this channel. Looking at our international businesses, we expect our sales to be under considerable pressure through the Q2. Our expectation is for these businesses return to more normal activity in the Q3 as the economies of the world begin to open. Lastly, let me comment on trends in Performance Coatings Group. Overall, we anticipate industrial demand recovering more slowly than architectural demand.
From a geographic perspective, North America remains the largest region in Performance Coatings and was our strongest performer prior to the pandemic. We would expect that to be true going forward. We have started to see some recovery in China at a slower pace than anticipated. We expect continued pressure in Europe and Latin America. In packaging, demand for food and beverage cans remains robust.
We anticipate strong continued demand and additional business wins driven by sustainability trends and our non VPA ValPure V70 coatings. In coil coatings, we're seeing a temporary pause and slower pace of some commercial construction projects. Jobs in progress will eventually resume, and coupled with the continued capture of new business, we expect this business to remain one of our best performers. In general industrial, we're seeing substantial demand weakness in various end markets, including heavy equipment, agriculture, transportation and general finishing. We expect this recovery will be slow and we'll see continued pressure throughout the rest of 2020.
In industrial wood, softness across various end markets, including furniture, kitchen cabinetry and flooring has continued. It is difficult to forecast the timing of improvement, though many of the same drivers influencing new housing could benefit this business. In automotive refinish, the business has been impacted by the various stay at home mandates that have been instituted across the country. The decrease in miles driven has led to a decrease in collisions. The pace of recovery in this business will depend on how quickly stay at home orders are lifted and people begin to return to their normal routines.
Let me reiterate that while we are seeing near term pressure across most end markets we serve, we're confident in the long term trajectory. Now, I'll turn the call over to Alma Styshan, our Chief Financial Officer, to talk more specifically about our revised 2020 guidance, our cash and liquidity position, and our approach to capital allocation. Al?
Thank you, John, and good morning, everyone. We anticipate the negative impact of COVID-nineteen on the U. S. And global economies will most likely continue through the Q2. We do not expect immediate meaningful improvement ahead in most end markets we serve, and we are unable to predict when any noticeable improvement in those end markets will occur.
Given the near term trends and indicators we see at this time, we anticipate Q2 2020 consolidated net sales will decrease by a lowtomidteens percentage versus the Q2 of 2019. Looking at our operating segments for the Q2, we anticipate the Americas Group to be down by a low double digit to mid teen percentage, Consumer Brands Group to be up by a high single digit to low double digit percentage, and Performance Coatings Group to be down a high teen percentage. For the full year 2020, we are revising our sales guidance to reflect uncertainties in the timing and pace of improvement in the U. S. And global operating environment.
If economic conditions begin returning to normal in the Q3 2020 and continue improving through the Q4, we anticipate full year consolidated net sales to be flat to down a low single digit percentage. If economic conditions do not materially improve until the Q1 2021, we anticipate full year 2020 consolidated net sales to decrease by a mid to high single digit percentage. This revised full year 2020 consolidated sales guidance is compared to our previous full year guidance of an increase of 2% to 4%. On an operating segment basis for the full year, we anticipate the Americas Group to be flat to down by a mid single digit percentage, Consumer Brands Group to be up or down by a low single digit percentage and Performance Coatings Group to be down by a high single digit to low double digit percentage. Considering our revised range of potential sale, we are revising our diluted net income per common share for 2020 to be in the range of $16.46 to $18.46 per share compared to our previous guidance of $19.91 to $20.71 per share and compared to $16.49 per share earned in 2019.
Full year 2020 earnings per share guidance includes acquisition related amortization expense of approximately $2.54 per share. On an adjusted basis, we expect full year 2020 earnings per share of $0.19 to $21 One key assumption embedded in our outlook is the raw material deflation we expect to realize for full year 2020. We expect the raw material basket to be lower year over year by a low single digit percentage. Switching to our balance sheet, which along with our liquidity position remains strength of the company. At March 31, 2020, we had $239,000,000 in cash and $2,500,000,000 of unused capacity under our revolving credit facility.
At the end of the Q1, our leverage ratio improved 3.1x on net debt to adjusted EBITDA compared to 3.5x a year ago. As Jim noted earlier, during the Q1, we used cash to build architectural inventory levels in advance of the spring and summer selling season. However, our teams reacted quickly to slowing demand in various businesses and regions where it occurred and aggressively reduced inventory, which helped reduce our year over year working capital of $151,000,000 We have completed a number of actions over the past year to reduce our risk and improve our financial flexibility. We recently completed a bond issuance in March for $500,000,000 of 10 year note at 2.3 percent and $500,000,000 of 30 year note at 3.3%. These are the lowest coupon rates in the history of the company.
The proceeds of these issuances were used to complete a tender offer for $500,000,000 of 2.75 percent notes due in 2022 and will also be used to pay off the $429,000,000 2.25 notes that are coming due in May. Our next long term debt maturity in 2021 is $25,000,000 In the Q1, we repurchased 1,700,000 shares of our company stock and increased our quarterly dividend by 18.6 percent to $1.34 per share. We are committed to maintaining this dividend increase through the rest of 2020. As David mentioned, we are executing contingency plans to reduce spending and conserve cash. As part of those plans, we are lowering our full year 2020 capital expenditure forecast from $320,000,000 to $180,000,000 and temporarily delaying our share repurchases until we see improvement in the end markets we serve.
Finally, we have put a pause on spending related to our new headquarters and R and D facility projects, but continue to work through various planning process. That concludes our prepared remarks. With that, I'd like to thank you for joining us this morning, and we'll be happy to take your questions.
Thank you. We will now be conducting the question and answer Our first question comes from Chris Parkinson with Credit Suisse.
Great. Thank you. Good to know everybody is doing well. So I'll leave this fairly open ended, but can you speak to some of the key trends in the Americas group, such as the sustainability of the DIY boost? Any color on the magnitude of the divergence between exterior and interior paint trends?
And just how to think about things on a sub regional basis for what you're seeing in April? Are there any differences between, for instance, the Southeast versus the Northeast? Thank you very much.
Thanks, Chris. First, I would say regarding the DIY business, as we mentioned in our prepared remarks, the nesting phenomenon, if you will, of our customers is largely the result of their spending more time at home. And we believe that that will continue largely through the stay at home orders. Historically, if you look at the underlying principles that have us believing that this gradually shifts back to the do it for me as opposed to DIY primarily, because we think those are still intact. Those are the aging demographics, the home appreciation, the aging housing stock.
And as well, I would say that if you look at the last recession in DIY, it grew not in huge amounts, but it was not protracted either. Here, we have a much more significant jump in DIY business and we're experiencing that DIY business in our stores for those customers that are still preferring a more specialty store experience and through many of our customers on our consumer brands business, and we're working hard to serve them as well. As it relates to your next question regarding the interior versus exterior, both were up double digits in the Q1. And we expect that as the season starts to turn a little bit here that we'll start to see more lift in the exterior business as a result of more contractors getting the go ahead from homeowners who in some cases right now are preferring not to have or in many cases right now are preferring not to have painting contractors enter their home. And regionally, you asked a question, what we see regionally.
I'd say that we are starting to see more estimating and I would say the close rates in those estimates are growing largely in Southeast and Southwest right now. They're lagging in the Northeast and in the Midwest, which you would expect heavily influenced by what's happening in New York, what's happening in Illinois and Michigan. So I'd say going back to the point that we referenced a few times in the prepared remarks, we feel structurally there's not been much shift. So we expect this do it yourself to continue short term, gradually shift back to do it for me, and we love our position with those customers to be able to capitalize on that.
Great. Thank you. That's great color. Also just as a corollary of that, you just very quickly just break out the trends in P&M across the Americas Group and PC, just if you go through the oil and gas protective anti corrosion and then just the smaller marine, just anything changing there in terms of your thought process? Thank you very much.
Yes. So I'd say in PNM, we mentioned that that represents about 40% I'm sorry, oil and gas represents about 40% of our P&M business to our stores, and we have a very strong position there. I'd say that the oil price has had an impact primarily in the upstream business, where you're offshore, shale, etcetera, midstream with storage. Downstream, I'd say in refining and cracking, there's still quite a bit of investment going on. What I'm really pleased with is the shift that our teams are putting into place, the pivot to where the business is, not necessarily where we are.
We have a strong very strong position in those areas that are under pressure, but we've got wonderful talent, wonderful products and we're doing a very good job I believe in moving into some of those areas that are underserved by Sherwin right now in the oil and gas as well as other areas that we mentioned. Those are the water, wastewater, food and beverage, even pharmaceutical, fluorine. So this is a pretty experienced team we have here and we're taking advantage of those experiences, the scar tissue, if you will, from some of the past experiences. We're not waiting for things to happen. We're trying to capitalize and drive things and make them happen.
Thank you.
Yes.
Thank you. Our next question comes from Ghansham Panjabi with Baird. Please proceed with your question.
Hey, guys. Good morning. I hope everyone's doing well.
Good morning.
Hey, John, just kind of picking up on the last few comments, right? So your comments, you're viewing this as sort of a pause in demand versus necessarily a disruption in demand. But some of the metrics in terms of U. S. Unemployment and credit markets have changed dramatically over the past couple of months.
I guess what gives you confidence that apart from the dislocation that you and others will see in 2Q that this is in fact a pause versus something that's going to have a tail to it with
Yes. So I think in each market, when we look at the drivers of those segments, we look through and understand, we think with a pretty good line of sight on what's going to happen. I think if you look at, for example, in new residential, we feel there's a pause that there's a fundamental need for housing in the country and that while the short term traffic in models and the feedback that we're getting from our large new residential customers clearly indicates some concern with the shorter term. We're not running the quarter I mean running the company to have a great Q2 here and that's it. We're doing the best we can with the cards that we were dealt with in the Q2, but we're looking at the fundamentals and we believe that if you go by segment through our business that there are some very sound fundamentals And in areas where there is some softness, we're not waiting.
We're moving into those areas that offer opportunity. And so segment by segment, we're dissecting our business, understand we have the right people doing the right things to capitalize on those opportunities.
Got you. I might just add to that. And that's partly why the unpredictability about how our segments come out of this and the timing of that. And that's why we, if you will, bifurcated the guidance to say, okay, if we see things start improving in the 3rd quarter and then continue to improve in the 4th quarter, we think flat to down low single digit. But if the true recovery doesn't start until the Q1 of 2021, we're looking at that mid to high single digit down estimate.
So we perfectly understand the uncertainty, but that's why we're giving a range of the timing of when we expect the businesses to come back.
Understood. And then just on the DIY piece that you're benefiting from in the stores group, how are consumers engaging with your associates? I mean, generally, your stores offer a very high touch experience for devices that are for consumers. How are your associates pivoting towards this new reality of social distancing? And then just sort of related to that, are you seeing any from a high level standpoint, are you seeing any specific trends that are visible in terms of maybe DIYPs being a bit more price sensitive in terms of the choice of
because it gives me a terrific opportunity to recognize a wonderful team. We've got a terrific leadership team in Peter Polito and Bill DeSantis and all our division presidents there. But more importantly, as strong as those leaders are, we've got just a wonderful team in our stores and are close to customers and sales reps that are doing a terrific job. And your question gives me just that, the opportunity to thank this wonderful team for everything they're doing. You're right, it's changed things.
We are curbside only, so it's given us an opportunity to leverage some of the investments that we've made in our digital platform. We have orders coming in via the digital platform that we've been investing in with a much greater utilization. So we're excited about that. And I would tell you, we've been inundated with emails and notes and even phone calls from customers that have gone out of their way to comment and recognize our employees and their willingness to work with people. We've begun utilizing a color fulfillment, so customers can go online, order colors and have them into their homes in a relatively short period of time.
And our people in the stores are eager to help these people over the phone to make sure that they're taken care of. And then the transaction takes place, it's a contactless transaction when these customers pull up into our stores and their product is ordered to the back of their car. I don't know, I couldn't count how many points of contact I've had with people recognizing the wonderful service and approach that we're taking. And that's on our stores. I would say that we're blessed with a number of really, really strong and good customers on our consumer brands team and Huttie Pets and Keith Velour, the 2 leaders running that business, have really helped us to try to be as responsive as we can to that important segment and channel to our customers.
And we're trying to instill as much as we can in our learnings from our store side into those customers and vice versa and just really providing solutions to our customers. So we're really excited about this. And I'd say that the trend that we're seeing in our DIY business is exciting on consumer side as well as our stores.
And the pricing sensitivity, please?
Yes. I'd say that on pricing, we continue to see a positive mix in our business. I'd say that much like contractors who recognize that 90% of their projects are labor costs, many homeowners, particularly those that are shopping at a Sherwin Williams store, they're typically willing to pay a little more to get the finish that they're looking for and have it be as productive as possible. So we are seeing a positive mix shift in both the contractor business that we see as
well as the do it yourself.
Perfect. Thanks, John.
Thank you.
Thank you. Our next question comes from John McNulty with BMO Capital Markets. Please proceed with your question.
Yes, thanks for taking my question. I guess, two points. So on the raw material side, down low single digit, just given what we've seen in oil prices and propylene, it seems a little bit on the low side. Can you give us a little bit of color into what you're seeing in the various baskets for raw materials, and how you're thinking about how they trend throughout the year?
Sure. And good morning, John. What I would say is given the significant decline in crude as you point out, we do expect to realize lower year over year raw material costs throughout the remainder of 2020. The full year will be down by low single digit percentage as we talked about compared to our prior estimate of being flat for the year. I think the rate in the second half of the year will depend largely on how the downstream derivatives like propylene and ethylene react to the declines in crude.
And I would say also if demand does not improve through the second half of the year, then we could potentially see a more meaningful benefit. The majority of the benefit year over year is going to be on that resins and solvent side. If you take a look at the TiO2 side, I think we've seen strong demand there in the Q1 and the second quarter, but it's probably too soon to fully understand the supply demand impact and the effect on pricing there. I would say at this point, we do anticipate stable to potentially lower prices for TiO2 in the back half. Historically, weaker global demand has resulted in lower pricing.
But again, I think the decline that we're expecting to see in the basket is tied more on that petrochemical side and it's really going to depend on how propylene and ethylene respond.
Got it. That's helpful. And then I guess in the stores business, so I understand it correctly, you shut down the front part of the store kind of in late March. Is there a way to think about how much sales dipped when you went just to curbside pickup? And just so that we can kind of think about when these required closures and that type of thing and how to think about the snapback, can you give us a little bit of color or anecdotes on that?
Yes, John. It's hard to say exactly how much of a decline we're seeing, but we saw. But in our second quarter guidance, we're talking about the Americas Group down low double digit to mid teen. I think just commentary as we've seen April progress, the weekly sales on architectural have improved week to week from a dollar volume standpoint. As a reminder, April was our toughest comp a year ago.
If you think about how North America paint stores progressed through the Q2 last year, April was a strongest quarter and then it ticked down in May, it ticked down in June. So we were fully expecting April to be our toughest comparison. So that's what makes it a little bit harder to gauge how much is related to the shelter in place and the changes to our sales floor.
John, I would add this though. David Sull here, our COO has got all our businesses leaning forward in a very positive way. So I'm a bit more optimistic, I might say, in the sense that we've come into this business with a pretty strong performance, a strong, cop store sale number. And David has our teams, every one of them, including our stores, taking the activities right now that will help us grow even faster coming out of And so the activity that we have in new accounts and product demos and information, this is probably some of the most aggressive time we've had because we have had some customers on the professional side that have had interior projects that have been delayed. They're not able to get on the exterior projects.
And so it's provided our teams more accessibility to some of these customers. And our new account activity is actually up as a result of this. Our demos of new products are up. So hats off to David and our teams, not only in our stores, in all of them, for what we're doing during these times. And so I get what you're asking.
As these stores close, how quickly do they rebound? Our desire, I mean, really strong desire is to come out of this much stronger than even what we were before.
Great. Thanks very much for the color, guys.
Thank you.
Thank you. Our next question comes from Arun Viswanathan with RBC Capital Markets. Please proceed with your question.
Hi, guys. Good morning.
Good morning. Thank you for taking my question. I wanted to go back to comments you made earlier. I guess you referenced potential for opening 50 new stores this year. Maybe you can just discuss how you see that playing out?
Are there particular regions that you're targeting? And if you could relate that to some of the performance that you saw in Q1 or Q2 that you're seeing right now? Are you targeting areas where maybe you are seeing some weaker performance regionally or is it just under penetrated areas? Thanks.
It varies by division. We are looking at in some areas what we call fill in markets where we have underserved markets in areas that we might have more penetration, but we're missing some gaps. And there's a lot of areas quite frankly that we're just not happy with our performance yet and in the area of market share and our position and we've got a long way to go. And so I'd say it's kind of a balance between the 2. We'd like to take advantage of our position in the market while providing more accessibility to our customers and at the same time we have to get after some of these markets that are underserved.
Okay, thanks. And then just as a follow-up, I just wanted to ask about the Refinish business as well. We all have seen miles driven drop significantly. Maybe just give us your thoughts. You've had some growth recently in the last couple of years, It's a little bit bigger business for you now.
So, could you, just comment on that business and what you see for the outlook there? Thanks.
Sure. You're right. We've seen mile driven down considerably, and we expect that impact could be for another 30 to 45 days following the end of stay at home orders. So a little bumpy right now, if you will, in that business, no pun intended. But our teams are really doing a nice job there.
I think I mentioned last quarter as a bold statement and I stand by it. I think our position in this auto refinish business is as strong as it's been since I've been on this floor of the building here. And I've got a lot of confidence in our leadership in automotive, a lot of confidence in our Performance Coatings team and what we're doing, and I think we've got a lot of determination in this business to outperform. We're going to have to get some cars on the road to be able to see some of that though. I'd say here though as well, if I could, the effort that we have in the connectivity and virtual learning and the virtual demos that our teams are initiating here it's another area that out of adversity sometimes comes the best.
We've had a lot of things that we've been working on that we've been able to accelerate and we believe it's helping to convert some of these customers, some of who were on the fence before, some who had just come online before the pandemic. And again, we expect to be able to capitalize on this as we come out.
And just lastly, I know you had talked about evaluating your business in Australia. Could you just comment on where you stand there and the progress that's been made? Thanks.
Sure. Yes, the virus impact on Australia has been severe as well. We're 100% contactless there. But I'd say that we've started to address to your question our SG and A and our position long before the pandemic. And I'd say that our adjustments not only in Australia, but I'd say in Europe, even in Asia.
If you look at Europe, we had a 70% flow through on our business there. Australia, we've taken we think the appropriate SG and A steps there as well as in Asia. Prior to the pandemic, we've, I believe, right sized some of the business there and we've made some very difficult decisions in some areas and we've invested in some other areas to be able to capitalize on our growth. So I wouldn't limit it to just Australia. I think we're taking what we believe to be the appropriate aggressive steps for these businesses to drive the operating margins.
We've said time and time again, we're constantly looking at programs, we're looking at brands, we're looking at businesses, even stores, every element of our business. It's helping us reach our goals, we want to put our foot on the gas. If not, we're making difficult decisions.
Great. Thanks.
Thank you.
Thank you. Our next question comes from Steve Byrne with Bank of America. Please proceed with your question.
Yes. Thank you for taking my question. I was curious about your North American consumer business. Your guidance for 2nd quarter is quite robust. Is the trend that you're seeing in April representative of your outlook for the Q2, I.
E, are you seeing that
strong of
a volume growth during the month of April?
I would say unprecedented growth in April. I'd agree
with that, Steve. And we really started seeing a kick in about mid March. Mid March. And that trend has not only continued, but accelerated into April.
And David Sewell made some comments about trimming the sales force or the personnel in the TAG group in his remarks, can you just comment on what you expect SG and A to be in the Q2 versus the first?
Yes. We are not trimming just to be clear, we are not trimming personnel in our tag organization. In fact, we'll continue to invest, as John talked about, in new stores. We will see the trend in SG and A decline in our second quarter because of the sales shortfall. We probably won't see the percent of sales improve, but the steps that David talked about in our contingency planning, they're material.
And as he talked about, as we see demand and the trends in demand develop, We have other levers ready to go, the Polish if we need to, but we are not going to be cutting our stores organization.
Yes. Steve, maybe just to make sure, I'm not sure what you may have picked up or the way we may have said it, but we're always looking at our investments and there are times in our normal business that we're we might be skinning down in an area and investing in other areas. But I think the idea that is important to hear is our stores business is a very sound fundamental business that we expect to put more gas in that tank every chance we can.
And if I could just squeeze one more in about housing start, are your contractors indicating to you that it's a slowdown driven by delayed permitting or are they also seeing any problems with labor?
I don't know that the labor issue is coming up right now. I think the let me go back to the very first part of your question. We don't think that the fundamentals have changed, and neither has our position in that market. We feel the gap in the Sherwin Williams value proposition is wide and I'd say it's growing wider. If you look at rates and this may go back to the question Ghansham asked as to why we have confidence.
If you look at rates are low, housing supply is limited and while there's some short term impact to the business, we feel as though the fundamentals are still there. I'd remind you that we have an exclusive relationship with 18 of the top 20 nationals and from the regionals where we have the opportunity there, we have an exclusive with 73 of the top 100. So there's more opportunity there for us to leverage. And I would tell you that the value that we bring in distribution, our reps, the products, the even the design tools and local training are really areas that we're focusing on. And so I'd say our customers right now for the most part are dealing with the short term, but I would tell you the discussions that we're having with them, in fact, last week alone, we had discussions with top all top 10 builders that reached out to us wanting to ensure of our supply chain and our capability to serve them.
And I can assure you we're ready, more than ready to serve them. That's part of what gives us confidence. Yes, there's going to be some bumps in the road in this quarter, no question, and maybe rolling a little bit into the Q3, who knows, but we've got terrific relationships. We're going to be right there with them and no one has the responsiveness to serve our customers like Sherwin Williams. Thank you.
Thank you, Steve.
Thank you. Our next question comes from Bob Forte with Goldman Sachs. Please proceed with your question.
Thanks very much. I want to say thanks to Al or Jim, whoever's idea was to give the sub segment data in the slide deck. I think
it's very helpful and appreciated.
I'll give Eric Swan a lot
of credit for that.
I wanted to ask about the CapEx reduction. It's a pretty dramatic decline. I know you mentioned, John, only 50 new store openings, which maybe is about half of what is typical. Is that the bulk of that decline or where else are we seeing the CapEx reduction?
Yes,
Bob. Within our global supply chain, we are pairing back some of the capacity projects that we had scheduled to start this year going into next year, I would tell you that that decrease of 140,000,000 dollars What we'll do throughout the year is monitor again how the demand trends are developing. And as we see, for instance, our stores architectural start building back up, we'll turn some of those back on. It's the timing that causes the delay, but I think the $140,000,000 would be kind of your MAX case. And then as we see things turn around, we'll start investing back in our plants and our distribution centers and the automation to help with our continuous improvement projects and operating efficiencies and things like that.
And I'm sorry if
I missed it, Al, but you gave some guidance on the 2nd quarter tag sales. Did you comment on what the daily receipts in April suggested? We were thinking down 30% or something pretty acute and then moderating. Is that reasonable?
Actually, our receipts have held up pretty well. I think maybe as you get into early May, we're going to see a gap, but then start improving as we get towards the second half of May and into June. Because as I mentioned, as we look at progress on our weekly sales, that keeps improving. As we are staying close to our customers, we're not getting a lot of concern about bad debt or solvency of our customers. So right now, as we look at it, I do expect a little bit of slowdown here in early May and maybe mid May, but then start picking up again.
Great. Thanks for the help. Thanks, Bob.
Thank you. Our next question comes from P. J. Juvekar with Citigroup. Please proceed with your question.
Yes. Hi, John, Al and the team, good to hear from you.
You too, PJ.
How much of your how much is your online ordering up in the quarter from contractors or DIY? And how much of these orders are curbside pickup versus delivery? And longer term, do you think that's a new trend that will remain in place post COVID?
So you're probably not going to like these answers other than online is significant. Curbside versus delivery, I'd say the largest part of our I'd say it's probably on the contractor side pretty evenly split. Obviously, the do it yourself curbside is delivered right outside of our stores. And I would say regarding the future, yes, we want our customers using this system. We believe it helps in our customers' efficiency.
We think it helps our efficiency. It allows us to be a better partner to them and allows our customers to move seamlessly through our business
and really begin utilizing the tools and resources that we have much better. Yes. P. J, it remains to be seen that curbside has staying power. I think by and large, when you look at our residential repaying contractors, they like the interaction with our stores.
They like the interaction with our reps. On the DIY side, I think there some color counseling that they like to get while coming into our stores and currently they're really not getting that interaction. So we'll see. They may have some staying power, but I do think there's a lot of interaction and support they get from our stores on making recommendations on colors and different things like that.
But I might add though, PJ, the curbside aspect of it, we think that has legs and that will continue. It's one of the outtakes that customers enjoy in some cases the ability to get in and get out. The majority of the customers that come in in the morning, start their business, have their crews at our stores can still do that and those that want to come in and zip out, we'll offer the best of both.
Okay. And just related to that, let's say in the future, it's an online order followed by delivery. Does that lower barriers to entry in the business? Or is it an advantage for you because you have a local store and you can get there faster?
I'd say it's a huge advantage to us. It's really no different when you think about it. If the customer picking up the phone and requesting an order and having us deliver that product to them, it's really no different from that aspect. But I would say that we really enjoy this store platform that we have and the ability to do both the multi point distribution capability, we're 30 minutes from you anywhere. And our ability to deliver in quick turnaround or with quick responsiveness, we think is important.
But it's also a foundation we believe because those customers that are in every morning, they're building a partnership with our employees. There's a loyalty that grows. And I'd say that loyalty grows both ways. It grows with the customer to Sherwin and Sherwin to the customer. And we think that distribution is 1 and albeit one very important aspect of the stores.
We really value our role in our customer success and I'd say we may value it more than others because we have a terrific relationship with these customers. But I'd say these are valuable and important in building the partnership and that partnership includes problem solving for the customers, training, job management, helping them really run their business and it evolves. It evolves from just a transaction to a strong relationship. And I would tell you 35 years ago when I was in a store, I built some of those strong relationships. And unfortunately about a year and a half ago, I lost my mom.
And I would tell you, I was shocked when I went back home and found a few contractors that I served when I was a store manager that came back and spent time with me there. I think I share that story because I think it captures the essence of what we do in our stores. We build strong relationships and they last and delivery is important, but we do a lot more than just deliver.
Great. Thanks for the color.
Thank you, P. J.
Thank you. Our next question comes from Vincent Andrews with Morgan Stanley. Please proceed with your question.
Thanks and hi everyone. Glad everyone sounds well. Just want to ask on the Americas Group guidance for the Q2 and the rest of the year. We've talked about this on prior calls, but you've clearly been gaining a lot of market share. And by my estimation, in the Q2, you kind of lap that step up in share gain that really started to take hold in the Q2 last year in that really bad weather period.
So when you think about what you're telling us about 2Q and what you're telling us about the balance of the year, is that reflective of sort of how you think the overall do it for me or general pain industry is going to do? Or are you still baking in that you're going to continue to gain share even though the comps are maybe getting a little harder?
We're going to gain share. We'll be very clear on that. We're going to gain share and we're just getting started. I look at what's happening and what we're doing during this time and the work that leadership team and what they're delivering and I'd tell you, we've got the best people in the field, the best store managers, best reps, they've got great resources and we're making investments, Vincent, during these times that we expect to come out as pretty strong.
Yes. And Vincent, when you look at those we look at it at the long term and we got an SG and A question earlier, but as we keep adding reps, we keep adding stores, we invest in the product innovation and e commerce platform. This gives us the confidence that we'll exit the environment and position better to grow multiple in the end market. And to highlight that point, this is similar to what we saw coming out of the 2,008 and 2009 recession. And I'll highlight for you, the 3, 5 10 year compounded average growth rate of architectural sales in our North America stores grew at a high single digit rate in each of those three categories, which we believe was a multiple of the end market, and we believe the same dynamics are in this situation.
Yes. No, that makes sense. Glad to hear you guys are leaning into it. As a follow-up, one of the other things we've talked a lot about over the last few years, when we had a low unemployment environment, it was a bit challenging in periods where there was pent up demand from bad weather to prosecute that demand. But obviously, we go through the summer, we're unfortunately going to have some pretty unattractive unemployment numbers.
And I'm just wondering, have your customers talked to you about they're actually able to go out and hire more painters now, and so maybe we will see a benefit from that at least for some period of time over the next few quarters?
We might. I think it's a little bit early for that, but we might. And again, that's where I don't want to feel like I'm preaching on this store platform, but I mean, if our customers are hiring people that might be less skilled or less experienced, that's where we can shine for them. We work with those customers. If it's the products that we provide and the rheology that we use in our products to make sure that they flow and level better than others, the touch up, the fact that we own our own colorant to allow that the touch up is easier and better, all of that allows maybe a less experienced or less skilled or growing in skill maybe painter to be a producer for our painting contractor.
So we like this type of environment where we can shine, and that's what we'll continue to really try to leverage as we move through this process.
Thanks very much, guys. Appreciate it.
Thank you. Our next question comes from Mike Harrison with Seaport Global Securities. Please proceed with your question.
Hi. Good morning here in Central Time Zone, but good afternoon, guys. Wondering, John, if you can quantify how many of your stores are closed in North America right now? And are those all situations where you've been restricted by the government? Or are there situations where you have a handful of stores and you've decided to consolidate business from that handful into 1 or 2 locations?
Yes, Mike, let me have David Sewell answer that one.
Yes. Hi, Mike. Right now, we probably have close to 30 stores in North America that are closed. Those are all those stores are due to government mandate. The team is doing a really nice job in trying to fulfill orders and deliveries from other locations that are open.
And then, Aztec continues to hopefully open up, those stores will immediately open up when the government allows.
And also was wondering a little bit about the cadence of demand from contractors as we're probably going to see some slowing in existing home sales and some of these commercial projects may get deferred. Your competitor yesterday talked of a coming air pocket in some of that commercial business in particular. Is that something that you see as well or do you think it's going to be steadier?
I think there is structures coming out of the ground right now. And while there is some delay in getting on those, one, because of the stay in place or stay home and the other in some of those areas where they're allowing workers to come in with restrictions. So there will be likely some delay in those, but our customers are still feeling good about those. The other thing I would mention is we track very closely requests for specs, for colors, for data sheets, all things that we look at as data points and helping us to understand kind of the trend. And they're very strong.
And so we think short term there's going to be some bumpiness in this quarter. We get that. Again, 2nd quarter is going to be a challenge. We're going to get through that. And as our contractors and our specifiers and our architects are working on projects, we're going to be the ones right there with them helping them.
All right. And then, just quickly, you guys introduced this microbicidal paint a couple of years ago, PaintShield. Has that been tested for effectiveness against this coronavirus? And are you getting increased interest in that product for either commercial or residential applications right now?
We do, but it's not a virus. It's not a coating that kills virus. That is a micro microbial, very easy to say. So it will kill some bacteria, but it will not kill the virus. Now that said, we've had an interest as overall health and well-being, the concern of ensuring that you have as safe an environment as possible has helped us in this area and we do have more interest on that product.
All right. Thanks very much.
Thank you. Thanks, Mike.
Thank you. Our next question comes from Kevin McCarthy with Vertical Research Partners. Please proceed with your question.
Good afternoon. I was wondering if you could speak to the price contribution embedded in your same store sales growth. I think you had an increase of 3% to 4% on January 1. Perhaps you can enlighten us as to how much of that has been realized at this point?
Yes. Kevin, that price increase is gone as expected, and we've realized just under 2 percent of effectiveness in the quarter. We do expect that to get a little bit better into the Q2, but progressing as planned.
Very good. And then secondly, Al, with regard to capital allocation, I think you paused share repurchase activity. Is it safe to say that M and A activity is likewise paused for some period of time or how would you characterize level of interest for bolt on or larger acquisitions at this point?
Well, we have a lot of interest the acquisitions. I think what we're continuing to do is work with the teams on generating the targets and filling our pipeline. Obviously, in this environment, it is challenging. That being said, I feel very good about our liquidity, the amount of cash we generate. We have $2,500,000,000 in available liquidity sources.
We've done a lot of work pushing our near term maturities out. So I feel very good about our balance sheet and our capacity to make M and A. As we come out of this and we see some of these targets maybe coming to the market. So I feel very good about our position.
Okay. Thank you very much.
Kevin.
Thank you. Our next question comes from David Begleiter with Deutsche Bank. Please proceed with your question.
Thank you, good afternoon. John, Al, how should we think about decremental margins in your various businesses in Q2 here?
Yes. When you say decremental margin with all the businesses except for our consumer brands being down, What I think you see is all the actions that these groups have taken in continuous improvement. I point to our Performance Coatings group who as we saw demand through the second half of last year slowing, they really have done a nice job controlling costs, improving even how their operations are and you saw a nice pickup in their Q1 operating margin was up. So I think the way I look at it is all the actions that we've taken coming into this and all the actions we're taking now, I would not expect to see it's not a dollar for dollar decrement, if you will. I think you're going to see us do better than that.
How much? Obviously, it depends on volume. But I think we've done and taken the right action.
Yes. I think if you look at that business, particularly the Performance Coatings Group, strong leader Aaron Erter and Ed Thompson there that are for the last over a year period have been really driving and have a wonderful leadership team beneath them that are really driving expense reductions down to be in a position to leverage everything that we can here. So I think there's been a lot of good work and it will only continue.
And John, just in Consumer Brands, very strong results. Are you gaining share in this business or just the underlying growth of the market as we see it right now?
I think it's early to tell. I think right now we're working very hard to be the best supplier we can and as data comes out we'll know better. But right now, we're trying to build the brands, the products and make sure that we're servicing our customers better than anyone else could.
Our next question comes from Truman Patterson with Wells Fargo. Please proceed with your question.
Hi, good morning everybody and thanks for taking my questions. Glad to hear you all are safe and healthy. So John and Al, you all have touched on this quite a bit, but I'm hoping to ask it a little bit differently. In the Americas group, you're expecting the 2nd quarter sales to be down low double digits to mid teens. And then for the full year, flat to down mid single digits.
At the low end of that full year guidance, I think it implies that revenues improved to kind of a mid single digit decline in 3Q and 4Q. Could you just walk us through how you all are getting there and maybe some of the assumptions that you're making that even at the low end we're going to kind of improve versus the second quarter?
Yes, Truman. As we start seeing and where this is really going to kind of come in is as we start seeing states start opening up and the shelter in place executive orders are removed and job sites started opening up more and we can get back to work. I think as that progresses through the quarter, I expect to see improvement in the trends and the weekly sales rates. And then when you get to the Q3 and the Q4, I expect that to continue. Exterior, even in the Q2 coming into the Q3 on res repaint, there's opportunities as John talked about.
I mean there are commercial projects that are in place today that need to get painted. There are housing units in place today that need to get painted and we expect those to happen here. It's just timing. So and as we carry the additional stores and reps that we've put in last year that we're putting in this year, you would expect the ramp up as we get through the 3rd Q4.
Okay. Thank you for that. And then on the Performance Coatings demand, you're expecting it down high single digits to low double digits in 2020. Could you just give us an idea whether you're seeing any of the pricing contracts start to soften, especially in the face of a lower raw material environment?
Yes. Truman, let me just jump on the pricing. The amount of sales we have indexed or pegged to an index is probably less than 10% within Performance Coatings, it's less than 3% overall. I just think you're historically, architectural side of our business. Asia Pacific, which is by and large back to work, is slowly coming growing.
But I think you'll see China in particular pick up a lot faster as the U. S. And European economies start getting back on their feet. Our business has a significant component that's export related. And then it's just what do you think Europe and Asia or I'm sorry, Europe and North America, how we come out of that.
So it's going to be a little choppy across businesses, across geographies. But like we talked about, I mean, packaging is going strong. We expect that to continue as we get back to work and people driving their cars. We'll start seeing auto refinish pickup, as John mentioned. So I just think the cadence is a little bit slower than architectural.
Okay. Thank you all.
Thank you, Truman.
Thank you. Our next question comes from John Roberts with UBS. Please proceed with your question.
Thank you and glad you're all well. You gave us some June quarter sales guidance, but not earnings guidance. Where in your cost structure is the most uncertainty that you can't flow that through? Is it in labor cost or the stores cost or raw materials? What are you most uncertain about there in your cost structure?
John, we haven't we've given sales guidance only in 'eighteen through 'eighteen and 'nineteen. I saw no reason to start giving EPS quarterly guidance now. I don't think there's uncertainty around our cost structure. I think the plans and the actions we've taken to reduce our costs, reduce our discretionary spending, hold open items, all are going to impact the Q2. But we're not managing the company for the second quarter.
We're managing it for the long term and we're really looking at the recovery coming out of the 3rd Q4 and really drive a momentum into 2021. That's what we're looking at.
And then the comment earlier on the raw material basket being down low single digit percent, I assume that's a price index for the raw materials. Do you have significant inventory of raw materials to work down that your dollar purchases of raws will be down more than that low single percent?
John, really the vast majority of our dollars are in bulk tanks at our factories. We're not buying ahead of any material nature. We're staying close to our suppliers and making sure they're able to service us. And in particular, I would say the team has done a very good job of managing this rapidly increasing unprecedented DIY demand. I think they're re retrofitting plants, they're moving products around to build capacity and our suppliers have done a terrific job making sure we have the raw materials needed to keep up with that demand.
And I think our procurement teams and our global supply chain team need to get a lot of credit for that. But no reason that we would be buying ahead on raw materials.
Okay. Thanks. Stay well.
Thank you. Thanks, Arne. You too.
Thank you. Our next question comes from the line of Garik Shmois with Loop Capital. Please proceed
Just wanted to be clear, just on the 2Q consumer brands guidance, does that include the ACE exit and I guess software Asian fundamentals? Because if it does, it does seem that the retail piece is running mid teens, if not better, if I'm not mistaken.
Yes. It does include both of those. Just one comment on the ACE business that we exited, because we're getting towards the end of that agreement. I mean, we are shipping ACE the final, I would say, inventories of the private label in this quarter, it will be all done. So I would say that from a quarterly standpoint, the second quarter is probably the least impacted and then Q3 will get back a little heavier and then Q4 will moderate a little bit just because it's small quarter.
And it does include Asia as well.
Great, thanks. I just wanted to also follow-up, just on a comment earlier around exterior here in the Americas gaining momentum. Just wanted to see, is this just seasonal or are you seeing an increase in contractor backlogs, as kind of driving some of that momentum that you identified earlier?
Well, I think it's a number of drivers. I think certainly seasonal when you look at sequential improvement, there's a piece of that. I'd say that our teams are doing a very nice job of really focusing on this business through contractor relationships and as well through product technology. In fact, you may recall last quarter I talked about a product, this FlexTemp. We're having really good feedback and interest from residential customers as well as new residential.
This is a product that can be applied down to 35 degrees or up to 120 degrees without sacrificing performance or application. And so it's that type of innovation along with the service and the relationships that we're building in our stores that has us believing that we're going to grow here and outpace the market.
Thank you. We'll move on to our next question, which comes from the line of David Bellinger with Wolfe Research. Please proceed with your question.
Hey, good afternoon. Thanks for taking my questions. Hope everyone is staying safe. Comparable sales again very strong here. Can you just talk about what you were seeing early in the quarter from an underlying demand perspective?
It seems overall housing metrics were improving at a pretty good pace. And regarding early trends into Q2, how long do you think that the DIY performance, the outperformance there can hold up? Is there some potential pull forward in demand out of the back half of the year?
I'll take a first run
at this and then let Al jump in. When you asked about our run early, I would say life was really, really good. We were having we thought this was the year and we still again feel the fundamentals are there, but we were smoking. On DIY, I'd say and Al, you can come back, Ed, if you want to add anything on that. DIY, I'd say that it's hard to say if you're pulling forward.
There might be some of that. We'll have to see how it unfolds. When you think about the professionals that are going in and doing homes, oftentimes what you'll find is DIY customers more willing to take on projects like small room, bedroom, living room, whatever, not typically 2 story foyers, oftentimes exteriors off limits just because the scope of the work there with scaffolding and the work that goes there. And you want to try to complete a project. Those projects typically take a longer time.
So DIY consumers are typically more focused on smaller, more manageable projects. And what you see is a lot of activity right now. And quite frankly, we like it. We think that the idea that not just the short term benefits of having customers purchasing product, but the idea that customers are enjoying the benefits of a repaint, we think is a positive longer term. These customers can get an idea of the impact that a relatively low cost investment can have on their home and certainly their mental well-being in a time like this when a lot of people have a lot of anxiety and stress, it's relatively inexpensive.
Some of them they'll tackle themselves and if some of them down the road painted painted as well, then that might carry over as well. But we'll have to see if it's
a pull forward if we mortgage some of that or not. Yes. I think it will slow as people get back to work. And if unemployment ticks up, we don't expect to see a continued surge in DIY. And we're also monitoring on the resi paint side.
We believe and again, we'll see how this plays out, but by and large that the people that want to do a DIY project aren't going to hire a contract. The people that tend to hire painting contractors to do the work are going to continue to hire painting contractors. We're not expecting a big hit in our res repaint due to the surge of DIY. And certainly on exterior, as we talked before, typically those are going to be done by painting contractors.
Got it. That's all very helpful. And if you tie your comments there into what the pricing increase is planned throughout the year. Has there been any data suggest to suggest customer push back on higher pricing in this environment? And how is that shaping your thinking towards further pricing opportunities from here?
Thank you very much.
It's not impacted as we can see right now the choice of products. In fact, as I mentioned earlier, we are experiencing a positive mix shift in quality. And just like we have in the past, we get together monthly as a management team, review our total cost basket and we make decisions on a monthly basis. When we do that, we talk to our employees, our customers and then we share it with the financial community. All right, Jesse, I think we're ready for the next question.
Thank you. Our next question comes from Rosemarie Morbelli with G. Research. Please proceed with your question.
Thank you. Good afternoon, everyone, and thank you for hanging on for me. I was wondering if you one area we didn't talk about really is Latin America. Could you give us a feel for what is happening there in terms of the demand, the shutdown, if any, or the lack of shutdown actually, which may create more issues going forward?
Sure, Rosemarie. I'd say Chile is likely maybe best described as the closest to having normal operations. I'd say Argentina and Ecuador for the most part are closed for most intent. In Mexico, about 60% of our stores are operating normally and roughly the balance are running on curbside or got a small, very small percentage closed, but for the most part, it's split between the normal and curbside. And then Brazil, I'd say roughly about 34 of our stores are closed and the remaining open about which is about 53%.
Those 53 represent over 70% of our gallon. And so that's through our own stores there. If you look at our business through our dealers, about half of our dealers are closed and about 60% of the home centers are closed but offering delivery only.
So a little bit of a mix in Brazil. And Rosemary, I would just add, in the Q1, if you look at the impact of FX on our Latin America team, it was in the mid teens embedded in our Q2 guidance is that I'll accelerate because we continue to see the devaluation in the real, the Argentine peso, the Mexico peso. So that's going to be an additional drag on those businesses in the second quarter.
So in the past, you used to give us a number of stores America and in North America. You have now put them both together. Are you still closing down stores in that region?
Last quarter, we did close 8 in Latin America. And I think this goes back, Rosemary, to the point that I made earlier about our ongoing, I call it a pretty rigorous review of businesses, brands, customer programs, other investments. And we've closed 8 and those were in areas that were persistently soft markets. We've got a terrific leadership team down here as well and David and that team are working closely together to evaluate every one of these operations. They're going to stand on their own or they make tough decisions, and we've made some tough decisions.
And we'll continue to look at that business. We want to continue to grow that business. There are some dynamics in that market that make it a little more challenging, but we've got a lot of upside potential we should be gaining as well.
And then lastly, if I may, can you talk about a little bit about any changes in the competitive environment? Everyone is trying to gain share. Everyone is trying to offset the impact of the pandemic. Can you give us a feel for what is going on in the marketplace?
Are you talking about just holistic though in general or?
Yes, in general, but if you can look at the different areas you are doing business in.
Yes, would be hard to do that for every part of the company in every region. Maybe I could make this statement that we have a lot of respect for our competitors. We have very good global competitors and we've got a lot of really good regional competitors. Everyone's business is different. These are really challenging times.
We're going to do what's right strategically for us and our customers through our strategic vision and model that works for us and other companies may be taking a different path. But we have a lot of respect for them And it keeps us motivated and driven. It's a healthy paranoia, if you will, because good competition makes you better. We've got a lot of really good competitors.
Okay. Thank you very
much. Thank you.
Thank you. Our next question comes from Greg Nalish with Evercore ISI. Please proceed with your question.
Hi, thanks guys and thanks for getting through all these questions. Really helpful now. 2, one was on pricing. You mentioned architectural. Could you talk about Performance Coatings Group, the pricing environment there, given everything that's gone on?
And then I have a follow-up on stores.
Greg, as you know, we've kind of been chasing the price in raw material through 2018 2019. So we did go out with selective price increases in the first early in 2020. I talked about the small number of contracts we have on indexing. But I think the dynamics within our Performance Coatings group are similar to the dynamics that we talk about in our architectural and that is we continue to invest in innovation that helps our customers be more effective, more efficient, drive faster line speeds on their manufacturing lines to drive their total cost of application down. And it's really what we're looking at to move off of just price kind of cost metrics.
And I think that's important to continue to focus on and we'll continue to do that and continue to expand our services to our customers to drive growth for the both of us.
Yes, help them make more money, help them achieve their goals, help solve their problems, everything we can do.
That's great. And then second on the stores business, what percentage of the orders are you now taking via e commerce, whether it be the app or website as opposed to just, I guess, a phone or a walk in order? And are there any products that your customers, especially new accounts, are asking that you added the assortment in this environment where you can really leverage the stores network?
Regarding the online, I would say this, Greg, it's a growing, it's a high percentage growth, but it's relatively low overall. So while we're excited with the percentage, it's off of a relatively low basis as we're really now getting behind this. Expect that to continue and we're going to come out of this better as a result of it. As far as products that our customers are asking for, yes, there's some and we're looking into them. We'd like for you to find them on our shelf before we talk about that.
All right. Sounds good. Good luck, guys. Thanks.
Thank you. Very good. Stay safe.
Thank you. Our next question is from Jeff Zekauskas with JPMorgan. Please proceed with your question.
Thanks very much. Are the social distancing practices of Sherwin Williams uniform across its store network or are they different in different states? And how do you expect them to evolve from now to the end of the year? Will the state set your guidelines or will you set them?
Hi, this is David. Thanks for the question. We have some standard protocols that we follow for social distancing. As our stores come back, the team has done a phenomenal job. There will be details on floors.
We'll be guiding walkways. So it's a little different dynamic than say at our manufacturing plant where Joel Baxter and his team have done a great job ensuring strong social distancing practices. We follow CDC guidelines at a minimum. We have some healthcare professionals that we can pull with as well. So we take that very seriously and we try to go above and beyond everywhere we can.
Okay. When you think about the next year or 2 in terms of the value of paint, we're going to go through a period where raw materials are going to come down quite a lot. The consumer is going to be distressed. The contractor market is going to be much looser. Now Sherwin really likes to price for value as do many coatings companies.
Do you think we're going to go through more of a deflationary period in terms of product pricing in paint with raw materials coming down and the margins being good? Or do you think we're going to have more of a continuation of the pattern before the recession where there would be intermittent general price increases as a base case?
Yes. Jeff, I think an important element to keep in mind is the cost structure of a contractor. When you mentioned the Sherwin stores, 90% of the cost of goods for a painting contractor is labor. And so our focus is on driving the efficiency and productivity and profitability of that customer through innovative products and services. And we'll continue to invest in areas that will help them to do that.
And we believe in turn, our position with that customer improves and improves from a loyalty, usage and acceptance standpoint. And so it's not our intent. We know we have to be competitive in the marketplace at the price of entry, if you will, into the market. We'll continue to ensure that we're competitive, but we'll also be making those investments we think that will help justify the price that we're charging our customers.
Yes. And Jeff, I think that's a very important point. By continuing to invest in that innovation and making the painting contractor more effective where they can get more jobs done, the same number of people makes it paint such a small portion of their cost. But I would point to 10, 11 and 12, when we saw the big run up in cost, raw material costs and they rolled over and we by and large held our price 13 through 16 and we saw a nice improvement in our gross margin. But you can only do that if you're continuing to invest in products and services that are going to continue to help the painting contractors make more money.
Yes. You can't offer commodity products and services and ask for specialty store margins or pricing. Okay.
Thank you so much.
Thank you, John. Stay safe.
Thank you. Our next question is from Christopher Perrella with Bloomberg Intelligence. Please proceed with your question.
Hi, good afternoon. Quick question on inventory levels with the rapid drop in demand and naturally you guys building into the spring for robust business. I think Al touched on this a little bit. Where are your raw materials standing? And what to the best of your estimate is the working capital impact in 2nd quarter?
Yes. So, Chris, we I think did a very good job of managing our inventory. And I would just say that the raw material inventory is a much smaller part of our overall inventory, but we did a much better job, a very good job of managing inventory down where we saw weakness in demand and that helped contribute to the 151 $1,000,000 improvement we saw in working capital in our Q1. I think you're going to and we do and did build architectural inventory to what we had planned coming into the season. As we're seeing a little bit softer or we're seeing softer sales in our tag group.
We're still seeing, like we talked about, that unprecedented increase in the DIY through the home center channel. So you've seen a switch and I talked about it earlier about our global supply chain. I mean we're building and producing every gallon we can and we're continuing to look and work with our customers on getting the right products made, getting the right products and inventory into the store shelf, both in our stores and with our retail partners. So it definitely varies. Packaging, we're building inventory as much as we can across all the regions because we continue to see strong demand.
But I can assure you we'll continue to manage our inventories lower and we've done a lot of different things. We've cut we have more communication between the selling organization and our supply chain. We've cut batch sizes. We've cut safety stock. We've gone to more of a make and ship model in some cases versus make to stock.
So there are a lot of levers that we've pulled and we'll continue to pull as we as the demand environment unfolds.
All right. And one quick one, with the implied sales with the sales guidance for 2Q, is there any implied channel drawdown in your performance business? Or is that all basically straight volume out of your factory to the customer?
It's all volume out of the factory. So again, I think those markets in particular, the team has done a nice job driving inventory down, so it's just more out of the factories.
All right.
Thank you very much.
Thanks, Chris.
Thank you. It appears we have no additional questions at this time. So I'd like to pass the floor back over to management for any additional concluding comments.
Thank you, Jesse. This is Jim Jay. I just wanted to thank everyone for their questions and interest today. And I hope it came through very clearly on our confidence and determination to manage through this near term as we go forward. Before we sign off today, I did want to do a housekeeping note to all of you.
We will be postponing our annual financial community presentation, which was scheduled for June 3 in New York City this year. It's our intent to reschedule that event, hopefully later this year. We don't have that date yet, but as we have details, we'll let you know whether that's going to be a virtual presentation or not. So thank you. As always, I, along with my colleague Eric Swanson, will be available for follow ups.
Please contact Natalie Darr in our office to be added to the queue. And thank you. Have a great day.
Ladies and gentlemen, this does conclude today's teleconference. Once again, we thank you for your participation and you may disconnect your lines at this time.