Good morning. Thank you for joining The Sherwin-Williams Company's review of first quarter 2020 results, and our outlook for the second quarter and full fiscal year of 2020. With us on today's call are John Morikis, Chairman and CEO, David Sewell, President and COO, Al Mistysyn, CFO, Jane Cronin, Senior Vice President, Corporate Controller, and Jim Jaye, 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 two hours after this conference call concludes, and will be available until Wednesday, May 13th, 2020 at 5:00 P.M. 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 statements speak only as of the date on which such statement is made. 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 Morikis.
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 Jaye, our Senior Vice President of Investor Relations, for some short comments on our first quarter 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 Mistysyn, 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-19 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 million have filed for unemployment benefits in the U.S. alone since mid-March, and other geographies also remain 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 wellbeing 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. Before moving ahead, I'd like to thank our team again for remaining focused and delivering on our first quarter plan even as the COVID pandemic began to impact us. Let me now turn the call to Jim Jaye 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 first quarter of 2019 unless otherwise stated. Overall, Sherwin-Williams delivered a strong first quarter that was in line with our expectations. With year-over-year improvement in sales, gross margin, profit before tax, EBITDA, diluted net income per share, and net operating cash. First quarter 2020 consolidated sales increased 2.6% to $4.15 billion, and consolidated gross margin increased to 45.6% from 42.9%. Consolidated profit before tax increased $93.4 million- $392.3 million. Diluted net income per share for the first quarter 2020 increased to $3.46 per share from $2.62 per share.
The first quarter of 2020 includes acquisition-related amortization expense of $0.62 per share, and the first quarter 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, first quarter adjusted diluted earnings per share increased 13.3% to $4.08 from $3.60. Adjusted EBITDA increased $48 million to $623.1 million, or 15% of sales. Cash from operations was $54.9 million, an increase of $91 million year-over-year in the quarter. As is typical for us in the first quarter, 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 two 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 floors 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 environments 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 frames. 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 hundreds of thousands 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 second quarter from a comparison perspective, with some gradual improvement as the quarter progresses.
Whether the recovery gains momentum in the second half of 2020 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, first 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 subside, 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 home building 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 is about a 90- 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 second 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 double-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 headwind, 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 second quarter. Our expectation is for these businesses to slowly return to more normal activity in the third quarter 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-BPA 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. I'll turn the call over to Al Mistysyn, 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. Good morning, everyone. We anticipate the negative impact of COVID-19 on the U.S. and global economy will most likely continue through the second quarter. 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 second quarter 2020 consolidated net sales will decrease by a low to mid-teen percentage versus the second quarter of 2019. Looking at our operating segments for the second quarter, 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 third quarter 2020 and continue improving through the fourth quarter, 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 first quarter 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%-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 sales, we are revising our diluted net income per common share for 2020 to be in the range of $16.46-$18.46 per share, compared to our previous guidance of $19.91-$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 $19-$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 31st, 2020, we had $239 million in cash and $2.5 billion of unused capacity under our revolving credit facility. At the end of the first quarter, 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 first quarter, 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 $151 million. 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 million of 10-year notes at 2.3% and $500 million of 30-year notes 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 million of 2.75% notes due in 2022, and will also be used to pay off a $429 million two-and-a-quarter notes that are coming due in May.
Our next long-term debt maturity in 2021 is $25 million. In the first quarter, we repurchased 1.7 million shares of our company stock and increased our quarterly dividend by 18.6% 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 plan to reduce spending and conserve cash. As part of those plan, we are lowering our full year 2020 capital expenditure forecast from $320 million to $180 million, 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&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 question.
Thank you. We will now be conducting the question and answer session. Our 1st question comes from Chris Parkinson with Credit Suisse. Please proceed with your question.
Great. Thank you. Good to know everybody's doing well. 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, from what you're seeing in April. Are there any differences between, for instance, the Southeast versus the Northeast? Thank you very much.
Thanks, Chris. 1st, I would say regarding the DIY business, as we mentioned in our prepared remarks, the nesting phenomenon, if you will, of our customers, largely the result of their spending more time at home. 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, we think those are still intact. Those are the aging demographics, the home appreciation, the aging housing stock. 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. We're working hard to serve them as well. As it relates to your next question regarding the, what was it? Interior versus exterior. Both were up double digits in the first quarter. 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. 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. 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. 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 a great color. Also, just, as a corollary of that, can 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. I'd say in P&M, we mentioned that represents about 40%. I'm sorry. Oil and gas represents about 40% of our P&M business to our stores. We have a very strong position there. I'd say that the oil price has had an impact primarily in the upstream business where your offshore, shale, et cetera, 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 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, flooring. 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 to make them happen.
Thank you.
Yep.
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.
Morning.
Morning. Hey, John, just kind of picking up on the last few comments. Your comments, you're viewing this as sort of a pause in demand versus necessarily a destruction in demand. Some of the metrics in terms of U.S. unemployment and private 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 seem to Q2 that this is in fact a pause versus something that's going to have a tail with it?
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 company to have a great second quarter here, and that's it.
We're doing the best we can with the cards that we were dealt with in the second quarter, 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. In areas where there is some softness, we're not waiting. We're moving into those areas that offer opportunity. Segment by segment, we're dissecting our business, understand we have the right people doing the right things to capitalize on those opportunities.
Ghansham, 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. That's why we, if you will, bifurcated the guidance to say, okay, if we see things start improving in the third quarter and then continue to improve in the fourth quarter, we think flat to down low single digits. If the true recovery doesn't start until the first quarter of 2021, we're looking at that mid to high single digit down estimate. 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. Just on the DIY piece that you're benefiting from in the stores group, how are consumers engaging with your associates? Generally, your stores offer a very high-touch experience for advice et cetera for consumers. How are your associates pivoting towards this new reality of social distancing? Just sort of related to that, from a high-level standpoint, are you seeing any specific trends that are visible in terms of maybe the DIY piece being a bit more price-sensitive in terms of the choices made? Thanks.
Thank you for that question because it gives me a terrific opportunity to recognize a wonderful team. We've got a terrific leadership team in Pete Ippolito and Bill DeSantis and all our division presidents there. More importantly, as strong as those leaders are, we've got just a wonderful team in our stores and our close to our customers and sales reps that are doing a terrific job. 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. 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. We're excited about that.
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. Our people in the stores are eager to help these people over the phone to make sure that they're taken care of. 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. 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 Heidi Petz and Keith Valliere, the two 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. 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. We're really excited about this. I'd say that the trend that we're seeing in our DIY business is exciting on consumer side as well as our stores.
The pricing sensitivity?
Yeah. 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, are typically willing to pay a little more to get the finish that they're looking for and to have it be as productive as possible. We are seeing a positive mix shift in both the pro or contractor business that we see, as well as the do it yourselfers.
Perfect. Thanks, John.
Thank you.
Thank you. Our next question comes from John McNulty with BMO Capital Markets. Please proceed with your question.
Yeah, thanks for taking my question. I guess two points. On the raw material side, down low single digits, just given what we've seen in oil prices, in 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. 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. 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 solvents side.
If you take a look at the TiO2 side, I think we've seen strong demand there in the first quarter 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. 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. I guess in the stores business, if 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? Just that we can kind of think about when these required closures and that type of thing end, how to think about the snapback. Can you give us a little bit of color or anecdotes on that?
Yeah. John, it's hard to say exactly how much of a decline we're seeing, or we saw, but in our second quarter guidance, we're talking about The Americas Group down low double digits 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 second quarter last year, April was our strongest quarter, and then it ticked down in May and ticked down in June. We were fully expecting April to be our toughest comparison. That's what makes it a little bit harder to gauge how much was related to the shelter in place and the changes to our sales floor.
John, I would add this, though. David Sewell here, our COO, has got all our businesses leaning forward in a very positive way. 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 comp store sale number. 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 it. 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. Give hats off to David and our teams, not only in our stores, in all of them, for what we're doing during these times. I get what you're asking. As these stores close, how quickly do they rebound? Our desire, really strong desire, is to come out of this much stronger than even what we were before.
Great. Thanks very much for the color, John.
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? 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're seeing some weaker performance regionally, or is it just under-penetrated areas? Thanks.
Yeah, 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. 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. I'd say it's kind of a balance between the two. We 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. 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. This is a little bit bigger business for you now. Could you, yeah, just comment on that business and what you see for the outlook there? Thanks.
Sure. You're right. We've seen miles driven down considerably. We expect that impact could be for another 30- 45 days following the end of stay-at-home orders. It's a little bumpy right now, if you will, in that business, no pun intended. Our teams are really doing a nice job there. 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. 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 gonna 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 is 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, 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. Again, we expect to be able to capitalize on this as we come out.
Just lastly, I know you 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. Yeah. The virus impact on Australia has been severe as well. We're 100% contactless there. I'd say that we've started to address, to your question, our SG&A and our position long before the pandemic. 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% blow-through on our business there. Australia, we've taken, we think, the appropriate SG&A steps there, as well as in Asia. Prior to the pandemic, we've 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.
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. If 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 second quarter is quite robust. Is the trend that you're seeing in April representative of your outlook for the second quarter? 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. We really started seeing it kick in about mid March.
Through to late March.
That trend has not only continued but accelerated into April.
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&A to be in the second quarter versus the first?
Yeah. Just to be clear, we're 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&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. As he talked about, as we see demand and the trends in demand develop, we have other levers ready to go to pull if we need to. 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. There are times in our normal business that we might be skimming down in an area and investing in other areas. 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.
If I could just squeeze one more in about housing starts. 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. Let me go back to the very 1st part of your question. We don't think that the fundamentals have changed. Neither has our position in that market. We feel the gap in the Sherwin-Williams value proposition is wide. I'd say it's growing wider. If you look at rates, 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. While there's some short-term impact to the business, we feel as though the fundamentals are still there. I remind you that we have an exclusive relationship with 18 of the top 20 nationals. From the regionals where we have the opportunity there, we have an exclusive with 73 of the top 100.
There's more opportunity there for us to leverage. I would tell you that the value that we bring in distribution, our reps, the products, even the design tools and local training are really areas that we're focusing on. I'd say our customers right now, for the most part, are dealing with the short-term. I would tell you the discussions that we're having with them, in fact, last week alone, we had discussions with all top 10 builders have reached out to us wanting to ensure of our supply chain and our capability to serve them.
I can assure you we're ready, more than ready to serve them. That's part of what gives us confidence. 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? 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 Koort with Goldman Sachs. Please proceed with your question.
Thanks very much. I want to say thanks to Al or Jim, or 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 Swanson a lot of credit for that, Bob.
In here. Sorry. 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?
Bob. Within our global supply chain, we are paring back some of the capacity projects that we had scheduled to start this year, going into next year. I would tell you that decrease of $140 million, what we'll do throughout the year is monitor, again, how the demand trends are developing. As we see, for instance, our stores architectural start building back up, we'll turn some of those back on. The timing that causes the delay. I think the $140 would be kind of your max case. 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.
I'm sorry if I missed it, Al, but you gave some guidance on second 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. As I mentioned, as we look at the 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. 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.
You're welcome.
Thank you. Our next question comes from PJ 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 is your online ordering up in the quarter from contractors or DIY? How much of these orders are curbside pickup versus delivery? Longer term, do you think that's a new trend that will remain in place post-COVID?
You're probably not going to like these answers other than online is significant. Curbside versus delivery, 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. I would say regarding the future, yeah, 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 you really begin utilizing the tools and resources that we have much better.
Yeah. PJ, it remains to be seen if curbside has staying power. I think by and large, when you look at our residential repaint contractors, they like the interaction with our stores. They like the interaction with our reps. On the DIY side, I think there's some color counseling that they like to get while coming into our stores, Currently, they're really not getting that interaction. We'll see. It may have some staying power, 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.
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, 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? Thank you.
Yeah. I'd say it's a huge advantage to us. It's really no different when you think about it, of 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. I would say that we really enjoy this store platform that we have and the ability to do both the multipoint 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. 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. I'd say that loyalty grows both ways. It grows with the customer to Sherwin and Sherwin to the customer.
We think that distribution is one, albeit one very important aspect of the stores. We really value our role in our customers' success, and I'd say we may value it more than others because we have a terrific relationship with these customers. I'd say these are valuable, 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. I would tell you, 35 years ago, when I was in a store, I built some of those strong relationships.
Unfortunately, about a year and a half ago, I lost my mom. 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 share that story because I think it captures the essence of what we do in our stores. We build strong relationships, and they last. Delivery is important, but we do a lot more than just deliver.
Great. Thanks for the color.
Yep. Thank you, PJ.
Thank you. Our next question comes from Vincent Andrews with Morgan Stanley. Please proceed with your question.
Thanks. Hi, everyone. Glad everyone sounds well. Just want to ask on The Americas Group guidance for the second quarter and the rest of the year. We've talked about this on prior calls. You've clearly been gaining a lot of market share. By my estimation, in the second quarter, you kind of lapped that step up in share gain that really started to take hold in the second quarter last year in that really bad weather period. 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 just the general paint industry's going to do? 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. To 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. I 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.
Yeah. Vincent, we look at the long term, we got an SG&A question earlier, as we keep adding reps, we keep adding stores, we invest in product innovation and e-commerce platform. This gives us the confidence that we'll exit the environment and position better to grow a multiple of the end market. To highlight that point, this is similar to what we saw coming out of the 2008 and 2009 recession. I'll highlight for you the three, five, and 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, we believe the same dynamics are in this situation.
Yeah. 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. Obviously, as we go through the summer, we're unfortunately going to have some pretty unattractive unemployment numbers. 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. I don't want to feel like I'm preaching on this store platform, but 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. 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.
Sure.
Thank you. Our next question comes from Mike Harrison with Seaport Global Securities. Please proceed with your question.
Hi. Still morning here in the Central Time Zone. Good afternoon, guys. Wondering, John, if you can quantify how many of your stores are closed in North America right now? 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 one or two locations?
Yeah, Mike, let me have David Sewell answer that one.
Yeah. Hi, Mike. Right now, we probably have close to 30 stores in North America that are closed. All those stores are due to government mandate. The team's doing a really nice job in trying to fulfill orders and deliveries from other locations that are open. As that continues to hopefully open up, those stores will immediately open up when the government allows.
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 in 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's structures coming out of the ground right now, while there's 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, it's with restrictions. There'll be likely some delay in those. 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 in helping us to understand the trend.
They're very strong. We think short term, there's going to be some bumpiness in this quarter. We get that. Again, second quarter's 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. Just quickly, you guys introduced this microbicidal paint a couple of years ago, Paint Shield. Has that been tested for effectiveness against this coronavirus? Are you getting increased interest in that product for either commercial or residential applications right now?
We do. It's not a coating that kills virus. That is a microbial. Very easy to say. It'll kill some bacteria, but it will not kill a virus. 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%-4% on January 1. Perhaps you can enlighten us as to how much of that has been realized at this point.
Yep. Kevin, that price increase has gone as expected, and we've realized just under 2% of effectiveness in the quarter. We do expect that to get a little bit better into the second quarter, but progressing as planned.
Very good. Secondly, Al, with regard to capital allocation, the paused share repurchase activity, is it safe to say that M&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?
We have a lot of interest in 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 $2.5 billion in available liquidity sources. We've done a lot of work pushing our near-term maturities out. I feel very good about our balance sheet and our capacity to make M&A as we come out of this and we see some of these targets maybe coming to the market. 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?
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. You saw a nice pickup in their first quarter, operating margin was up. 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, 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. I think we've done and taken the right action.
Yeah, I think if you look at that business, particularly the Performance Coatings Group, the 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. I think there's been a lot of good work, and it'll only continue.
John, just in Consumer Brands, very strong results. Are you gaining share in this business, or it's 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. 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.
Thank you very much.
Thank you.
Thank you. Our next question comes from Truman Patterson with Wells Fargo. Please proceed with your question.
Good morning, everybody, thanks for taking my questions. Glad to hear you all are safe and healthy. 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 second quarter sales to be down low double digits to mid-teens. 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 a kind of a mid-single digit decline in 3 Q and 4 Q. Could you just walk us through how you all are getting there? 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.
Truman, as we start seeing, 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 start 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. When you get to the third quarter and the fourth quarter, I expect that to continue.
Exterior, even in the second quarter, coming into the third quarter on res repaint, there's opportunities, as John talked about. 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. 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 third and fourth quarter.
Okay. Thank you for that. 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?
Yeah, 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 historically, I'll even go back to my experience in 2000 and 2001, industrial just seems to be a slower recovery than the architectural side of our business. Asia Pacific, which is by and large back to work, is slowly growing, 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. It's just, what do you think Europe and North America, how we come out of that? It's going to be a little choppy across businesses, across geographies, but like we talked about, 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 pick up, as John mentioned. I just think the cadence is a little bit slower than architectural.
Okay. Thank you all.
Okay, 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, but what are you most uncertain about there in your cost structure?
John, we've given sales guidance only through 2018 and 2019. 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 are going to impact the second quarter, 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 third and fourth quarter and really driving momentum into 2021. That's what we're looking at.
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?
No. 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. 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 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. I think our procurement teams and our global supply chain teams need to get a lot of credit for that. No reason that we would be buying ahead on raw materials.
Okay, thanks. Stay well.
Thank you.
Yeah, John, you too.
Thank you. Our next question comes from the line of Garik Shmois with Loop Capital. Please proceed with your question.
Oh, hi, thanks. Just wanted to be clear, just on the 2Q Consumer Brands Group guidance. Does that include the ACE exit and, I guess, softer Asian fundamentals? 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, we are shipping ACE the final, I would say, inventories of the private label in this quarter. It'll be all done. I would say that from a quarterly standpoint, the second quarter is probably the least impacted, and then third quarter will get it back a little heavier, and then fourth quarter will moderate a little bit just because it's a small quarter. It does include Asia as well.
Great, thanks. 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?
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 Flex-Temp. 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. 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, and thanks for taking my question. Hope everyone's 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. Regarding the early trends into Q2, how long do you think 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?
Oh, I'll take a 1st run at this and let Al jump in. When you asked about our run early, I would say life was really, really good. 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 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 a small room, bedroom, living room, whatever. Not typically two-story foyers. Oftentimes, exterior is off limits just because the scope of the work there with scaffolding and the work that goes there.
You want to try to complete a project. Those projects typically take a longer time. DIY consumers are typically more focused on smaller, more manageable projects. What you see is a lot of activity right now. 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 say, You know what? I got to go back to work, but this room would look nice painted as well, then that might carry over as well. We'll have to see if it's a pull forward, if we mortgage some of that or not.
Yeah. I think it will slow as people get back to work, if unemployment ticks up, we don't expect to see a continued surge in DIY. We're also monitoring on the res repaint side. We believe, again, we'll see how this plays out, 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 contract 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 in DIY. Certainly on exterior, as we talked before, typically those are going to be done by painting contractors.
Got it. That's all very helpful. If you tie your comments there into the pricing increases planned throughout the year, has there been any data to suggest customer pushback 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. 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 with the financial community. 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, 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 the most extent. In Mexico, about 60% of our stores are operating normally, and roughly the balance are running on curbside or got a very small percentage closed. For the most part, it's split between the normal and curbside. Brazil, I'd say roughly about 34 of our stores are closed, and the remaining open, which is about 53%. Those 53 represent over 70% of our gallon. 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. A little bit of a mix in Brazil.
Rosemarie, I'd just add, in the first quarter, 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'll accelerate, because we continue to see the devaluation in the Real, the Argentine peso, the Mexican peso. That's going to be an additional drag on those businesses in the second quarter.
In the past, you used to give us a number of stores in Latin 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 eight in Latin America. I think this goes back, Rosemarie, to the point that I made earlier about our ongoing, I call it a pretty rigorous review of businesses, brands, customer programs, other investments. We've closed eight, 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 we make tough decisions. 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.
Thank you. Lastly, if I may, can you talk 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, if you can look at the different areas you are doing business in.
Yeah, it'd 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. 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 Melich with Evercore ISI. Please proceed with your question.
Hi. Thanks, guys. Thanks for getting through all these questions. Really helpful now. Two, one was on pricing. You mentioned architectural. Could you talk about Performance Coatings Group, the pricing environment there, given everything that's gone on? I had a follow-up on stores.
Greg. As you know, we've kind of been chasing the price in raw material through 2018 and 2019. We did go out with selective price increases early in 2020. We talked about the small number of contracts we have on indexing. I think the dynamics within our Performance Coatings Group are similar to the dynamics that we talk about in our architectural. 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. It's really what we're looking at to move off of just price kind of cost metrics then. 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.
Yeah. Help them make more money, help them achieve their goals, help solve their problems. Everything we can do.
Great. 2nd, 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? Are there any products that your customers, especially new accounts, are asking that you add to the assortment in this environment, where you can really leverage the stores network?
Regarding the online, I would say this, Greg. It's growing. It's a high percentage growth. It's relatively low overall. While we're excited with the percentage, it's off of a relatively low base as we're really now getting behind this. We expect that to continue. We're going to come out of this better as a result of it. As far as products that our customers are asking for, yeah, there's some. We're looking into them. We'd like for you to find them on our shelf before we talk about them.
All right. Sounds good. Good luck, guys. Thanks.
Thank you, Greg.
You bet. Stay safe.
Thank you. Our next question is from Jeff Zekauskas with J.P. Morgan. 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? 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'll be decals on floors. We'll be guiding walkways. 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 consult with as well. 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 two 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. 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? 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?
Yeah. 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. Our focus is on driving the efficiency and productivity and profitability of that customer through innovative products and services. We'll continue to invest in areas that will help them to do that. We believe, in turn, our position with that customer improves, and improves from a loyalty, usage, and acceptance standpoint. 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.
Yeah. 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. I would point to 2010, 2011, and 2012, when we saw the big run-up in raw material costs, and they rolled over, and we, by and large, held our price 2013 through 2016, and we saw a nice improvement in our gross margin. 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.
Yeah, you can't offer commodity products and services and ask for specialty store margins or pricing.
Okay. Thank you so much.
Thank you, sir. 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 actually 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 second quarter?
Chris, we, I think, did a very good job of managing our inventory. I would just say that raw material inventory is a much smaller part of our overall inventory. 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 million improvement we saw in working capital in our first quarter. 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. You've seen a switch, and I talked about it earlier about our Global Supply Chain.
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 product and inventory into the store shelves, both in our stores and with our retail partners. It definitely varies. Packaging, we're building inventory as much as we can across all the regions because we continue to see strong demand. I can assure you, we'll continue to manage our inventories lower. We've done a lot of different things. 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. There are a lot of levers that we've pulled and will continue to pull as the demand environment unfolds.
All right. One quick one. 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. Again, I think in those markets in particular, the team has done a nice job driving inventory down so that 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. I'd like to pass the floor back over to management for any additional concluding comments.
Thank you, Jesse. This is Jim Jaye. 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 and 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 3rd in New York City this year.
It's our intent to reschedule that event, hopefully later this year. 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. 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.