Anthony Lebiedzinski

Anthony Lebiedzinski inquired about the significant decline in the Consumer Floral and Gift segment, specifically the impact on PMOL, and sought details on Passport member engagement and the future of the loyalty program. He also asked for a breakdown of revenue guidance across segments for the second half of the fiscal year, the strategic adjustments for Valentine's Day falling on a Saturday, and the quarter's order volumes and average order value (AOV).

Answer

James Langrock, CFO, clarified that PMOL experienced a greater decline than flowers, primarily due to a strategic reduction in inefficient marketing spend from the prior year, which improved its ad-to-sales ratio and contribution margin. Adolfo Villagomez, CEO, noted that Passport members continue to outperform non-members, but the company plans significant improvements to the loyalty program based on customer feedback. For the second half, Mr. Villagomez explained that the revenue outlook reflects a mix shift where the flowers business becomes more dominant, with performance consistent or slightly improving. Mr. Langrock added that Valentine's Day's Saturday placement is a factor. Mr. Villagomez confirmed marketing and merchandising strategies are adjusted for this. Mr. Langrock reported that AOV increased by 5.2%, while order volume decreased by approximately 16% for the quarter.

Anthony Lebiedzinski, Senior Equity Analyst at Sidoti & Company, inquired about the significant decline in the Consumer Floral & Gift segment, particularly regarding the impact of PMall, and sought additional color on the drivers. He also asked about the performance and value proposition of Passport members, the expected revenue performance across segments for the second half of the fiscal year, and the company's marketing adjustments for the Saturday Valentine's Day placement. Finally, he requested details on order volumes and Average Order Value (AOV) for the quarter.

Answer

CFO James Langrock clarified that PMall's decline was more pronounced than flowers, largely due to reduced inefficient marketing spend compared to the prior year, which improved its ad-to-sales ratio and contribution margin. CEO Adolfo Villagomez confirmed that Passport members continue to outperform non-members but acknowledged the need to improve the loyalty program's value proposition. Villagomez explained that the second-half revenue performance would reflect a mix shift, with flowers becoming more significant, and noted that the food business (Harry & David) was more disciplined in marketing and benefited from B2B exposure. He also stated that merchandising and marketing strategies were adjusted for the Saturday Valentine's Day. Langrock provided specific figures, noting AOV was up 5.2% and order volume was down approximately 16% for the quarter.

Anthony Lebiedzinski inquired about the quarterly sales progression from January to March, the impact of Valentine's Day and the Easter shift, the quantifiable sales loss from the order management system (OMS) issues, and the near-term priorities of the new Celebrations Wave strategy.

Answer

Chairman and CEO Jim McCann and CFO James Langrock explained that while Valentine's Day was solid, the quarter was negatively impacted by softness in 'everyday' occasion sales in January and March. Langrock noted that adjusting for the Easter shift, revenue would have been down 8.9% instead of 12.6%. Regarding the OMS, McCann called the implementation a 'colossal screw up,' and Langrock quantified a minimum $20 million top-line impact in Q2 and an $11 million incremental cost over two quarters. President Tom Hartnett outlined that the initial phase of Celebrations Wave will focus on leveraging AI, enhancing the new app's relationship management tools, and implementing a 'ladder' strategy with low-cost greeting cards to reduce customer acquisition costs.

Anthony Lebiedzinski asked if the shifts in consumer engagement accelerated during the quarter, the implementation timeline for the new order management system (OMS), and the company's plans for marketing outreach to customers affected by the system's issues.

Answer

CEO Jim McCann and President Tom Hartnett explained that the quarter marked the end of the 'COVID blip' in consumer demand and noted a bifurcation in spending habits. CFO James Langrock detailed that the OMS was implemented in late August/early September, with issues escalating during the peak holiday season. McCann added that the system will be fully functional within the next two quarters and that current order volumes make remaining issues manageable. Hartnett confirmed that a 'win back' marketing program is already underway to regain the trust of impacted customers.

Anthony Lebiedzinski asked for details on the market penetration of non-floral same-day delivery, customer trends for multi-branded bundles, and whether recent system implementation costs were a one-time event.

Answer

CEO Jim McCann explained that non-floral same-day delivery is a small but growing part of the business, with a multi-year rollout already showing a positive impact on the Cheryl's brand. President Tom Hartnett confirmed strong customer demand for multi-branded bundles continues. CFO Bill Shea clarified that while costs for the Harry & David order management system are complete, the new customer care platform will incur double license fees for one more quarter before generating savings.

Anthony Lebiedzinski inquired about the drivers behind the Q4 revenue decline in the Gourmet Food and Gift Baskets (GFGB) segment, the expected timing of the FY25 wholesale revenue recovery, the most impactful strategic initiatives, and the company's appetite for further acquisitions.

Answer

CEO Jim McCann, President Tom Hartnett, and CFO Bill Shea attributed the GFGB decline to the timing of Easter sales shifting into Q3 and a strategic pullback in marketing spend. They expect the wholesale recovery to materialize in Q2 FY25. McCann highlighted 'relationship innovation' as the top priority, while Shea noted ongoing 'Work Smarter' efficiency initiatives. Regarding M&A, McCann described the company's appetite as 'robust,' focusing on tuck-in acquisitions like Schafenberger that leverage the existing platform for capital-efficient growth.

Anthony Lebiedzinski inquired about the sales progression throughout the quarter, the specific impacts of Valentine's Day and the Easter calendar shift, the quantifiable sales loss from the order management system (OMS) issues, and the expected timeline and initial priorities for the new 'Celebrations Wave' strategy.

Answer

Chairman and current CEO James McCann explained that the quarter saw softness in 'everyday' business in January and March, which offset a decent Valentine's Day. CFO James Langrock quantified that adjusting for the Easter shift, revenue would have been down 8.9% instead of the reported 12.6%. Regarding the OMS, McCann called it a 'colossal screw up,' and Langrock estimated a top-line impact of over $20 million in the prior quarter with residual effects and incremental costs of $4.6 million in Q3. For the 'Celebrations Wave,' McCann and President Tom Hartnett outlined that the initial focus is on leveraging AI for efficiency, enhancing the app and loyalty program, and implementing a 'ladder' strategy with low-cost greeting cards to drive engagement and reduce customer acquisition costs.

Anthony Lebiedzinski from Sidoti inquired about the drivers of the strong fourth-quarter revenue gain, specifically if it was volume-driven, and whether this positive momentum has continued into early fiscal 2026. He also asked about the new product pipeline for 2026, the impact and reception of recent pricing actions related to tariffs, the quantifiable impact of operational efficiencies on gross margin, and the expected effective tax rate for fiscal 2026.

Answer

Helen Johnson-Leipold, Chairman and CEO, confirmed the excitement about Q3 and Q4 growth, noting that market momentum is continuing into early fiscal 2026, though it's too early to declare a market turnaround. She highlighted ongoing innovation across diving (Hydros Pro 2), fishing (Explore series, MEGA Live 2), and camping (Jetboil's fast boil systems) as a key priority for future growth. David Johnson, Chief Financial Officer, stated that pricing actions were strategic and well-received by retailers, with consumer reception yet to be fully determined as products hit shelves. He quantified the gross margin improvement from operational efficiencies at over one point for the year and confirmed a full portfolio of cost-saving initiatives for fiscal 2026. For fiscal 2026, he expects a normal effective tax rate in the mid to high 20s, following the non-cash reserve on U.S. deferred tax assets in fiscal 2025.

Anthony Lebiedzinski from Sidoti inquired about the drivers of the strong fourth-quarter revenue gain, specifically if it was volume-driven, and whether this positive momentum has continued into early fiscal 2026. He also asked about the new product pipeline for 2026, the impact and reception of recent pricing actions related to tariffs, the quantifiable impact of operational efficiencies on gross margin, and the expected effective tax rate for fiscal 2026.

Answer

Helen Johnson-Leipold, Chairman and CEO, confirmed the excitement about Q3 and Q4 growth, noting that market momentum is continuing into early fiscal 2026, though it's too early to declare a market turnaround. She highlighted ongoing innovation across diving (Hydros Pro 2), fishing (Explore series, MEGA Live 2), and camping (Jetboil's fast boil systems) as a key priority for future growth. David Johnson, Chief Financial Officer, stated that pricing actions were strategic and well-received by retailers, with consumer reception yet to be fully determined as products hit shelves. He quantified the gross margin improvement from operational efficiencies at over one point for the year and confirmed a full portfolio of cost-saving initiatives for fiscal 2026. For fiscal 2026, he expects a normal effective tax rate in the mid to high 20s, following the non-cash reserve on U.S. deferred tax assets in fiscal 2025.

Anthony Lebiedzinski of Sidoti & Company, LLC inquired about the sales cadence during the third quarter and into July, the future impact of tariffs, and potential pricing actions to mitigate them. He also asked for an update on the cost savings program, the sustainability of reduced promotional activity, the sales impact from the recent ICAST award, and the potential for further inventory reductions.

Answer

Chairman & CEO Helen Johnson-Leipold confirmed that sales improved each month during the quarter and that the ICAST award added to the new product's momentum. She also noted that promotions will remain a necessary tactic based on market conditions. CFO & VP David Johnson stated that tariff costs are expected to increase in Q4 but that mitigation strategies, including selective price increases, are in progress. He affirmed the cost savings program is robust and that while significant progress has been made on inventory, there is room for further improvement.

Anthony Lebiedzinski of Sidoti & Company, LLC inquired about the sales cadence during Q3, the outlook for July, the future impact of tariffs and mitigation strategies, progress on cost-saving programs, the sustainability of lower promotional activity, the sales impact from recent product awards, and the potential for further inventory reductions.

Answer

Chairman & CEO Helen Johnson-Leipold confirmed a positive monthly sales trend during the quarter and noted that recent product awards add to sales momentum. CFO & VP David Johnson projected higher tariff costs in Q4 but highlighted ongoing mitigation efforts, including pricing actions. He also confirmed progress on cost savings and inventory reduction, stating that while significant improvements have been made, there is more work to do.

Anthony Lebiedzinski of Sidoti & Company, LLC inquired about the sales cadence through Q3 and into July, the future impact of tariffs and related pricing actions, progress on cost savings programs, the sustainability of lower promotions, the sales impact from recent product awards, and the potential for further inventory reductions.

Answer

Chairman & CEO Helen Johnson-Leipold noted that sales improved monthly during the quarter and that promotions remain a key competitive tactic. CFO & VP David Johnson explained that while more tariff costs are expected in Q4, mitigation strategies and cost-saving initiatives are progressing well. He also confirmed that inventory reduction efforts are ongoing, though subject to macroeconomic factors.

Anthony Lebiedzinski of Sidoti & Company, LLC inquired about the sales cadence during Q3 and early July, the future impact of tariffs, and potential pricing actions. He also asked for updates on cost savings initiatives, the sustainability of reduced promotions, the sales impact from recent product awards, and the potential for further inventory reduction.

Answer

CEO Helen Johnson-Leipold noted that sales improved monthly throughout the quarter and that promotions remain a necessary tactic based on market conditions. She also confirmed the recent ICAST award added to the new product's momentum. CFO David Johnson stated that more tariff costs are expected in Q4 but mitigation strategies, including potential pricing actions, are in place. He mentioned the cost savings program is robust and that while significant progress has been made on inventory, further reductions are planned.

Anthony Lebiedzinski of Sidoti & Company, LLC inquired about Johnson Outdoors' new product pipeline, sales trends during the quarter, and the impact of tariffs on retailer orders. He also asked for details on the company's exposure to China, gross margin drivers, the scope of the cost savings program, and the reason for the quarter's high tax rate.

Answer

CEO Helen Johnson-Leipold confirmed that new products in Fishing and Camping are exceeding expectations and that the market remains challenging. CFO David Johnson stated that the company has real exposure to tariffs through components from China and is pursuing mitigation strategies. He quantified cost savings as providing a 1-2 point benefit to gross margin, offsetting discounting, and explained the high tax rate was due to jurisdictional income differences and a one-time tax audit accrual in Europe.

Anthony Lebiedzinski of Sidoti & Company, LLC asked about the fiscal first-quarter revenue drivers, specifically the mix between pricing and unit volumes. He also requested details on the recent diving acquisition, early order indications for the busy season, retail inventory levels, the performance breakdown of the newly combined Camping and Watercraft segments, the impact of cost-saving initiatives, and the company's exposure to potential tariffs.

Answer

CEO Helen Johnson-Leipold and CFO David Johnson responded. Johnson confirmed that revenue was negatively affected by both lower unit volumes and increased promotional discounting. Regarding the acquisition, Johnson-Leipold emphasized its strategic importance for innovation and efficiency, while Johnson disclosed the purchase price was approximately $14 million for the South Africa-based supplier. Johnson-Leipold described the retail environment as having 'cautious ordering' and 'mixed bag' inventory levels, with no market rebound expected in Q2 despite positive reception for new products. Johnson clarified that within the combined recreation segment, Camping is outperforming the 'really challenged' Watercraft market. He also noted that cost savings were achieved but masked by Q1 discounting, with more initiatives underway. On tariffs, Johnson acknowledged exposure but stated that mitigation strategies leveraging their U.S. manufacturing footprint are in progress.

Anthony Lebiedzinski of Sidoti & Company, LLC inquired about several key areas, including the drivers of Q4 sales (unit volumes vs. average selling price), retail inventory levels, and the specific factors behind the significant gross margin decline. He also asked for details on the company's updated innovation strategy, new product pipeline, resource allocation for strategic execution, the operational cost savings program, the timing of severance costs, and the potential impact of future tariffs.

Answer

CFO David Johnson addressed the financials, explaining that Q4 sales saw a unit volume lift, while full-year growth came from both units and pricing. He noted retail inventory is a 'mixed bag.' Johnson quantified the Q4 gross margin pressure, attributing approximately 2.5 points of the decline to promotional pricing, a similar amount to unfavorable product mix, and about 1 point to inventory reserves. He confirmed severance costs were primarily a Q4 event and that the company is preparing mitigation strategies for potential tariffs. CEO Helen Johnson-Leipold detailed the innovation strategy, emphasizing a deeper focus on consumer insights, key talent, and quality launches like XPLORE and MEGA Live 2. She affirmed confidence in their ability to win with current resources, leveraging both internal and external expertise.

Anthony Lebiedzinski with Sidoti inquired about the impact of shipment timing on the hospitality division's sales, the sustainability of sales gains in the core Hooker Branded and Domestic Upholstery segments, retail feedback on Black Friday sales, the revenue and operating income drag from discontinued operations, and the potential to return to historical high single-digit operating margins.

Answer

CFO Earl Armstrong explained that hospitality sales were impacted by unusually large, non-recurring projects in the prior year. CEO Jeremy Hoff expressed confidence in sustaining sales gains in core segments due to product momentum, particularly with the successful Margaritaville launch. Hoff noted 'relative positivity' during peak retail times but stressed the need for consistent demand. Armstrong indicated that details on discontinued operations' revenue and operating drag would be available in upcoming SEC filings. Hoff affirmed the potential to return to historical operating margins.

Anthony Lebiedzinski of Sidoti & Company, LLC inquired about the shipment cadence in Q1, the quantifiable impact of discounting on Hooker Branded's gross margin, the drivers for strong May orders in legacy brands, the current performance of the HMI segment, and feedback from retailers on Memorial Day sales.

Answer

CEO Jeremy Hoff explained that Q1 shipment cadence was affected by tariff uncertainty, which primarily impacted HMI customers. He attributed the strong May orders to the positive effects of the new 'Collected Living' merchandising strategy. Hoff also noted that HMI continues to face uncertainty due to tariffs, but that retailer feedback on Memorial Day sales was generally positive. CFO Earl Armstrong stated that a specific figure for the impact of discounting was not immediately available.

Anthony Lebiedzinski of Sidoti & Company, LLC inquired about the shipment cadence during Q1, the quantifiable impact of discounting on Hooker Branded's gross margin, the drivers for strong May orders in legacy brands, the current business trends at HMI, and retailer feedback from the Memorial Day holiday.

Answer

CEO Jeremy Hoff explained that tariff uncertainty significantly impacted the shipment cadence, particularly for HMI customers. He attributed the strong May orders to new merchandising strategies like 'Collected Living' and noted that tariff uncertainty continues to create headwinds for HMI. Hoff also shared that feedback from retailers on Memorial Day sales was 'relatively positive.' CFO Earl Armstrong noted that a specific quantification for the impact of discounting was not readily available.

Anthony Lebiedzinski asked about the drivers for sales improvements at Hooker Branded and Home Meridian (HMI), the outlook for Q1, potential opportunities for Domestic Upholstery from tariffs, and the trajectory of HMI's gross margins and backlog.

Answer

CEO Jeremy Hoff attributed Hooker Branded's momentum to two successful new collections from the October market but declined to comment on Q1. He stated that potential tariffs create a "tremendous opportunity" for Domestic Upholstery, where the company has available capacity. For HMI, Hoff noted that a focus on profitable lines like Pulaski is driving margin expansion and enabled the cost savings from exiting the Savannah warehouse, which primarily stored low-margin goods.

Anthony Lebiedzinski of Sidoti & Company, LLC inquired about post-election demand trends, the Q4 impact of new casegoods, potential for further gross margin improvement at Home Meridian, the current inventory position, and the expected impact of the new Margaritaville licensing agreement.

Answer

CEO Jeremy Hoff confirmed a "noticeable positive bump in order rates" since the election and noted that new casegoods collections will have a greater impact on the next fiscal year than on Q4. He indicated there is slight room for further gross margin improvement at Home Meridian, attributing past gains to exiting unprofitable lines. Hoff described the current inventory as the best in two years, focused on high-demand SKUs, a point echoed by executive Paul Huckfeldt. Hoff also highlighted the broad, cross-divisional impact expected from the Margaritaville licensing deal.

Anthony Lebiedzinski of Sidoti & Company, LLC inquired about the monthly sales and order progression, regional sales performance, specifics on the expanded cost-cutting program, long-term gross margin targets for the Home Meridian segment, and early retail feedback from the Labor Day holiday.

Answer

Executive Paul Huckfeldt noted that business was steady but still recovering. CEO Jeremy Hoff stated that the downturn was 'equally tough everywhere' without significant regional variance. Regarding cost cuts, Hoff confirmed confidence in exceeding the $10M target by first eliminating non-personnel costs, then strategically reducing personnel, but declined to provide a new specific number. For the HMI segment, Hoff and Huckfeldt believe a 20% gross margin is a reasonable goal, achieved by exiting low-margin businesses rather than raising prices. Hoff also shared that post-Labor Day order rates were 'really good,' indicating a positive holiday for retailers.

Anthony Lebiedzinski asked about geographic sales dispersion, the extent of pricing actions and their impact on unit volumes for Q2 and Q3, friction costs related to portfolio and supply chain optimization, and opportunities for expanding wholesale partnerships with retailers like Living Spaces and Costco.

Answer

Melinda Whittington, Chair, President and CEO, noted no dramatic geographic sales differences, though Canada remains more challenged. Taylor Liebke, SVP and CFO, explained nominal, single-digit pricing actions taken in Q2 to offset tariffs, resulting in flat unit volumes for the North America wholesale La-Z-Boy business. Liebke clarified that friction costs from distribution transformation and strategic exits (case goods, UK facility) are expected to be substantially completed by fiscal year-end, primarily impacting Q3. Whittington added that the focus for wholesale partnerships is on strategic, compatible distribution with existing partners rather than numerous new customers.

Anthony Lebiedzinski with Sidoti & Company inquired about geographic sales dispersion, the extent of pricing actions and their impact on unit volumes in Q2 and Q3, details on friction costs from portfolio and supply chain optimization, and the strategy for expanding wholesale partnerships like Living Spaces and Costco.

Answer

Melinda Whittington, Chair, President, and CEO, noted no dramatic geographic sales differences, though Canada remains more challenged. Taylor Liebke, SVP and CFO, explained nominal single-digit pricing actions in Q2 to offset tariffs, with North American wholesale volume flat year-over-year. Liebke clarified friction costs are from the multi-year distribution transformation and strategic exits (case goods, UK facility) expected to conclude by fiscal year-end. Whittington added that wholesale expansion focuses on compatible strategic partners and growth with existing bases rather than numerous new customers.

Anthony Lebiedzinski from Sidoti & Company asked about notable geographic differences in North American sales, the specific non-core businesses being evaluated for strategic alternatives, the pace of store openings amid choppy demand, and the nature of promotional activity in case goods.

Answer

CEO Melinda Whittington stated there were no significant geographic shifts in the U.S. but noted pricing actions in Canada impacted unit volume. She clarified that the strategic review of non-core assets focuses on businesses like case goods and international operations, while reaffirming commitment to the core La-Z-Boy brand and retail expansion. Whittington also confirmed the company will proceed with its store opening and distribution transformation plans, leveraging its strong balance sheet. CFO Taylor Luebke described the case goods promotions as a transitory Q1 effort to clear inventory and optimize assortments for the upcoming holiday season.

Anthony Lebiedzinski of Sidoti & Company, LLC asked for the reasons behind the Q4 sales outperformance relative to guidance, the quantified impact of tariffs on Q1 results, potential future pricing actions, and the long-term store growth strategy for the Joybird brand.

Answer

President & CEO Melinda Whittington attributed the sales beat to strong, broad-based execution, noting that February was the quarter's most challenging month. SVP and CFO Taylor Luebke stated that the company has a playbook to mitigate tariff impacts through sourcing, inventory management, and nominal, low-single-digit price increases that have already been implemented. Regarding Joybird, Melinda Whittington confirmed the potential to exceed the 25-store goal long-term but stressed a prudent current pace of 3-4 new stores per year.

Anthony Lebiedzinski questioned if there were notable regional differences in sales trends, sought more detail on the drivers of increased selling expenses in the retail segment, and asked how the company is preparing for potential tariff impacts.

Answer

CEO Melinda Whittington responded that there were no dramatic regional differences in sales trends. CFO Taylor Luebke attributed the higher retail expenses and slight margin compression to the ramp-up costs of opening six new stores over the last two quarters and higher sales commissions from a strong holiday period. On tariffs, Luebke explained that the company has developed a playbook for various scenarios that leverages its global supply chain and includes potential pricing actions to mitigate impacts.

Anthony Lebiedzinski questioned the drivers behind the Q3 margin guidance being lower than Q2, sought more color on the drivers of average ticket and design sales growth, and asked about the reasons for the year-over-year inventory increase.

Answer

SVP and CFO Bob Lucian attributed the Q3 margin guidance to continued pressure from the casegoods business, start-up costs for the new DFS partnership in the U.K., and typical Q3 seasonality from holiday plant shutdowns. President and CEO Melinda Whittington explained that average ticket growth is driven by superior in-store execution, strong product offerings, and compelling delivery speeds. Lucian added that the inventory increase was a planned investment to ensure raw material availability and support fast delivery times during the busy season.

Anthony Lebiedzinski inquired about the business trajectory from July to October, including sales activity and leader productivity post-compensation plan launch, regional performance (especially Americas/Europe and RiseBar's impact), Q4 incentives and their spillover, the decline in Hiya Health's active customer count and future growth confidence, and the annualized operating cost savings from the Q4 organizational right-sizing.

Answer

Chief Commercial Officer Brent Neidig noted promising engagement and excitement from the new compensation plan, with CEO Jim Brown clarifying an initial slowdown followed by a pickup post-August convention. CFO Doug Hekking added that anticipated softness lasted longer but traction is now good. Jim also explained Americas/Europe performance was bolstered by events and RiseBar. Brent confirmed Q4 incentives will spill into Q1 2026. Chief Operating Officer Walter Noot expressed strong confidence in Hiya Health's rebound despite a Q3 customer decline due to Meta algorithm changes, citing plans for DTC, retail, and international expansion. Doug Hekking stated that cost savings from the right-sizing are expected, with more details in February.

Anthony Lebiedzinski asked about the trajectory of business trends from July through October, the reasons for the Americas and Europe region's relatively better performance, planned incentives for the fourth quarter and their potential spillover, the decline in Hiya's active customer count and confidence in its future growth, and the expected annualized operating cost savings from the organization's right-sizing.

Answer

Brent Neidig, Chief Commercial Officer, Jim Brown, CEO, and Doug Hekking, CFO, explained that engagement and excitement increased after the compensation plan launch in July, with a slowdown initially as brand partners absorbed changes, followed by a pickup in September and October, especially in mature markets. Jim Brown clarified that Americas and Europe benefited from event sales and Rise Bar's contribution. Brent Neidig confirmed continued strategic incentives for Q4, spilling into Q1 2026. Walter Noot, COO, attributed Hiya's customer decline to Meta algorithm changes but expressed strong confidence in future growth through DTC, retail, and international expansion. Doug Hekking stated it's too early to quantify annualized cost savings from the right-sizing, with more details expected in February.

Anthony Lebiedzinski of Sidoti & Company, LLC inquired about the performance drivers in China, the reasons for the decline in the overall active customer count, and the specifics of the new brand partner compensation plan. He also asked about the impact of tariffs, the year-over-year growth and integration synergies of the acquired HYA business, and the company's strategy for share buybacks and future M&A.

Answer

Brent Neidig, CCO, attributed strong China sales partly to a consumer buy-up ahead of tariff uncertainty and noted the active customer decline was largely due to brand partners anticipating the new compensation plan. He explained the new plan rewards new partners earlier in their journey. CFO Doug Hekking stated tariff impacts have been minimal due to proactive sourcing. Regarding HYA, COO Walter Noot confirmed significant growth and highlighted operational support from USANA, while CEO Jim Brown mentioned potential international expansion for HYA post-2025. Doug Hekking described the share buyback approach as opportunistic, and Jim Brown indicated that while the M&A team is active, it will take time to build cash for a significant acquisition.

Anthony Lebiedzinski inquired about the performance drivers in China, the reasons for the overall decline in active customers, the mechanics of the new compensation plan, the impact of tariffs, Hiya's year-over-year growth, integration synergies, and the company's strategy for share buybacks and future M&A.

Answer

Chief Commercial Officer Brent Neidig explained that China's sales were boosted by customer buy-ups ahead of potential tariffs and that the active customer dip was an expected, temporary result of the new compensation plan rollout. He detailed that the new plan rewards new Brand Partners earlier in their journey. CFO Doug Hekking noted that tariff impacts have been minimal due to proactive sourcing and that while it's early to quantify Hiya synergies, progress is being made. COO Walter Noot confirmed Hiya's strong year-over-year growth. CEO Jim Brown added that USANA is assisting Hiya with international expansion plans and that the company remains opportunistic regarding M&A and share repurchases.

Anthony Lebiedzinski inquired about USANA's incentive strategies in China and South Korea, the product launch timeline and guidance for the Hiya acquisition, potential synergies with Hiya, progress in the Indian market, and the company's mitigation strategy for potential tariffs.

Answer

Chief Commercial Officer Brent Neidig confirmed ongoing promotional plans for key markets like China and Korea, noting strong momentum. CFO Doug Hekking detailed Hiya's strategy of systematic product launches and channel exploration. COO Walter Noot, CEO Jim Brown, and CFO Doug Hekking collectively explained that Hiya synergies are being approached methodically, focusing on operational support without disrupting Hiya's core strategy, with benefits expected over time. Brent Neidig also provided an update on India's slow but promising growth. Regarding tariffs, Walter Noot and Jim Brown outlined proactive measures, including building inventory and diversifying raw material sourcing, noting that only 6% of U.S. raw materials are sourced from China.

Anthony Lebiedzinski inquired about the drivers of recent sales growth in the U.S., Australia, and New Zealand, the replicability of these strategies, the 2025 regional sales outlook, the updated guidance for the Hiya acquisition, and the performance of the India market.

Answer

CEO Jim Brown and CCO Brent Neidig attributed the growth to creative, tailored promotional offerings and empowered regional leadership, which they plan to replicate globally. CFO Doug Hekking noted that recent regional trends are expected to continue, with China remaining a key focus. Regarding Hiya, Hekking explained the updated guidance reflects increased confidence in their forecast models and confirmed it includes minimal impact from channel expansion. CEO Jim Brown added that India is growing well from a small base but is not yet significant to overall results.

Anthony Lebiedzinski from Sidoti & Company inquired about the tangible benefits and timeline from the recent Las Vegas convention, the drivers behind the accelerated product development cycle, details of the upcoming product pipeline, and the impact of reduced advertising spend on sales.

Answer

Chief Commercial Officer Brent Neidig explained that convention feedback indicates rebuilt trust with sales leaders, with momentum expected in Q4. He attributed faster product development to internal restructuring, not increased headcount. Neidig also outlined a 2025 product strategy focused on upgrading existing products, starting in the U.S. and expanding globally. CEO Jim Brown noted SKU counts would be managed over the product lifecycle. CFO Doug Hekking added that reduced advertising was a strategic shift away from low-return activities.

Anthony Lebiedzinski from Sidoti inquired about the observed uneven demand trends during the first quarter of fiscal year 2026, specifically noting volatility around the Labor Day period. He also asked for details on the new Section 232 tariffs, including the level of surcharges implemented and their anticipated impact on sales and gross margins. Furthermore, Lebiedzinski sought clarification on Flexsteel's goals for new product sales as a percentage of total revenue and the pricing strategy for these new offerings relative to the core business. He also questioned the growth objectives for the case goods business and the factors influencing the quarter's lower tax rate and the outlook for the remainder of the year.

Answer

President and CEO Derek Schmidt explained that weekly store traffic and sales, along with orders, were highly volatile, with weak periods leading up to Labor Day followed by strong performance during and immediately after the holiday, then another drop. He attributed this to uncertainty around tariffs and the macro environment, noting that strained consumers seek deals during holidays. Regarding tariffs, Schmidt detailed that the surcharge on in-stock source products increased from 8.5% to 15% (covering half of the eventual 30% tariff), and a 15% surcharge was applied to made-to-order USMCA compliant products, which previously had no tariff. He anticipates some demand decline due to these price increases across the industry. For new products, Schmidt stated a long-term goal of 30-40% of sales from products launched within the last three years, noting that Q1 FY26 sales were over 50% from new products. He emphasized bringing better value at similar or lower prices. For case goods, Schmidt mentioned internal goals but declined to share publicly for competitive reasons, highlighting it as a critical future growth driver. CFO Mike Ressler clarified that the lower tax rate was due to discrete items, including a change in reserve for uncertain tax positions, higher R&D tax credits, and lower foreign taxes, expecting a slightly higher rate for the rest of the year.

Anthony Lebiedzinski asked about any specific factors that contributed to the lower-than-expected tax rate in the first quarter and sought guidance on the anticipated tax rate for the remainder of the fiscal year.

Answer

Mike Ressler (CFO) attributed the lower tax rate to a change in reserve for uncertain tax positions, higher R&D tax credits, and lower foreign taxes. He advised expecting the rate to be a couple of hundred basis points higher for the remainder of the year.

Anthony Lebiedzinski of Sidoti and Company inquired about the market's reaction to recent tariff-related surcharges, details on new cost-saving initiatives, the intensity of new product innovation, the outlook for inventory levels, and any updates to the capital allocation strategy.

Answer

President and CEO Derek Schmidt explained that tariff surcharges (4% to 8.5%) are at the low end of the competitive set and were implemented alongside a reduction in ocean freight surcharges to stabilize retail prices. CFO Mike Ressler and CEO Derek Schmidt confirmed that multifaceted cost savings are being pursued and are factored into guidance, with the goal of largely offsetting the tariff's margin impact. Schmidt characterized the focus on product innovation as a continuation of a successful, high-intensity strategy. Ressler noted that inventory is well-positioned on top sellers and that the capital allocation strategy of reinvesting 70% of operating cash flow and returning 30% to shareholders remains intact.

Anthony Lebiedzinski of Sidoti & Company, LLC inquired about the sales order cadence during the third quarter, the company's revenue goals for new products amidst tariff uncertainty, the impact of tariff surcharges on guidance, and progress on diversifying product sourcing beyond Vietnam and Mexico.

Answer

President and CEO Derek Schmidt noted that while March orders were seasonally typical, a significant slowdown occurred in April following tariff announcements. He reaffirmed that new products, which constitute over half of current sales, remain a core investment priority. Schmidt also detailed that the company is actively exploring alternative sourcing options to mitigate tariff risks and will work with partners to minimize consumer price impacts. Executive Michael Ressler added that the Q4 guidance assumes a 10% Vietnam tariff and that while competitors have also issued surcharges, the near-term margin impact for Flexsteel is expected to be minor, with a potentially larger effect in subsequent quarters if tariffs persist or increase.

Anthony Lebiedzinski asked about the drivers for Flexsteel's Q2 revenue outperformance, the growth breakdown between core business and new initiatives, trends in ocean freight costs, the outlook for SG&A, the potential financial impact of Mexican tariffs, and future capital allocation priorities.

Answer

CEO Derek Schmidt attributed the revenue beat to broad-based growth, with core Flexsteel brands up 7% and new expansion initiatives up 92%. Executive Michael Ressler explained that volatile ocean freight costs are being passed through via surcharges. Schmidt guided for SG&A to be managed in the 15% to 15.5% of sales range. Regarding tariffs, Ressler quantified a potential $1.5-$2 million monthly cost increase from a 25% tariff on Mexico, for which Schmidt confirmed they have mitigation plans. Ressler stated near-term cash will serve as a cushion, with a long-term strategy to reinvest 70% in the business.

Anthony Lebiedzinski asked about the breakdown of sales growth between the core business and new initiatives, consumer sell-through trends at retail, the performance of the e-commerce channel, drivers for the reduction in SG&A expenses, and the company's current revenue capacity.

Answer

President and CEO Derek Schmidt explained that growth was broad-based, with the majority of dollar growth from the core business. He noted that while retailer inventory is balanced, consumer traffic remains down. Schmidt also clarified that the Flexsteel brand e-commerce business grew 10%, while the lower-priced Homestyles e-commerce brand declined 26% due to competitive pressures. Executive Michael Ressler added that SG&A savings resulted from prior-year restructuring and that the current network can support over 20% revenue growth before requiring expansion.

Anthony Lebiedzinski with Sidoti & Company inquired about Bassett Furniture Industries' sales trends, specifically asking if August's strength in delivered sales extended to written sales, and requested commentary on Labor Day holiday and quarter-to-date performance. He also questioned the extent of recent pricing increases due to tariffs, their impact on unit volumes, and the outlook for future gross margin upside. Finally, he asked about the pipeline for new product introductions.

Answer

Chairman and CEO Rob Spilman confirmed August was the strongest month for orders, with positive momentum continuing through Labor Day and into September, though overall sales levels remain challenging. He detailed the implementation of surcharges on products from Vietnam (20%) and India (50%) due to tariffs, with plans to integrate these into new product pricing, acknowledging the uncertainty of consumer reaction. Spilman indicated that gross margins are likely to stabilize in the 55-56% range, with future improvements relying on expense leverage and increased sales. Regarding new products, Spilman noted the recent introduction of several expensive whole-home collections, which impacted cash flow and inventory, and stated a more focused introduction strategy for the upcoming market, expressing satisfaction with initial product reception. CFO Mike Daniel added that tariff rollout and consumer perception of higher prices contribute to margin uncertainty.

Anthony Lebiedzinski asked about the sales momentum, specifically if August's strength in delivered sales extended to written sales, and requested insights into Labor Day and quarter-to-date trends. He also inquired about the extent of tariff-driven pricing increases, their impact on unit volumes, potential for further gross margin upside, and the new product pipeline.

Answer

Rob Spilman (Chairman and CEO, Bassett Furniture Industries) confirmed August was the strongest month for orders, with positive trends continuing through Labor Day and into September, noting an improvement over recent periods. He detailed tariff surcharges on products from Vietnam (20%) and India (50%), with plans to integrate these into new product pricing. Rob Spilman and Mike Daniel (CFO, Bassett Furniture Industries) indicated gross margins are likely to stabilize around 55-56%, with future improvements dependent on expense leverage and sales growth, citing ongoing tariff uncertainties and consumer reactions. Rob Spilman also discussed a focused new product introduction strategy following recent whole-home collection launches, expressing satisfaction with initial performance.

Anthony Lebiedzinski from Sidoti & Company, LLC asked for clarification on shipment timing to the open market, the expected impact of increased discounting on gross margins, and the company's long-term store expansion strategy.

Answer

SVP & CFO Mike Daniel clarified that a shipment timing issue with a significant customer was specific to the Lane Venture brand. President, CEO & Chairman Robert Spilman added that the broader open market decline was driven by dealer hesitancy on container orders due to tariff uncertainty. Regarding margins, Spilman stated that while clearance discounting will have a modest effect, he does not anticipate a significant further decline. For store growth, he outlined a conservative pace of a net two to four new stores annually, focusing on strategic markets while also growing the independent dealer and design channels.

Anthony Lebiedzinski asked about recent business trends following a drop in consumer confidence, the health of the company's inventory levels, and the initial strategic response to the newly announced tariffs, including the feasibility of reshoring manufacturing.

Answer

Chairman and CEO Robert Spilman explained that after a strong post-election period, business trends have reverted to the prior year's pace. He clarified that the inventory increase was due to stocking new collections for the spring season, not tariff-related pre-buying. Regarding tariffs, Spilman stated that reshoring the specific imported products is not feasible, but emphasized that with 79% of products manufactured or assembled in the U.S., the company has flexibility to adjust its product mix and focus more on domestic goods.

Anthony Lebiedzinski inquired about recent business trends since the election, the current number and future growth plans for Bassett Design Studios, marketing strategies for the True Custom Upholstery program, and the long-term outlook for gross margins once the housing market recovers.

Answer

CEO Rob Spilman noted that after a brief post-election euphoria around Black Friday, business trends have settled to being 'a little better,' with retail sales up mid-single digits in December. He stated there are around 43-44 Bassett Design Studios, with plans for significant growth in 2025. Spilman also confirmed plans to more aggressively market the True Custom Upholstery program to independent dealers. Regarding margins, both Spilman and Executive John Daniel explained that they do not expect gross margins to climb significantly higher from current record levels, as the focus will shift to offering value and leveraging volume to improve operating margins through lower SG&A.

Anthony Lebiedzinski inquired about Bassett's near-term outlook given Q3's operational disruptions, the sustainability of the higher average ticket, potential gross margin levels in a recovery, and the rollout progress of the Bassett Design Studio concept.

Answer

CEO Rob Spilman acknowledged the tough environment but noted that business improved in late August and September, consistent with historical trends. He explained that the average ticket has been stable around $4,000 for several years and expects it to remain in that range. Spilman expressed confidence in further improving gross margins, particularly on the wholesale side, once factory consolidations are complete, while remaining competitive on price. He also confirmed they have signed up 40 Design Studios and are on track to meet their goal of 50 by year-end, highlighting the program's strong reception and growth potential.

Anthony Lebiedzinski of Sidoti & Company, LLC inquired about the quantifiable impact of Q4 demand disruptions from trade policy uncertainty, the timing of pent-up demand recovery, the most promising new product launches like Fortisyn, the drivers of improved competitive positioning, and an update on the Beyond Apparel initiative's revenue contribution.

Answer

CEO Edmund Ingle explained that the largest disruption was a 20% impact in Asia, but orders are already increasing for Q1. He noted new products like Fortisyn and REPREVE Take Back will meaningfully impact sales in the second half of fiscal 2026. Ingle stated the improved competitive position is primarily in the Americas from plant consolidation, yielding significant savings. He also detailed progress in the Beyond Apparel segment, particularly in automotive and packaging. Executive Chairman Al Carey added that lengthy testing for military and carpet products is complete, with orders now starting.

Anthony Lebiedzinski of Sidoti & Company, LLC asked about the quantifiable impact of Q4 demand disruptions from trade policy, the timing of pent-up demand recovery, the potential of new product launches like Fortisyn and REPREVE Take Back, the source of the company's improved competitive positioning, and the progress of the Beyond Apparel initiative.

Answer

CEO Edmund Ingle quantified the Asia demand disruption at around 20% and noted that order recovery began in August. He highlighted Fortisyn for the Americas and REPREVE innovations for Asia as key growth drivers for the second half of the fiscal year. Ingle confirmed the primary competitive improvement stems from plant consolidation in the Americas, yielding over $20 million in annual savings. Executive Chairman Albert Carey added that the lengthy qualification for Beyond Apparel products in military and carpet is now complete, with orders beginning to materialize.

Anthony Lebiedzinski from Sidoti and Company inquired about the financial impact of Q4 demand disruptions from trade uncertainty, the timing of pent-up demand recovery, the potential of new product launches like Fortisyn and REPREVE Take Back, the company's improved competitive positioning, and the progress of the Beyond Apparel initiative.

Answer

CEO Eddie Ingle quantified the disruption in Asia at around 20% and noted that order patterns were already improving in Q1. He highlighted Fortisyn for the Americas and REPREVE innovations for Asia as key growth drivers for the second half of fiscal 2026. Ingle confirmed the improved competitive position stems mainly from the Americas plant consolidation, which is expected to yield $20 million in savings. Executive Chairman Al Carey added that the lengthy qualification for Beyond Apparel products is concluding, with orders now starting to materialize.

Anthony Lebiedzinski inquired about the foreign exchange impact in Brazil, the margin potential for the Beyond Apparel category, the business impact from the end of the de minimis rule exemption, the potential sales decline in Asia due to tariffs, and the timeline for realizing cost savings from facility consolidation.

Answer

A.J. Eaker, an executive, quantified the FX headwind at approximately $4 million for the quarter and stated that cost savings from the consolidation would begin to materialize in Q1 fiscal 2026 but not be fully realized until later in the calendar year. Executive Albert Carey noted that margins in new Beyond Apparel markets like carpet and military are at least twice as good as the base business. Executive Edmund Ingle addressed tariffs, suggesting the impact of the de minimis rule change and tariffs could lead to a 10-15% downturn in Asia, but that the company's asset-light model provides mitigation options. Ingle also confirmed continued opportunities in markets like automotive, home furnishings, and packaging.

Anthony Lebiedzinski asked about the primary drivers of sales volume in the Americas and Brazil, the potential scale and timing of the 'Beyond Apparel' initiatives, and the recovery timeline for the Asia segment. He also inquired about the net impact of tariffs, the expected annual cost savings from the Madison facility closure, and the potential for further real estate optimization.

Answer

CEO Edmund Ingle stated that growth in Brazil was from existing clients, while Central America drove the Americas segment's performance. He noted that 'Beyond Apparel' initiatives in carpet and military are just beginning to generate revenue, with capacity expanding in Q4 to meet future demand. Regarding tariffs, Ingle described the situation as uncertain but noted potential benefits for Central America and a significant upside if the de minimis loophole is closed. CFO A.J. Eaker explained the Madison plant closure will yield material savings by consolidating production into the more efficient Yadkinville facility. Eaker provided the Madison facility's book value (~$9M) and size (950,000 sq ft) but did not quantify future annual savings at this time.

Anthony Lebiedzinski of Sidoti & Company, LLC inquired about several key areas, including the specific sales impact from recent hurricanes on the Americas segment, the sustainability of Brazil's high gross margins, the potential for margin recovery in the Asia segment, the margin profile of the 'Beyond Apparel' business, marketing plans for new products, and the progress of ongoing cost reduction initiatives.

Answer

A.J. Eaker, CFO, quantified the hurricane's sales impact at approximately 1% consolidated and 2% for the Americas segment in Q1, with some effects lingering into Q2. CEO Edmund Ingle described Brazil's Q1 margin as exceptional, expecting a seasonal dip in Q2 before normalizing in the second half. Regarding Asia, Eaker and Executive Albert Carey attributed the margin dip to a delayed high-profit product line, expressing confidence in a long-term recovery. Eaker noted 'Beyond Apparel' margins are significantly better, potentially 30% higher than core products. He and Carey also detailed a multi-pronged marketing strategy for new innovations, including trade shows, roadshows, and leveraging major brand partners' marketing power. Finally, Eaker stated the company is about halfway through its cost-saving efforts, likening it to the 'fourth or fifth inning' of a baseball game.

Anthony Lebiedzinski inquired about the financial impact of the Lori Goldstein brand divestiture, the revenue and profitability outlook for the third and fourth quarters, the company's current liquidity position following a recent stock offering, and the status of the Ormy initiative.

Answer

CFO James Haran quantified the revenue and EBITDA from the divested Lori Goldstein brand, noting that retained brands showed improved year-over-year EBITDA. CEO Robert D'Loren stated that Q3 and Q4 are on target, with early launches of new influencer brands, but cautioned about a potential delivery delay from a new licensee. D'Loren and Haran confirmed that the recent capital raise provides adequate liquidity for operations and new brand launches. D'Loren also provided an update on the Ormy platform, noting progress in user growth and platform improvements.

Anthony Lebiedzinski of Sidoti & Company, LLC asked for clarification on the revenue impact from the divested Lori Goldstein brand, how the significant growth in social media followers translates to revenue, how operating expenses will scale with business growth, and for an outlook on second-quarter performance.

Answer

CFO James Haran quantified the Lori Goldstein brand's prior-year revenue impact as $1.1 million in Q1 and $1.4 million in Q2 2024. CEO Robert D'Loren explained that new influencer brands have the potential to generate $5 million to $10 million in royalty income annually per brand over time. Haran added that the cost structure is scalable, with future costs being primarily variable commissions tied to revenue. Regarding Q2, D'Loren stated the company was comfortable with current analyst estimates.

Anthony Lebiedzinski asked for more color on Q4 revenue expectations, the potential competitive impact from macro retail inventory levels, the growth trajectory for the Orme marketplace, details on further operating cost reductions, and the potential need for a future capital raise.

Answer

CEO Robert D'Loren indicated that Q4 revenue should hold with forecasts, contingent on year-end shipments. He noted that while high retail inventories could create promotional pressure, he doesn't expect a material impact. For Orme, the focus is on selectively adding luxury brands to reach a target of 500-600. D'Loren also identified an additional $500k-$750k in potential operating expense cuts for Q1 2025. He concluded that a capital raise would only be considered if needed for accretive transactions in the pipeline.

Anthony Lebiedzinski of Sidoti & Company, LLC inquired about Xcel's brand portfolio strategy following the Lori Goldstein divestiture, the growth outlook for key brands, the performance metrics of the Orme app, and the path to sustained profitability.

Answer

Executive Robert D'Loren identified C. Wonder and TWRHLL by Christie Brinkley as having the most significant growth potential. He noted the Orme app generated 20,000 downloads in its initial weeks and is focused on onboarding premium brands. Regarding profitability, D'Loren projected the company would be at least breakeven on an adjusted EBITDA basis for the remainder of the year, with the Halston license ramp-up, though slightly delayed, expected to drive growth into 2025.

The analyst inquired about the impact of recent price increases on volume, the status of the Dolly Parton product line at Dollar General, the profitability of the international segment and progress on Project Concord, and the reasons for increased distribution expenses.

Answer

Management explained that price increases were implemented but did not affect Q2 results. The Dollar General program was delayed by tariff issues but remains strong, with delayed shipments expected in Q3. The international segment's bottom line was impacted by an inventory write-off, but cost-saving initiatives are on track for the second half of the year. Higher distribution costs were attributed to lower absorption of fixed costs due to reduced shipment volume and expenses related to a new warehouse management system.

Anthony Lebiedzinski of Sidoti & Company, LLC inquired about the Q2 impact of pricing versus unit volumes, the status of the Dolly Parton product line at Dollar General, the financial performance of the international segment including Project Concord, and the drivers behind increased distribution expenses.

Answer

CEO Robert Kay clarified that price increases implemented during the quarter did not impact Q2 results. He noted that shipments to Dollar General were delayed due to tariffs but are expected to resume in the second half of 2025. Regarding the international segment, he mentioned an inventory write-down but stated they remain on track for second-half financial improvements. CFO Laurence Winoker attributed higher distribution costs to lower shipment volumes impacting fixed cost absorption, a new warehouse management system, and increased freight out, with CEO Robert Kay adding that some inefficiencies are expected until a new warehouse goes live in 2026.

Anthony Lebiedzinski asked for a breakdown of the Q3 sales shortfall, details on the significant increase in distribution expenses, and the updated outlook for the International segment within the new guidance.

Answer

Executive Robert Kay clarified the sales miss was due to mass channel softness and a delay in the Dolly Parton program shipments, which shifted from Q4 2024 to Q1 2025. Executive Laurence Winoker explained that of the year-over-year increase in distribution expenses, approximately $2 million was nonrecurring, related to asset retirement obligations and inefficiencies from a new warehouse management system implementation. Regarding the International segment, Robert Kay stated that while it will not be profitable in 2024, its performance is improving year-over-year, with a more significant positive impact expected in 2025.

Anthony Lebiedzinski of Sidoti & Company, LLC inquired about the expected full-year financial impact of the Pillar five acquisition in fiscal 2027. He also asked about the strategies being used to maintain Clear Eyes' brand strength during supply shortages and questioned the sustainability of the strong growth seen in the international segment.

Answer

CFO & COO Christine Sacco reiterated that the Pillar five deal is primarily strategic to secure supply and is expected to remain largely neutral to the P&L, with a focus on cost avoidance rather than immediate accretion. Chairman, President & CEO Ron Lombardi explained the Clear Eyes brand strategy involves prioritizing top SKUs and managing marketing to align with product availability, noting the entire category has shrunk. Sacco also expressed confidence in the international segment's ability to achieve its long-term 5%+ growth algorithm, driven by brand and geographic expansion.

Anthony Lebiedzinski questioned if there were opportunities to increase domestic sourcing for products currently sourced internationally. He also asked about the company's innovation strategy, specifically regarding the volume of new product launches and their margin profile.

Answer

CFO & COO Christine Sacco stated that while they are exploring sourcing options to mitigate tariff impacts, particularly from China, the current ~$15 million headwind is considered manageable. Chairman, President & CEO Ron Lombardi explained that the company focuses on a long-term innovation pipeline rather than targeting a specific percentage of sales from new products. Christine Sacco added that a key principle is that all new innovation must be margin-accretive to its brand.

Anthony Lebiedzinski asked about the long-term potential for gross margin to return to pre-COVID levels and questioned the company's current appetite for M&A given its strong cash flow and reduced variable debt.

Answer

CFO and COO Christine Sacco stated that while they expect to gradually increase gross margin over time, the primary goal is to maintain a low to mid-30s EBITDA margin, which may involve reinvesting gross margin gains into A&M or G&A. She affirmed that the appetite for M&A is 'as healthy as ever' and the company continues to look for opportunities that fit its disciplined criteria, with cash now building on the balance sheet to support these efforts.

Anthony Lebiedzinski asked for details on the company's e-commerce revenue as a percentage of sales and its geographic mix. He also questioned if the company can return to its long-term 2-3% organic growth algorithm post-Clear Eyes issues, and inquired about the impact of air freight costs on gross margin for the remainder of fiscal 2025.

Answer

CFO Christine Sacco responded to all questions. She stated that e-commerce currently represents about 15% of total business and is largely concentrated in North America. Regarding long-term growth, she affirmed that the Clear Eyes supply issue is the primary reason for the lower ~1% growth guidance this year and that nothing fundamental prevents a return to the 2-3% algorithm once resolved. On gross margin, Sacco confirmed that while some air freight costs are expected to continue in the back half of the year, they are anticipated to lessen, and the company maintains its full-year guidance of ~56%, with a long-term goal of returning to historical levels through cost improvements and pricing actions.

Anthony Lebiedzinski of Sidoti & Company, LLC asked about the cadence of same-store sales during the second quarter, any notable regional performance differences, and the key factors providing confidence in the full-year guidance, which implies a significant Q4 acceleration.

Answer

CFO Tyler Loy stated that same-store sales improved sequentially through Q2, with June being the strongest month. President & CEO Emanuel Hilario identified Las Vegas as the most challenged market due to shifts in convention schedules and tourist traffic. Hilario expressed confidence in the Q4 forecast, attributing it to controllable internal factors, primarily the significant opportunity to improve throughput and logistics at Benihana during the high-demand holiday season.

Anthony Lebiedzinski of Sidoti & Company inquired about the monthly cadence of same-store sales during Q1, the factors driving the weaker Q2 comparable sales guidance, and any notable shifts in the competitive promotional landscape.

Answer

CEO Emanuel Hilario stated that within Q1, February was the most challenging month while March performed well, aided by Easter. He attributed the softer Q2 comp guidance to weather impacts, unfavorable shifts in convention schedules in key markets like Orlando and Las Vegas, and general macroeconomic uncertainty. Hilario also observed that competitors in the casual dining space are aggressively using TV advertising with high-value promotions, which The ONE Group is countering with grassroots marketing and its new loyalty program.

Anthony Lebiedzinski of Sidoti & Company, LLC inquired about the monthly sales cadence during the quarter, any notable regional performance differences, the quantifiable impact of suspending special orders from China, potential pricing actions due to tariffs, and which marketing strategies are expected to be most impactful for the remainder of the year.

Answer

CFO Richard Hare provided the monthly written sales cadence, noting a decline in April followed by increases in May and June. CEO Steven Burdette added that performance was consistent across all regions. Burdette explained that while the impact from suspending China special orders wasn't precisely quantified, it affected the design business, and operations should normalize in Q3. He confirmed pricing actions were taken in May and the company is prepared for further adjustments pending final tariff rules, while remaining confident in the existing gross margin guidance. Burdette highlighted the new pricing strategy, targeted marketing, and a successful loyalty mailer as key drivers, with plans to expand promotions for Labor Day and reintroduce direct mail.

Anthony Lebiedzinski inquired about the quantifiable impact of winter storms on monthly sales, geographic sales composition, recent price increases in response to tariffs, competitive promotional activity, and the specific reasons for the reduction in CapEx guidance.

Answer

Richard Hare, executive, detailed the monthly written sales trends, noting a 2% decline in January, a 5% decline in February, and a flat March. President and CEO Steven Burdette added that while the storm impact wasn't quantified, it was significant. He also confirmed that targeted, minimal price increases are being implemented immediately due to tariffs but does not anticipate a major impact on volume. Regarding competition, Burdette noted typical aggressive promotions but nothing unusual. Richard Hare clarified the $3 million CapEx reduction was a prudent measure to hold back on some store expansion spending amid tariff uncertainty.

Anthony Lebiedzinski of Sidoti & Company, LLC inquired about monthly sales trends during Q4, whether positive momentum continued into Q1, regional performance variations, and the drivers for the 2025 gross margin guidance, including the potential impact from tariffs.

Answer

Executive Richard Hare detailed that Q4 delivered sales were consistently down in the low teens, while written sales improved sequentially, finishing nearly flat in December. CEO Steven Burdette declined to comment on Q1 performance but noted that Florida and Georgia showed relative strength. Regarding margins, both executives stated that any tariff impact would be mitigated through vendor partnerships and retail price adjustments, and they do not expect it to affect the 2025 margin guidance, which is being held stable to drive sales volume.

Anthony Lebiedzinski from Sidoti & Company asked for details on monthly sales trends, regional performance differences, the potential for further inventory reductions, and the impact of the recent change in media buyers.

Answer

CFO Richard Hare provided monthly written sales trends, which were consistently down 14-16% throughout the quarter. President Steven Burdette noted that the Midwest and Central districts outperformed Florida and the West. He also stated that inventory levels are now in a good place and are not expected to decrease further, and that the new media buyer has contributed to improving traffic trends since April.

Anthony Lebiedzinski inquired about the performance of the corporate, enterprise, and public sector segments, with a specific interest in any impacts on the public sector business. He also asked for the specific Q2 impact from partner program changes and an early outlook on gross margins for 2026 once these changes normalize.

Answer

CEO Joyce Mullen reported improvements in the corporate segment, with enterprise lagging, and noted the public sector (mostly SLED) is performing well in services and seeing hardware momentum. CFO James Morgado did not provide a specific Q2 impact number for partner changes but reiterated the underlying cloud business grew around 17%. Regarding 2026, management stated it was too early for guidance but highlighted that achieving a record Q2 gross margin despite the headwind shows their ability to manage profitability.

Anthony Lebiedzinski inquired about the potential impact of existing tariffs on the business and whether that uncertainty is reflected in guidance. He also asked if the company was mostly tapped out of opportunities for structural improvements and about the timing of bookings momentum translating to revenue.

Answer

President and CEO Joyce Mullen stated that the guidance contemplates minimal impact from current tariffs, as costs are passed to clients. She emphasized they are 'so not topped out' on structural improvements, with significant room to improve profitability. She also confirmed that the solid bookings momentum is expected to translate to revenue throughout the year, supporting the back-half weighted outlook.

Anthony Lebiedzinski from Sidoti & Company, LLC asked for an update on the SendTech shipping sub-segment's performance, particularly the SaaS component, the status of reversing customer losses in Presort, the company's view on Presort acquisitions, and the assumed share count for the updated EPS guidance.

Answer

CEO Kurt Wolf clarified that while the overall shipping segment was down due to a non-core business, the core shipping software business grew 6% and the SaaS component grew 17% year-over-year. He stated they are close to reversing Presort customer losses but haven't yet. Wolf affirmed that Presort acquisitions remain 'unbelievably attractive' and are actively pursued. He declined to provide a specific share count for the EPS guidance to avoid signaling future repurchase plans.

Anthony Lebiedzinski of Sidoti & Company asked for details on the increased cost savings program, the growth and future targets for the shipping component of SendTech, the sustainability of Presort's strong performance, and an update on tuck-in acquisition strategy.

Answer

Executive Robert Gold detailed that cost savings are broad-based, targeting indirect spend and vendor contracts, which CEO Lance Rosenzweig added is part of a cultural shift. Regarding SendTech, Rosenzweig reiterated the goal for shipping growth to offset mailing declines in 12-24 months. He expressed high confidence in Presort's durable, U.S.-focused model and confirmed the recent tuck-in acquisition was successfully integrated, with plans to pursue similar small deals while avoiding large M&A.

Anthony Lebiedzinski asked for clarification on one-time items affecting EBIT, the sustainability of high Presort margins, the timeline for SendTech's margin recovery, the growth potential of the shipping subsegment, and the expected quarterly earnings seasonality.

Answer

Interim CFO John Witek clarified that the EBIT outperformance was driven by genuine business performance and accelerated cost savings, not just one-time items. He affirmed that the high 20% EBIT margins in Presort are sustainable due to pricing, mix, and productivity. Witek projected that by 2026, SendTech's shipping growth would fully offset declines in the mailing business. CEO Lance Rosenzweig emphasized the long-term growth opportunity in the large shipping market. Witek also confirmed that historical earnings seasonality, with stronger Q1 and Q4, is expected to continue.

Anthony Lebiedzinski asked about the impact of the SendTech product migration on future results, the sustainability of strong performance in the Presort segment, the reason for increased corporate expenses despite cost-cutting initiatives, and the primary tailwinds and headwinds for 2025.

Answer

CEO Lance Rosenzweig and CFO John Witek explained that the SendTech IMI migration is nearly complete, leading to a temporary revenue headwind from increased attrition and a shift to lease extensions, but a positive impact on cash flow. CEO Rosenzweig affirmed that Presort's strong performance is expected to continue. CFO Witek clarified that higher corporate costs were due to a variable compensation headwind from better goal attainment, which offset savings. For 2025, CEO Rosenzweig cited shipping growth and Presort strength as tailwinds, with the IMI migration completion and shift to leases in SendTech as headwinds.

Anthony Lebiedzinski asked for guidance on gross margin expectations for the second half of the year, which vertical markets appear most promising, and for specific examples of the company's investments aimed at driving long-term growth.

Answer

CFO Thomas Baker projected that gross margins would likely remain stable around current levels, as the primary headwind from licensing program changes has now been absorbed. President & CEO Timothy McGrath identified retail and manufacturing as particularly promising verticals for the second half. McGrath also detailed a three-pronged investment strategy focusing on hiring talent, enhancing sales and solution platforms, and implementing internal AI initiatives to boost productivity and ROI.

Anthony Lebiedzinski of Sidoti & Company inquired about the progression of business throughout Q1, the early outlook for Q2 amid tariff and macroeconomic concerns, and the company's current stance on pursuing acquisitions.

Answer

CFO Thomas Baker noted that Q1 started slow in January and February but finished strong in March, driven by increased customer comfort and some pre-buying ahead of tariffs. CEO Timothy McGrath stated that for Q2, tariffs are a significant concern for customers, but mission-critical projects that drive efficiency are still moving forward. Regarding M&A, McGrath confirmed Connection's 'powder is dry' and they continue to seek tuck-in acquisitions, though the interest rate environment has impacted some opportunities.

Anthony Lebiedzinski of Sidoti & Company, LLC asked about the sales progression during Q4, the outlook for Q1, which vertical markets present the most significant opportunities, the forward-looking relationship between SG&A and gross profit growth, and the potential impact of tariffs on the business.

Answer

CFO Thomas Baker stated that Q4 sales trends were uneven, with a particularly weak November, and guided for flat to low single-digit revenue growth in Q1. CEO Timothy McGrath added that the project pipeline for 2025 looks strong, especially in the Large Enterprise segment and within the retail, healthcare, and manufacturing verticals. Baker explained that 2024's SG&A increase was due to strategic investments in personnel and systems, with growth expected to moderate. He also clarified that a one-time expense of approximately $2.5-$3 million impacted Q4 SG&A. Regarding tariffs, McGrath noted the situation is complex but serves as an opportunity to engage with customers on supply chain planning.

Anthony Lebiedzinski inquired about the expected timing for seeing tangible benefits from strategic investments in AI readiness and technical sales. He also asked for an outlook on the recovery of the Business Solutions segment, the drivers behind its strong gross margin performance despite a sales decline, and whether inventory levels could be reduced further.

Answer

CEO Tim McGrath projected that while AI-enabled PC sales would rise in 2025, benefits from larger on-prem AI implementations are more likely in the second half of 2025 due to customer caution. CFO Tom Baker added that tangible results from sales and technical hiring should appear around Q2 or Q3 2025. Regarding the Business Solutions segment, McGrath noted that SMB customers remain more cautious than enterprise clients. Baker explained the segment's strong gross margin was driven by a favorable mix, including strong cloud and software sales. He also stated that inventory is likely as low as it can go for now, and DSOs are performing well.

Anthony Lebiedzinski asked if the softness in smaller accounts improved in July, questioned the near-term opportunities related to the CEO's 'sense of urgency' comment, and inquired about the size of the addressable market opportunity. He also asked about the need for sales team investments and the company's appetite for future M&A.

Answer

SVP & CFO Tex Clark stated that July's growth remained concentrated in larger customers, as a pullback in promotions impacted smaller account volumes but improved profitability. CEO Anesa Chaibi explained that 'sense of urgency' refers to operational nimbleness and empowering employees to improve customer experience. She described a significant opportunity to expand the addressable market into broader MRO categories and confirmed that investments in the sales organization will be necessary. Regarding M&A, Chaibi affirmed that the company's strong balance sheet supports strategic acquisitions to scale the business, with current pilots helping to define future targets.

Anthony Lebiedzinski of Sidoti & Company, LLC asked about sales trends for smaller SMB clients, the near-term opportunities from the company's increased 'sense of urgency,' the potential size of the addressable market, whether the new strategy requires sales team investments, and the company's appetite for M&A.

Answer

SVP & CFO Tex Clark noted that while July growth was broad-based, it remained concentrated in larger customers as the company pulled back on promotions that historically attracted smaller accounts. CEO Anesa Chaibi explained that the 'sense of urgency' involves operational nimbleness and empowering teams to make real-time customer service decisions. She stated that while there isn't a specific number for the total addressable market (TAM), there is a tremendous opportunity to expand into broader MRO by better understanding customer needs. Chaibi confirmed that investments in the sales organization will be necessary and that the company's strong balance sheet makes strategic M&A an option, which will be pursued prudently after current strategic pilots provide more clarity.

Anthony Lebiedzinski inquired about the performance drivers for the Indoff business and core SMB clients, the reasons for minimal SD&A expense growth, and the anticipated impact of tariffs on future pricing and gross margins. He also asked about customer demand elasticity following recent price increases in April.

Answer

Executive Thomas Clark explained that Indoff's growth was broad-based, continuing a trend from late last year, and not driven by pre-tariff pull-forward demand. He noted that SMB client activity also improved through the quarter. Regarding SD&A, Clark credited cost control measures and better leverage from improving revenue. CEO Anesa Chaibi and Thomas Clark both addressed tariffs, stating the situation is fluid but they are managing it daily with prudent, surgical price increases and are in a strong inventory position, which provides short-term flexibility. They confirmed they have not seen a negative change in demand trends following the initial small price adjustments.

Anthony Lebiedzinski asked about Q4 business trends, the source of positive customer sentiment, the timeline for the Salesforce implementation, inventory levels ahead of potential tariffs, and the outlook for gross margins.

Answer

Thomas Clark, an executive, explained that Q4 revenue was volatile and Q1 was pacing similarly, with positive sentiment driven by larger accounts while the SMB segment remained soft. He noted the Salesforce rollout would be complete by summer 2025, with benefits accruing throughout the year. Clark clarified that the Q4 inventory increase was due to Lunar New Year planning and higher capitalized transit costs, not tariff pre-buys. He expressed confidence in managing margins through a focus on costs, pricing, and the private brand mix.

Anthony Lebiedzinski asked for more color on the weakness in the core SMB customer segment, specifically regarding average order value and frequency. He also inquired about the strategy to better communicate the company's value proposition and which growth initiatives would be most impactful in the near and long term.

Answer

CFO Thomas Clark explained that while customer retention remains healthy, both order frequency and average order value (AOV) are down slightly, with particular softness among smaller, transactional customers. CEO Richard Leeds added that value proposition improvements include enhancing the website to highlight product benefits and reallocating marketing spend to target higher LTV customers. He identified the phased rollout of Salesforce as a key long-term initiative expected to provide state-of-the-art tools for the sales team and drive benefits through the middle of next year.