Brad Thomas

Brad Thomas asked a big-picture question about competition from private convenience stores and Casey's confidence in its insulation from this competition. He also inquired about the state of the consumer, specifically if the government shutdown and its impact on SNAP had any discernible effect on Casey's business.

Answer

Steve Bramlage, Chief Financial Officer, stated that Casey's faces a mixed competitive landscape, including larger regional players in some markets like Des Moines, Iowa, where they perform exceptionally well due to a differentiated offer. He expressed confidence in Casey's ability to compete at the highest level. Regarding the consumer, Mr. Bramlage noted that SNAP represents a very low percentage (less than 2%) of Casey's sales, so the government shutdown had no discernible impact on the business.

Brad Thomas asked about the current inflation outlook, its potential impact on consumers, and any specific provisions in pending legislation that might affect Casey's. He also inquired about key learnings from newer markets like Texas and Florida and the outlook for fuel margins in those states.

Answer

CEO Darren Rebelez stated that significant commodity or grocery inflation is not currently being observed, and consumer buying behavior remains consistent. He mentioned potential benefits from accelerated depreciation legislation but no major consumer-facing impacts. Regarding new markets, he said Texas and Florida are behaving as expected, with strong pizza performance in converted stores. He confirmed that fuel margins are thinner in these states, but this is offset by higher volumes, consistent with the acquisition model.

Brad Thomas asked about the current impact of inflation on Casey's consumers and any potential effects from pending legislation. He also sought new learnings from expansion into Texas and Florida, particularly regarding the sustainability of fuel margins in those states.

Answer

President and CEO Darren Rebelez stated that significant inflation is not currently a major factor, and consumer behavior remains consistent. Regarding new markets, he said Texas and Florida are performing as expected, with strong pizza sales in the rural communities Casey's targets. He reiterated that while fuel margins are thinner in these states, this is offset by higher volumes, a dynamic that was anticipated in the acquisition model.

Brad Thomas asked about the levers Ollie's is utilizing to drive SG&A leverage, especially given the significant increase in new stores, and requested an early outlook on SG&A trends for the upcoming year.

Answer

EVP and CFO Robert Helm explained that the company is focused on long-term positioning, anticipating SG&A leverage in 2026 from the full-year annualization of new stores, a favorable real estate environment, front-loaded openings, and the rolloff of dark rent expenses from Big Lots locations. He expects double-digit top-line growth with mid-teens bottom-line growth, despite reinvestments and cost pressures like medical. President and CEO Eric van der Valk highlighted the multi-year transformation to a digital-first marketing strategy, noting a significant opportunity to reallocate print dollars to digital, which resulted in a net save in Q3 by cutting postcards from non-responders without impacting sales. He views this as a top-line driver rather than an SG&A opportunity.

Brad Thomas inquired about the levers being pulled in SG&A to drive leverage despite increased store openings and sought an early outlook on SG&A for the next fiscal year.

Answer

Robert Helm (EVP and CFO) highlighted benefits for 2026 from the annualization of new stores, a favorable real estate environment, front-loaded openings, and the rolloff of dark rent. He anticipates leveraging SG&A to drive mid-teens bottom-line growth. Eric van der Valk (President and CEO) added that marketing transformation to digital-first, reallocating print spend, is a key lever for top-line growth, not primarily an SG&A saving opportunity.

Brad Thomas asked about SG&A leverage expectations for the second half of the year and the long-term algorithm, and also inquired about cultural changes and the willingness to innovate at Ollie's.

Answer

EVP and CFO Robert Helm explained that while first-half SG&A faced pressure from unforeseen medical costs, they expect to achieve leverage in the second half against higher expenses from the prior year. President and CEO Eric van der Valk emphasized that the business model is fundamentally strong, so changes are 'tweaks' to stay relevant. He stressed the company's strong culture, which is rooted in its founders' values but has been modernized.

Brad Thomas asked about the high-level operating margin outlook for fiscal year 2026, inquiring about the expected net impact of cost and simplicity initiatives, tariffs, and demand challenges on margin expansion. He also asked for more color on the garden segment's outlook for the spring 2026 season, specifically regarding sell-in and category trends.

Answer

Niko Lahanas, Chief Executive Officer, stated that the company intends to expand margins in 2026, though perhaps not as dramatically as in prior years due to having addressed much of the 'low-hanging fruit' and the potential impact of product mix. J.D. Walker, President of Garden Consumer Products, expressed cautious optimism for the garden season, highlighting an expected increase in year-over-year distribution points (up 8% excluding pottery, double digits for manufactured products) and strong execution, while acknowledging the critical role of weather.

Brad Thomas inquired about the high-level operating margin outlook for the upcoming fiscal year, specifically asking about the puts and takes between cost and simplicity initiatives, tariffs, and demand challenges.

Answer

CEO Niko Lahanas stated the company intends to expand margins in fiscal 2026, though perhaps less dramatically than in prior years as the 'low-hanging fruit' has been picked. He also noted the potential impact of product mix. J.D. Walker, President of Garden Consumer Products, added that SKU rationalization, while a top-line drag, has been a significant contributor to strong margins and will continue.

Brad Thomas of KeyBanc Capital Markets inquired about the sustainability of margin improvements from the 'cost and simplicity' program and the near-term impact of tariffs on profitability.

Answer

CEO Niko Lahanas explained that the 'cost and simplicity' program is deeply ingrained and has a long runway for further consolidation and simplification, though he did not provide a specific long-term margin target. CFO Brad Smith added that the primary tariff impact is expected in Q4, with a total fiscal year impact of approximately $10 million, noting that significant sourcing diversification away from China is already underway to mitigate future costs.

Brad Thomas asked for early insights into 2026, particularly concerning the shape of earnings and how it aligns with Somnigroup's longer-term EPS target of mid-20s growth by 2028.

Answer

Scott Thompson, Chairman, President, and CEO, Somnigroup International, highlighted that even with minimum sales growth, the company demonstrates strong flow-through to the bottom line. He confirmed that the three-year EPS glide path is now considered a firm 'target.' Thompson also emphasized the significant, often underestimated, leverage to falling interest rates, noting that a 100 basis point change could equate to $0.18-$0.20 per share (a 7% EPS lift), primarily due to variable debt and reduced costs for 0% financing promotions, excluding any benefits from a recovering housing market.

Brad Thomas from Capital Markets sought early insights into 2026, specifically regarding the expected shape of earnings and how it aligns with the company's longer-term EPS target for 2028, which implies a mid-20s growth rate.

Answer

Chairman, President, and CEO Scott Thompson highlighted that the Q3 results demonstrated robust flow-through from minimal sales growth, reinforcing the feasibility of their 2028 EPS target, which he now considers a firm target rather than a prospectus. He emphasized the significant, often underestimated, leverage to falling interest rates, noting that a 100 basis point drop in rates could equate to $0.18-$0.20 per share (about a 7% EPS lift) due to lower variable debt costs and reduced promotional financing expenses for retailers. This interest rate sensitivity is a key factor for 2026.

Brad Thomas asked about the company's relationship with non-Mattress Firm retailers, inquiring about sales trends, slot counts, and the overall dynamic now that Somni Group owns a major competitor.

Answer

CEO Scott Thompson confirmed that relationships remain strong, stating that net slot counts with third-party retailers were up year-over-year in Q2. He also noted that business with their top five retail partners grew faster than the market, highlighting the success of the new Sealy product and emphasizing that it is 'business as normal' with these key partners.

Brad Thomas congratulated the company on Four Technologies' momentum and asked if BNPL competes with lease-to-own, seeking new learnings from cross-marketing efforts. He also inquired about the 2026 margin outlook, specifically for the leasing segment and Four Technologies, given the challenging revenue outlook.

Answer

Steve Michaels, President and CEO, clarified that Four Technologies (pay-in-four BNPL) is not a competitor to leasing due to significantly different average order values ($125-140 vs. $1100) and product categories. He noted that cross-sell motions are encouraging, leveraging consumer overlap for different product needs. Brian Garner, CFO, stated that the 11-13% EBITDA margin target for the leasing segment remains the North Star, with the primary task being to achieve positive GMV trends to counter deleveraging. He highlighted Four Technologies' strong EBITDA margin (20%+ in Q3, mid-single digits for full year due to Q4 seasonality) and the potential for margin improvement from scale and improving loss rates over several years, aiming to look more like public BNPL comps.

Brad Thomas congratulated PROG Holdings on Four Technologies' momentum and asked about the competitive dynamics between BNPL and lease-to-own, specifically regarding cross-marketing success and customer overlap, and sought insights into the 2026 margin outlook.

Answer

Steve Michaels, President and CEO, clarified that pay-in-four BNPL is not a direct competitor to leasing due to significant differences in average order values ($125-$140 for Four vs. $1,100 for leasing) and product categories. He highlighted the opportunity for cross-sell given consumer overlap, allowing customers to use different products for different needs. Brian Garner, CFO, emphasized balancing investments with high ROI and adhering to the 11%-13% EBITDA margin target for leasing, noting that positive GMV trends are crucial for margin expansion and highlighting Four's profitable growth as an encouraging factor.

Brad Thomas from KeyBanc Capital Markets asked about performance trends by category and channel, efforts to grow with smaller businesses, and the strategy for the Four Technologies business, including customer data leverage and competitive insights.

Answer

CEO Steven Michaels explained that GMV performance is more influenced by specific partner initiatives than by soft durable goods category trends. On Four Technologies, he noted it serves a broader credit spectrum and currently acts as a strong customer acquisition channel for the leasing business. He highlighted the different use cases (lower ticket size for Four) and the potential to de-risk originations across the ecosystem by sharing data.

Brad Thomas of KeyBanc Capital Markets asked how management is reallocating its time to new opportunities, such as accelerating store growth or remodels, now that the company is gaining momentum after a period of being in 'crisis mode' over tariffs.

Answer

CEO Winnie Park acknowledged that the tariff crisis provided a valuable deep dive into merchandising. She stated that with the business now on stronger footing, the leadership team is actively discussing future growth strategies, including store expansion and format evolution, while maintaining a disciplined focus on the core tenets of product, value, and experience.

Brad Thomas of KeyBanc Capital Markets questioned if the current slowed pace of store growth is still appropriate, given the recent stabilization and strength in comparable sales.

Answer

CEO Winnie Park confirmed that the company plans to accelerate store growth moving forward, citing significant white space in markets like the Pacific Northwest. COO Ken Bull reaffirmed the 3,000+ store potential and noted that improving new store productivity provides more confidence for this acceleration.

Brad Thomas asked for an update on management's confidence in Bridget's long-term financial contribution and inquired about the potential timing for when Rent-A-Center's EBITDA pressure might stabilize and return to growth.

Answer

CEO & CFO Fahmi Karam expressed high confidence in Bridget's performance, stating it's on track to meet 2025 guidance and is well-positioned for a 2026 ramp-up. Regarding Rent-A-Center, he projected that the business would begin lapping underwriting changes in the second half of the year and should return to growth in early 2026 as comps normalize and new initiatives take hold.

Brad Thomas asked about current home furnishings industry trends, the drivers behind the recent acceleration in orders, the impact of tariffs on the business and its competitive landscape, and potential areas for further operating cost efficiencies.

Answer

Chairman & CEO Farooq Kathwari acknowledged the challenging environment but highlighted that written retail orders rose 1.6% in the quarter. He explained that tariffs have a limited impact as approximately 70% of furniture is manufactured in North America. Regarding costs, Mr. Kathwari emphasized that technology and vertical integration have enabled a 35% headcount reduction since 2019 and a shift to more efficient digital marketing, helping to maintain strong margins.

Brad Thomas from KeyBanc Capital Markets inquired about the sales cadence during Q2, the drivers for the expected revenue acceleration in the second half of 2025, and the extent of one-time costs impacting gross margin.

Answer

CEO Robert DeMartini explained that Q2 sales started slow but improved, with some demand shifting into Q3. He highlighted the Rejuvenate 2.0 launch and the significant Mattress Firm expansion as key drivers for second-half growth. CFO Todd Vogensen added that ramp-up costs are now largely in the past and tariff impacts are being actively mitigated, expressing confidence that the company will exit 2025 with a gross margin rate above 40%.

Brad Thomas asked about performance by category and channel, efforts to grow with smaller retailers, and the strategy for the Four Technologies BNPL business, including customer cross-sell and data synergies.

Answer

CEO Steven Michaels noted that specific partner initiatives are currently more impactful than soft category trends. Regarding Four Technologies, he explained that it serves as a strong customer acquisition channel for the leasing business and that data from both platforms helps de-risk originations across the ecosystem, though synergies currently flow more from Four to leasing.

Inquired about promotional effectiveness and product strategy in a weak consumer environment, whether financing approval rates from Synchrony have declined, and the company's exposure to potential China tariffs.

Answer

The company is focusing on innovative products like the Climate series and targeted marketing segmentation. There is some consumer hesitancy and slight pressure on financing approval/usage from Synchrony. Exposure to potential China tariffs is minimal.

Asked about the competitive advertising landscape, the potential impact of the election on ad plans, the outlook for the first year after the Mattress Firm acquisition, and an update on commodity costs.

Answer

The company would welcome increased advertising from competitors to grow the category. They have factored potential election-related ad market disruptions into their guidance. They declined to provide a detailed outlook for the post-acquisition business until the deal is finalized. Commodity assumptions are largely unchanged, expecting a ~50 basis point benefit to gross margin for the full year.

Brad Thomas from KeyBanc Capital Markets inquired about the company's potential quarterly revenue output given the strong order backlog and also asked about the future trajectory of SG&A expenses, particularly regarding advertising and other investments.

Answer

Chairman and CEO Farooq Kathwari explained that while the backlog is strong, revenue potential is contingent on resolving raw material supply chain issues, especially for foam and products sourced overseas. He noted improvements, with released shipping containers and increasing foam availability, suggesting revenue should increase in the coming quarters. Regarding SG&A, Kathwari highlighted a shift to more efficient digital advertising, which has lowered costs while expanding reach, a trend he expects to continue. He also mentioned that State Department orders, which had been slow, were picking up again in April.

Brad Thomas asked about the conversion of the extraordinary order backlog into revenue, seeking guidance on a reasonable revenue growth rate for the upcoming quarter. He also inquired about how Ethan Allen is managing inflationary pressures from raw materials and transportation costs.

Answer

Chairman & CEO Farooq Kathwari addressed the questions, stating that while converting the backlog is a challenge due to transportation and raw material issues, the company's 75% North American manufacturing is a key advantage. He projected a potential delivered sales increase of 10% to 20% for the next quarter. Regarding inflation, Kathwari confirmed cost increases, particularly for imported products and freight, and mentioned that the company is considering a small retail price increase in the coming months to offset these pressures.

Brad Thomas of KeyBanc Capital Markets inquired about Ethan Allen's capacity to convert its strong order backlog into GAAP revenue and questioned the current competitive and promotional landscape's effect on future gross margins.

Answer

Farooq Kathwari, Chairman & CEO, explained that manufacturing is nearing pre-COVID levels and estimated that 60-70% of the current backlog could be delivered in the upcoming quarter, with the remainder in the following one. He noted that Ethan Allen's custom-order model, with 75% of products made in-house, provides a competitive advantage as competitors with inventory-heavy models face stockouts. As Ethan Allen's plants return to full capacity, he anticipates a positive impact on margins.