Charles Grom

Charles Grom asked about Five Below's sales per store productivity, noting its return to 2021 levels, and inquired about the performance of their best stores and future opportunities to drive sales higher.

Answer

CEO Winnie Park highlighted the broad-based growth across the store network, driven by a sharpened customer focus on Gen Alpha, Gen Z, and Millennials, effective social media marketing leading to traffic growth, and the successful expansion of value beyond $5 items, including the disbandment of the Five Beyond area for more seasonal stories.

Charles Grom asked for CEO Winnie Park's initial assessment of the Five Beyond concept and for clarification on how much higher the current shrink accrual rate is compared to 2019 levels.

Answer

CEO Winnie Park described Five Beyond as a key part of the store's flexibility, used to feature 'big WOW items' while ensuring any product over $5 delivers exceptional value and relevance. CFO Kristy Chipman confirmed that the current shrink accrual rate is approximately 100 basis points higher than it was in 2019.

Charles Grom asked about the tangible benefits of employees returning to the office and the company's outlook for store growth in the coming years, considering recent new store productivity trends.

Answer

Interim CEO Ken Bull explained that the return to the office has enhanced collaboration, innovation, and speed, particularly in merchandising, by reinstituting physical 'pods' for teams to work together. Regarding store growth, he confirmed the target for next year is 150-180 stores but will likely be at the lower end of that range due to stringent site selection and landlord-related delays. A more detailed outlook will be provided on the Q4 call.

Charles Grom from Gordon Haskett Research Advisors asked Executive Chairman Tom Vellios directly about his commitment to the Five Beyond strategy and whether there have been internal discussions about abandoning it to return to a pure '$5 and below' model.

Answer

Executive Chairman Thomas Vellios affirmed his belief in the Five Beyond opportunity, stating that while the $1-$5 price points are critical, extreme value can also be delivered at higher price points. He stressed the focus is on applying the same disciplined merchandising principles to Five Beyond. Interim President and CEO Kenneth Bull added that they will also re-evaluate the in-store presentation and prototype for Five Beyond.

Charles Grom questioned the overall health of Casey's consumer across income cohorts, seeking evidence of trade-down and regional insights, particularly for border stores in the Texas region. He also followed up on the SEFCO business's drag on the prepared food line, asking about progress and future expectations.

Answer

Darren Rebelez, President, CEO & Board Chair, reported relatively strong performance across all income cohorts for Casey's Rewards members, with the lower-income group shopping at a healthy clip, albeit 160 basis points lower than higher-income cohorts, showing strength in prepared food and dispensed beverages. He noted that Texas (SEFCO) stores are under more pressure due to lacking Casey's full food proposition. Regarding SEFCO's drag, Mr. Rebelez stated that adjustments to assortment and promotional approaches reduced the drag to 110 basis points, with further improvements expected upon kitchen conversions. Steve Bramlage, CFO, added that significant synergy capture from remodels is over a year away due to permitting and construction timelines.

Charles Grom of Gordon Haskett Research Advisors questioned the overall health of Casey's consumer base across different income cohorts, looking for any evidence of trade-down behavior. He also inquired about regional performance, particularly in border stores and the Texas region. Additionally, he asked for an update on the SEFCO business's drag on the prepared food line, noting an improvement, and sought insight into the progress and future outlook for this drag.

Answer

CEO Darren Rebelez noted strong performance across all income cohorts for Casey's Rewards members, with lower-income groups still shopping actively, especially for prepared food and dispensed beverages. He mentioned that SEFCO stores in Texas were under more pressure due to not yet being converted to the full Casey's food proposition. Regarding SEFCO's drag, Darren Rebelez attributed the improvement to assortment adjustments and evolving promotional approaches, while CFO Steve Bramlage clarified that significant synergy capture from remodels is expected a year-plus from now.

Charles Grom asked about the expected duration of the margin drag from the Fikes acquisition on both fuel CPG and prepared foods, and also inquired about signs of consumer trade-down in the basket.

Answer

CFO Steve Bramlage indicated the ~$0.02 fuel CPG drag is a reasonable ongoing assumption, while the prepared food margin drag will take 3-4 years to resolve as it requires kitchen remodels. CEO Darren Rebelez noted positive consumer trade from candy to higher-margin bakery items and significant mix shifts within tobacco and from tobacco to beverages, which are helping boost overall grocery margins.

Charles Grom of Gordon Haskett Research Advisors asked about the company's expectations for price elasticity if it becomes necessary to raise prices on merchandise due to tariffs, and what has been learned from past experiences.

Answer

Executive James Conroy explained that price elasticity will be strategic and depend on the category and specific item, considering its end use. He noted that since all retailers will face similar pressures, he expects broad-based inflation, which historically creates disruptions that benefit the off-price sector.

Charles Grom asked about the company's expectations for price elasticity if it needs to raise prices due to tariffs, and what historical precedent suggests about consumer response in different categories.

Answer

Executive James Conroy stated that price elasticity will be strategically evaluated by category and item, considering its end-use and competitive pricing. He noted that since they expect broad-based inflation across all of retail, Ross should be able to maintain its value proposition. He added that such market disruptions have historically benefited the off-price sector.

Charles Grom asked about the potential headwind from heavier inventory at competitors and requested more detail on Q4 performance in apparel and footwear.

Answer

Group President and COO Michael Hartshorn stated they are comfortable with their own inventory levels, as the year-end increase was a planned build of packaway merchandise. CEO James Conroy added that non-apparel outperformed apparel in Q4, and specifically noted that the footwear business was a comp drag for the quarter.

Charles Grom asked about the sales cadence throughout the third quarter and the composition of the comparable sales growth, specifically the breakdown between traffic and ticket.

Answer

Group President & COO Michael Hartshorn reported that Q3 comps were strongest early in the quarter before slowing due to severe weather. He specified that the comparable sales increase was driven by customer traffic, while other components like average ticket were relatively neutral.

Charles Grom asked about the cadence of business, back-to-school results, and performance within the home and apparel categories during the quarter.

Answer

Group President and COO Michael Hartshorn stated that Q2 comparable sales were strongest mid-quarter but declined to comment on Q3 trends. He reported that cosmetics and children's were the strongest merchandise areas, with home performing in line with the chain average. Shoes were slightly below the average due to tough comparisons, and overall apparel was also in line with the chain.

Charles Grom asked if there was any evidence of demand pull-forward or changes in project sizes due to concerns about future price rises. He also sought an update on the sustainability of the gross margin benefit from lower shrink and a forward-looking view on the SRS margin profile for 2026.

Answer

EVP of Merchandising William Bastek noted there was no significant pull-forward of demand, with customer engagement on smaller projects remaining consistent with late 2024. EVP and CFO Richard McPhail stated that while the company is making great headway on shrink reduction, they are not yet where they want to be. He declined to provide 2026 guidance for SRS but reiterated its potential as a growth engine for the company.

Charles Grom asked about any signs of demand pull-forward, changes in project sizes, the duration of the shrink benefit, and the margin impact of the SRS acquisition into 2026.

Answer

EVP of Merchandising William Bastek reported no significant demand pull-forward and noted customer engagement remains focused on smaller projects. CFO Richard McPhail declined to comment on 2026 but stated that on shrink, the company has seen improvement for six consecutive quarters but is not yet satisfied. He also clarified the SRS operating margin headwind is 15 basis points for fiscal 2025, with a 40 basis point annualized impact.

Charles Grom asked about the progress of cross-selling with SRS and its specific sales contribution in Q3. He also requested a detailed breakdown of the 40 basis point gross margin decline, particularly the impact from SRS, and inquired about the long-term gross margin outlook.

Answer

CEO Ted Decker reported that the SRS integration is proceeding as planned, with early success in cross-selling opportunities. EVP and CFO Richard McPhail specified that SRS contributed $2.9 billion in Q3 sales. McPhail clarified that SRS had an 80 basis point negative impact on gross margin, which was offset by core business strength, including lower shrink. He reiterated that the long-term model assumes a permanent 70 basis point downward shift in the gross margin profile due to the SRS mix.

Charles Grom of Gordon Haskett Research Advisors posed two philosophical questions: whether moving away from China could diminish product innovation, and whether it would be wise to use price more aggressively to capture market share from pressured competitors.

Answer

CEO Tom Taylor asserted that innovation comes from around the world, not just one country, so he does not believe moving from China will hinder their ability to bring new and fashionable products to market. Regarding pricing, he explained that historically, lowering prices on core flooring has not been effective and can lead to internal trade-down. However, he acknowledged the current environment is a share-taking opportunity and said the company will be aggressive where it makes sense, particularly with installation materials.

Charles Grom from Gordon Haskett asked about the competitive landscape, particularly regarding struggling smaller peers, and whether Floor & Decor is actively gaining market share from competitor store closures.

Answer

CEO Tom Taylor confirmed they are seeing anecdotal evidence of competitor closures and believes the prolonged challenging environment benefits Floor & Decor. He cited the wood category as an example where they are likely capturing share from a competitor that closed stores. He expressed confidence in their strong competitive position due to superior inventory, new products, and store execution.

Charles Grom of Gordon Haskett Research Advisors inquired about the product innovation pipeline and the key drivers behind the strong growth in installation materials.

Answer

CEO Tom Taylor highlighted several innovation efforts, including an outdoor product pilot, ongoing product line reviews, and a new adjacent category pilot planned for Q1. An executive added that the expansion of porcelain slabs and new acoustic wood panels are also contributing. President Trevor Lang attributed the success in installation materials to a multi-year strategic decision to adopt a 'supply house' strategy, adding key pro-focused brands to become a one-stop shop for professionals.

Charles Grom questioned the directional change in the multi-price comp lift, which was 220 basis points in Q4 after being higher previously. He also asked why a strong 3-5% comp outlook for 2025 would result in 50-80 basis points of SG&A deleverage.

Answer

CEO Mike Creedon explained the comp lift variance was due to the mix of stores being converted, with later conversions moving from 2.0 to 3.0 formats, which yields a smaller incremental lift. CFO Stewart Glendinning addressed SG&A, explaining the deleverage is caused by the Dollar Tree segment now bearing the full corporate cost burden, with offsetting TSA income only arriving in the second half of the year, alongside new IT investments.

Charles Grom questioned why the 220 basis point lift from multi-price stores was lower than in previous quarters and asked for the rationale behind the expected 50 to 80 basis points of SG&A deleverage on a strong 3% to 5% comp.

Answer

CEO Michael Creedon explained the multi-price lift variance was due to the changing mix of conversions, with more recent conversions moving from 2.0 to 3.0 formats rather than 1.0 to 3.0. Chief Transformation Officer Stewart Glendinning addressed SG&A, noting that post-sale, the Dollar Tree segment bears all corporate costs, which are only partially offset by the TSA in the second half of the year, causing deleverage.

Charles Grom requested a traffic versus ticket breakdown for the 4.6% comp lift in converted stores. He also asked about the four-wall profitability of these stores, given that banner-wide SG&A expenses, excluding the liability charge, were up significantly year-to-date.

Answer

CFO Jeff Davis explained that while a specific breakdown for those stores wasn't provided, overall growth is being driven by traffic, with average ticket remaining relatively flat. He confirmed that the SG&A increase was primarily due to third-party labor for the multi-price conversions and higher depreciation from ongoing investments, noting that these investment costs are beginning to level off.

Charles Grom requested a traffic versus ticket breakdown for the 4.6% comp lift in converted stores and inquired about their four-wall profitability, highlighting the 10% year-to-date increase in SG&A dollars at the Dollar Tree banner, excluding the liability charge.

Answer

CFO Jeff Davis explained that while a specific breakdown wasn't provided, the comp lift in converted stores is 'really being driven by traffic.' He acknowledged the SG&A pressure from using third-party labor for the multi-price rollout, which was previously disclosed as a significant headwind for the year. He also identified rising depreciation from cumulative investments in stores, supply chain, and IT as another key driver of higher SG&A.

Charles Grom asked about the sales impact from Big Lots' liquidations, whether an inflection has been seen post-closure, and key operational and talent-related learnings from the Big Lots store acquisitions. He also followed up on the private label credit card rollout.

Answer

Executive Robert Helm explained the Big Lots liquidation impact was complex due to weather, but a positive step-change in momentum has occurred since. Executive Eric van der Valk noted success in recruiting former Big Lots talent and that converting the stores has been faster and more economical than expected. Regarding the credit card, it will be chain-wide by the end of Q1 and is showing promisingly higher basket sizes.

Charles Grom asked for more detail on the recent business acceleration and the impact of the condensed holiday calendar. He also inquired about the growth of the Ollie's Army loyalty program and the trend of attracting younger customers.

Answer

CEO-elect Eric van der Valk confirmed a key promotional flyer was still to come during a meaningful holiday week and expressed confidence in their positioning. He attributed the success in attracting younger customers (18-45 age segment) to sustained investments in digital marketing and relevant product assortments, noting that sales to Ollie's Army members exceed 80% of total sales.

Charles Grom inquired about the strategy and potential costs for winning back lost customers and the logic behind closing only 27 stores, questioning if the Sephora partnership limits closures.

Answer

CEO Ashley Buchanan explained that the first step to winning back customers is to fix the value proposition by restoring proprietary brands, key categories, and coupon accessibility. Only then will the company leverage its large customer database to communicate these changes, avoiding significant incremental marketing costs. CFO Jill Timm addressed the store fleet, stating that the 27 closures are routine 'hygiene' as the vast majority of stores are profitable and cash-flow positive. She confirmed there are no limitations from the Sephora deal on closures and noted that future opportunities lie more in optimizing or relocating stores as leases come due, and potentially expanding with smaller formats.

Chuck Grom from Gordon Haskett inquired about the strategy to win back customers alienated by the deemphasis on private brands and jewelry. He also asked about plans to offset moderating Sephora comps and the impact of warm weather on Q3 sales.

Answer

CFO Jill Timm outlined a plan to recapture customers through increased Q4 marketing investment, including direct mail and targeted offers, to highlight the return of key categories like jewelry and petites. CEO Tom Kingsbury confirmed that warm weather negatively impacted Q3 seasonal sales, but noted that colder Q4 weather and a higher penetration of non-apparel categories like home and gifts should provide a tailwind.

Charles Grom asked about the percentage of Sephora customers cross-shopping in the store and how that has trended. He also inquired about early reads on the Babies "R" Us launch, its potential impact on comps, and the expected phasing of comps and gross margins in the second half of the year.

Answer

CEO Thomas Kingsbury reported a stable cross-shop rate, with about 35% of Sephora baskets containing another Kohl's item, typically from women's, juniors, or accessories. CFO Jill Timm added that these customers shop more frequently, driving positive transaction growth. Regarding Babies "R" Us, Kingsbury noted it's early, but initial top-sellers are high-ticket items like baby gear and furniture. Timm projected that back-half sales would build as initiatives like Babies "R" Us, new impulse lines, and expanded holiday gifting assortments ramp up, while margins would be relatively consistent between Q3 and Q4.

Charles Grom asked about the scale of the digital multi-vendor mailer (MVM), whether it is replacing the print version, and what the company has learned from the initiative so far.

Answer

Executive Ron Vachris explained that the digital MVM is incremental to the mailed version and offers greater flexibility for promotions, reaching about 40 million members. Executive Gary Millerchip added that they have just begun personalizing the digital MVM based on member shopping history, with encouraging early results in engagement.

Charles Grom of Gordon Haskett asked about Costco's opportunity to gain more wallet share from its affluent shoppers and requested an explanation for the favorable 5 basis point impact from the 2% executive member reward.

Answer

Executive Ron Vachris affirmed that Costco absolutely has the right to earn more wallet share from affluent customers by continuing to offer high-quality brands and excellent value through Kirkland Signature. Executive Gary Millerchip explained that the favorable 2% reward impact was a Q1 true-up. The company accrues conservatively for the reward throughout the year, and the adjustment in Q1 reflects the actual spend, effectively offsetting some of the accrual increases from the latter half of the prior year.

Charles Grom asked about the U.S. rollout status of membership card scanners and their impact on new sign-ups. He also requested color on the sequential change in the 'other business' gross margin, specifically the contribution from e-commerce versus gas.

Answer

Ron Vachris, an executive, confirmed that about 350 U.S. warehouses have the scanners, with positive reactions from members and operators leading to a lift in both new sign-ups and renewals. Gary Millerchip, an executive, explained that the margin improvement in 'other businesses' was driven by relatively similar impacts from both e-commerce, which benefited from strong sales and fulfillment efficiency, and gas margins, which saw a tailwind while cycling a weaker prior-year quarter.

Charles Grom asked about the success and maturation of the 'Fresh 2.0' initiative and its impact on member basket size. He also requested clarification on any specific factors affecting the earnings cadence throughout the upcoming fiscal year.

Answer

CEO Robert Eddy described Fresh 2.0 as an 'unmitigated success' that drives members who shop produce to visit more often, build larger baskets, and renew at higher rates, ultimately boosting overall club traffic. For the earnings outlook, CFO Laura Felice highlighted two key items for modeling: the tax rate is expected to be lowest in Q1, and Q3 results will lap a prior-year benefit of approximately $0.10 per share from net legal settlements.

Charles Grom of Gordon Haskett Research Advisors raised two points: first, he asked about the puts and takes for the fourth-quarter merchandise margin guidance, which he viewed as potentially conservative. Second, he inquired about the long-term strategy to increase membership density per club, noting the opportunity relative to competitors.

Answer

Chairman and CEO Bob Eddy addressed the membership density question, attributing recent success to a significant improvement in tenured renewal rates to 90% and innovative member acquisition strategies, with over half now coming from digital channels. CFO Laura Felice responded on margins, stating the flat year-over-year guidance for the full year reflects the positive impact from the CMP initiative being offset by strategic investments in the lower-margin, high-traffic fresh business.

Charles Grom of Gordon Haskett Research Advisors questioned the Q4 merchandise margin guidance, suggesting it seemed conservative. He also asked about the long-term strategy for increasing membership density within the existing club footprint.

Answer

CEO Robert Eddy highlighted the significant opportunity to grow membership density, attributing recent progress to improved renewal rates (near 90%) and effective digital acquisition strategies. CFO Laura Felice defended the flat full-year margin guidance, explaining that while Q3 was strong, the outlook accounts for ongoing investments in the fresh and CMP initiatives.

Charles Grom asked if management could quantify how much Q1 results exceeded internal plans to better understand the conservatism in the reiterated full-year guidance. He also inquired about May sales trends.

Answer

CFO Laura Felice attributed the decision to maintain guidance to the dynamic and fluid macroeconomic environment. She declined to quantify the Q1 beat against internal plans or comment on current sales trends for May, but reiterated that the company was very pleased with the 3.9% comparable sales growth achieved in the first quarter.

Charles Grom of Gordon Haskett asked if management could quantify how much the company exceeded its internal Q1 plan to help assess the conservatism in its full-year guidance, and also inquired about May sales trends.

Answer

CFO Laura Felice attributed the decision to maintain guidance to the dynamic and fluid macro environment. She declined to comment on the degree of the Q1 outperformance versus internal plans or on current sales trends for May, but expressed satisfaction with the 3.9% comp growth in Q1.

Charles Grom asked by how much BJ's exceeded its internal Q1 plan and inquired about May sales trends relative to April's strength.

Answer

CFO Laura Felice stated that while the company was very pleased with the 3.9% Q1 comp, she would not comment on current-quarter trends or quantify the performance against internal plans. She cited the dynamic and fluid macro environment as the reason for maintaining the full-year guidance despite the strong start to the year.

Charles Grom asked about the guidance, seeking to understand the level of conservatism by inquiring how much the company exceeded its internal Q1 plan and how May sales were trending.

Answer

CFO Laura Felice attributed the maintained guidance amidst a 'wider range of outcomes' to the dynamic and fluid macro environment. She declined to comment on internal plans or current monthly trends but highlighted the strength of the 3.9% Q1 comp as proof of business momentum.

Charles Grom from Gordon Haskett Research Advisors asked about the success and maturation of the 'Fresh 2.0' initiative, including its impact on basket size. He also requested guidance on the earnings cadence for the upcoming year.

Answer

CEO Robert Eddy described 'Fresh 2.0' as an 'unmitigated success,' driving traffic across the entire club, not just in produce. He noted that members who shop fresh visit more often, have larger baskets, and renew at higher rates. CFO Laura Felice advised that for modeling purposes, the lowest tax rate is expected in Q1 and that Q3 will lap a prior-year legal settlement benefit of approximately $0.10 per share.

Charles Grom requested color on the 5% comp performance across categories like apparel and home, how those businesses are planned for FY26, and where the company's shrink accrual level stands relative to 2019.

Answer

CEO Ernie Herrman stated that while both apparel and home were up, the home and accessories businesses were stronger, a trend they expect to continue. He emphasized the unique strength of the home business, particularly with goods sourced from Europe. CFO John Klinger declined to disclose the specific shrink rate but confirmed they see an opportunity for continued improvement.

Charles Grom asked about Walmart+ membership growth trends, the impact of Walmart+ Assist, and the underlying inflation assumptions for grocery and general merchandise in the guidance.

Answer

Walmart U.S. CEO John Furner reported consistent growth in Walmart+ and a strong start for same-day pharmacy delivery. He stated the company plans for a normalized inflation year of 1-2%. Sam's Club CEO Chris Nicholas added that Sam's Club membership and renewal rates are at all-time highs. Walmart International CEO Kath McLay noted strong membership income growth in China.

Chuck Grom asked about the company's long-term operating margin structure, questioning if it can improve from the current ~5% level or if significant investments in labor or price are required first.

Answer

CEO Todd Vasos stated that while they are focused on improving the rate, he does not believe a large investment in store labor hours is necessary. CFO Kelly Dilts reiterated the long-term goal of double-digit EPS growth, supported by numerous drivers including shrink reduction, supply chain efficiencies, and the DG Media Network.

Charles Grom asked about the significant improvement in cost of goods sold since 2019, questioning how much of the gain is structural and can be sustained as top-line trends improve.

Answer

CFO Jeff Howie stated that a large portion of the margin improvement is sticky and sustainable. He credited the gains to a high e-commerce mix, retail fleet optimization, significant pricing power (which contributed ~390 basis points), and durable supply chain efficiencies, where the team continues to find new savings opportunities.

Charles Grom inquired about the sales cadence during Q2, early results from the back-to-school season, and the expected phasing of comps in the back half, considering the shorter holiday shopping period.

Answer

CEO Laura Alber stated that intra-quarter sales cadence is not a relevant predictor but highlighted that the back-to-school season, particularly the dorm category, was a significant success showing positive growth and high margins. CFO Jeff Howie added that the impact of the shorter holiday season is embedded in their guidance, which anticipates a continuation of first-half trends at its midpoint, with a wide range to account for macroeconomic uncertainty.

Charles Grom asked about the future opportunity set for Lowe's Perpetual Productivity Improvement (PPI) initiatives and inquired about any commonalities among the company's top-performing regions.

Answer

Chairman and CEO Marvin Ellison described the PPI opportunity as being in the 'early innings,' calling it a 'gift that keeps on giving' driven by technology and process improvements, with more details to come at the investor conference. He also stated that, excluding hurricane impacts, regional performance was relatively consistent across the country.

Charles Grom requested an early framework for the upcoming year regarding store count and margin dynamics, and asked about the key factors influencing a return to the company's long-term 4-5% comparable sales growth target.

Answer

CEO Hal Lawton outlined a plan to accelerate new store growth from 80 to 90 next year while maintaining a steady remodel pace. He explained that returning to the long-term comp algorithm depends on two primary macro factors: the normalization of inflation/deflation trends and a stabilization in the consumer spending shift from goods to services.

Charles Grom asked for an early framework for 2025, including store count and margin expectations, and questioned the key factors influencing a return to the company's long-term 4-5% comparable sales growth target.

Answer

CEO Hal Lawton outlined plans to increase new store openings from 80 to 90 in the upcoming year while maintaining a consistent remodel pace. He stated that a return to the long-term comp algorithm is dependent on two primary macro factors: the normalization of inflation/deflation and the consumer spending shift between goods and services.

Asked for details on the Rack's Q2 comp performance (traffic, ticket, cadence), a read on Q3 trends, and the sustainability and banner contribution to the high gross margin.

Answer

The Rack's comp performance was solid throughout the quarter, with strong digital traffic. The company did not comment on Q3 trends. The high gross margin was a result of strong performance at both banners, but the company is planning cautiously for the back half of the year.