Chuck Cerankosky

Chuck Cerankosky, Managing Director and Principal at Northcoast Research, asked for clarification on Natural Grocers' new store opening program, specifically regarding net closures, the definition of relocations versus remodels, and their timing. He also questioned how strong sales in typically expensive categories like meat, dairy, and produce align with cautious consumer behavior and if this was reflected in a reduction of items per basket. Additionally, Cerankosky inquired about the impact of a decline in the high-margin supplements category on the overall P&L.

Answer

Co-President Kemper Isely confirmed one store closure in Q1 with no further closures expected this year, and clarified that the 6-8 new stores are in addition to 1-3 relocations or remodels. Regarding consumer behavior, Isely explained that while meat, dairy, and produce saw growth, the decline in items per basket was more evident in categories like supplements, body care, and health and household items, where units sold decreased due to zero inflation in supplements. Isely noted that the decline in supplements had a slight impact on the P&L, but overall cash register ring margin remained flat due to margin pickups in other categories.

Chuck Cerankosky inquired about the new store opening program for the current fiscal year, specifically asking about net closures and the definitions of relocations versus remodels. He also questioned how the strong sales growth in typically more expensive categories like meat, dairy, and produce aligns with cautious consumer spending, and if this is reflected in reduced items per basket. Additionally, Cerankosky asked about the impact of a slight sales decline in the high-margin supplement category, attributed to zero inflation, on the overall P&L.

Answer

Co-President Kemper Isely clarified that there was one store closure in October, with no further closures planned, and that the company expects 6-8 new stores plus 1-3 relocations or remodels. Isely explained that while supplements, body care, and health/household items saw unit declines due to factors like zero inflation in supplements, grocery experienced good unit growth. He confirmed that the decline in the high-margin supplement category had a slight impact on the P&L, but the overall cash register ring margin remained flat due to gains in other categories.

Chuck Cerankosky inquired about the strategy to increase Natural Grocers' own brand penetration, particularly given current consumer price sensitivity, and asked about specific penetration goals for the coming years.

Answer

Kemper Isely, Co-President, confirmed aggressive marketing of Natural Grocers' own brands, highlighting compelling prices, especially in bulk items. He stated the company's goal is to increase own brand penetration by one full percentage point per year, aiming for 10.8% or 11% in two years.

Chuck Cerankosky inquired about the strategy to increase Natural Grocers' own brand penetration, particularly given current consumer price sensitivity, and if this is an opportune time to highlight the value of these products.

Answer

Co-President Kemper Isely confirmed that the company is extensively marketing its own brands, especially bulk items, due to their compelling prices. He stated the goal is to increase own brand penetration by one full percentage point annually, aiming for 10.8% or 11% in two years.

Chuck Cerankosky asked for insights into the performance of non-coatings sales, such as supplies, brushes, and sprayers, within the Paint Stores Group, as an indicator of professional contractors' sentiment and changes in their purchasing baskets.

Answer

Head of Investor Relations and Communications Jim Jaye noted that spray equipment sales have been 'flattish,' reflecting the current environment, particularly pressure in new residential construction. Chair, President, and CEO Heidi G. Petz confirmed that 'applied products' (AP) sales, which can be a leading indicator, are also characterized as flat.

Chuck Cerankosky inquired about insights from non-coatings sales, such as supplies, brushes, and sprayers, within the Paint Stores Group, to gauge the mindset of professionals and potential changes in their purchasing baskets.

Answer

Jim Jaye, Head of Investor Relations and Communications, noted that spray equipment sales have been flattish, reflecting the current environment, particularly pressure in new residential. Heidi G. Petz, Chair, President, and CEO, characterized 'applied products' (AP) as a leading indicator, confirming they are currently flat.

Chuck Cerankosky asked about the significance of investor activity in buying and rehabbing houses for Sherwin-Williams contractors within the residential repaint market, and how this trend is reflected in housing numbers.

Answer

Heidi Petz, President and CEO, acknowledged that remodeling activity is 'more favorable' than new residential construction, but the overall market remains choppy. She believed this subsegment is likely 'not enough to offset the core of the residential repaint contractor in general.' Al Mistysyn, SVP of Finance and CFO, added that this activity falls within the residential repaint segment, which is their largest and fastest-growing opportunity, where they are aggressively pursuing new accounts and share of wallet.

Chuck Cerankosky asked about the activity of investors buying and rehabbing houses for resale, how it flows through housing numbers, and its significance for Sherwin-Williams contractors.

Answer

President and CEO Heidi Petz acknowledged that remodeling activity is more favorable than new residential construction, with increasing activity, but noted the overall market remains choppy. She believes this subsegment is not large enough to offset the core residential repaint contractor market. SVP of Finance and CFO Al Mistysyn added that this activity falls within the residential repaint segment, which is the company's largest and fastest-growing segment, and a key focus for new account and share of wallet growth.

Chuck Cerankosky from Northcoast Research asked about the role of product pricing in the company's strategy to gain market share and drive volume growth across its various end markets.

Answer

SVP of Finance & CFO Al Mestyshin stated that the company does not lead with price to win new business. He emphasized that for painting contractors, price ranks lower in importance than factors like consistent quality, service, and the knowledge of sales reps. The strategy is centered on a value proposition that helps customers become more efficient and profitable.

Chuck Cerankosky of Northcoast Research asked about the role that product pricing plays in the company's strategy to gain market share and drive volume growth across its various end markets.

Answer

CFO Allen Mistysyn emphasized that Sherwin-Williams does not lead with price to win new accounts. He stated that according to third-party surveys, price ranks fourth or fifth in importance for painting contractors, behind factors like consistent quality, service, and the knowledge of sales reps, which help contractors be more profitable.

Chuck Cerankosky asked about the impact of declining gasoline costs on customer behavior in stores, particularly regarding prepared food visits and purchases, and the influence of lower gas prices on in-store promotions.

Answer

Steve Bramlage, Chief Financial Officer, acknowledged that lower fuel prices provide guests with more discretionary income. He emphasized that guests are increasingly discerning about spending, appreciating Casey's value proposition. Mr. Bramlage noted strong uptake on whole pie promotions and a trend towards higher-priced specialty pizzas and multi-pack bakery items, indicating that customers are seeking the right value equation of quality and price. He concluded that while low fuel prices help, a robust in-store offer and getting the value equation right are bigger drivers of inside store results.

Chuck Cerankosky asked about the pace of kitchen installations at the acquired CEFCO stores and the timeline for these conversions. He also requested details on CEFCO's existing supply contract, including its expiration and the plan for conversion to Casey's self-distribution.

Answer

CEO Darren Rebelez stated that no kitchen conversions are built into the fiscal 2026 assumptions, as the company is still assessing the existing food program to develop the right remodel scope. He noted that permitting timelines will also dictate the pace, with the bulk of activity likely occurring in the two years following FY26. He clarified that the incumbent supply contract for CEFCO expires at the end of calendar year 2026.

Chuck Cerankosky asked about the expected pace of kitchen installations in the acquired CEFCO stores and for clarification on the timeline for converting these stores to Casey's self-distribution network.

Answer

President and CEO Darren Rebelez stated that no material kitchen conversions are planned for FY26 due to permitting lead times and a deliberate assessment process, with the bulk of remodels expected in the following two years. He also clarified that the inherited supply contract for the CEFCO stores expires at the end of calendar year 2026.

Chuck Cerankosky of Northcoast Research inquired about any observed changes in mid-tier customer spending behavior, specifically if they are pulling back more in line with lower-income customers. He also asked about Fred Meyer's store development and how its higher exposure to general merchandise influences strategic thinking for that banner.

Answer

Chairman and CEO Ron Sargent noted a decline in consumer sentiment, with customers managing budgets carefully, making smaller, more frequent trips, and a continued split where high-income shoppers spend while lower-income and now middle-income customers pull back. He confirmed that Q3 was softer in later parts due to SNAP benefit pauses. Sargent acknowledged that Fred Meyer's higher mix of discretionary and general merchandise likely impacts its performance in this environment but expressed confidence in the banner's overall performance and leadership. CFO David Kennerley added that Kroger continues to experiment with store formats, including large (123,000 sq ft) and smaller (99,000 sq ft) options.

Chuck Cerankosky from Northcoast Research asked for an overview of Kroger's store strategy, including details on store closures, new openings, favored formats, and the geographic focus, particularly in the context of the competitive landscape.

Answer

Interim CEO & Chairman Ronald Sargent explained that the plan to close approximately 60 stores over 18 months is a catch-up effort after pausing closures during the merger process, with minimal financial impact. He emphasized that new store openings are the primary driver of market share and that Kroger will accelerate openings beyond the 30 planned for 2025, focusing on high-growth geographies and utilizing various formats, including the successful Marketplace store.

Chuck Cerankosky of Northcoast Research asked for an overview of Kroger's store strategy, including details on store closures, new openings, favored formats, and how this strategy considers the competitive landscape and the roles of pharmacy and fuel.

Answer

Interim CEO & Chairman Ronald Sargent explained that the plan to close approximately 60 stores over 18 months is part of resuming the annual store review process, which was paused during the merger. He emphasized that new store openings are the biggest driver of market share and that Kroger will accelerate openings, favoring high-growth geographies and a variety of formats, with the Marketplace store being a particularly successful one.

Chuck Cerankosky asked about the remaining opportunities for margin improvement in the shrink area and the specific sources of these improvements, such as lower inventories, reduced spoilage, or less breakage.

Answer

President and CFO Matteo Tarditi stated that the current outlook includes 35 basis points of margin expansion for 2026, rooted in productivity programs, network optimization, and supplier programs. He confirmed that shrink reduction continues to contribute, though perhaps less significantly in dollar terms than other productivity initiatives. Matteo Tarditi emphasized that the relentless effort to eliminate waste, a core principle of lean daily management implemented in 34 distribution centers, will continue for a very long time.

Chuck Cerankosky asked about the remaining realistic opportunities for shrink reduction and its potential sources, such as lower inventories leading to less spoilage or breakage, to contribute to future margin improvement.

Answer

Matteo Tarditi (President and CFO, UNFI) stated that the outlook calls for 35 basis points of margin expansion in 2026, rooted in productivity programs, network optimization, and supplier programs. He confirmed that shrink reduction would continue to contribute, though perhaps less significantly in dollar terms than other programs, as it's a relentless effort driven by Lean principles across distribution centers. The focus remains on eliminating waste and inventory-related waste long-term.

Chuck Cerankosky asked about consumer behavior, specifically how cautious spending and a trend towards healthier eating influence their market basket choices (branded, fresh, private label) and, in turn, UNFI's operations and approach to product suppliers.

Answer

CEO Sandy Douglas explained that consumers are generally eating more healthily, driving growth in natural, organic, and fresh categories. He noted that while health is a trend, cost matters in every category due to guarded spending. UNFI is focused on optimizing the overall cost picture for its customers to help them compete effectively against discounters, ensuring the right assortment for each retailer's strategy to maximize growth. He confirmed UNFI is investing in improving its merchandising capability to better meet customer needs.

Chuck Cerankosky asked about consumer behavior, specifically how cautious spending and a desire for healthier eating influence their market basket choices (branded, fresh, private label) and UNFI's operations and supplier relations. He also asked if UNFI is working with vendors to create optimized programs for retailers based on their business style and purchase volume.

Answer

CEO Sandy Douglas explained that consumers are generally eating healthier, driving growth in natural, organic, and fresh categories. He noted that cost matters in every category due to guarded spending, and UNFI focuses on helping customers manage costs to compete effectively. He confirmed that UNFI is investing in capabilities to improve merchandising and create optimized programs for retailers, viewing it as a major priority with a long runway of opportunity.

Chuck Cerankosky from Northcoast Research asked about the source of new business gains and the outlook for the conventional business volume given the current economic pressures on consumers.

Answer

CEO Sandy Douglas explained that most gains come from expanding relationships with existing customers, primarily by adding natural and specialty products. He noted that while some conventional retailers are performing well, centrally positioned retailers face challenges differentiating from discounters, which is an area of focus for the industry.

Chuck Cerankosky asked to what degree Sprouts would slow down new store openings in response to increased shopper caution and if there's a need to promote new stores differently or more aggressively upon debut.

Answer

CFO Curtis Valentine and CEO Jack Sinclair affirmed strong performance of new stores and continued bullishness on expansion, with no intention of backing off from new store growth. They explained that new stores are performing well due to better site selection and localized marketing efforts, focusing on community engagement rather than aggressive promotions.

Chuck Cerankosky asked to what degree Sprouts would consider slowing down new store openings in response to an increased level of shopper caution. He also inquired if there was a perceived need to promote differently or more aggressively with new stores as they debut.

Answer

Curtis Valentine, Chief Financial Officer, expressed strong confidence in new store performance and the positive customer response, indicating no intention of slowing down new store openings. Jack Sinclair, Chief Executive Officer, reiterated excitement about new stores fulfilling Sprouts' purpose and the effective execution by the teams. Regarding new store promotion, Jack explained that strong openings are driven by better site selection and effective market-specific communication of Sprouts' unique values, rather than aggressive promotional tactics. Curtis added that a focus on local community engagement and building excitement has been key to positive traction in new markets.

Chuck Cerankosky of Northcoast Research noted the Q2 tax rate of 26% versus the full-year guidance of 24% and asked about the potential for Sprouts to achieve a lower long-term tax rate.

Answer

CFO Curtis Valentine explained that the tax team is consistently exploring opportunities, such as tax credits related to food waste diversion. However, he indicated that the 25% to 26% range has been fairly consistent for the company, outside of Q1 impacts from stock-based compensation.

Chuck Cerankosky of Northcoast Research inquired about SpartanNash's Hispanic store format, asking about its geographic concentration, plans for expansion into new markets like Michigan, and the projected store count over the next few years.

Answer

President and CEO Tony Sarsam explained that the company recently opened its fourth Super Mercado Nuestra Familia in Omaha and plans to aggressively open two to three more stores in the Midwest this year, with at least one or two more in Q1 of next year. He confirmed they are looking at moving into Michigan and that expansion will involve converting existing stores, not necessarily their own, in communities they can best serve.

Chuck Cerankosky of Northcoast Research inquired about the growth strategy for SpartanNash's Hispanic store format, asking about its current concentration, plans for expansion into new markets, and the projected store count over the next few years.

Answer

President and CEO Tony Sarsam explained that the company recently opened its fourth Super Mercado store in Omaha and plans to aggressively expand the format. He detailed plans to open two to three more stores in the Midwest this year and another one or two in Q1 of next year, which will involve converting existing retail locations in communities that can be best served by the format.

Chuck Cerankosky of Northcoast Research inquired about the expansion plans for SpartanNash's Hispanic store format, asking about its current concentration, potential for new markets like Michigan, and the expected store count in the coming years.

Answer

President and CEO Tony Sarsam explained that the company recently opened its fourth Super Mercado store in Omaha and plans to accelerate growth by opening several more stores in the Midwest through the remainder of the current year and into Q1 of the next. He confirmed these would be a mix of conversions, not necessarily of existing SpartanNash stores, and that expansion into markets like Michigan is being considered.

Chuck Cerankosky of Northcoast Research inquired about the expansion strategy for SpartanNash's Hispanic store format, Super Mercado Nuestra Familia, asking about its current concentration, plans for new markets like Michigan, and projected store count growth over the next few years.

Answer

President and CEO Tony Sarsam detailed that the company recently opened its fourth Super Mercado in Omaha and plans to aggressively expand with two to three more stores in the Midwest this year and another one or two in Q1 of next year. He confirmed they are considering expansion into Michigan, utilizing conversions of existing retail spaces to serve target communities.

Chuck Cerankosky asked about the practicality of moving production, particularly for apparel, to avoid tariffs and whether such moves simply result in higher costs from new locations.

Answer

EVP, Chief Merchandising Officer Seth Estep explained that the company has been aggressively diversifying its sourcing away from China for three years. He noted that for their private brand apparel, production has already been fully moved out of China. A task force is actively assessing all programs for alternative and domestic supply opportunities.