Chuck Grom

Chuck Grom asked about the drivers behind the recent improvement in new store productivity, specifically whether it's due to opening more stores in existing markets or other factors, and the sustainability of this trend.

Answer

Bryan Langley (EVP and CFO, Floor and Decor) attributed the improved new store productivity to both increased conviction in the stores being opened and the cadence of store openings, with a disproportionate number of stores opened in Q4 (eight stores) and Q3 (five stores) compared to earlier quarters.

Chuck Grom asked about the specific drivers behind the improved new store productivity, noting the shift from low fifties to high eighties, and inquired about the sustainability of this trend.

Answer

EVP and CFO Bryan Langley attributed the improved new store productivity to greater conviction in the quality of stores being opened and the cadence of store openings, highlighting a disproportionate number of openings in Q4 (8 stores) and Q3 (5 stores) of fiscal 2025.

Chuck Grom of Gordon Haskett Research Advisors asked about the long-term outlook for the gross margin rate. He questioned whether the current ~44% level is a good long-term rate or if there are factors that could drive it higher, notwithstanding near-term pressures from new distribution centers.

Answer

CEO Tom Taylor described this as an excellent question with many puts and takes. Positive drivers include the customer shift to 'better and best' products, improved design services penetration, and sourcing efficiencies. Potential headwinds include the growth of the lower-margin commercial business and adjacent categories. While not providing a specific target, he stated he does not believe the margin has peaked and it could go higher over time, though the path will be gradual.

Chuck Grom asked about the health of the U.S. consumer across income cohorts, any surprises during the past holiday season, and how the shopping behavior of GLP-1 users (frequency, basket size) has changed, influencing inventory planning.

Answer

CEO John Furner noted consistent growth with households earning over $100,000, while lower-income households (below $50,000) showed stress, often living paycheck to paycheck. He mentioned a sales impact early in the quarter due to government shutdown benefits. Regarding GLP-1 users, CFO John David Rainey stated that impacts are as expected, with fresh items being a big basket driver, ultimately resulting in a 'wash' for overall growth.

Chuck Grom inquired about the health of the U.S. consumer across income cohorts, any surprises during the past holiday season, and how GLP-1 users' shopping behavior (frequency, basket size) might influence inventory planning.

Answer

CEO John Furner noted consistent growth with households earning $100,000 or more, while the $50,000 and below segment showed stress, with some living paycheck to paycheck. He mentioned a Q4 sales impact from government shutdown benefits that largely recovered. Furner highlighted the MFP pricing changes on branded drugs as a notable shift and reiterated a focus on low prices, with 6,200 rollbacks in Q4. CFO John David Rainey added that GLP-1 users' impact on the business is as expected, with fresh items being a significant basket driver, ultimately resulting in a 'wash' for overall growth.

Chuck Grom asked if Walmart made any changes to holiday assortments due to greater visibility on tariffs and inquired about the potential impact of the maximum fair pricing change in January on health and wellness sales for Q4 and into 2026.

Answer

President and CEO, Walmart U.S., John Furner, stated there were no major changes to holiday assortments, but adjustments were made to quantities purchased, prioritizing gifts and items for kids. EVP and CFO John David Rainey indicated it's premature to quantify the exact impact of maximum fair pricing on health and wellness sales, as information is still emerging, but expects the business to continue growing.

Chuck Grom inquired about any changes made to holiday assortments due to greater visibility on tariffs and the potential impact of the maximum fair pricing change in January on health and wellness sales for Q4 and 2026.

Answer

John Furner (President and CEO, Walmart U.S.) stated that there were no major changes to holiday assortments, but adjustments were made to the quantities purchased, prioritizing items like gifts and back-to-school supplies. John David Rainey (EVP and CFO) indicated it was premature to quantify the exact impact of the maximum fair pricing on health and wellness sales, but he still expects continued growth in that business.

A representative for Chuck Grom of Gordon Haskett Research Advisors asked if comps were positive across all income cohorts and if tariff impacts were changing capital allocation strategy.

Answer

Walmart US CEO & President John Furner confirmed growth across all income groups, noting delivery's broad appeal and excitement about gains with higher-income customers. EVP & CFO John David Rainey stated capital allocation remains focused on high-return investments like tech and automation, and noted they have been aggressive with share buybacks, repurchasing over $6 billion year-to-date.

Chuck Grom asked about the impressive sales waterfall chart, specifically the Class of 2025 achieving $192 million in sales versus $150 million in 2023, and the opportunity to expand on this and improve store productivity.

Answer

Ron Vachris (President, CEO, and Director, Costco Wholesale Corporation) highlighted creative expansion methods, including projects like affordable housing above Costco, and continued opportunities in new and existing markets, aiming for 30+ locations annually. Gary Millerchip (CFO, Costco Wholesale Corporation) added that U.S. and Canada infills accelerate sales quickly, while international markets drive new member sign-ups, both generating strong ROI.

Chuck Grom asked about the opportunity to further expand on the impressive sales performance of new warehouses (Class of 2025 at $192 million vs. 2023 at $150 million) and the steps Costco is taking to continue improving store productivity.

Answer

Ron Vachris, President, CEO, and Director, highlighted a strong expansion horizon, including creative projects like mixed-use developments, enabling entry into previously inaccessible markets. He projected 30+ annual openings, balancing infills and new markets, with robust international growth. Gary Millerchip, Chief Financial Officer, added that U.S./Canada infills quickly accelerate sales, while international markets drive new member sign-ups, both contributing to strong ROI.

Chuck Grom asked for details on Costco's 29 basis point core margin increase, its distribution across categories, observations on recent price increases and unit velocity, and specifics on how the holiday product mix might differ from previous years, particularly in general merchandise.

Answer

CFO Gary Millerchip noted broad-based core margin improvements across fresh, food & sundries, and non-foods, driven by supply chain efficiency, Kirkland Signature penetration, and reduced spoilage. President and CEO Ron Vachris explained that for the holiday season, buyers thinned traditional seasonal categories to introduce new, high-ticket items like backyard sheds and saunas, aiming for relevance with new categories.

Chuck Grom asked about the drivers behind the 29 basis point increase in core margins, observations on recent price increases and unit velocity, and details on the 'different' product mix for the upcoming holiday season, especially in general merchandise.

Answer

CFO Gary Millerchip noted that core-on-core margins improved across fresh, food and sundries, and non-foods, driven by supply chain efficiency, increased Kirkland Signature penetration, and reduced spoilage/labor efficiency in fresh. President and CEO Ron Vachris elaborated on the holiday assortment, explaining that discretionary items were thinned down, making space for new categories like backyard sheds, saunas, and furniture, which are performing well and offer new sales opportunities.

Chuck Grom questioned the drivers behind Costco's 29 basis point increase in core margins, how it spanned across categories, and observations on recent price increases and unit velocity. He also asked for clarification on the 'different product mix' comment for the holiday season, especially in general merchandise.

Answer

EVP & CFO Gary Millerchip explained that core-on-core margin strength was broad-based across fresh, food and sundries, and non-foods, driven by supply chain efficiency, Kirkland Signature penetration, and reduced spoilage/improved labor efficiency in fresh. President and CEO Ron Vachris clarified that the holiday product mix would involve thinning traditional seasonal items like toys and decorations to make space for new, high-ticket categories such as backyard sheds, saunas, and furniture, aiming for relevance and top-line sales.

Chuck Grom of Gordon Haskett Research Advisors asked for more details on technology initiatives to speed up front-end checkout and whether Costco has considered extending warehouse operating hours.

Answer

President and CEO Ron Vachris highlighted the use of digital membership cards to speed up transactions and revealed that the company is running "Scan and Go done by Costco" pilots that have shown "very positive" early results. Regarding store hours, he confirmed that management continues to evaluate warehouse operating hours, similar to how they recently extended gas station hours.

Chuck Grom of Gordon Haskett Research Advisors asked for more details on the technology initiatives aimed at improving front-end checkout speed and inquired if the company has considered testing extended operating hours for the warehouses themselves, similar to the recent change for gas stations.

Answer

President, CEO & Director Ron Vachris explained that efforts to speed up checkout include promoting digital membership card usage and testing 'Scan and Go done by Costco' pilots, which have shown very positive early results. He confirmed that the operations team is focused on the front-end experience. Regarding store hours, he stated that the company continues to evaluate warehouse hours of operation, noting the success of the gas station hour extension.

Chuck Grom asked about the state of the consumer, specifically regarding basket commentary and ticket compression, and inquired about vendor relationships, including closeout and CPG partnerships.

Answer

Eric van der Valk (President and CEO) discussed the strength in higher-income consumers offsetting some softness in lower-income groups, and highlighted strong vendor relationships, particularly in CPG due to market consolidation and customer demand for value.

Chuck Grom inquired about the current state of the consumer, specifically regarding basket commentary and ticket compression, and asked for an update on Ollie's vendor relationships, including closeout and CPG partnerships.

Answer

President and CEO Eric van der Valk noted a difficult retail environment driving CPG strength and new vendor relationships. He observed consumer strength in higher-income groups, offsetting some softness in lower-income consumers. He also explained that Ollie's doesn't overtly manage average unit retail (AUR) but focuses on price gaps, strategically investing in lower AUR deals for consumables and seasonal items to drive traffic and customer acquisition. EVP and CFO Robert Helm added that the company is seeing strength in consumer staples due to customers prioritizing needs.

Chuck Grom requested insights into the outlook for 2026, specifically regarding store growth plans, long-term earnings power, and potential opportunities for gross margin expansion.

Answer

President and CEO Eric van der Valk confirmed a commitment to 10% annual unit growth but noted the potential to exceed that, expecting another year of elevated openings in 2026. EVP and CFO Robert Helm projected that assuming no radical changes, 2026 could see double-digit top-line growth translating into faster, mid-teens bottom-line growth, driven by store annualization and leverage on certain expenses.

Chuck Grom of Gordon Haskett Research Advisors inquired about the comp cadence during Q1, the strategy behind adding a second Ollie's Army night, and the expected phasing of gross margin for the remainder of the year.

Answer

CFO Robert Helm detailed that comps accelerated from a slow February to a strong mid-single-digit increase in March before weather impacted late April. CEO Eric van der Valk explained the second Army night is a long-planned enhancement to reward loyal members. Helm guided for gross margin to be above 40% in Q3 and below 40% in Q2 and Q4.

Chuck Grom asked about the strong start to November and the positive Q4 outlook, specifically if it's traffic-driven or includes ticket improvement. He also inquired about Dollar General's competitive moat in the rural landscape against Amazon and Walmart+, and how it plans to compete effectively.

Answer

Todd Vasos, CEO, confirmed a strong start to Q4, noting that even with SNAP benefit delays, the consumer used cash and then SNAP, resulting in a net positive for the month, alongside strong holiday non-consumable sales. Regarding the competitive moat, he highlighted years of investment in rural America, where 80% of stores are located, making it difficult for competitors to replicate. He emphasized the swift digital expansion, offering hour-or-less delivery in rural areas, which no one else can match, alongside a strong brick-and-mortar business.

Chuck Grom of Gordon Haskett Research Advisors asked about the opportunity to consistently drive comps above 3% and the key drivers to achieve that. He also asked about the relationship between shrink and inventory damages.

Answer

CEO Todd Vasos expressed comfort with the 2-3% comp range in the long-term framework but noted the team will strive for more, driven by initiatives like Project Renovate and Elevate remodels and learnings from Popshelf. EVP & CFO Kelly Dilts explained that shrink and damages often improve together, as many initiatives like inventory reduction and SKU rationalization positively impact both, reaffirming the goal of a 40 basis point improvement from damages.

Chuck Grom requested a detailed breakdown of the 160 basis points increase in SG&A and insights into the expected complexion of both gross margins and SG&A for the fourth quarter of the year.

Answer

CFO Stewart Glendinning attributed the SG&A increase primarily to store payroll (wage increases, increased hours, and restickering costs), along with DNA from store investments and general liability claims. He noted that restickering costs will largely be absent next year, wage growth is expected to moderate, and multi-price success will offer flexibility in managing store hours.

Chuck Grom requested a breakdown of the 160 basis points increase in SG&A and insights into the expected complexion of both gross margins and SG&A for the fourth quarter.

Answer

CFO Stewart Glendinning detailed the SG&A increase, primarily driven by store payroll (wage increases, restickering, increased hours), general liability claims, and D&A from store investments. He broke down payroll increases as roughly one-third each for rate, increased hours, and restickering. For next year, restickering costs will largely be gone, wage growth is expected to moderate, and multi-price success will offer flexibility with labor hours.

Chuck Grom of Gordon Haskett Research Advisors asked about the comparable sales performance of the legacy '1.0' and '2.0' store formats and requested details on the drivers behind the significant increase in the full-year SG&A guidance.

Answer

CEO Michael Creedon explained that while '3.0' multi-price stores remain the top performers, the performance gap has narrowed as the entire chain, including '1.0' and '2.0' stores, has lifted. CFO Stewart Glendinning attributed the higher SG&A guidance primarily to increased investments in store payroll and depreciation, which are expected to generate a positive return.

Chuck Grom asked about management's current confidence level compared to 90 days prior, seeking to reconcile the Q4 guidance with the positive Q3 comp. He also requested a deeper dive into traffic versus ticket trends (AUR vs. UBT) and category performance in apparel, home, and footwear.

Answer

Chairman and CEO Tony Spring stated he is 'more confident today in our strategy than I was 90 days ago,' clarifying that Q4 guidance is an increase from the previous implied guide and reflects a 'choiceful consumer,' not a lack of confidence. He highlighted positive physical and digital growth, strong comparable sales, and healthy inventory levels. COO and CFO Tom Edwards added that Q3's accelerated momentum was driven by positive traffic, with ticket and average unit retail (AUR) also increasing, indicating positive consumer response to new strategies.

Chuck Grom questioned the current confidence in the consumer compared to 90 days prior, sought clarification on the Q4 guidance relative to Q3 performance, and asked for details on traffic versus ticket, including average unit retail (AUR) and units per transaction (UBT), along with category performance in apparel, home, and footwear.

Answer

Chairman and CEO Tony Spring expressed increased confidence in the strategy and execution compared to 90 days ago, clarifying that Q4 guidance, while prudent, is higher than previous implied guidance. COO and CFO Tom Edwards highlighted positive traffic and increased ticket and AUR in Q3 as key drivers of accelerated momentum, noting that AUR growth is not tariff-related but reflects value perception.

Chuck Grom of Gordon Haskett Research Advisors asked for commentary on consumer health across different income levels and category performance through May. He also sought clarity on which categories experienced a demand pull-forward and which might see the largest price changes. A final question for Adrian Mitchell focused on the rationale for the recent share buyback and its exclusion from future guidance.

Answer

Chairman & CEO Tony Spring described the consumer as remaining under pressure but responsive to newness and value, with the high-end consumer being more choiceful. He suggested pull-forward may have occurred in big-ticket items like fine jewelry. On pricing, he reiterated a surgical, brand-by-brand approach rather than category-wide changes. COO & CFO Adrian Mitchell explained the share buyback signals confidence in the business's health and momentum but confirmed the company's practice is not to guide for future buybacks.

Chuck Grom of Gordon Haskett Research Advisors asked about consumer health across income levels, category performance trends, and the nature of any demand pull-forward in May. He also inquired about the Q1 share repurchase.

Answer

Chairman & CEO Tony Spring described the consumer as remaining under pressure but choiceful, responding well to newness and value, suggesting any pull-forward might be in big-ticket items. COO & CFO Adrian Mitchell explained the Q1 share buyback signals confidence in the business's health and momentum, noting that while future buybacks are not in guidance, the company has $1.3 billion remaining in its authorization.

Chuck Grom asked about Kohl's strategy for re-engaging former and lapsed customers, particularly regarding awareness of changes like expanded coupon eligibility, store layout adjustments, and the reintroduction of proprietary brands, and where the company stands on its recovery path.

Answer

CFO Jill Timm explained that core customers were still shopping but with fewer trips, and marketing efforts are leveraging data for targeted re-engagement, especially with personalized coupons and Kohl's Cash. She noted a 500 basis point improvement in Kohl's Card customer trends. CEO Michael Bender added that digital responses are more immediate, while in-store communication through signage is still developing to highlight coupon-eligible items.

Chuck Grom asked about Kohl's strategy for re-engaging former and lapsed customers, specifically how they are being made aware of changes like expanded coupon eligibility, updated store layouts, and the reintroduction of proprietary brands. He also inquired about the current stage of this customer recovery path.

Answer

CFO Jill Timm explained that Kohl's leverages extensive data on core customers to target them with marketing, which has ramped up as coupon-eligible items and proprietary inventory returned. She highlighted the positive impact of personalized coupons and Kohl's Cash, leading to a 500 basis point improvement in Kohl's Card customer trends. CEO Michael Bender added that digital channels show a more immediate response to these changes, while in-store awareness through signage is still being developed.

Chuck Grom from Gordon Haskett Research Advisors inquired about the progress of adding brands back to coupon eligibility, including how many brands have been added and how quickly consumers are responding. He also asked for an update on back-to-school trends and August performance.

Answer

CFO Jill Timm detailed that after adding major brands in Q1, another 50+ digitally native and home brands were made coupon-eligible in August. She noted an immediate positive response in the digital channel, with in-store awareness being built through new signage and training. Interim CEO Michael Bender added that August was off to a good start, driven by back-to-school categories like backpacks and kids' footwear, as well as strength in fashion denim and brands like Levi's and Nike.

Chuck Grom sought clarification on the components of the full-year guidance, specifically asking about the outlook for gross margin and SG&A dollars, as well as the expected phasing of gross margin throughout the year.

Answer

CFO Jill Timm reaffirmed the full-year gross margin improvement guide of 30 to 50 basis points, stating it remains achievable despite tariff pressures. She suggested modeling Q2 gross margin on a two-year stack basis similar to Q1 and anticipated more significant improvement in the second half of the year as margin-accretive proprietary brand newness increases.

Chuck Grom from Gordon Haskett asked about the sustainability of BJ's Wholesale Club's tight SG&A per square foot levels over the next few years, especially with expansion into Texas, and how it compares to peers. He also inquired about what it would take for home and seasonal categories to catch up to consumer electronics and apparel, and any exciting holiday items.

Answer

Chairman and CEO Bob Eddy acknowledged the team's efficiency in managing buildings but indicated a need to accelerate investments in remodels and new club pipelines, including relocations, to keep pace with competitors and enhance member experience. Executive VP, Strategy and Development Bill Werner confirmed a relocation program for older clubs, citing success in Mechanicsburg and planned Rotterdam relocation. Bob Eddy noted strong performance in consumer electronics and apparel due to simplified assortments and better brands, but stressed the need for sustained transformation in the tougher home and seasonal categories through continued investment in trend, style, and value to drive incremental trips and membership renewal.

Chuck Grom from Gordon Haskett asked about the sustainability of BJ's Wholesale Club's tight SG&A per square foot levels, especially with expansion into Texas, and what strategies are in place to improve home and seasonal general merchandise categories to match the performance of consumer electronics and apparel.

Answer

Chairman and CEO Bob Eddy acknowledged the team's efficiency in managing buildings and indicated future capital spending on remodels and new clubs, including a relocation program for older clubs, to maintain competitive boxes. Executive VP Bill Werner added that a relocation program for older clubs has started. Regarding general merchandise, Eddy noted strong Q3 performance in consumer electronics and apparel, but emphasized the need for continued transformation in challenging home and seasonal categories through simplified assortments, better brands, and compelling values to drive incremental trips and membership renewal.

On behalf of Chuck Grom from Gordon Haskett, an analyst inquired about the outlook for the general merchandise (GM) business for the second half of the year, asking for color on both an overall and category-specific basis.

Answer

CEO Bob Eddy responded that the GM transformation remains on track despite Q2 headwinds. He explained that the team has managed tariff impacts by re-sourcing and has taken a prudent stance on inventory buys for discretionary categories to mitigate markdown risk. Mr. Eddy highlighted the apparel business, which grew comp in the low single digits, as a key bright spot and proof that their transformation efforts are resonating with members. He reiterated the strategy is a category-by-category rebuild focused on better brands and values.

Chuck Grom asked for more detail on the marketing changes, specifically whether they are driving new or lapsed customers, increasing engagement with existing customers, and where future opportunities lie. He also inquired if the company plans to increase marketing spend as a percentage of sales.

Answer

Jim Conroy (CEO) indicated that while hard to tease out, they believe they are gaining new customers and re-engaging lapsed ones, with improved engagement on digital platforms. He noted it's 'very early innings' for marketing evolution. He confirmed plans to maintain marketing spend as a percentage of sales within the current financial and operating model.

Chuck Grom double-clicked on the marketing changes, asking if they are driving new or lapsed customers, increasing engagement with existing customers, and where future opportunities lie. He also inquired if the company plans to increase marketing spend as a percentage of sales, given it's lower than peers.

Answer

CEO Jim Conroy stated it's hard to tease out new vs. lapsed customers but believes engagement has improved based on analytics. He emphasized it's "very early innings" for marketing evolution. Regarding spend, he confirmed the company will maintain marketing as a percentage of sales within the existing financial and operating model, with no immediate plans for increased spend.

Chuck Grom asked about the broader picture of category growth sustainability into 2026, noting that many peers are performing better and whether this trend is expected to continue. He also inquired about the cadence of sales throughout Q3 and any insights into November, given volatility experienced by peers.

Answer

CEO Laura Alber declined to comment on monthly sales cadence. However, she expressed optimism about a potential housing recovery next year, which she believes would significantly boost furniture sales. She highlighted the strategic improvements made to their furniture supply chain, positioning the company to capitalize on increased demand when the housing market turns around, and emphasized the power of their operating model and multi-brand, multi-channel approach.

Chuck Grom asked if Home Depot's data supported increased fatigue in the upper-income customer base, given discussions about a K-shaped economy and white-collar job losses, and if there were any regional callouts over the past couple of months.

Answer

Ted Decker, Chair, President, and CEO, stated that the most acute regional differences were tied to storm and weather patterns. He noted no specific signs of fatigue in the higher-income cohort or broad trade-down across the assortment, but observed a slight softening in larger project backlogs reported by pros. Richard McPhail, Executive Vice President and Chief Financial Officer, emphasized that the opportunity to improve margin structures for GMS and SRS lies in driving synergies and cross-selling across the entire enterprise, rather than separating them, as the combined entity is viewed as an engine for growth.

Chuck Grom asked if Home Depot's data supports increased fatigue in the upper-income customer base, given discussions about a K-shaped economy and white-collar job losses, and if there were any notable regional differences. He also asked for more details on the opportunity to improve the margin structures of GMS and SRS, considering the 35 basis points of pressure this year and potential wrap into 2026, and the broader picture for improvement over the next few years.

Answer

Ted Decker, Chair, President, and CEO, stated no specific fatigue was observed in the higher-income cohort, with no broad trade-down. He noted a slight softening in pro backlogs for larger projects but couldn't directly tie it to an income cohort. Regional differences were primarily due to storm and weather patterns. Richard McPhail, EVP and CFO, emphasized that the leverage in these businesses would be a function of synergies, particularly cross-selling, to create a differentiated value proposition across the enterprise. He stated that SRS and the combined entity are engines for growth, with improvement tied to the speed of cross-sell.

Chuck Grom asked for more detail on the 12 of 16 merchandising departments that posted positive comps, inquiring about the areas of most notable improvement and any regional callouts. He also asked for a breakdown of gross margin drivers and the outlook for that line item.

Answer

EVP – Merchandising Billy Bastek confirmed the broad-based strength was the best in over two years, with 13 of 16 departments positive in the U.S. He highlighted that the largest comp contributions came from core home improvement categories outside of seasonal, such as portable power, lumber, concrete, water heaters, and interior paint. EVP & CFO Richard Mcphail stated that gross margin was in line with expectations and reaffirmed the full-year guidance of approximately 33.4%, indicating no significant changes are expected beyond normal seasonal fluctuations.

Chuck Grom asked if Tractor Supply Company is making changes to its seasonal holiday assortment due to increasing tariffs, including swapping out products, and how this might impact Q4 sales or gross margins. He also asked Kurt Barton if the historical 15 basis points of operating margin leverage above or below a 2% comparable store sales growth would still apply for 2026.

Answer

Seth Estep, EVP and Chief Merchandising Officer, stated that after the April tariff announcements, the team analyzed programs, adjusted buys, and pivoted to domestic or alternative country sourcing, with no significant meaningful shifts. He noted that opportunistic buys ensure a compelling holiday offering. Kurt Barton, EVP, CFO and Treasurer, confirmed that moving beyond the peak investment cycle allows for operating margin inflection at lower, more historical comparable store sales rates. He believes achieving comparable store sales above the low 2% inflection point makes the long-term guidance of 5-15 basis points of annual operating margin growth 'very much in play' for 2026.

Chuck Grom asked if Tractor Supply is making changes to its seasonal assortment for the holidays due to increasing tariff impacts, and how such changes might affect Q4 sales or gross margins. He also followed up with Kurt Barton on whether the historical 15 basis points of leverage above or below a certain comp rate would still apply for 2026.

Answer

Seth Estep (EVP and Chief Merchandising Officer) explained that the team analyzed programs post-tariff announcements and adjusted buys, pivoting to domestic or alternative international suppliers and opportunistic buys. He stated there are no significant meaningful shifts, and the company is confident in managing tariffs while offering a compelling holiday assortment. Kurt Barton (EVP, CFO and Treasurer) confirmed that moving beyond the peak investment cycle allows for operating margin inflection at lower, more historical comp rates, making the 5-15 basis points annual growth scenario very much in play for 2026.

Chuck Grom of Gordon Haskett Research Advisors asked about the early results of the Pet Rx business, its penetration with Neighbor's Club members, and the estimated sales impact from unfavorable weather in the fourth quarter of last year.

Answer

EVP & Chief Technology Officer Rob Mills reported a strong launch of the Alivet Rx platform in May, with significant momentum in orders and the strongest customer acquisition growth in years for that category. CFO Kurt Barton added that weather was a net negative in both Q3 and Q4 of last year, creating a favorable compare for the back half of the current year.

Chuck Grom requested a month-by-month sales cadence for Q1, an update on how April was tracking, and historical context on where consumer trade-down behavior typically first appears.

Answer

CEO Hal Lawton detailed that January was strong due to cold weather, February slowed amid economic concerns and southern storms, and March was impacted by persistent cool weather. He confirmed April is tracking in line with expectations for the Q2 guidance but did not comment directly on historical trade-down patterns.

Chuck Grom of Gordon Haskett Research Advisors asked about the potential to reaccelerate store growth given new store productivity is back above 90% and requested a breakdown of the 3.4% ticket increase between units per transaction (UPT) and average unit retail (AUR).

Answer

CEO Winnie Park stated that while they are pleased with new store performance and have a strong pipeline, they will maintain a selective approach to new locations. Interim CFO & COO Kenneth Bull clarified that the ticket increase was 'pretty much all driven by AUR,' reflecting the quarter's pricing adjustments.

Chuck Grom of Gordon Haskett Research Advisors requested a breakdown of the annual operating margin compression, specifically asking about the updated tariff impact and if any shrink improvement is included in the guidance.

Answer

COO Ken Bull quantified the full-year tariff impact at approximately 150 basis points. He stated that of the total ~200 basis point operating margin deleverage, about 60% is in gross margin and 40% is in SG&A. He also confirmed that shrink reserves are being held at the prior year-end level, with no improvement assumed in the current forecast.

Chuck Grom asked for a breakdown of the 41% inside margin guidance between the grocery and prepared foods categories for fiscal 2026. He also followed up on whether the $0.02 fuel margin drag from CEFCO should be modeled for the full year and how rapidly falling gas prices impact profitability.

Answer

CFO Steve Bramlage stated that the company guides at the total inside margin level but noted the FICS acquisition will pressure prepared food margins due to its product mix. This pressure is expected to be largely offset by mix enhancements in the grocery category, such as the shift from cigarettes to higher-margin nicotine alternatives. CEO Darren Rebelez confirmed the $0.02 fuel margin drag from FICS is expected to persist through FY26 and that falling retail fuel prices typically lead to margin expansion.

Chuck Grom requested a breakdown of the 41% inside margin guidance between the grocery and prepared foods categories. He also followed up on whether the $0.02 fuel margin drag from CEFCO will persist and if falling gas prices are a profit source for Casey's.

Answer

CFO Steve Bramlage stated that while Casey's guides at a total inside margin level, the CEFCO mix pressures prepared food margins, which is largely offset by strength in the grocery category from favorable product mix shifts. President and CEO Darren Rebelez confirmed the $0.02 fuel margin drag from CEFCO is expected to continue through FY26 and affirmed that margins typically expand when retail fuel prices fall.