Chuck Grom

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 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 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 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 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 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 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 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 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 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.

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.

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 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 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 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.

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 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.