Cristina Fernandez

Cristina Fernández from Telsey Advisory Group questioned the confidence behind BeFra's 4%-8% growth guidance for 2026, especially given the acceleration from 2025, and sought segment-specific growth expectations for Betterware and Jafra. She also asked for clarification on challenges in the beauty market and segment-level color on the 19% EBITDA margin guidance.

Answer

CEO Andres Campos attributed the growth confidence to anticipated stable Mexican consumption, positive early 2026 trends, and robust internal strategies including innovation for Betterware and Jafra Mexico, new Jafra technology, and regional expansion. He clarified that market challenges were general consumption-related, not specific to the beauty market, which he views as resilient. Regarding EBITDA, Mr. Campos indicated 19% as a baseline for the group, noting various influencing factors prevent segment-specific margin guidance.

Cristina Fernández inquired about the EBITDA guidance of 19% for 2026, seeking color on any material variances expected by segment compared to 2025.

Answer

President and CEO Andres Campos indicated that the 19% or above margin is seen as a floor and baseline for the group. He mentioned various factors influencing this, including external investments and extraordinary investments in the Tupperware operation, but preferred to provide the guidance at the group level rather than by segment.

Cristina Fernández asked about the current trends and volatility observed with the Mexican consumer, the sustainability of the strong EBITDA margin achieved in the quarter, including any one-time benefits, and the key opportunities for embedding greater technology and efficiency across Betterware's businesses in the coming years.

Answer

CEO Andres Campos described the Mexican consumer environment as sluggish and volatile, with consumption growth lessening, but emphasized the company's focus on maintaining strong profitability, cash flow, and market share. Regarding profitability, CEO Andres Campos clarified there were no significant one-time benefits, but Jafra Mexico's gross margin was higher than normal (76%+ vs. 74.5%-75% target), which the company plans to reinvest. For technology, CEO Andres Campos highlighted ongoing investments in proprietary apps and Shopify Plus, with future opportunities in generative AI, agentic AI, and evolving digital person-to-person selling platforms like social selling and live shopping.

Cristina Fernández asked about the current trends and volatility observed in the Mexican consumer market, how these dynamics are impacting Betterware's categories, and the company's performance relative to the overall market. She also sought clarification on the sustainability of the strong EBITDA margin achieved this quarter, considering factors like FX and transportation costs, and whether there were any one-time benefits. Additionally, she inquired about the most significant opportunities for embedding greater technology and efficiency across Betterware's businesses, particularly with the new digital transformation team and AI.

Answer

CEO Andres Campos described the Mexican consumer environment as sluggish and volatile, with consumption growth slowing. He emphasized Betterware's strategy to maintain strong profitability and cash flow while pursuing market share gains during challenging times. Regarding profitability, CEO Andres Campos stated there were no significant one-time benefits, but noted Jafra Mexico's gross margin was higher than usual (76%+ vs. target 74.5%-75%), with plans to reinvest this for growth rather than sustain it. On technology, he highlighted ongoing investments in proprietary apps and Shopify Plus, and the new digital transformation team's focus on leveraging generative AI, agentic AI, and adapting to evolving digital selling platforms like social selling and live shopping to enhance the person-to-person model.

Cristina Fernández of Telsey Advisory Group asked about the primary drivers of the Q2 sequential improvement, questioning the split between macro recovery and company-specific initiatives. She also inquired about the key factors needed to achieve the implied acceleration for the full-year guidance and the specific efficiencies that would help the Betterware segment return to a 23-24% EBITDA margin.

Answer

President and CEO Andres Campos attributed the strong Q2 results primarily to internal strategies, such as aggressive pricing, product investments, and new incentive programs, rather than a significant macro rebound. He stated that meeting full-year guidance relies on continued macro stability and the momentum from their commercial strategies, which led to associate base growth across all business units. To improve Betterware's EBITDA margin, Campos highlighted expected gross margin improvement from a strong peso, lower freight costs, and a better product mix, supplemented by ongoing expense reduction efforts.

Cristina Fernández of Telsey Advisory Group inquired about the drivers behind the Q2 sequential improvement, asking to distinguish between macro environmental factors and company-specific initiatives. She also asked for the key drivers that support the company's full-year guidance, which implies an acceleration in the second half, and questioned the specific efficiencies that will help the Betterware segment return to its target 23-24% EBITDA margin.

Answer

Andres Campos, President and CEO, attributed the Q2 rebound primarily to internal strategies rather than the slight stabilization in consumer demand. He highlighted aggressive pricing, product investments, and a new incentive program that drove associate growth for the first time since Q1 2021. For the full-year outlook, Campos stated that with a stable macro environment, continued growth in the associate base across all business units will drive results. Regarding Betterware's EBITDA margin, he cited expected gross margin improvements from a strong peso, lower freight costs, and a better sales mix, combined with ongoing SG&A expense efficiencies.

Cristina Fernández of Telsey Advisory Group inquired about the drivers of the sequential improvement in Q2, asking to distinguish between macro environmental factors and company-specific initiatives. She also asked for the key drivers behind the expected second-half acceleration needed to meet full-year guidance and sought specifics on efficiency gains to restore Betterware's EBITDA margin to the 23-24% range.

Answer

President and CEO Andres Campos attributed the Q2 rebound primarily to internal strategies, including aggressive pricing, product adjustments, and a new incentive program that drove associate growth for the first time since Q1 2021. For the second half, he stated that with a stable macro environment, continued execution of these strategies would drive growth. To improve Betterware's EBITDA margin, Campos highlighted expected gross margin gains from a strong peso, lower freight costs, and an improved product mix, supplemented by ongoing expense reduction efforts.

Cristina Fernandez asked about the progression of business trends during the quarter, the company's confidence in maintaining guidance, and for clarification on the pause of the Betterware U.S. expansion.

Answer

Executive Andres Chevallier stated that consumer consumption softened as Q1 progressed and that the company's confidence in its full-year guidance is based on strong internal fundamentals and market share opportunities, contingent on macroeconomic stabilization. He clarified that the U.S. expansion pause is specific to Betterware U.S. due to tariffs, saving $2-3 million in investment, while the Jafra U.S. business will continue to operate and grow.

Cristina Fernandez of Telsey Advisory Group asked for insights on the U.S. expansion, the shift in the company's cost structure, the new acquisition strategy, and whether the current inventory buildup is temporary.

Answer

Executive Andres Chevallier noted that the U.S. expansion is showing promise with the Hispanic market. He and executive Luis Campos Orozco attributed the cost structure shift to operating leverage from growth and significant fixed cost reductions at Jafra post-acquisition. On M&A, Chevallier confirmed the company is exploring acquisitions for category or international expansion. He also clarified the inventory increase is a temporary measure to de-risk Q4 and is not a new baseline, assuming supply chain stability.

Cristina Fernandez followed up on the tariff discussion, asking if a potential increase to 15% would alter gross margin guidance and how long it would take to cycle through existing inventory. She also questioned the deceleration in written order trends, seeking insight into consumer behavior or year-over-year comparisons. Additionally, Ms. Fernandez inquired about lessons learned from the mattress/bedding refresh program and the outlook for marketing and advertising spend in 2026.

Answer

President and CEO Steve Burdette confirmed that gross margin guidance would not change if tariffs increased to 15%, expecting current inventory to be worked through by the first half of the year with strategic pricing adjustments. He attributed written order deceleration partly to a government shutdown but expressed confidence in strong average ticket and design business, noting high traffic comps in late 2024. Mr. Burdette explained the mattress refresh program improves presentation and information clarity for customers and sales consultants, contributing to flat mattress sales despite industry declines. He also stated that marketing spend, increased in 2025, is anticipated to remain flat with 2025 levels in 2026.

Cristina Fernandez followed up on the tariff discussion, asking if a potential increase to 15% would alter gross margin guidance and the expected timeline for working through existing inventory. She also questioned the deceleration in written order trends during Q4, seeking insight into consumer behavior or year-over-year comparisons. Additionally, she inquired about the lessons learned from the mattress/bedding refresh program and the anticipated marketing and advertising spend for 2026.

Answer

President and CEO Steve Burdette confirmed that gross margin guidance would not change with a 15% tariff and expects current inventory to be worked through by the first half of 2026. He attributed the Q4 written order deceleration partly to the government shutdown but expressed confidence in strong average ticket and design business, noting that traffic comparisons were against a strong 2024. Burdette explained that the mattress refresh program improves presentation and information clarity for both customers and sales consultants, helping to maintain flat mattress sales despite an industry decline. He also stated that marketing spend for 2026 is anticipated to remain flat with 2025 levels, following an increase in 2025.

Cristina Fernández of Telsey Advisory Group asked about the competitive promotional environment, Haverty's strategy to use promotions without damaging the brand, consumer response to tariff-related price increases, and the outlook for the company's real estate and store opening plans, including whether some openings were delayed into 2026.

Answer

CEO Steven Burdette addressed all questions, stating that Haverty increased its marketing investment in Q2 to support more aggressive pricing and will continue this into Q3, particularly around Labor Day. He noted that while competitors are increasing discounts, Haverty's promotions, like 60-month financing, have not led to higher credit usage. Burdette confirmed they have not seen negative consumer pushback on price increases and that unit sales are tracking with revenue, expressing confidence in maintaining the 60-60.5% gross margin guidance. He also confirmed that some store openings were pushed from 2025 to 2026, with the company ending 2025 flat at 129 stores but aiming to return to five openings per year in 2026.

Cristina Fernandez asked for confirmation on the gross margin guidance assumptions regarding tariffs, the timeline for shifting production for the 15% of products sourced from China, the drivers of weak holiday weekend sales, and the performance of new stores opened in the last year.

Answer

President and CEO Steven Burdette confirmed the gross margin guidance assumes current tariffs remain for the full year. He explained that vendors are already ahead of the China supply chain issue, moving production to Vietnam, Cambodia, or Mexico, and that the company's increased inventory provides a buffer. Regarding holiday sales, Burdette attributed the weakness more to specific events rather than a promotional issue, noting they are testing more aggressive promotions for upcoming holidays. He concluded by stating they are very pleased with new store performance, which is leveraging existing distribution networks, and that initial traffic in the new Houston market is good.

Cristina Fernandez of Telsey Advisory Group asked for the company's outlook on the 2025 demand environment, the primary challenge in capitalizing on recent traffic gains, and for a breakdown of the drivers behind the guided increase in fixed SG&A expenses.

Answer

CEO Steven Burdette stated that the 2025 demand environment is expected to remain challenging due to housing affordability and economic uncertainty, but he does not anticipate supply chain disruptions from tariffs. He identified sales conversion, not average ticket, as the key opportunity to leverage improving traffic. Executive Richard Hare explained the 4-5% increase in fixed SG&A guidance is driven roughly 50% by general inflation and 50% by occupancy costs from new stores and planned increases in marketing spend.

Cristina Fernandez of Telsey Advisory Group questioned the recent improvement in traffic trends, learnings from the Labor Day sales event, and the long-term store potential for the Houston market.

Answer

CEO Clarence Smith and President Steven Burdette confirmed that traffic declines have moderated from double-digits to mid-single-digits, though the consumer remains cautious. Regarding promotions, Burdette explained the company is not pursuing aggressive discounting, as credit metrics remain strong and are not driving demand. For expansion, Smith stated the initial target for the Houston market is to open five stores to cover the growth areas.

Cristina Fernández sought more detailed information on the total impact of tariffs, the unmitigated amount, and how the company expects these costs to flow through the cost base moving forward. She also asked about the attribution of the improved January trend relative to the second fiscal quarter and the efficiency of the increased marketing spend.

Answer

SVP, CFO, and Treasurer Matthew J. McNulty outlined a three-pronged mitigation strategy for tariffs: vendor cost sharing, supplier sourcing diversification, and selective retail price increases (5% blended average), noting that while these helped, headwinds remain, particularly from Section 232 and IEEPA tariffs. Chairman, President, and CEO M. Farooq Kathwari attributed the improved January trend primarily to consumers returning and increased traffic after the uncertainty of the previous quarter. He also stated that the 25% marketing spend increase was mostly in digital marketing, aimed at virtual engagement and business closure, and that future spending would be optimized by reducing other mediums like print magazines.

Cristina Fernández asked for more details on the total impact of tariffs, the unmitigated amount, and whether the company expects to fully mitigate these costs moving forward. She also questioned the drivers behind the improved January trend compared to Q2 and the future strategy and efficiency measurement for the 25% increase in marketing spend.

Answer

SVP, CFO, and Treasurer Matt McNulty outlined a three-pronged approach to mitigate tariff impact (vendor cost sharing, sourcing diversification, selective retail price increases), noting that while these help, headwinds remain, particularly from Section 232 tariffs. Chairman, President, and CEO Farooq Kathwari added that the potential removal of IEEPA tariffs by the Supreme Court could save $8 million annually. Kathwari attributed the improved January trend to increased consumer confidence and traffic post-government shutdown. He explained the 25% marketing increase was primarily digital to drive virtual engagement and sales, with plans to reduce spending in other mediums for efficiency.

Cristina Fernández inquired about the use of promotions and clearance activity, the impact of prior price increases on unit sales, the potential for future price hikes due to tariffs, and the specific factors driving the 1.6% growth in retail orders.

Answer

Chairman & CEO Farooq Kathwari stated that because approximately 80% of products are custom, the company did not have significant excess inventory, which helped maintain a strong gross margin of nearly 60% despite some promotions. He noted that pricing has been stable due to North American manufacturing but they are monitoring tariff situations. The order increase was attributed to improving consumer attitudes, strong client relationships, and an increased digital marketing spend, which CFO Matt McNulty specified rose to 3.4% of sales from 2.8% a year ago.

Cristina Fernandez inquired about the company's promotional strategy, the potential impact of government changes on the State Department contract, and the drivers behind SG&A expenses and future marketing plans.

Answer

M. Kathwari, Chairman, President and CEO, addressed the questions by stating that deeper promotions are not planned, as they don't believe it would drive traffic in the current environment. He confirmed the State Department contract is active but has seen some recent caution and slightly less business. On SG&A, he clarified that advertising as a percentage of sales actually decreased year-over-year due to greater efficiency from technology, and they plan to continue focusing on efficiency rather than increasing dollar spend.

Cristina Fernandez inquired about the demand progression during the quarter to isolate the impact of the December promotion, the rationale for increasing promotional activity, the potential impact on gross margin, and the company's manufacturing exposure to Mexico amid potential tariff risks.

Answer

Chairman, President and CEO M. Kathwari confirmed that while trends improved throughout the quarter, a major improvement occurred in December due to a special promotion. He explained the decision to increase promotions was driven by the company's improved service position and ability to deliver on higher demand. Regarding margins, he noted marketing spend remains well below historical levels. For Mexico, which accounts for about 25% of total manufacturing, he stated the company has flexibility to manage potential tariffs by raising prices or shifting more production to its North Carolina facility.

Cristina Fernandez asked for details on regional demand trends, particularly in storm-impacted areas; clarification on which departments saw the most significant headcount reductions; the market reception for new product introductions; and current trends in raw material and product costs.

Answer

Chairman, President and CEO Farooq Kathwari explained that demand was temporarily impacted by storms in Texas and Florida but has since returned to normal. He specified that headcount reductions occurred primarily in retail and manufacturing, driven by technology adoption which also helped attract stronger talent. For new products, he noted that technology enables designers to showcase a wide range of options without requiring extensive physical floor space. Lastly, he stated that raw material costs are largely stable, with a slight downward trend due to lower overall industry demand.

Cristina Fernández asked about the high-income consumer coming to Academy, seeking insight into where they previously shopped or the source of these market share gains. She also inquired about the performance of private brands and whether consumers are trading into or trading down to private brands as national brand pricing has increased.

Answer

CFO Carl Ford stated that while he couldn't identify specific nameplates where high-income consumers previously shopped due to data limitations, Placer.ai data indicates a shift, with these consumers generally seeking value and being intrigued by new brands at Academy. CEO Steve Lawrence noted that private brands represent Academy's best expression of value, and consumers are indeed trading into them. He cited the strength of brands like Magellan and Freely as a direct result of customers potentially comparing prices and opting for Academy's private label offerings.

Cristina Fernandez inquired about the drivers of the sales improvement in August, asking about specific categories and whether traffic or conversion was the primary factor. She also asked for more detail on the performance of private brands and signs of consumer trade-down.

Answer

CEO Steve Lawrence stated that the August improvement was primarily driven by traffic and was broad-based across apparel, footwear, and the outdoor division, extending beyond the initial back-to-school period. Regarding private brands, he confirmed they continue to grow, with penetration now in the 22-23% range, and that the company does see consumers trading down to these value-oriented items, which are a key part of the everyday value proposition.

Cristina Fernandez asked about the vision for Foot Locker's merchandising, which historically focused on basketball, sneaker culture, and kids. She inquired if the mix would materially change, particularly on the apparel side, and if the company plans to lean more into private label or national brands for apparel expansion. She also asked if Foot Locker's significant remodel program ('reimagined stores') has continued, paused, or if the real estate strategy is being changed.

Answer

Ed Stack, Executive Chairman, confirmed that basketball culture will remain a very important part of Foot Locker's identity, expressing enthusiasm for upcoming basketball product. He stated that national brands would see a 'meaningful increase' in the apparel business, driving AURs and profitability, while private brands would still have a place. Regarding 'reimagined stores,' he noted they were an 'interesting test' with parts needing rethinking. They are currently re-evaluating these, for example, by removing unproductive social spaces like the 'kick-it club' to improve sight lines and repurpose space for apparel presentation, which is expected to drive sales.

Cristina Fernández asked about the vision for Foot Locker's merchandising, specifically if the mix will materially change from its historical basketball/sneaker culture focus, the role of private label versus national brands in apparel expansion, and the status of Foot Locker's 'reimagined' store program.

Answer

Ed Stack, Executive Chairman, confirmed basketball culture remains important, but new basketball product is exciting. He sees a meaningful increase in national brands for apparel, complementing private brands, to drive AURs and profitability. He noted that parts of the 'reimagined' store concept are being rethought, specifically repurposing unproductive social spaces to enhance apparel presentation and improve sightlines.

Cristina Fernandez from Telsey Advisory Group asked for clarification on the wide implied Q4 revenue guidance and the company's ability to sustain its comp trend given a more challenging year-over-year comparison.

Answer

Laura Alber, CEO, explained that the wide range reflects the long holiday season and the company's focus on full-price selling and reducing promotions, which has been a key driver of margin improvement. She also noted the strong holiday performance from the previous year as a factor in the comparison.

Cristina Fernandez followed up on the holiday season, asking for comments on the wide implied Q4 revenue guidance range (low-end versus high-end) and the company's ability to sustain its comp trend despite facing a more challenging year-over-year comparison.

Answer

CEO Laura Alber explained that the wide range for Q4 reflects the long holiday season, including January, and the company's focus on full-price selling. She noted the opportunity to reduce promotions year-over-year, which is a key aspect of their margin improvement strategy, and acknowledged the strong holiday performance from the previous year.

Cristina Fernandez of Telsey Advisory Group asked about the company's strategy for resourcing goods away from China, inquiring about any reduction targets and potential impacts on the product assortment.

Answer

President and CEO Laura Alber stated that the company has been proactively reducing its reliance on China for years, bringing sourcing down from 50% to 23%, and has made substantial reductions since that 23% figure was reported. She emphasized that the company has built flexibility through double and triple sourcing, allowing it to adapt as the long-term trade environment becomes clearer. The final sourcing mix will depend on future policy developments.

Cristina Fernandez of Telsey Advisory Group asked about the company's resourcing strategy, including plans to further reduce its 23% sourcing from China, any year-end targets, and the potential impact on product assortment.

Answer

President and CEO Laura Alber responded that the company has been proactively diversifying its supply chain for years, having already reduced China sourcing from 50% to 23%. She noted that further substantial reductions have already been made and that having dual and triple-sourced products provides the flexibility to adapt to the evolving trade environment.

Cristina Fernandez asked about the company's strategy for resourcing goods away from China, including any specific targets for exposure reduction and potential impacts on the product assortment.

Answer

CEO Laura Alber stated that the company has been proactively diversifying its supply chain for years, having already reduced sourcing from China from 50% to 23%, with further reductions made since. She emphasized that the company's flexibility, achieved through double and triple sourcing products, allows it to adapt effectively to the evolving trade environment.

Cristina Fernandez asked about the company's resourcing strategy away from China, including any reduction targets from the current 23% exposure and potential impacts on the product assortment.

Answer

President and CEO Laura Alber explained that the company has been proactively reducing its reliance on China, having already cut sourcing from 50% to 23% over the last few years, with substantial reductions made even since that 23% figure was reported. She emphasized that their flexible, multi-country sourcing model allows them to adapt to the evolving trade environment without committing to a fixed target.

Cristina Fernandez inquired about consumer spending trends for furniture versus smaller items and asked for reasons behind the Q3 operating margin outperformance and why that strength might not persist into Q4.

Answer

CEO Laura Alber noted that newness in furniture is performing well, suggesting their consumer is resilient. CFO Jeff Howie attributed the Q3 margin beat to stronger-than-expected merchandise margins from lower input costs, significant supply chain efficiencies, and controlled advertising spend. He cited the shifted holiday calendar, lapping prior-year promotions, and macroeconomic uncertainty as reasons for a more cautious Q4 outlook.

Cristina Fernández from Telsey Advisory Group questioned if the company observed any changes in customer behavior, such as increased price sensitivity, and asked for the drivers of the Q2 operating margin outperformance.

Answer

CEO Laura Alber noted that while the furniture market is soft, new products at medium-to-high price points are performing well, indicating customers respond to value and innovation. CFO Jeff Howie attributed the Q2 operating margin beat to stronger merchandise margins from full-price selling, greater supply chain efficiencies, and less advertising deleverage. He explained this outperformance is not expected to continue at the same level as the company laps prior year improvements.

Cristina Fernandez inquired about the company's resourcing strategy away from China, asking about targets for reducing the 23% exposure and any potential impact on the product assortment.

Answer

President and CEO Laura Alber explained that the company has been proactively managing its supply chain, having already reduced sourcing from China from 50% to 23% in recent years and has made further substantial reductions since. She emphasized that the company has built flexibility with double and triple-sourced products, allowing it to adapt as the long-term trade and tariff environment evolves.

Cristina Fernandez from Telsey Advisory Group inquired about the company's plans for resourcing from China, asking about specific reduction targets from the current 23% level and any potential impact on the product assortment.

Answer

President and CEO Laura Alber responded that the company has been proactively reducing its China exposure for years, having already cut it from 50% to 23%. She added that they have made further substantial reductions and maintain flexibility through double and triple-sourcing to adapt to the evolving trade environment.

Cristina Fernández from Telsey Advisory Group requested more detail on the gross margin outlook, asking to unpack the benefits from FX and pricing, and whether more price increases would be needed to mitigate tariffs. She also asked about the drivers behind the recent acceleration in apparel.

Answer

CEO & CFO Martin Hoffmann reiterated confidence in the 60%+ long-term gross margin target, stating that the price increase implemented in July helps, but no further increases are currently needed due to other levers like economies of scale and favorable FX. Co-Founder & Executive Co-Chairman David Allemann attributed the apparel momentum to wider adoption by new customers, the showcase effect of DTC channels, influencer collaborations like Zendaya and FKA Twigs, and technical fabric innovations.

Cristina Fernandez of Telsey Advisory Group asked for clarification on the wholesale door growth outlook for the year, given the commentary about pausing some expansion in the U.S.

Answer

Co-CEO Martin Hoffmann confirmed the outlook for mid-single-digit door growth remains unchanged. He explained that strong brand demand allows them to be more selective and 'on the brakes' with expansion, prioritizing same-store growth and clean channel inventory. He reiterated that controlled expansion continues, particularly in younger markets.

Cristina Fernandez asked for management's perspective on the competitive landscape in 2025, particularly as larger brands aim to reinvigorate their running franchises and increase their presence in specialty channels.

Answer

Co-CEO Marc Maurer responded that while On is aware of competitors, it operates in a different position due to its premium pricing, which attracts a specific consumer segment. He emphasized that the brand's differentiation comes from its unique blend of performance, design, and sustainability, allowing it to tell a distinct story and maintain a full-price focus through its own channels. This strategy results in a higher margin profile and allows On to avoid direct, price-based competition.

Cristina Fernandez of Telsey Advisory Group inquired about the specific demographic drivers behind the significant increase in On's brand awareness in the U.S.

Answer

Co-CEO Marc Maurer attributed the growth to strategic investments and partnerships, such as those with Zendaya and FKA Twigs, which successfully engaged younger consumers. He emphasized that the awareness lift was broad-based, citing substantial growth in mature markets like Switzerland and across the U.S. Maurer also highlighted the Olympics' role in reinforcing On's performance and innovation credentials within the core running community, leading to increased market share.

Cristina Fernández of Telsey Advisory Group asked for more details on tariff mitigation efforts, including where sourcing is shifting to from China and how costs are being shared with vendors. She also asked what offsets RH is finding for its portion of the tariff impact.

Answer

Chairman & CEO Gary Friedman declined to share specific sourcing and negotiation details to maintain a competitive advantage. He emphasized that RH has strong, collaborative vendor partnerships to navigate the situation and expects the current tariff uncertainty to resolve in the coming months, leading to a more predictable operating environment.

Cristina Fernandez of Telsey Advisory Group asked where the most incremental demand from product newness would come from in 2025 and questioned the reason for the London store's delay to 2026.

Answer

Gary Friedman, executive, stated the primary focus is on optimizing the vast assortment of recently introduced products, not just adding more. He attributed the London gallery delay to the inherent and unpredictable complexities of executing large-scale, innovative multi-building development projects, rather than a specific new setback.

Cristina Fernandez from Telsey Advisory Group questioned Arhaus's tariff mitigation strategy, asking how much of the estimated $10 million impact could be offset and about the timing of its flow-through. She also inquired about the real estate strategy, including the increase in planned new showrooms and the closure of two design studios.

Answer

CEO John Reed stated that the $10 million impact is the net figure after securing contributions from vendor partners to absorb some costs, and emphasized the benefit of significant U.S.-based production. SVP of Finance Ryan Brody added that the impact would predominantly be felt in the second half of the year. Regarding real estate, Reed explained that showroom growth is a key long-term strategy for building brand awareness and market share, and the company is capitalizing on new opportunities as they arise.

Cristina Fernandez questioned why the 2025 store opening target of 3-5 is below the long-term goal and asked about the 17% increase in inventory.

Answer

John Reed, CEO, explained that the high number of openings and relocations in 2024 pulled some projects forward from 2025, keeping them on track on a two-year basis. Regarding inventory, he and another executive cited the needs of new, larger showrooms, strategic investments in in-stock availability for key categories, and an earlier build-up for the outdoor season compared to the prior year.

Cristina Fernandez sought to understand why the full-year outlook was lowered when the Q4 demand comp guidance appeared consistent with prior expectations. She also asked about Arhaus's historical approach to tariffs and its current levers to mitigate them.

Answer

CFO Dawn Phillipson explained the revised outlook reflects nuances within the 'low double-digit' demand decline range and the timing of converting late-quarter orders into revenue. CEO John Reed recounted that during past tariffs, Arhaus worked with vendors on margins and passed on modest price increases (7-10%) without impacting sales, a strategy they could employ again.

Cristina Fernandez followed up on Nike trends, asking for details on the broad-based softness observed in the quarter. She also inquired about the performance of the newly refreshed stores and whether they are outperforming the rest of the chain.

Answer

President and CEO Mary Dillon and EVP and CCO Frank Bracken reiterated confidence in the Nike partnership long-term, while acknowledging short-term sell-through pressures on some classics. They are focusing on newer, high-performing styles. Regarding store updates, management confirmed that both 'reimagined' and 'refresh' stores are seeing meaningful increases in conversion, basket size, and women's footwear penetration compared to the rest of the fleet.

Cristina Fernandez inquired about the drivers behind the first quarter's improving comp trends and reduced promotional activity, questioning whether it was due to industry-wide factors or Foot Locker's specific initiatives. She also asked for an update on the relationship with Nike, specifically regarding inventory allocations and brand presentation as Nike refocuses on wholesale.

Answer

CEO Mary Dillon attributed the solid start to the year to the Lace Up plan gaining traction, leading to sequential comp improvement and positive average unit retails (AURs) even as promotions were reduced. She highlighted that future growth will be driven by store refreshes, the new FLX loyalty program, and a return to growth with Nike in Q4. Both Mary Dillon and CCO Frank Bracken emphasized the strength of the Nike partnership, noting close collaboration on multiyear growth plans and excitement about Nike's innovation pipeline, which positions Foot Locker to benefit from Nike's wholesale channel refocus.

Cristina Fernández from Telsey Advisory Group asked for an update on customer order-to-delivery time frames, traffic trends at design centers, and the company's marketing strategy for the upcoming year, including customer retention efforts.

Answer

Chairman and CEO Farooq Kathwari responded that delivery times remain significantly above pre-COVID levels due to the custom nature of their products, though they are slowly improving. He highlighted that business is increasingly being conducted through a combination of personal service and technology, such as 3D and virtual reality, which has been a key advantage. On marketing, Mr. Kathwari noted a shift to more efficient digital advertising and projected a spend of 3% to 4% of sales for fiscal 2022, up from the recent 2% but with a focus on effectiveness.

Cristina Fernández of Telsey Advisory Group asked for details on the impact of raw material shortages, specifically foam, on production and delivery times. She also questioned if SG&A expenses would rise with the workforce returning to pre-pandemic levels and sought more color on April business trends following a strong March.

Answer

Chairman and CEO Farooq Kathwari stated that the foam shortage had reduced workdays at their North Carolina upholstery plants, but the situation was improving, with a projection to meet requirements by the end of May. Regarding SG&A, he clarified that while manufacturing headcount is up, corporate and retail headcount has been reduced, and future expense growth will be proportionate to business increases. For April trends, Kathwari confirmed that despite a price increase pulling some sales into March, April business remained strong due to sustained consumer interest and effective product programs.

Cristina Fernández of Telsey Advisory Group followed up on backlog conversion, asking if the company could achieve year-over-year sales growth in the December quarter. She also requested details on October business trends, specifically regarding store traffic versus conversion, and any performance differences between suburban and urban markets.

Answer

Farooq Kathwari, Chairman & CEO, and Corey Whitely, CFO, concurred that while a 'struggle,' it is likely that sales for the December quarter could meet or slightly exceed the prior year's results. Kathwari added that while store traffic remains lower than last year, it is more qualified and has been improving monthly. He described business strength as broad-based, noting strong performance in suburban areas like New Jersey and Connecticut, which offset relative weakness in urban centers like Manhattan and San Francisco.