David Bellinger

David Bellinger asked why Valvoline consistently sees trade-up activity and product premiumization despite broader affordability concerns, and if this indicates further pricing potential. He also inquired about the status and timeline for resolving the Material Weakness in internal controls.

Answer

Lori Flees, President and CEO of Valvoline, attributed premiumization to Valvoline's strong brand, nondiscretionary services, aging car parc, and customer trust, noting they continue to adjust pricing. Kevin Willis, CFO, explained that IT general controls were remediated in FY25, with ongoing work on business process controls expected to be resolved by the end of the current fiscal year. Flees clarified there are no concerns about financial statement accuracy.

David Bellinger asked why Valvoline continues to see trade-up activity and product premiumization despite broader affordability concerns, and if this indicates further pricing potential. He also questioned the prolonged material weakness in internal controls, asking if it's due to system approvals or technical work.

Answer

Lori Flees, President and CEO, Valvoline, attributed trade-up to Valvoline's strong brand, nondiscretionary services, aging car parc, and customer education, noting appropriate pricing adjustments. Kevin Willis, CFO, Valvoline, explained that IT general controls were remediated in FY25, but extensive work on business process controls (documentation, testing) is ongoing, with an expectation to resolve it by fiscal year-end. Lori Flees clarified there are no concerns about financial statement accuracy.

David Bellinger of Mizuho followed up on franchisee pricing, asking about the magnitude of the price difference versus company stores and if company-owned locations might follow suit. He also sought to quantify the potential SG&A margin benefit in the next fiscal year from lapping tech investments.

Answer

CEO Lori Flees clarified that franchisee pricing can be higher due to geography and that a specific large franchisee's price adjustment was the primary driver of the comp differential. CFO J. Kevin Willis confirmed the company expects SG&A leverage to improve throughout fiscal 2026 as tech investments are lapped, but stated it was too early to provide a specific quantum for the benefit.

David Bellinger inquired about SG&A spending relative to plan and the outlook for leverage into fiscal 2026. He also asked for more detail on how lower oil prices affect gross margins and pricing.

Answer

CFO Mary Meixelsperger confirmed SG&A is on plan, with deleverage driven by technology investments and refranchising, and expects leverage to return going forward. On oil prices, Meixelsperger noted lubricant costs trail crude prices, and CEO Lori Flees added that Valvoline does not historically lower posted prices when input costs decline.

David Bellinger sought to confirm that underlying transaction growth remains strong in Q2 despite headwinds from comps and leap day. He also asked about the pace of share buybacks for the rest of the year.

Answer

CFO Mary Meixelsperger and CEO Lori Flees confirmed that underlying transaction and ticket growth remain good entering Q2, although the overall comp will be impacted by lapping initiatives and the leap day. Regarding buybacks, Meixelsperger revealed an additional $20 million was repurchased post-quarter-end, bringing the year-to-date total to around $60 million. She stated the company accelerated repurchases to capitalize on what it views as an undervalued share price.

David Bellinger questioned the softness in Q4 same-store sales, Valvoline's confidence in its long-term 6-9% comp target, and the implied margin compression in the FY25 guidance where EBITDA growth trails revenue growth.

Answer

CFO Mary Meixelsperger attributed the Q4 comp softness to one-off events like the Crowdstrike outage and hurricanes, expecting a rebound. CEO Lori Flees explained the pause on updating the long-term comp guide is due to political and economic uncertainties like potential tariffs and labor market changes. Meixelsperger noted the FY25 margin outlook reflects a conservative view on costs and significant G&A investments in technology and talent to scale the business for future growth.

David Bellinger asked why Tractor Supply's core business appears to be underperforming despite incremental initiative benefits, the reason for a widening range of potential outcomes, and if the increased promotional activity from Q4 is expected to continue into 2026.

Answer

CEO Hal Lawton expressed optimism for 2026, noting a prudent mentality given a wide range of outcomes. He stated that Q4 promotional activity has not carried over into 2026, with spring plans set for a more normalized environment. He highlighted a strong setup for the year, including a good start to Q1, potential for tax refunds and a strong spring, strategic initiatives, engaged team, and improved supply chain and store operations.

David Bellinger asked why the core Tractor Supply business appears to be underperforming if new initiatives are layering in, questioned the widening range of outcomes, and whether the increased promotional activity from Q4 2025 is expected to bleed into 2026.

Answer

CEO Hal Lawton expressed optimism for 2026, noting that promotional activity from Q4 2025 has not carried over into the new year. He highlighted a strong setup for 2026, including a positive start to the year, potential for tax refunds and a strong spring season, ongoing strategic initiatives, and improved supply chain and store operations.

David Bellinger inquired about the expansion of hunting supplies, specifically the rollout of 'ammo dens' and the ammunition category. He asked about the revenue opportunity, potential comp uplift, the number of stores it can reach, and early customer reads.

Answer

Seth Estep (EVP and Chief Merchandising Officer) stated that wildlife and recreation supplies have been a core growth strategy. Ammo is a natural extension, with the company already a market leader in safes and growing in feed/attractants. Ammo is currently in roughly half the chain, with initial results being positive. He indicated that the store count for ammo would remain similar for the foreseeable future, and the company plans to continue deepening its presence in wildlife and outdoor recreation categories, similar to the Field & Stream partnership.

David Bellinger inquired about Tractor Supply Company's hunting supplies expansion, specifically the rollout of ammo dens and the ammunition category. He asked about the revenue opportunity, potential comparable store sales uplift, the number of stores this initiative could reach, and any early customer feedback.

Answer

Seth Estep, EVP and Chief Merchandising Officer, highlighted wildlife and recreation supplies as a core growth strategy, with ammo being a natural extension given the company's leadership in safes and growth in feed/attractants. He noted that ammo is currently in roughly half the chain, having recently ramped from a small pilot, with positive initial results and online availability. The company plans to continue deepening its presence in wildlife and outdoor recreation categories, citing the Field & Stream partnership as an example.

David Bellinger of Mizuho Financial Group questioned the rationale for significantly lowering the full-year share buyback guidance, asking where that capital is being reallocated and what this implies about the company's view of its stock valuation.

Answer

Executive VP & CFO Kurt Barton explained the decision reflects prudent capital allocation in a higher interest rate environment. Capital is being shifted to support inventory, particularly with the impact of tariffs. He emphasized that the move is consistent with their opportunistic buyback strategy and their target of retiring 1-2% of shares annually, and it does not change the full-year EPS guidance.

David Bellinger asked for more detail on the drivers of the slight Q4 gross margin decline, beyond the difficult prior-year comparison, and inquired about the expected gross margin progression throughout 2025.

Answer

CFO Kurt Barton stated the Q4 gross margin performance was in line with expectations, coming up against a 129 basis point expansion in the prior year. He noted that while promotions were up, vendor partnerships helped offset the impact, and the slight decline was mainly due to minor factors like product mix. For 2025, he forecasts modestly higher gross margin performance in the first half, as the company will begin to lap recent transportation efficiencies around mid-year.

David Bellinger asked about CarMax's efforts to reassess the cost of bringing a car to market, specifically regarding the time to turn vehicles, and if AI implementation could help reduce this timeline and mitigate depreciation swings. He also inquired about the real estate strategy and the potential for monetizing owned real estate to fund investments.

Answer

Enrique Mayor-Mora, EVP and CFO, stated CarMax is focused on reconditioning speed and lowering Work-In-Process (WIP), noting that increased sellable inventory and decreased overall inventory helped turns this quarter. He added that off-site reconditioning locations will further improve efficiency. Regarding real estate, Enrique mentioned that CarMax has better, more efficient capital sources than monetizing owned stores.

David Bellinger asked about reassessing the cost of bringing a car to market, improving vehicle turn times, potential AI implementation, and mitigating sharp depreciation swings. He also inquired about CarMax's real estate strategy and the possibility of monetizing assets to fund investments.

Answer

Enrique Mayor-Mora (EVP and CFO) emphasized CarMax's focus on reconditioning speed, lowering Work-In-Process (WIP), and increasing sellable inventory, noting that off-site reconditioning locations will further enhance efficiency. He stated that CarMax has better capital sources, such as banking relationships and a $2 billion revolver, than monetizing its owned real estate.

David Bellinger asked about the path and timeline for CarMax to return to positive unit comps. He also sought CarMax's view on whether the used car market is materially worsening, citing CAF adjustments and potential macro cracks, and if Q2's performance was more due to competitive elements.

Answer

President and CEO Bill Nash described the environment as aggressive but not necessarily worse than last quarter. He noted that mid-to-high FICO customers appear to be 'sitting on the sidelines,' impacting app volume, and consumer sentiment is not strong. Jon Daniels, EVP of CarMax Auto Finance, added that 2022-2023 vintages faced unique challenges (high ASP, APR, inflation), while 2024-2025 consumers are more 'eyes wide open' and performing better.

David Bellinger asked about CarMax's path back to positive unit comparable store sales and its timeline. He also sought CarMax's view on whether the used car market is materially worsening, citing macro cracks, a strained consumer, and competitive elements in Q2.

Answer

Bill Nash, President and CEO, acknowledged an aggressive market and strained mid-to-high FICO consumers, but reaffirmed CarMax's goal of gaining market share for the full year. Jon Daniels, EVP of CarMax Auto Finance, highlighted the unique challenges of the 2022-2023 consumer vintages as an industry issue, contrasting them with the more 'eyes wide open' 2024-2025 consumer who is performing better.

David Bellinger asked about the timeline and path to achieving positive unit comps. He also inquired whether the used car market is deteriorating, if macro cracks are evident through CAF adjustments or other consumer signals, and if competitive dynamics played a larger role in Q2's performance.

Answer

President and CEO Bill Nash stated that the aggressive environment is not new, and while mid-to-high FICO customers are somewhat on the sidelines, CarMax is well-positioned. He reiterated the goal to gain market share for the full year. EVP of CarMax Auto Finance Jon Daniels highlighted the unique challenges of the 2022-2023 consumer vintages as an industry issue, noting that 2024-2025 consumers are performing better, having entered the market with 'eyes wide open.'

David Bellinger from Mizuho Financial Group questioned if the new marketing push is driven by achieving 'omni cost neutrality,' suggesting CarMax is now better positioned to profitably handle more digital volume.

Answer

EVP and CFO Enrique Mayor-Mora confirmed that efficiency gains enable the marketing push, making the company more confident in advertising its differentiated experience. President & CEO Bill Nash added that recent experience enhancements, like order processing, make it the right time to highlight CarMax's superior omni-channel offerings.

David Bellinger inquired about the current operating environment, asking if third-party lenders have become more aggressive and if low-to-mid single-digit comps can now drive double-digit earnings growth.

Answer

SVP Jon Daniels characterized the lending environment as 'steady as she goes,' with partners remaining careful. CFO Enrique Mayor-Mora affirmed that CarMax is now positioned to 'harvest' past investments, suggesting strong operating leverage is achievable and that the company aims for robust top and bottom-line growth.

David Bellinger asked about contingency plans for potential volume declines given the worsening auto loan market. He also inquired about the rollout of new digital progression tools and any resulting improvements in sales conversion.

Answer

SVP Jon Daniels suggested that lower Tier 3 volume is more an issue of consumer affordability than just lender tightening. President & CEO William Nash added that they feel good about their proactive measures and see future opportunity as lower-income consumer participation is still below historical levels. Regarding digital tools, Mr. Nash confirmed the new order processing system is fully rolled out, creating a more seamless experience, and noted that while it's early to quantify, overall conversion was up in stores and CECs.

David Bellinger inquired about the further rollout of personalization efforts, specifically if they are reaching every member, and requested specific examples of conversion or sales uplift resulting from these personalization changes.

Answer

Gary Millerchip, Chief Financial Officer, noted that personalization is still in its early stages, with significant roadmap ahead to refine communications and integrate it across the member experience. He stated that Costco focuses on improving member engagement and driving digital sales, which are expected to grow faster than the warehouse business, rather than sharing specific metrics. Ron Vachris, President, CEO, and Director, added that upcoming app enhancements like pay-ahead for pharmacy and online ordering for cakes/deli trays are seeing strong adoption and will further drive digital value.

David Bellinger asked about the rollout and impact of personalization efforts, inquiring if they are reaching every member and for specific examples of conversion or sales uplift.

Answer

Gary Millerchip (CFO, Costco Wholesale Corporation) stated that personalization efforts are still relatively early in the journey, with a strong roadmap for continued improvement in member experience and relevancy. He noted that the focus is on driving overall member engagement and top-line digital sales, which are expected to grow faster than the warehouse business.

David Bellinger inquired about the early adoption and engagement of Stitch Fix's consumer-facing AI and visualization tools, and sought clarification on the drivers behind the year-over-year decline in gross margin and expectations for Q2.

Answer

CEO Matt Baer reported that Stitch Fix Vision, the generative AI visualization tool, has seen engagement far exceeding expectations, with clients using it for stylist communication, direct purchases, and social sharing, creating organic growth. CFO David Aufderhaar attributed the gross margin decline to three factors: general rate increases in transportation expenses, strategic investments in lower-margin categories like footwear for higher LTV, and a minor impact from tariffs. He expects Q2 margins to be similar to Q1, within the 43%-44% full-year guidance range, noting strong contribution margins above 30%.

David Bellinger requested a deeper dive into the 10% AOV growth and its sustainability, and also asked about the increased ad spend and what is required to drive new customer growth.

Answer

CFO David Aufderhaar explained that the significant AOV growth was primarily driven by the increased penetration of larger Fixes (6-8 items), which more than doubled from Q1 to Q3. While this momentum is expected to continue, he cautioned about tougher year-over-year comps in FY26. Regarding advertising, Aufderhaar stated that a further increase in ad spend is not necessary to achieve active client growth, citing positive trends in acquisition and re-engagement. He noted that spending follows a CAC-to-LTV model and is seasonally higher in Q1 and Q3.

David Bellinger asked about the increased presence of branded items like Lego and SpongeBob, the competitive forces above the $5 price point, and how Five Below plans to maintain its edge against larger value-oriented players like Walmart or Target.

Answer

CEO Winnie Park stated that branded items have always been part of the mix, and Five Below maintains its edge through disciplined focus on price value and relative value, achieved via exclusives and close vendor collaboration. She emphasized precise selection of branded products that resonate with customers and creating 'wow' in-store presentations and ranges, working with vendors on visual marketing.

David Bellinger from Mizuho Financial Group asked about the future sources of momentum, inquiring about plans for the two underperforming product 'worlds' and the potential for categories like party goods to drive growth into 2026.

Answer

CEO Winnie Park confirmed there is significant opportunity ahead, emphasizing the team's increased agility in chasing new trends and moving away from underperforming ones. She specifically highlighted personal and holiday celebrations, including the party category, as areas with future growth potential within an evolving merchandising strategy.

David Bellinger from Mizuho Financial Group inquired about the long-term goal for reducing sourcing from China and which countries are now receiving the pivoted volume.

Answer

CEO Winnie Park explained the 10 percentage point reduction in China sourcing for the back half was achieved by leveraging their global sourcing office, adding new domestic and international vendors, and capitalizing on current trends that are less reliant on a single country. She emphasized the team's swift, cross-functional action in response to the tariff environment.

David Bellinger asked how the company reconciles the seemingly contradictory actions of raising prices to offset tariffs while simultaneously promoting a message of enhanced value.

Answer

CEO Winnie Park explained that the balance is achieved by focusing on strong *relative* price value. For items above $5, the value is clear when compared to competitors. For items at or below $5, the company leverages its dynamic buying model, vendor partnerships, and global sourcing to flow in new, trend-right products that maintain a compelling value proposition, calling this flexibility a 'secret weapon' against tariff pressures.

David Bellinger of Mizuho Securities asked to identify the single biggest near-term opportunity among the announced initiatives and which specific product category investors should watch for signs of the turnaround.

Answer

Interim President and CEO Kenneth Bull identified "product and value" as the biggest overarching opportunity, as Five Below is a merchandise-driven company. He pushed back on focusing on a single category, emphasizing that the beauty of the model is applying the new, disciplined approach across all eight of its 'worlds' to create a cumulative, store-wide impact.

David Bellinger questioned the low average unit volume of the 80-90 stores slated for closure and whether more closures are possible if sales recovery falters. He also asked about the destination of the 160,000 lost retail customers and the estimated cost to re-acquire them through targeted marketing and price investments.

Answer

CFO Jeff White confirmed the closed stores had low sales and were unprofitable, stating that remaining stores are mostly profitable, but future closures could be considered. CEO Jason McDonell explained that 80% of lost customers were 'switchers' and Pool Perks members, allowing for efficient, targeted marketing. Jeff White added that the 2026 guide does not imply an increase in marketing spend but a redeployment for higher ROAS.

David Bellinger questioned the low average unit volume of the 80-90 stores slated for closure and whether additional closures might occur if sales recovery falters. He also asked about the destination of the 160,000 lost residential customers and the estimated cost to regain them through targeted marketing and price investments.

Answer

CFO Jeff White confirmed the closed stores had low sales and were unprofitable, noting this tranche removes the majority of unprofitable locations but future reviews are possible. CEO Jason McDonell stated that 80% of lost customers were 'switchers' and Pool Perks members, enabling efficient, targeted marketing with customized offers. Jeff White added that the fiscal year 2026 guide reallocates existing marketing spend for higher ROAS rather than increasing it.

David Bellinger of Mizuho Financial Group asked about the performance gap between top and bottom-tier stores and questioned why a more formal, comprehensive cost-cutting program has not yet been implemented.

Answer

CEO Jason McDonell stated that a full review of the store footprint is part of the ongoing strategic review. He explained that a formal cost-cutting plan is being developed with external support, with details to be shared in November. He stressed the importance of stores as cash-generating assets, particularly during the peak season, as a reason for the deliberate approach.

David Bellinger from Mizuho questioned why improved in-stock levels didn't translate to better Q2 sales and asked about the motivation for the new Uber partnership for same-day delivery.

Answer

CEO Jason McDonell explained that Q2's top-line challenge was traffic-related due to weather, but the benefit of improved in-stocks was evident in the higher conversion rate. He stated the new Uber partnership is driven by the core pillars of customer centricity and convenience, aiming to fulfill customer needs in 'minutes and hours, not days.' He also highlighted that local fulfillment via Uber offers a cost-saving alternative to shipping products across the country.

David Bellinger from Mizuho Securities inquired about the wage growth assumptions embedded in the full-year guidance and the company's exposure to states with rising minimum wages. He also asked if management has considered a store closure program to unlock capital.

Answer

CEO Jason McDonell responded that the company monitors states with minimum wage growth and has factored in moderate, mid-single-digit overall wage growth, noting a normalization post-COVID. Regarding store optimization, McDonell stated that while the team has a disciplined approach to evaluating all assets and potential closures or relocations as part of its asset utilization strategy, there was nothing specific to announce at this time.

David Bellinger asked about the potential need for reinvestment in marketing or wages to support the new initiatives and requested a framework for the potential amount of debt paydown in fiscal 2025.

Answer

CEO Jason McDonell stated that additional investment dollars are not yet determined, as the focus is first on reallocating the existing marketing budget more efficiently using data and analytics. CFO Scott Bowman reiterated that debt paydown is the #1 capital allocation priority but declined to provide a full-year target beyond the $25 million planned for Q1, emphasizing the commitment to this goal over near-term M&A or store growth.

David Bellinger asked if AutoZone is concerned about a potential deferral cycle emerging in 2026 due to cumulative inflation, and if this influences their pricing strategy. He also inquired about the long-term growth in Mexico, specifically if the megahub model will be rolled out there to support store replenishment and what other capabilities these stores might gain.

Answer

President and CEO Philip Daniele reiterated that he is not concerned about a massive deferral cycle unless inflation significantly increases, as the lower-end consumer has likely exhausted deferral options over the past two years. He expects demand to remain stable. Mr. Daniele confirmed that AutoZone is currently light on the hub and megahub strategy in Mexico, having focused on satellite stores. However, as they strengthen assortments to capitalize on the commercial opportunity, they anticipate needing to deploy hubs and megahubs to better serve professional customers.

David Bellinger asked Phil Daniele about concerns regarding a potential deferral cycle in 2026 due to ongoing pricing and inflation. He also inquired about the long-term growth strategy for Mexico, specifically if the megahub model would be rolled out there and how the geography would be built out over time.

Answer

Phil Daniele, CEO and President, reiterated that he is not significantly concerned about a 'massive deferral' cycle unless inflation dramatically exceeds mid-single digits, as consumers have likely exhausted deferral options for essential repairs and the small dollar amounts of part price increases are manageable. He confirmed that AutoZone is currently 'light' on the hub and megahub strategy in Mexico but is strengthening assortments to capitalize on commercial opportunities, implying a future need for these larger format stores to support commercial customers.

David Bellinger asked Phil Daniele about his level of concern regarding a potential deferral cycle showing up in 2026, given the ongoing pricing increases on top of prior inflation. He also inquired about the long-term growth opportunity in Mexico, specifically whether the megahub model would be rolled out there to improve store replenishment and what other features or capabilities might be introduced in Mexican stores over time.

Answer

Phil Daniele, CEO and President, reiterated his view that he is not overly concerned about a massive deferral cycle unless inflation significantly exceeds mid-single digits, as essential break-fix items have limited deferral options and price increases are small in dollar terms. Regarding Mexico, Daniele confirmed that AutoZone is currently 'light' on the hub and megahub strategy there but is strengthening assortments to capitalize on commercial opportunities, implying a future need for hubs and megahubs to better serve professional customers.

David Bellinger of Mizuho Securities asked if the company was seeing any sales impact from immigration policy changes, similar to the 'Hispanic hibernation' of 2017, and requested details on the benefits of new automated distribution centers.

Answer

Executive Philip Daniele stated that to date, there is no empirical evidence of a sales impact similar to the 'Hispanic hibernation' of 2017. He explained that the new distribution centers will enhance supply chain efficiency, with the Virginia DC adding direct import capacity and the California DC improving distribution of slower-moving parts, ultimately getting products to stores faster.

David Bellinger from Mizuho Securities questioned the strategy behind the higher Mega-Hub target, asking if stores are now serviced by multiple hubs, and inquired about the inventory makeup and delivery time improvements from these locations.

Answer

Executive Philip Daniele explained that in large metro areas, adding multiple Mega-Hubs reduces delivery times and boosts sales with minimal cannibalization. He clarified that the deeper assortment consists mainly of hard parts, which reduces delivery times from hours to under an hour, benefiting both commercial and DIY customers.

David Bellinger asked about the drivers of Q2 gross margin improvement, including premium products and potential price investments in the second half, and how these factors will influence gross margin expansion in Q3 and Q4. He also questioned if new OpEx investments are strategic or reactionary, and the impact of Chewy+ and fresh/frozen on the 15% incremental EBITDA margins.

Answer

CEO Sumit Singh stated that Q2 gross margin expansion was driven by consistent factors: product mix across merchandising-led businesses (health, premium consumables, hardgoods), increasing Autoship penetration, and the ramping Sponsored Ads initiative. He noted Q2 was the high point for gross margin in the year, with fluctuations expected, but healthy annualized expansion is planned. He confirmed that the investments in the second half, such as for Chewy+ and Autoship growth, are strategic and within Chewy's control, aiming to accelerate market share gains rather than being reactionary.

David Bellinger asked about the drivers of Q2 gross margin improvement, the strategy for price investment in the second half, and expectations for gross margin expansion in Q3 and Q4. He also questioned if new OpEx investments are controlled strategic decisions or reactionary to market changes, and the impact of Chewy Plus and fresh and frozen on the 15% incremental EBITDA margins.

Answer

CEO Sumit Singh stated that Q2 gross margin expansion was driven by consistent factors: product mix (health, premium consumables, hardgoods), increasing Autoship penetration, and ramping Sponsored Ads. He confirmed Q2 was the high point for gross margin this year, with fluctuations expected, but healthy annual expansion is still anticipated, contributing 60% to 2025 adjusted EBITDA margin expansion. Singh clarified that the investments in the back half, such as Chewy Plus and Autoship growth, are strategic and within Chewy's control, not reactionary. He noted that while Chewy is choosing to reinvest potential bottom-line flow-through from increased guidance into growth, these high-margin verticals are expected to contribute positively to EBITDA.

David Bellinger asked for a detailed explanation of the Q2 gross margin improvement, specifically regarding the impact of premium products and potential price investments in the back half. He also questioned whether new OpEx investments are strategic or reactionary, and how Chewy Plus and fresh/frozen offerings might affect the 15% incremental EBITDA margins.

Answer

Sumit Singh, CEO & Director, Chewy, attributed gross margin expansion to product mix across merchandising-led businesses (health, premium consumables, hardgoods), increasing Autoship penetration, and the ramping Sponsored Ads initiative. He confirmed Q2 was the high point for gross margin in 2025 but expects healthy annualized expansion. He clarified that OpEx investments are strategic decisions to accelerate growth and share gains, not reactionary, and that Chewy Plus and private brands contribute to top-line growth and EBITDA flow-through.

David Bellinger asked for a detailed breakdown of the drivers behind the significant Q4 net active customer growth and questioned the sequential slowdown in year-over-year gross margin expansion in Q4.

Answer

CEO Sumit Singh attributed the strong active customer growth to enhanced marketing execution, including a rebuilt internal bidding model, which capitalized on Q4's seasonal shopping intent. Executive David Reeder clarified that Q4 gross margin performance was in line with internal expectations and that the drivers for margin expansion in fiscal 2025 are expected to be similar to those in 2024, with contributions from both gross margin improvements and operating expense leverage.

David Bellinger inquired about the growth trajectory for the mobile app's share of revenue and its associated P&L benefits. He also asked for clarification on a new finance IT project mentioned in the 10-Q and its potential SG&A impact.

Answer

CEO Sumit Singh described ramping up the mobile app's revenue share to the 40-45% level as a multi-year effort, highlighting benefits like higher AOV, better retention, and superior cross-category attachment. Executive David Reeder clarified that the new IT project is a capability-enhancing migration of planning engines to a new suite for improved analytics and AI application, confirming it has no material P&L impact and is not correcting any system deficiencies.

David Bellinger of Mizuho Financial Group asked for clarification on core gross margin drivers excluding sponsored ads, questioning if the core retail business was weakening, and also inquired about the lack of operating expense leverage in Q1 despite automation efforts.

Answer

CFO David Reeder clarified that normalized gross margin expanded 60 basis points year-over-year, driven by sponsored ads, product mix accretion, and fixed cost absorption, with no weakening in the core business. He explained that lower Q1 advertising spend was due to campaign timing and that the company still expects to deliver SG&A leverage for the full year, with advertising expense normalizing to 6.7-6.8% of sales.

David Bellinger from Mizuho Financial Group asked about the core gross margin, questioning if promotions were weakening it, and also inquired about the lack of significant operating expense leverage in the quarter despite automation efforts.

Answer

CFO David Reeder clarified that on a normalized basis, gross margin expanded 60 basis points year-over-year, primarily driven by sponsored ads and product mix, not weakened by promotions. He stated that lower advertising spend in Q1 was due to campaign timing and that full-year ad spend is expected to align with prior years at 6.7-6.8% of sales, with OpEx leverage continuing through the year.

David Bellinger from Mizuho Financial Group asked about the core gross margin, questioning if promotions were impacting it negatively, and also inquired about the modest operating expense leverage in Q1 despite automation efforts.

Answer

CFO David Reeder clarified that on a normalized basis, gross margin expanded by 60 basis points year-over-year and is expected to improve sequentially in Q2. He identified sponsored ads and product mix as the primary drivers. Regarding OpEx, he stated that lower Q1 advertising spend was a matter of timing and that the full-year expense rate is expected to align with prior years, at 6.7-6.8% of net sales.

David Bellinger of Mizuho Financial Group inquired about the moving parts within core gross margin, excluding sponsored ads, and asked about the lack of significant operating expense leverage in Q1.

Answer

CFO David Reeder explained that normalized gross margin expanded by 60 basis points year-over-year, primarily driven by sponsored ads, followed by favorable product mix and fixed cost absorption. Regarding OpEx, he noted that lower Q1 advertising spend was due to campaign timing and that the full-year rate is expected to align with prior years at 6.7-6.8% of sales.

David Bellinger from Mizuho Financial Group asked about the core gross margin, questioning if promotions were weakening it, and also inquired about the modest operating expense leverage in Q1 despite automation efforts.

Answer

CFO David Reeder explained that on a normalized basis, gross margin expanded 60 bps year-over-year, driven by sponsored ads and product mix, not weakened by promotions. He expects sequential gross margin improvement in Q2. Regarding OpEx, he noted that lower Q1 advertising spend was a matter of timing and that full-year ad spend will be consistent with prior years.

David Bellinger from Mizuho Financial Group asked about the moving pieces in gross margin, particularly within the core retail business excluding sponsored ads, and questioned the lack of operating expense leverage in Q1 despite automation efforts.

Answer

CFO David Reeder explained that on a normalized basis, gross margin expanded by 60 basis points year-over-year, driven primarily by sponsored ads, followed by product mix and fixed cost absorption. Regarding operating expenses, he noted that lower Q1 advertising spend was due to timing and that for the full year, advertising is expected to be in line with prior years, with leverage coming from other SG&A lines.

David Bellinger of Mizuho Financial Group requested details on FBM's customer base, such as size and concentration, and asked which of its capabilities offers the most significant opportunity for Lowe's. He also questioned the drivers of the implied back-half same-store sales acceleration, particularly the role of pricing.

Answer

EVP & CFO Brandon Sink described FBM's customer base as diverse, with 40,000 customers and no single one accounting for more than 1% of revenue, highlighting the stable 45% residential and 55% commercial mix. President, CEO & Chairman Marvin Ellison noted the vision is to combine FBM and ADG to offer a comprehensive interior solution for large builders. Regarding guidance, Sink reiterated that the outlook assumes a flat home improvement market with gradual improvement driven by Lowe's strategic initiatives. Ellison added that pricing remains dynamic and competitive, with a focus on providing value to drive traffic.

David Bellinger asked if there was any evidence of sales pull-forward in the strong appliance category or other large-ticket items like patio furniture and grills that may have lifted Q1 results.

Answer

EVP, Merchandising Bill Boltz stated there was no significant indication of sales being pulled forward in appliances. He attributed the category's sustained strength to a trend of product innovation and a superior delivery network that can reach nearly any U.S. zip code within two days. EVP and CFO Brandon Sink supported this, noting that the acceleration in appliance unit growth began in Q3 of the previous year, well before recent trade policy discussions, suggesting the performance is based on fundamental business drivers rather than a pull-forward effect.

David Bellinger inquired about a potential sales pull-forward in the strong appliance category or other large-ticket items like patio furniture and grills during the first quarter.

Answer

EVP, Merchandising, Bill Boltz stated there was no evidence of a sales pull-forward in appliances, describing the strength as a continuation of a positive trend that began in the second half of last year. CFO Brandon Sink supported this, noting the trend predates recent trade policy discussions, and the company is not seeing indications of a widespread pull-forward but will continue to monitor it.

David Bellinger from Mizuho Financial Group inquired about the intra-quarter revenue growth progression in Q2 and the potential for price changes to impact the second half of the year. He also asked about new customer-facing AI initiatives.

Answer

CFO Kate Gulliver noted solid Q2 growth and continued momentum into Q3, driven by order volume rather than price increases, which she attributed to the competitive marketplace model. CEO Niraj Shah detailed that GenAI is improving search, product descriptions, and imagery, with more rich, engaging content and discovery features in development.

David Bellinger of Mizuho Financial Group, Inc. asked about the drivers behind the strong performance of Spartan Surfaces, which had one of its best months ever despite macro pressures. He questioned if there was a new unlock enabling a higher pace of growth.

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President Bradley Paulsen attributed Spartan's success to a strategic shift in focus toward higher-specification sectors like healthcare, education, and hospitality, and away from multifamily. He also credited the addition of talented sales personnel, which is yielding nice returns on investment. CEO Tom Taylor previously noted the company is pleased with Spartan's trajectory and book of bids.

David Bellinger of Mizuho Securities sought clarification on the exact tariff assumptions in the guidance, specifically what happens after the 90-day pause. He also asked which specific countries are absorbing the sourcing volume moving away from China.

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CFO Bryan Langley clarified the guidance assumes universal tariffs remain in place for the rest of the year, but reciprocal tariffs would primarily impact 2026 due to inventory lead times. CEO Tom Taylor explained that the sourcing shift is not to one or two specific countries but is spread globally. He highlighted that the U.S. is now their largest manufacturing country at 27% of sales and that the company has increased its total number of vendors and countries it sources from, demonstrating a broad-based diversification strategy.

David Bellinger asked for the rationale behind maintaining the full-year guidance despite the wide range of potential outcomes for Q2, and also requested an update on momentum in the international segment.

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CFO John David Rainey expressed confidence in landing the year within the guided range, despite short-term volatility from tariffs and accounting impacts, citing the team's ability to manage the situation. International CEO Kathryn McLay described the international quarter as a 'good result' with room for improvement, noting some market weakness but also strategic investments. She reaffirmed the full-year goal of growing international profit faster than sales.

David Bellinger inquired if positive commentary on a rationalizing competitive landscape signals a sales inflection point and asked about the implications of UWC's declining share of total wash sales.

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CEO John Lai stated that while competitive intrusion is slowing, strong execution is still required to win business, noting that impacted stores typically rebound and outperform within two years. CFO Jedidiah Gold provided data showing fewer new competitor openings. Gold also explained that the UWC mix decline is a positive sign, driven by strong retail growth, which in turn fuels new member sign-ups.

David Bellinger asked for a reconciliation between the strong 6% Q4 comp and the 1-3% guidance for 2025, questioning any one-time factors or Q1 slowdowns. He also asked about the Titanium membership mix stepping back to 23% and the assumptions for it in the 2025 outlook.

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CFO Jed Gold attributed the Q4 outperformance to favorable weather, particularly in October, which drove strong retail and a double-digit total comp for that month. He noted January was similarly strong. Regarding Titanium, Gold explained the Q3 peak was aided by promotions and some members churned post-promo. While they see long-term opportunity, the 2025 guide does not assume significant further penetration. CEO John Lai added that 60% of members are now in premium tiers.

David Bellinger asked how much of the retail sales improvement was driven by internal marketing efforts versus other factors. He also questioned why CapEx guidance was lowered while the new store opening target remained unchanged.

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Executive John Lai stated that while marketing initiatives likely had some impact, it was difficult to quantify, and favorable weather creating pent-up demand was a significant factor. Executive Jedidiah Gold clarified that the change in CapEx guidance was purely due to the timing of spending and did not reflect a change in new store build costs or the development pipeline.

David Bellinger of Mizuho inquired about the increasing use of automation in distribution centers and the company's exposure to gas and diesel prices within operating expenses.

Answer

President Brent Kirby described the use of goods-to-person automation in recent DC relocations as an 'evolution of distribution technology' rather than a one-size-fits-all strategy, emphasizing that each facility is optimized for its specific market. On energy costs, CFO Jeremy Fletcher explained that fuel prices are not a significant driver of SG&A, stating that prices must move substantially to have a material impact on company-wide results.