David Lantz

David Lantz asked about the puts and takes for SG&A through the balance of the year, following the non-recurring payroll-related item in Q1. He also asked for help parsing out the potential impact of Winter Storm Fern on Q2 comps.

Answer

Kevin Willis, CFO of Valvoline, stated that excluding the non-recurring item, SG&A leveraged 30 basis points year-over-year, and they expect continued improvement by scrutinizing spend across all categories. Lori Flees, President and CEO, said it's too early to quantify the Q2 impact of Winter Storm Fern but reiterated that weather typically shifts demand rather than causing long-term negative impacts, with effective management of labor and marketing.

David Lantz asked about the puts and takes for SG&A through the balance of the year, following the non-recurring payroll-related item in Q1. He also asked for an assessment of the potential impact of Winter Storm Fern on Q2 comps.

Answer

Kevin Willis, CFO, Valvoline, stated that excluding the non-recurring item, SG&A leveraged 30 basis points year-over-year, and they expect continued improvement by scrutinizing spend across all categories. Lori Flees, President and CEO, Valvoline, said it's too early to quantify the Q2 impact of Winter Storm Fern but reiterated that historical patterns show demand shifts rather than long-term losses, with effective management of labor and marketing.

David Lantz asked about the cadence of new store openings in the second half and whether they might be delayed by softer demand. He also inquired about key factors for gross margin modeling in Q3 and Q4.

Answer

CEO Lori Flees expressed confidence in the back-half loaded store opening schedule, citing a strong pipeline of units under construction and acquisitions. CFO Mary Meixelsperger advised that gross margins are typically stronger in the second half of the year due to higher sales leverage during the summer drive season.

David Lantz asked about the outlook for SG&A per store trends given franchising activity and inquired about the performance of the fleet business.

Answer

CFO Mary Meixelsperger attributed expected SG&A deleverage primarily to technology investments, such as new ERP and HRIS systems, to support a pure-play retail model. CEO Lori Flees described the fleet business as strong, with growth outpacing consumer transactions. She noted a focus on increasing penetration with existing accounts and expanding support for franchisees to capture more fleet business.

David Lantz of Wells Fargo inquired about the company vs. franchise split within the FY25 new unit guidance, the expected opening cadence, and the growth outlook for the Fleet business.

Answer

CEO Lori Flees confirmed the FY25 new unit guidance of 160-185 stores includes approximately 100 company-operated stores. She expects a more even quarterly opening cadence due to a higher mix of new builds providing better visibility. For the Fleet business, Flees anticipates it will continue to grow faster than the consumer segment, driven by successful investments in its B2B sales force.

David Lantz asked for a detailed breakdown of the gross margin drivers in Q3, including material costs, occupancy, and technician labor, along with expectations for Q4. He also questioned the potential benefits from Winter Storm Vern.

Answer

EVP and CFO Brian D'Ambrosia detailed Q3 gross margin improvements from lower material costs (80 bps) and occupancy costs (30 bps), partially offset by higher technician labor (50 bps) due to wage inflation. He projected Q4 gross margins to be above prior year to achieve full-year consistency. President and CEO Peter Fitzsimmons added that Winter Storm Vern created consumer demand, leading to expected incremental sales as stores recovered.

David Lantz inquired about the detailed components contributing to Monro's gross margin performance in Q3, specifically material costs, occupancy, and technician labor, and the outlook for Q4. He also asked about the potential impact of Winter Storm Finn on sales.

Answer

EVP and CFO Brian D'Ambrosia detailed that Q3 gross margin benefited from lower material costs (80 bps) and occupancy costs (30 bps), partially offset by higher technician labor costs (50 bps) due to wage inflation. He projected Q4 gross margins to be above the prior year to achieve full-year consistency. President and CEO Peter Fitzsimmons stated that the company was prepared for Winter Storm Finn, met demand, and expects incremental sales over the next couple of weeks due to increased vehicle safety needs.

David Lantz of Wells Fargo requested a detailed breakdown of the 170 basis point gross margin decline, asking about the specific impacts from technician labor and material costs, and the margin outlook for the rest of the year. He also asked about the traffic and ticket components of the Q1 comparable sales growth.

Answer

EVP & CFO Brian D'Ambrosia detailed that the margin decline was driven by a 170 bps increase in technician labor costs and a 120 bps increase from material costs, partially offset by a 120 bps benefit from occupancy leverage. He expects the year-over-year margin pressure to narrow as the company laps prior year promotions and trade-down effects. President & CEO Peter Fitzsimmons stated that Q1 traffic was steady while the average ticket increased.

David Lantz from Wells Fargo requested a detailed breakdown of the 250 basis point decline in Q4 gross margin across material costs, labor, and occupancy. He also asked about the expected gross margin trajectory for fiscal 2026 and the specific dynamics between customer traffic and ticket size during the quarter.

Answer

Brian D'Ambrosia, EVP of Finance, CFO & Treasurer, provided a breakdown of the gross margin decline, attributing 160 basis points to material costs (due to consumer trade-down and promotions), 80 basis points to technician labor costs, and the remainder to fixed cost deleverage. He projected that fiscal 2026 margins would be pressured, especially in Q1, but could see improvement in the second half. For the quarter's comps, he noted that traffic was down low-single digits while ticket was up mid-single digits, with traffic trends showing improvement in March and continuing into the new quarter.

David Lantz from Wells Fargo sought more detail on the benefits of the ConfiDrive digital courtesy inspection on service categories and requested guidance on SG&A expense trends for the fourth quarter and beyond.

Answer

CEO Michael Broderick explained that ConfiDrive has successfully increased the average ticket by improving service attachment, citing growth in batteries, alignment, and ride control. He noted that while traffic was down, the focus is now on increasing customer counts. CFO Brian D'Ambrosia addressed SG&A, stating that the increase was driven by investments in front-shop labor to support the ConfiDrive process. He expects this investment to continue, though the company will seek productivity improvements elsewhere.

David Lantz of Wells Fargo & Company requested a detailed breakdown of gross margin components, an outlook for the second half, clarification on traffic and ticket trends, and guidance on future interest expense following debt paydown.

Answer

CFO Brian D'Ambrosia explained that Q2 gross margin was pressured by material costs from tire trade-downs, lower manufacturer rebates, and deleverage on fixed occupancy costs, which was partially offset by 130 bps of technician payroll productivity. He expects the rebate headwind to abate in the second half. President and CEO Michael Broderick noted customer traffic declined approximately 9%, offset by some ASP improvement. D'Ambrosia projected that second-half interest expense would be fairly consistent with the prior year.

David Lantz, on behalf of Wells Fargo, asked about the expected cadence of performance from Q2 to Q4, the timing of store closures, and the performance drivers for the Fresh & Frozen food category.

Answer

CFO Sabrina Simmons outlined that the goal for each quarter is to expand gross margin and leverage SG&A on a year-over-year basis. CEO Joel Anderson suggested the timing of store closures would be roughly one-third in the first half and two-thirds in the second half of the year. He also noted that Fresh & Frozen is a fast-growing category where Petco has a strong position and sees it as a potential future growth lever.

David Lantz asked for an update on the M&A market, including whether acquisition multiples are trending down. He also asked about the key factors to consider when modeling G&A expenses for the fourth quarter.

Answer

Executive John Lai reported that the M&A market has been quiet, with multiples coming down to the low-double-digit or high-single-digit range. Executive Jedidiah Gold advised that G&A in Q4 would see a modest uptick of about $1 million over Q3, driven by incremental investments in marketing, headcount, and systems.