Douglas Lane

Doug Lane from Water Tower Research asked about a segment reporting adjustment, the key drivers behind the impressive wholesale gross margin gains, and why management remains cautious about future gross margin outlook. He also sought quantification of the net tariff impact on financials, inquired about potential market share gains due to Bassett's 80% U.S. manufacturing base, and questioned when free cash flow is expected to consistently cover the dividend.

Answer

CFO Mike Daniel clarified the segment reporting change was to correct an immaterial error. Chairman and CEO Rob Spilman attributed wholesale gross margin improvement to a narrowed product focus, operational efficiencies in upholstery, and refined pricing strategies. Both Spilman and Daniel expressed caution on future margins due to ongoing tariff uncertainties, their impact on costs, and unpredictable consumer reactions, also highlighting the disruption from fabric sourcing changes. They stated that quantifying the net tariff impact is complex and currently not possible due to varying tariffs across raw materials, components, and finished goods from different countries. Spilman noted some instances of market share gains from domestic manufacturing but emphasized it's not a widespread trend, with a clearer picture expected after the High Point Market. Regarding the dividend, Spilman expects free cash flow to cover it again soon, explaining that the third quarter's cash flow deficit was atypical due to inventory build-up and seasonal slowness, with CFO Mike Daniel adding that the fourth quarter is typically strong for cash generation.

Doug Lane inquired about a segment reporting adjustment, the drivers behind the impressive wholesale gross margin gains, and the cautious future outlook. He also asked if the net tariff impact on financials could be quantified, about opportunities for market share gains due to domestic manufacturing, and when free cash flow is expected to cover the dividend.

Answer

Mike Daniel (CFO, Bassett Furniture Industries) clarified that the segment reporting change was to correct an immaterial error. Rob Spilman (Chairman and CEO, Bassett Furniture Industries) attributed wholesale gross margin improvements to a narrowed product focus, operational efficiencies in upholstery, and refined pricing strategies, while expressing caution due to tariff uncertainties and consumer price reactions. Mike Daniel and Rob Spilman stated that quantifying the net tariff impact is challenging due to varying pricing philosophies and complex raw material/finished goods nuances. Rob Spilman noted some instances of market share gains from domestic manufacturing but expects a clearer picture after the High Point Furniture Market. Rob Spilman and Mike Daniel expressed confidence that free cash flow would cover the dividend again soon, highlighting Q3 as typically the slowest quarter and Q4 as the strongest for cash generation.

Doug Lane sought clarification on the $8 million "net tariff-related impact" in Q1, asking if it already included mitigation efforts. He also inquired whether the order pattern disruptions caused by tariff-related buy-aheads are now largely resolved, leading to more normalized ordering in Q2. Finally, he asked about the outlook for adjusted operating profit margin improvements for the full fiscal year.

Answer

Interim CFO Kevin Veltman clarified that the "net" impact reflects ongoing mitigation efforts (pricing, surcharges) that are still flowing through, with full offset expected by the second half of the fiscal year. He confirmed that order pattern disruptions are mostly behind, with Q2 showing more normalized ordering rates and consolidated sales up 3.8% year-to-date through Q2. Mr. Veltman declined to provide a full-year outlook for adjusted operating profit margin improvements due to macro uncertainty.

Doug Lane sought clarification on the $8 million net tariff-related impact in Q1, including the effectiveness of mitigation efforts and the expected timeline for full offset. He also asked about the normalization of order patterns after the pull-forward and the outlook for Q2, and whether to model improvements in adjusted operating profit margin for the full year.

Answer

Interim CFO Kevin Veltman explained that the $8 million net impact reflects ongoing pricing actions and surcharges, with full cost offset anticipated by the second half of the fiscal year. He confirmed more normalized order rates in early Q2 and provided consolidated sales growth for H1 FY26. Kevin Veltman declined to provide full-year operating profit margin guidance due to macro uncertainty, sticking to quarter-to-quarter guidance.

Doug Lane sought clarification on the net tariff-related impact in Q1, the effectiveness of mitigation efforts, and whether order patterns are returning to normal after the pull-forward activity, also asking about the full fiscal year adjusted operating profit margin outlook.

Answer

Kevin Veltman (Interim CFO) explained the $8 million net tariff impact in Q1 reflects ongoing mitigation efforts through pricing and surcharges, expected to fully offset costs by the second half of the fiscal year. He confirmed order patterns are normalizing, citing positive early Q2 order rates and a consolidated sales growth of 3.8% for the first half. Kevin Veltman declined to provide a full-year operating profit margin outlook due to macro uncertainty.

Doug Lane sought clarification on the $8 million net tariff-related impact in Q1, specifically if it included mitigation efforts. He also asked if the disruption to order patterns from tariff buy-ahead was now behind the company and if improvements in adjusted operating profit margin should be modeled for the current fiscal year.

Answer

Kevin Veltman, Interim Chief Financial Officer, confirmed that the $8 million was a net impact, indicating that pricing actions were underway but take time to flow through, with full offset expected by the second half of fiscal 2026. He added that order pattern disruption is largely behind, with Q2 ordering feeling more normalized, and consolidated sales year-to-date through Q2 are up 3.8%. Kevin Veltman declined to comment on full-year adjusted operating profit margin due to macro uncertainty and limited visibility.

Douglas Lane asked about the value and future utilization of Culp Inc.'s 'hidden assets,' specifically the market value of its Stokesdale, NC, real estate and its federal net operating loss (NOL) carryforwards.

Answer

EVP, CFO & Treasurer Kenneth Bowling clarified that the Stokesdale facility has an estimated market value of $40-$45 million against a net book value of $12.1 million, indicating substantial unrealized value. He also explained that the $88.1 million in federal NOL carryforwards represent an 'untapped value' that will provide a 'tremendous benefit' by offsetting future U.S. profits once the company returns to profitability.

Douglas Lane with Water Tower Research inquired about Culp Inc.'s current position regarding tariffs, specifically if all known information has been incorporated into their cost and pricing strategies. He also asked about the elasticity of pricing in the current competitive environment, the progress and timeline for realizing the $18 million in annualized cost and efficiency enhancements, and how the current post-COVID market dip compares to past downturns like the Great Recession. Furthermore, Lane questioned Culp's capacity to meet future demand during a market recovery and sought clarification on the book value versus market value of their Stokesdale real estate and the future utilization of their federal net operating loss (NOL) carryforwards.

Answer

CEO Robert G. Culp IV (Iv Culp) explained that Culp Inc. has largely absorbed current tariffs, adjusting pricing and leveraging multiple manufacturing locations to maintain profitability despite past disruptions from high China tariffs. He noted that while pricing is challenging in competitive markets, they are aggressively implementing necessary increases to cover costs and right-size margins. Regarding the $18 million in initiatives, Mr. Culp stated that the $10-$11 million from fiscal 2025 restructuring (Canadian operations) is fully implemented for fiscal 2026, with the remaining initiatives, including price increases, expected to impact the second half of fiscal 2026, with some benefits starting in Q2. He characterized the current market downturn as protracted compared to historical cycles but emphasized Culp's proactive adjustments to achieve profitability independently of a market recovery. Mr. Culp also confirmed that Culp has maintained significant capacity globally, allowing for substantial leverage and margin expansion without major new investments when demand returns. CFO Kenneth Bowling clarified that the Stokesdale facility's net book value is approximately $12.1 million, with an estimated market value of $40-$45 million, and the $88.1 million in federal NOLs represent a significant untapped future tax benefit once the company achieves U.S. profitability.

Douglas Lane, an analyst at Water Tower Research LLC, inquired about Culp Inc.'s strategy for managing tariff impacts, the elasticity of pricing initiatives, the timeline for realizing the $18 million in annualized cost and efficiency benefits, and a comparison of the current market downturn to past recessions. He also asked about the company's capacity to meet future demand and the value of its hidden assets, specifically real estate and federal net operating loss (NOL) carryforwards.

Answer

CEO Robert G. Culp IV explained that Culp Inc. has largely absorbed current tariff impacts through strategic options, adjusted pricing, and diversified manufacturing, enabling margin growth. He noted that while price increases are challenging, they are necessary for profitability, and customers understand the competitive landscape. Culp IV detailed that the $10-$11 million in fiscal 2025 restructuring benefits are fully implemented for fiscal 2026, with additional initiatives and price increases expected to impact the second half of fiscal 2026. He characterized the current market downturn as protracted compared to past cycles but affirmed Culp's proactive approach to profitability regardless of market recovery, emphasizing that the company has maintained capacity globally to leverage future demand without significant new spending. CFO Kenneth Bowling clarified that the Stokesdale, NC facility has a net book value of approximately $12 million against an estimated market value of $40-$45 million, and the $88.1 million in federal NOLs represent a significant future tax benefit once the company achieves U.S. profitability.

Doug Lane inquired about the status of excess retailer inventory, the company's strategy for managing tariff impacts including pricing adjustments, and the role of product innovation in the current uncertain consumer environment.

Answer

Andy Fulmer, CFO, clarified that current retailer inventory was not 'excess' but rather accelerated orders. Brian D. Murphy, President and CEO, explained a multi-faceted approach to tariffs involving supplier concessions, product redesigns, strategic pricing, and new product launches. Murphy emphasized the critical importance of innovation, detailing how new product introductions are strategically timed to maximize impact and margin in a dynamic market.

Douglas Lane asked about the current state of retailer inventory levels, whether excess tariff-related stock has been fully worked off, and the company's pricing strategy to manage tariff impacts, including the extent and timing of price adjustments. He also questioned the role of product innovation in the current uncertain consumer environment and its contribution to higher-margin products.

Answer

CFO Andy Fulmer clarified that retailer inventory was not 'excess' but rather accelerated orders in key categories. CEO Brian Murphy explained a multi-pronged approach to tariffs, including supplier concessions, product redesigns, strategic pricing adjustments, and maintaining new product velocity to feather in higher-margin products, expecting different levers at different times. He emphasized that innovation is critical, with strategic pauses in launches to avoid market noise and maximize impact, referencing FY2023 as an example where careful timing led to significant growth in subsequent years.

Douglas Lane with Water Tower Research LLC inquired about the fourth quarter's demand trends, specifically the revenue coming in at the low end of the guidance range. He also asked about the fiscal 2026 outlook, seeking clarification on the organic growth contribution versus the impact of the LoveBiome acquisition. Furthermore, he pressed for details on LoveBiome's sales, consultant numbers, operational history, geographic footprint, and how its P84 product differentiates from LifeVantage's existing MindBody GLP-1 System and other gut health offerings, particularly regarding potential synergistic benefits.

Answer

Steve Fife, President and CEO of LifeVantage, acknowledged that Q4 results were softer than anticipated, primarily due to seasonality impacts on the MindBody GLP-1 System in the U.S., while international business remained strong. Regarding the fiscal 2026 outlook, Steve Fife stated that the guidance includes a modest amount of revenue from the LoveBiome acquisition, which is expected to close in Q2 2026, alongside some organic growth. He declined to disclose specific revenue or consultant numbers for LoveBiome at this time but noted it's a three-year-old company with its largest markets in the U.S. (East Coast focus) and Taiwan, with a presence in Europe. Steve Fife highlighted LoveBiome's singular focus on the gut microbiome, especially its P84 product, which regulates, repairs, and restores the gut microbiome. He emphasized the strategic alignment with LifeVantage's activation philosophy and the synergistic potential with the MindBody GLP-1 product, which benefits from a healthier gut.

Doug Lane inquired about the fourth quarter demand trends, specifically the reasons for revenue coming in at the lower end of the guidance range. He also sought clarification on the fiscal 2026 revenue outlook, asking about the proportion of growth expected from the LoveBiome acquisition versus organic growth. Furthermore, Mr. Lane questioned the specifics of LoveBiome, including its sales figures, consultant count, age, and how its P84 product is marketed compared to LifeVantage's MindBody GLP-1 System and existing pre/probiotics.

Answer

President and CEO Steve Fife explained that the Q4 softness was primarily in the U.S. due to the seasonality impact of the MindBody GLP-1 System, while international sales remained strong. Regarding the fiscal 2026 outlook, Mr. Fife indicated that the guidance includes a modest amount of revenue from the LoveBiome transaction, expected to close in Q2 2026, combined with some organic growth. He stated that specific revenue and consultant numbers for LoveBiome could not be disclosed at this time but provided background on the company's three-year history, its primary markets (U.S., Taiwan), and its focus on the gut microbiome with the P84 product. Mr. Fife highlighted P84 as a comprehensive product for regulating, repairing, and restoring the gut microbiome, emphasizing its strategic alignment and synergistic potential with LifeVantage's activation products, particularly MindBody GLP-1.

Douglas Lane questioned the drivers behind the lowered full-year revenue guidance, the cause of the sequential decline in Americas active accounts, and the key learnings from marketing the new MindBody GLP-1 product.

Answer

Executive Steven Fife attributed the lowered revenue guidance to lingering effects from the Q2 stock-out and uncertainty in the new international launch. Executive Carl Aure added that the drop in Americas active accounts was primarily customer attrition from the same stock-out. Fife also elaborated on marketing learnings for the MindBody product, explaining a strategic shift to emphasize long-term, sustainable health benefits over a simple weight-loss narrative, which has improved consultant success and customer retention.

Douglas Lane asked about the subscription rate for the new MindBody system, the sales mix of the product in stacks versus standalone units, and the potential for a special dividend given the company's strong cash position.

Answer

Executive Steven Fife stated that MindBody's subscription rate is tracking higher than the company average, with over 50% of new customers joining on subscription. CFO Carl Aure noted that while standalone sales were high initially, the trend is moving toward a higher proportion of sales in stacks. Regarding a special dividend, Aure confirmed it is an option but is being balanced against the need for internal investments in brand awareness and ensuring sufficient inventory for international launches.

Douglas Lane of Lane Research questioned LifeVantage's decision to maintain its fiscal 2025 guidance despite the highly successful launch and subsequent stock-out of the new MindBody GLP-1 system. He also inquired about the potential impact of the inventory shortage on consultants, the product's pricing structure, and the timeline for its international rollout.

Answer

Chief Financial Officer Carl Aure stated that while they expect to hit the high end of their guidance, it was too early—only two weeks post-launch—to formally raise it, given the inventory situation. Executive Steven Fife addressed the stock-out, noting that consultant excitement remains high as thousands of new users can now create testimonials, driving future demand. Fife detailed the product's pricing, with a 30-day supply costing $179 on subscription for customers. He also outlined the international launch plan, with Canada currently having access for personal consumption and a broader rollout planned for most markets in March/April 2025, subject to regulatory approval.

Douglas Lane of Lane Research questioned the expected cadence of fiscal 2025 revenue growth, the drivers behind the sequential improvement in total active accounts, the competitive impact of rivals shifting to affiliate marketing, and the strategy for entering the weight management market with a new GLP-1 activating product.

Answer

CFO Carl Aure indicated that fiscal 2025 would see moderate improvement each quarter, with momentum building in the second half after a Q2 product launch. Executive Steven Fife attributed the growth in active accounts to the company's new Evolve compensation plan, which has improved both retention and enrollment. Fife noted the plan's flexibility attracts both traditional direct sellers and affiliate-style marketers. Regarding the new weight management product, Fife explained it is a natural, two-part system designed to activate the body's own GLP-1 production, differentiating it as a healthy, long-term alternative to drug-based options.

Douglas Lane from Water Tower Research LLC asked why supply constraints have been so pronounced in the sterile eye care category specifically. He also questioned if accelerated capital spending would be required to build out capacity and sought clarification on the disconnect between strong e-commerce consumption and company shipments.

Answer

Chairman, President & CEO Ron Lombardi explained that the lack of available third-party, high-volume sterile eye care capacity, combined with Clear Eyes' unique bottle, makes sourcing difficult, necessitating the in-house move. He stated that no major step-up in capital spending is expected, with the long-term outlook only moving from 1-2% to 1-3% of sales. CFO & COO Christine Sacco confirmed that the e-commerce channel was an area with a disconnect between consumption and shipments, and that the inventory build from Q4 had been worked off, with the current issue being new order volatility in July.

Douglas Lane asked about the potential impact of the recently closed Opella (Sanofi consumer health spin-off) deal, questioning if it would affect Prestige competitively or act as an M&A catalyst.

Answer

Chairman, President & CEO Ron Lombardi stated that the Opella transaction does not fundamentally change the competitive landscape for Prestige. He noted that, similar to previous spinouts from large pharmaceutical companies, it could create future M&A opportunities as brands may come to market over time, viewing it as "more of the same."

Douglas Lane from Water Tower Research LLC asked for details on the commercialization of Protocol, specifically if the app and supplement will be sold together on a subscription basis or if they can be purchased separately. He also inquired about the company's plans for its subscription model, the global rollout timeline for Protocol, and the strategy for managing high-cost debt.

Answer

CEO Stephan Gratziani clarified that distributors will have options, allowing them to offer the Protocol app as a standalone tool or bundled with the new supplement, supporting both existing and new business models. He acknowledged past subscription models were not ideal but sees significant future potential. Gratziani confirmed plans for a global Protocol rollout beginning in 2026. CFO John DeSimone addressed the debt, stating the company will actively consider refinancing its high-cost debt when the no-call protection expires in April, citing the company's much-improved financial position.

Douglas Lane inquired about the commercialization of Protocol, asking if the app and supplement would remain connected, if they could be purchased separately, and about the role of subscriptions. He also asked about the global rollout timeline for Protocol and the company's plans for its high-cost debt.

Answer

CEO Stephan Gratziani stated that distributors will have flexible options to offer the Protocol app as a standalone tool or bundled with products, and confirmed that subscriptions are a key part of the future strategy. He also noted that global expansion for Protocol is planned for 2026. CFO John DeSimone addressed the debt, explaining they will actively consider refinancing high-cost debt after a no-call protection period ends in April, citing the company's improved financial position.

Douglas Lane inquired about the commercialization of Protocol, asking if the app and supplement would remain bundled or be available separately. He also asked about the company's strategy for its subscription model and the envisioned global rollout timeline for Protocol. Lastly, he questioned the plans for refinancing high-cost debt.

Answer

CEO Stephan Gratziani clarified that customers will have flexible options, allowing them to use the app with existing products or purchase the new supplement, supporting both current and new business models. He noted a global rollout for Protocol is planned for 2026. CFO John DeSimone stated that the company will actively consider refinancing its high-cost debt after a no-call protection period ends in April, citing the company's much-improved financial position.

Douglas Lane of Water Tower Research LLC asked for clarification on whether the Protocol app and the healthy lifespan supplement would remain bundled post-launch, the company's strategy for its subscription model, the envisioned global rollout timeline for Protocol beyond 2025, and plans for refinancing high-cost debt.

Answer

CEO Stephan Gratziani clarified that distributors will have flexible options, allowing them to offer the app as a standalone support tool or bundled with the new product to fit existing and new business models. He emphasized that while the subscription model is a key future element, it will take time to build. He also confirmed plans for global expansion of Protocol beginning in 2026. CFO John DeSimone addressed the debt, stating that the company will actively consider refinancing its high-cost debt after the two-year no-call protection on its bond expires in April 2026, citing the company's much-improved financial position.

Douglas Lane inquired about the commercialization of Protocol, asking if the app and supplement would remain bundled and available via subscription. He also asked about the future of subscription models, the global rollout timeline for Protocol, and the company's plans for refinancing its high-cost debt.

Answer

CEO Stephan Gratziani clarified that distributors will have flexible options to offer the Protocol app as a standalone tool or bundled with products, supporting both current business models and creating new ones. He confirmed a global rollout is planned for 2026. CFO John DeSimone added that the company will actively consider refinancing its high-cost debt once the no-call protection period ends in April, citing the company's significantly improved financial position.

Douglas Lane of Water Tower Research asked about the long-term capital investment outlook for Pro2col over the next 3-5 years and requested an early read on distributor engagement with the new Flex45 challenge.

Answer

CFO John DeSimone clarified that Pro2col investment will not permanently elevate CapEx, as it involves reprioritizing existing spend and leveraging the significant technology infrastructure already built. President and incoming CEO Stephan Gratziani reported strong excitement for the Flex45 challenge, with over 200,000 distributors preregistering and tens of thousands actively participating, viewing it as a simple, effective program for engagement and onboarding.

Douglas Lane highlighted the sharp acceleration in new distributor growth to 22% and asked what is driving it and how this will ultimately translate into growth in the sales leader base.

Answer

Incoming CEO Stephan Gratziani attributed the growth to a series of initiatives launched in early 2024, particularly the 'Herbalife Premier League,' which for the first time created a focused program for recruiting and activating new distributors. He also cited more advanced, DMO-centric training and the efforts of the distributors themselves. While the average sales leader number has stabilized, he noted the timing of significant growth will vary by region but expressed confidence the company will 'hit our stride' in the second half of 2025.

Douglas Lane asked for elaboration on why exiting retail during the pandemic was a mistake, for an early performance read on the new Long Island store, and about retail expansion plans for the next 12 to 18 months.

Answer

Chairman and CEO Jim McCann stated that, in hindsight, he would have preferred to keep the approximately $50 million in revenue from the shuttered stores, reaffirming his belief in a multichannel strategy. He described the new Long Island store as a successful 'stage' for multiple brands and live 'Celebrations Experiences,' with strong early results. President Tom Hartnett confirmed plans to open a 'handful' of year-round stores and expand the seasonal store program over the next 18 months, aided by a new real estate executive.

Douglas Lane asked a follow-up about the potential impact of tariffs on Colombia and questioned the drivers behind the significant performance shift where the wholesale business outperformed e-commerce.

Answer

CEO Jim McCann and President Tom Hartnett described the potential impact of Colombian tariffs as 'painful' and 'damaging,' noting the U.S. floral industry's dependence on the country for 50-60% of its supply. McCann explained that the strong wholesale performance was counter-indicative, reflecting increased in-store retail traffic which drew from e-commerce. However, he expects both channels to perform well going forward as the company has cultivated new wholesale relationships, broadening its customer base.

Douglas Lane asked for clarification on the $3 million wholesale order shift, an update on broad cost trends for shipping and labor, and details on how this year's favorable pear crop impacts the business.

Answer

CFO Bill Shea explained the $3 million wholesale order shift from Q1 to Q2 was a simple timing issue dictated by clients. CEO Jim McCann noted the seasonal labor situation has stabilized. On costs, Shea mentioned benefits from lower fuel surcharges and logistics optimization are helping offset carrier rate hikes. Management collectively highlighted that this year's excellent pear crop reduces the need for third-party sourcing and extends the selling season, which is a net positive.

Douglas Lane sought more detail on the FY25 guidance, asking if positive sales growth could occur in the December quarter, what drove weak GFGB margins in the June quarter, and if guidance implies higher marketing spend. He also requested an update on the Personalization Mall business.

Answer

CFO Bill Shea indicated that revenue trends should improve in Q2 but stopped short of forecasting positive growth. He explained Q4 margins were impacted by lower sales leverage but met expectations. CEO Jim McCann confirmed the guidance allows for increased marketing spend, with potential upside dependent on its yield. Regarding Personalization Mall, McCann and President Tom Hartnett noted it was impacted by its lower-income customer focus but is gaining traction by integrating the higher-end Things Remembered brand onto its efficient operational platform.

Douglas Lane asked for elaboration on why exiting retail during the pandemic was considered a mistake, what would have been done differently with the Harry & David stores, for an early read on the new Long Island store, and about retail expansion plans over the next 12-18 months.

Answer

Chairman and CEO James McCann stated that, in hindsight, he would have preferred to keep the approximately $50 million in revenue from the closed stores, calling the decision a mistake. He praised the new Long Island store as a 'beautiful stage' for multiple brands and a hub for customer experiences, noting that well-executed retail is 'free marketing.' President Tom Hartnett confirmed that future plans include opening a handful of year-round stores over the next 18 months while also 'doubling down' on the successful seasonal holiday store concept.

Douglas Lane of Water Tower Research asked for perspective on the impact of GLP-1 medications on the OPTAVIA coach community, questioning if the topic's controversial nature has created challenges. He also inquired about the total monthly cost for a client who is using both a GLP-1 medication and Medifast's supporting nutritional programs.

Answer

Chief Field Operations Officer Nicholas Johnson characterized the GLP-1 emergence not as a controversy but as a market disruption requiring coach retraining, noting new coaches are adapting well. Chairman and CEO Dan Chard elaborated that the market now better understands GLP-1s as a tool, not a total solution, creating opportunities for coaches to address issues like muscle loss and weight regain. He stated that 50% of coaches have supported a GLP-1 user. Regarding cost, Chard explained most clients use the standard plan at around $400/month, with GLP-1 costs typically handled separately through a client's own physician and insurance.

Asked about the impact of the GLP-1 drug environment on the coaching community, whether it has been controversial, and the total monthly cost for a client using both GLP-1s and Medifast's supporting nutritional programs, including the specific cost from partner LifeMD.

Answer

Executives stated that the GLP-1 environment is viewed as a training opportunity rather than a controversy, as coaches adapt to support clients who are on, transitioning off, or not using the drugs. The core nutritional program costs about $400/month. They clarified that most clients using GLP-1s obtain them through their own physician and insurance, but the LifeMD partnership offers a telehealth subscription for under $20/month for those who need it.

Douglas Lane asked about the 2025 balance sheet outlook, including cash flow, debt retirement, and share repurchases. He also questioned Hiya's capital needs, the overall CapEx forecast, and the strategic thinking behind modifications to the business model.

Answer

CFO Doug Hekking projected strong cash generation in 2025, with plans to retire the $23 million in debt from the Hiya deal by mid-year. He stated share repurchases would at least offset dilution from equity compensation. Hekking confirmed Hiya has low capital intensity and that overall CapEx would be around 1-1.5% of sales. CEO Jim Brown clarified that the changes are 'tweaks' to make the direct selling model more attractive upfront, reiterating a firm commitment to the existing channel.

Inquired about cash flow, specifically why inventory was a use of cash in the first half and if it would become a source. Also asked if marketing investments would be reduced given the environment and about the potential impact of the upcoming election.

Answer

Executives explained the first-half inventory build was a temporary timing issue related to Project Restoration and confirmed inventory will be a source of cash in the second half. They affirmed their commitment to planned marketing investments to build long-term brand awareness. They declined to comment on the election, stating their focus is on controllable business factors.

Douglas Lane asked for color on the inventory swing that contributed to negative free cash flow in the first half, questioned the decision to maintain capital spending guidance amid a difficult environment, and inquired about the potential business impact of the upcoming election.

Answer

CFO Michael Schwindle explained the first-half inventory build was a temporary timing issue from overlapping assortments for Project Restoration, and he expects inventory to be a source of cash in the second half. He and CEO Jacqueline Ardrey affirmed that this is an investment year, and maintaining CapEx and marketing spend is crucial for long-term growth. Regarding the election, Ardrey stated the company is focused on 'controlling the controllables' and not speculating on political impacts.

Douglas Lane asked if there was an opportunity for Build-a-Bear to accelerate reinvestment in the business through increased capital expenditures or acquisitions, given its strong financial position.

Answer

CFO Vojin Todorovic stated that the company continuously evaluates its capital allocation strategy, balancing business investments with shareholder returns. He noted that the current global expansion is asset-light through partners, but they continue to invest in corporate stores and are open to opportunities with a strong ROI. CEO Sharon John added that while the company maintains an open mind for synergistic acquisitions, its most significant historical purchase was the acquisition of its U.K. store operations.