Jeff Lee

Jeff Lee questioned the confidence in the 7%-9% sales growth guidance for 2026, given the Q4 2025 exit rates for light-duty (flat), heavy-duty (5%), and specialty (0%), implying a significant acceleration. He also asked if tariff benefits would continue into Q1 and Q2, and if the large customer's POS sales were actually down. In a follow-up, he asked for clarification on gross margin, confirming that dollar-for-dollar tariff pricing would imply lower percentage margins and if the COGS catch-up impact would be concentrated in Q1/Q2.

Answer

Kevin Olsen, Dorman's CEO, clarified that Q4 sales were significantly impacted by one large customer's order patterns shifting (orders down nearly 40% from Q3) due to supply chain consolidation, which is expected to normalize by the end of Q1 2026. Confidence in the 7%-9% growth stems from new product development, which drives above-market growth, and the full-year impact of 2025 pricing. He confirmed that tariff pricing was dollar-for-dollar, affecting margin percentages but not margin dollars. Dorman expects 2026 operating margin to be 15%-16% for the full year, exiting at a higher, high-teens rate, similar to 2023's inflationary cycle. Higher tariff inventory will impact H1 2026, with savings from supplier diversification and productivity initiatives flowing through in H2 due to FIFO accounting lag.

Jeff Lee questioned the confidence in Dorman Products' 7%-9% sales growth guidance for 2026, given the flat to low single-digit exit rates in Q4 2025 across segments, and sought clarification on the impact of customer order pattern changes and tariff benefits.

Answer

Kevin Olsen, Dorman's Chief Executive Officer, attributed the Q4 2025 sales deceleration to a significant order pattern shift by a major customer, which saw orders down nearly 40% from Q3. He expects normalization by Q2 2026. Mr. Olsen expressed confidence in the 2026 guidance, citing the full-year impact of 2025 pricing, continued strong new product development, and the anticipated return to normal ordering patterns.