Jim Chartier

Jim Chartier asked for a quantification of the sales impact from various headwinds, including the timing of garden shipments, the temporary pause in shipments to a major e-commerce customer, and ongoing business rationalization efforts. He also followed up on previous comments regarding 'green shoots' in pet adoption and overall pet market trends, seeking an update on the current state of the pet category, and inquired about the factors that contributed to the better-than-expected diluted EPS performance in the quarter.

Answer

Brad Smith, CFO, stated that shipment timing accounted for over half of the total net sales decline, with portfolio optimization efforts being the second largest factor. John Hanson, President of Pet Consumer Products, indicated that the pet category is stabilizing, with the live animal business posting positive growth in both Q4 and Q1. Niko Lahanas, CEO, explained that the EPS upside was primarily driven by higher-margin businesses receiving orders, which positively impacted the bottom line, further clarified by Brad Smith as largely due to mix.

Jim Chartier asked for a quantification of the sales headwinds, including garden shipment timing, a temporary e-commerce shipment pause, and business rationalization efforts. He also sought an update on pet adoption and category trends, and what specific factors drove the better-than-expected diluted EPS in the quarter.

Answer

Brad Smith, CFO, stated that timing impacts and portfolio optimization accounted for nearly 100% of the net sales decline, with smaller headwinds offset by gains in rawhide, animal health, and wild bird. John Hanson, President of Pet Consumer Products, confirmed pet category stabilization, noting positive growth in the live animal business. Niko Lahanas, CEO, and Brad Smith, CFO, attributed the EPS upside primarily to a favorable product mix from higher-margin businesses.

Jim Chartier asked for clarification on the increase in corporate expense during the fourth quarter and requested quantification of the impact of tariffs on the fourth quarter.

Answer

CFO Brad Smith explained that the corporate expense increase was due to quarterly timing variations, investments for 2026 commercial growth, and miscellaneous true-ups, not structural changes. He quantified gross tariffs for the fourth quarter at roughly $7 million-$8 million.

Jim Chartier inquired about the increase in corporate expense in the fourth quarter after declines in the first three quarters, seeking clarification on the underlying reasons. He also asked for a quantification of the tariff impact in the fourth quarter and an update on the performance and investment behind a new pet product launch mentioned in the previous quarter.

Answer

Brad Smith, Chief Financial Officer, attributed the corporate expense increase to quarterly timing variations, investments supporting 2026 commercial growth, and miscellaneous true-ups, indicating no structural change. He quantified gross tariffs in Q4 at roughly $7 million-$8 million. John Hanson, President of Pet Consumer Products, identified the new product as Farnam Endure Gold Fly Spray, noting strong customer feedback but stating that seasonal sales impact would be seen next season. Brad Smith added that incremental Q4 investment in Farnam led to share gains in equine.

Jim Chartier of Monness, Crespi, Hardt & Co., Inc. sought to quantify the sales impact from exited product lines and asked if the new e-commerce facility offers revenue-enhancing capabilities.

Answer

Management, including John Hanson and JD Walker, explained that while specific figures were not provided, the exited product lines were primarily low-margin durables, aquatics, and pottery, making the exits strategically beneficial for profitability. CEO Niko Lahanas clarified that the new Salt Lake City facility is primarily a cost-out and efficiency initiative designed to simplify logistics and improve service levels, which could indirectly support sales growth.

Jim Chartier asked for an update on the target for 80% of stores to be re-bannered by March 2027 and inquired about the allocation of the $20 million in annual cost savings, specifically how much would flow to the bottom line versus being reinvested, and the expected timing of these savings.

Answer

President and CEO Mark Worden clarified that the company expects 'well over 90%' of the fleet to operate as Shoe Station before the end of fiscal 2028, with 51% by back-to-school 2026, and declined to provide intermediary dates for 2027. Mark Worden and CFO Kerry Jackson explained that the $20 million in annual cost savings are expected to flow to the bottom line in fiscal 2028, following 2026 as an investment year and modest gains in 2027.

Jim Chartier of Monness, Crespi, Hardt & Co., Inc. asked for details on sales trends throughout the first quarter, specifically comparing February to the March and April period, and inquired about the trend assumptions embedded in the company's second-quarter guidance.

Answer

Mark Worden, President & CEO, characterized February as 'tough' due to a muted tax refund season, while the combined March-April period was 'okay.' He noted that the underlying trend of Shoe Station's outperformance and Shoe Carnival's underperformance was consistent throughout the quarter. Tanya Gordon, EVP & Chief Merchandising Officer, added that while the sandal business was softer than a record prior year, the two-year stacked growth was up low-double digits, indicating a healthy normalization of the category.

Jim Chartier of Monness, Crespi, Hardt & Co., Inc. asked for color on intra-quarter sales trends during Q1, specifically comparing March and April to February, and questioned what sales trend assumptions are embedded in the Q2 guidance.

Answer

President & CEO Mark Worden described February as 'tough' due to a weak tax refund season, with March-April being better but showing no material change in the underlying banner trends of a weak Shoe Carnival and a strong Shoe Station. He stated Q2 guidance assumes these trends continue. EVP & Chief Merchandising Officer Tanya Gordon added that the key sandal category showed a normalization, with strong two-year stacked growth despite being down against a record prior year.

Jim Chartier asked for the estimated gross tariff impact in Q4, observed pricing and AUR trends for October, and sought clarification on whether holiday promotions would halve Q3's AUR gains. He also inquired if the 24% effective tax rate for 2025 would be a valid planning assumption for subsequent years.

Answer

Richard Westenberger (Senior Executive VP, CFO and COO, Carter's Inc) estimated the Q4 gross tariff impact at $40 million, reported high single-digit AUR increases for October, and clarified that while holiday promotions would reduce AUR gains, he wouldn't quantify it as "half." He confirmed that 24% is a decent planning assumption for the effective tax rate beyond 2025.

Jim Chartier from Monness, Crespi, Hardt & Co., Inc. asked for quantification of the investments needed to drive growth and whether these investments would be dilutive to margins in the near term. He also inquired about the inventory mix and focus on the 'best' product category in the second half of the year compared to the first half.

Answer

CEO Douglas Palladini did not quantify the investment amount but stated the focus is on demand creation, specifically driving store traffic and consumer loyalty, where the return on investment is proving to be outstanding. He confirmed that the 'best' product assortments will be expanded in the second half with more inventory and higher AURs, emphasizing a strategy of injecting more newness more frequently across all platforms.

Jim Chartier questioned the magnitude of investments required to drive growth and their potential near-term impact on margins. He also asked how the product assortment, particularly in the 'best' product tier, will evolve in the second half of the year compared to the first.

Answer

CEO Douglas Palladini stated that while he would not quantify the investments, the company has historically underinvested in demand creation and sees significant ROI from increased spending on store traffic and consumer loyalty. He confirmed that the 'best' product assortment will continue to expand in the second half with more inventory and newness due to strong consumer resonance.

Inquired about recent POS trends for both segments, the timing for POS stabilization, the reason for Revelyst's full-year EBITDA margin being at the low end of guidance, and whether positive POS is expected for Revelyst in Q4.

Answer

Executives reported that POS trends are generally flattish across both segments, with strength in D2C channels offsetting weakness in specialty retail. Kinetic's market is normalizing after a Q3 surge. Revelyst's full-year EBITDA margin is at the low end of the range because the significant Q4 margin improvement isn't quite enough to lift the full-year average higher. Revelyst's Q4 sales growth will be driven by a mix of positive POS from new products (like in golf) and retailer restocking in other categories where POS is expected to be flat.