John Heinbockel

John Heinbockel sought insights on the potential for one-time initiation fees across more clubs and the sustainability of Dynamic Personal Training (DPT) growth, given its 18% growth over the last two years and low penetration rate. He also asked about the composition of 2027 club openings (ground-ups) and whether the CapEx budget represents a new higher level, alongside expectations for annual sale-leasebacks.

Answer

Bahram Akradi, Founder, Chairman, and CEO, confirmed a robust plan for DPT, expecting continued growth and noting high revenues and margins in some clubs. He stated that a significant number of ground-up clubs are planned for 2026 and 2027, which perform predictably well and ramp fast for sale-leasebacks. He also mentioned that for 2028 and beyond, many facilities will be landlord-paid leasehold improvements, ensuring sufficient cash generation and capital for share buybacks.

John Heinbockel sought Bahram Akradi's thoughts on the potential for broader application of one-time initiation fees and the sustainability of Dynamic Personal Training (DPT) growth, which has been 18% over the last two years, questioning if penetration rates can improve. He also asked about the composition of 2027 club openings (ground-ups) and whether the CapEx budget represents an elevated or new higher level, alongside expected sale-leaseback volumes.

Answer

Bahram Akradi, Founder, Chairman, and CEO, confirmed robust plans for DPT, expecting continued growth, with some clubs achieving record revenues and margins. He noted opportunities to add team members in other markets. Regarding new clubs, he stated a significant number of ground-ups are planned for 2026 and 2027, performing predictably above expectations and ramping quickly for sale-leaseback opportunities. He also mentioned future clubs (2028+) would include more landlord-paid leasehold improvements, ensuring sufficient cash flow for CapEx and share buybacks.

John Heinbockel inquired about the biggest opportunities for in-center revenue growth, specifically the upside potential for Dynamic Personal Training (DPT) penetration. He also asked about Life Time Group Holdings Inc.'s strategy for prioritizing different club development channels (ground-up, club takeover) beyond 2026 and any preferred limits on new club openings to maintain execution quality.

Answer

Bahram Akradi, Founder, Chairman, and CEO, highlighted the exceptional performance of the DPT program, noting significant upside potential and record-setting results in many clubs. He also mentioned expected momentum in cafes and spas by early next year, along with plans to aggressively market MURA and LTH in 2026 and beyond. Regarding club growth, Akradi confirmed a new baseline of 12-14 clubs, emphasizing a strong pipeline with a variety of urban and suburban formats, and the company's increased flexibility for growth due to a strong balance sheet. Erik Weaver, Executive Vice President and CFO, added that unit economics remain attractive, targeting over 30% cash-on-cash returns.

John Heinbockel asked about the biggest opportunities for in-center revenue growth, specifically inquiring about the upside potential for Dynamic Personal Training (DPT) penetration and the prioritization of different club opening channels (ground-up, club takeover) beyond 2026, including an ideal number for maintaining execution.

Answer

CEO Bahram Akradi highlighted DPT's incredible performance and significant remaining opportunity, also noting expected momentum in cafes and spas by early next year, and future growth for MURA and LTH in 2026. Regarding club growth, Akradi confirmed a new baseline of 12-14 clubs, emphasizing a strong pipeline with flexibility in development types and a focus on growing the business now that the balance sheet is strong and leverage is below two times.

John Heinbockel asked for insight into Life Time's new club development pipeline management and questioned the strategy for initial membership levels at new clubs given high demand.

Answer

Founder, Chairman, and CEO Bahram Akradi stated the real estate team maintains a pipeline of 85-100 deals, providing flexibility to accelerate growth when conditions are favorable. He reaffirmed the strategy of deliberately managing initial membership intake at new clubs to ensure a high-quality member experience and prevent overcrowding as new members acclimate.

John Heinbockel of Guggenheim Securities inquired about the extent of club waitlists, the potential to expand their use, and the company's capacity to increase its club opening pipeline beyond the guided 10-12 per year.

Answer

Bahram Akradi, Founder, Chairman and CEO, explained that waitlists are a strategic tool used to protect the member experience at clubs nearing optimal capacity, prioritizing full-dues-paying members. He confirmed that while the company has the operational capacity to build more than 10-12 clubs in 2026, the current plan is intentionally methodical to maintain a strong balance sheet and navigate economic uncertainty, ensuring they can capitalize on opportunities in any environment.

John Heinbockel of Guggenheim Partners asked about managing the "people" aspect of growth as a potential gating factor and inquired about the operational organizational structure. He also questioned the potential and strategy for accelerating in-center revenue spend per member.

Answer

CEO Bahram Akradi emphasized the role of AI in improving both operational efficiency and customer experience, allowing for growth without adding excessive layers of management. He stated the company is seeing record numbers in dynamic personal training, a key reason for the raised guidance. Executive Erik Weaver added that comparable revenue from personal training nearly tripled in Q4 year-over-year.

John Heinbockel inquired about the composition of the 100+ deal pipeline (ground-ups vs. takeovers) and the organization's capacity for new openings. He also asked about the strategy to increase in-center revenue per member.

Answer

Founder, Chairman and CEO Bahram Akradi suggested a blended half-and-half mix of ground-ups versus other formats over a three-year period, with capacity to expand beyond 10-12 openings annually in the future. To grow in-center revenue, he highlighted improving performance at underperforming clubs in DPT, Cafe, and Spa, and noted the long-term, asset-light potential of new initiatives like MIORA health services and the LTH supplement brand.

John Heinbockel asked about the behavioral performance of Sprouts' target or core customer cohorts and their perception of affordability. He also questioned whether affordability is more a matter of reality or perception, and how Sprouts plans to alter its marketing message beyond personalization to address this issue.

Answer

CEO Jack Sinclair stated that Sprouts is actively reviewing its marketing messaging. He confirmed that affordability is a real issue, particularly for less engaged customers who are visiting less often and spending less, as indicated by loyalty data. He noted that loyal customers are spending more, suggesting the affordability crisis affects the less engaged segment more significantly.

John Heinbockel asked about the behavioral performance of Sprouts' target or core customer cohorts and their view on affordability. He also questioned whether affordability is more a matter of reality or perception, and how Sprouts plans to alter its marketing message beyond personalization to address this.

Answer

CEO Jack Sinclair stated that the company is actively reviewing its marketing messaging. He explained that loyalty data clearly shows loyal customers are spending more, while less engaged customers (as outlined by Curtis Valentine) are drifting, visiting less often, and spending less. He concluded that the feedback indicates the affordability crisis is more significantly affecting these less engaged customers than the core loyal base.

John Heinbockel asked about the amount of data and history needed for effective loyalty marketing, the size of the in-stock opportunity (especially for natural and organic fill rates), and how much the break-even comp could be reduced without damaging the business.

Answer

President and COO Nick Konat explained that more data improves personalization, but current data already drives customer behavior, with plans to build on this in 2026. CEO Jack Sinclair noted that self-distribution in meat will significantly improve in-stocks and that there's an instinctive upside in sales from better in-stock numbers across other categories. CFO Curtis Valentine acknowledged that while 0-2% comp is challenging long-term, short-term management is possible through existing levers and cost capabilities.

John Heinbockel asked about the loyalty program, specifically how much data and history Sprouts would need to market effectively to its customer base. He also inquired about the opportunity in improving in-stock levels, particularly for natural and organic products where fill rates are reportedly low, asking how this could be fixed, how long it would take, and the size of the opportunity. He followed up by asking about the historical break-even comp (around 4%) and how much it could be reduced without damaging the business.

Answer

Nick Konat, President and Chief Operating Officer, explained that more data would enable better personalization and insights for the loyalty program, which is a long-term play. He noted that they already have enough data to drive customer behavior and plan to build on this in 2026. Jack Sinclair, Chief Executive Officer, addressed in-stock, stating that self-distribution in meat would make a significant difference. He acknowledged the challenge of the long tail in natural and organic SKUs and the potential to expand self-distribution, seeing instinctive upside in sales from improved in-stocks. Curtis Valentine, Chief Financial Officer, on break-even comp, said they could manage in the short term with existing levers but acknowledged 0-2% comps are unsustainable long-term. He emphasized ongoing work on cost capability and efficiency to better manage costs.

John Heinbockel of Guggenheim Securities followed up on long-term growth, asking about the potential to increase customer share of wallet from its current level and how the company thinks about store capacity and potential cannibalization as AUVs rise in smaller-footprint stores.

Answer

CEO Jack Sinclair stated that share of wallet can grow as consumers shift to healthier, attribute-based products and as Sprouts enhances categories like prepared foods and vitamins. Regarding store capacity, he confirmed they will not build bigger stores but will focus on operational efficiency. He views potential cannibalization as a future opportunity to relieve pressure on high-performing stores.

John Heinbockel asked about the strategy to capture the 'what's for dinner tonight' shopping trip, in which he believes Sprouts under-indexes, and whether the loyalty program is the key unlock. He followed up by asking what enhancements or features shoppers want from the loyalty program that are not yet included.

Answer

President and COO Nick Konat, supported by CEO Jack Sinclair, explained that many initiatives target this opportunity, including placing attribute-driven meat at the front of new stores to drive center-of-plate purchases. He confirmed the loyalty program is crucial for personalizing offers to gain a larger share of wallet. For program enhancements, Konat highlighted the short-term goal of streamlining the omnichannel experience and the long-term focus on using data to help customers discover new and unique products.

John Heinbockel asked if Sprouts is reaching a "brand tipping point" that might render its long-term comp guidance conservative, and also questioned the ultimate scope of the company's supply chain self-distribution initiative.

Answer

CEO Jack Sinclair acknowledged a significant opportunity to increase share of wallet with target customers but maintained a considered approach to guidance. CFO Curtis Valentine noted the challenge of lapping strong double-digit comps later in the year. Regarding the supply chain, Sinclair confirmed the immediate focus is on fresh meat and seafood, with potential for other categories but no plans for commissary operations.

John Heinbockel asked about the evolution of the product foraging and innovation process and inquired about future supply chain plans, particularly for the Mid-Atlantic and Southeast regions.

Answer

CEO Jack Sinclair described the foraging process as a key differentiator, with a robust pipeline from pitch slams, trade shows, and thousands of applications. He noted about 25% of innovation center items make it to the main shelves. Regarding supply chain, he confirmed a future need for distribution centers in both the Mid-Atlantic and near Atlanta. CFO Curtis Valentine added that Northern California is another area where capacity expansion is needed.

John Heinbockel inquired about the 7% sales force expansion, its maturation, and its expected impact on 2026 local case growth cadence, particularly in the latter half of the year. He also asked about the remaining opportunity to improve net account growth by reducing lost accounts. Additionally, he questioned the drivers of the strong OpEx per case performance in Q4 2025, its sustainability, and the anticipated impact of Descartes and UMOS initiatives in the coming year.

Answer

Dave Flitman (CEO, US Foods) clarified that the 7% sales force expansion included internal transfers, expecting productivity to ramp up in H2 2026. He noted that lost accounts are stable to improving, with the primary focus on net new account generation. Regarding OpEx, he attributed Q4 performance to ongoing initiatives, with UMOS rollout completing by mid-2026 and Descartes expected to yield further benefits. Dirk Locascio (CFO, US Foods) added that OpEx per case can fluctuate quarterly but full-year 2025 showed successful mitigation of cost inflation.

John Heinbockel inquired about the 7% sales force expansion, its maturation, and its expected impact on 2026 local case growth, particularly in the latter half of the year. He also asked about the remaining opportunity to improve net account growth by reducing lost accounts. Additionally, he questioned the drivers behind the strong OpEx per case performance in Q4 2025 and the expected future impact of Descartes and UMOS.

Answer

CEO Dave Flitman clarified that the 7% sales force expansion included internal transfers, with external hires in the 4%-5% range, and expects productivity to ramp up in the second half of 2026. He noted that lost accounts are stable to improving, with the focus remaining on net new account generation. Regarding OpEx, Flitman attributed Q4 performance to various initiatives, with UMOS rollout completing by mid-2026 and Descartes expected to provide continued benefits, including a 2% increase in cases per mile. CFO Dirk Locascio added that OpEx shifts can occur quarter-to-quarter.

John Heinbockel of Guggenheim Securities questioned the company's plans for sales force expansion and strategies to improve customer wallet penetration. He also asked for an update on the UMOS warehouse management system rollout and its productivity contribution relative to the Descartes routing initiative.

Answer

CEO Dave Flitman reaffirmed plans for mid-single-digit (4-6%) sales force growth and noted that while wallet penetration is an industry challenge, US Foods saw slight improvement from Q1 to Q2, with the Pronto program being a key future driver. Flitman explained that while the Descartes rollout has been prioritized, the UMOS system is now deployed in 37 markets and is on track for over 60 by year-end, contributing to long-term productivity and quality.

John Heinbockel asked about current trends in lines per account and customer penetration, and whether drop size was still declining. He also questioned when the historical relationship between sales force expansion and case growth might return.

Answer

CEO Dave Flitman explained that growth is primarily driven by new account generation, while penetration (cases per line) has been challenged by soft industry foot traffic. He stated that the return to a 5-8% case growth rate, more in line with sales force expansion, is contingent on the macro environment normalizing to historical foot traffic levels of around 2% growth.

John Heinbockel of Guggenheim Partners inquired about the underlying trends for lines per account and cases per line, noting the latter is likely impacted by the macro environment. He also asked about the rollout progress of Descartes routing technology and whether productivity could accelerate in 2025.

Answer

CEO David Flitman confirmed that cases per line has been the primary challenge due to foot traffic, while lines per account have been relatively stable. CFO Dirk Locascio added that the Descartes rollout is expected to be complete by year-end 2025, with the productivity impact expected to be similar to the prior year as new rollouts are offset by the lapping of older ones.

John Heinbockel inquired about the current rate of sales force expansion, the productivity of recent hires, and whether case growth is still primarily driven by new account acquisition versus increased drop sizes at existing accounts.

Answer

CEO David Flitman confirmed sales force growth is in the mid-single-digits and expressed high confidence in the quality of new talent. He affirmed that new account generation remains the primary growth driver, although he noted some recent "green shoots" in penetration with existing customers. CFO Dirk Locascio added that the routing technology rollout continues on schedule.

John Heinbockel asked for an update on the strategic procurement self-help initiatives mentioned at Investor Day, inquiring about their progress. He also asked Patrick Hatcher about the impact of deflation on margin, specifically whether it stems from mix or inventory gains. Additionally, he questioned the return and materiality of chain business that was tabled during the US Foods process.

Answer

Scott McPherson, EVP and Chief Field Operations Officer, Performance Food Group Company, stated that procurement work validated confidence in achieving $100-$125 million in synergies over the three-year plan, with capture starting in the back half of the current year. Patrick Hatcher, CFO, Performance Food Group Company, clarified that deflation's impact is largely on margin and potentially inventory gains, particularly due to overindexing in cheese and poultry. Mr. McPherson added that some tabled chain businesses signed one-year extensions, but the overall pipeline for independent and chain food service remains strong.

John Heinbockel asked about the progress of strategic procurement initiatives referenced at Investor Day and the impact of deflation on margin, specifically whether it stems from mix or inventory gains. John Heinbockel also inquired about the status and materiality of chain business that was tabled during the US Foods process.

Answer

CEO Scott McPherson expressed confidence in achieving $100-$125 million in procurement synergies over the three-year plan, with capture starting in the second half of the current fiscal year. CFO Patrick Hatcher clarified that deflation primarily impacts margin and potentially inventory gains, particularly in cheese and poultry due to PFG's overindexing. CEO Scott McPherson noted that some tabled chain businesses signed one-year extensions, but PFG maintains a strong pipeline across all segments.

John Heinbockel of Guggenheim Securities inquired about how PFG wants its expanded salesforce to prioritize their time between penetrating existing accounts and acquiring new ones. He also asked about the RFP landscape on the Core-Mark side and how PFG is preparing capacity for future wins.

Answer

CEO George Holm stated that adding salespeople helps free up experienced reps to focus on penetration, which is a key challenge, while also enabling them to call on new accounts. For the Convenience segment, COO Scott McPherson highlighted that PFG proactively invested in two new facilities ahead of recent major wins, which was critical to securing the business. Holm and CFO Patrick Hatcher reiterated that PFG will continue to invest in CapEx for compelling, high-return projects across all segments.

John Heinbockel from Guggenheim questioned the dynamics of drop size, noting that growth in lines per account without a corresponding increase in cases per line suggested flat or down drop sizes. He also asked about the adoption rate and sales lift from prepared food programs in the Convenience segment.

Answer

CEO George Holm attributed the dynamic to a significant decline in cases per order during the weather-impacted month of February. COO Scott McPherson confirmed that growth is currently driven by new accounts and more lines per order, with drop sizes remaining relatively flat. Regarding Convenience foodservice, Scott McPherson described it as being in the 'second or third inning' with a long runway, consistently delivering mid-single to low double-digit growth.

John Heinbockel asked about the primary drivers of independent case growth, specifically the contribution from new accounts versus increased penetration. He also inquired about the long-term opportunity to win new contracts in the convenience store channel.

Answer

CEO George Holm and COO Scott McPherson confirmed that new customer acquisition is currently the main driver of growth, with strong penetration in existing accounts positioning them well for a market recovery. McPherson highlighted the compelling combined foodservice and convenience offering, expressing confidence in their ability to win a significant share of future RFPs in the convenience space.

John Heinbockel requested details on the 10 new building projects, including their segment allocation and whether they are new facilities or replacements, and asked about the outlook for winning large, non-independent business, particularly within Core-Mark.

Answer

CEO George Holm clarified that the plan involves 10 major projects, not 10 entirely new buildings, including additions, one replacement, and a new Core-Mark distribution center in Houston. CFO Patrick Hatcher added there is also a Vistar expansion. Holm stated that the new business pipeline is strong, especially for Core-Mark's foodservice offerings, but the company's primary focus in the Foodservice segment remains on independent customers.

John Heinbockel asked if local drop size is still modestly negative, if the loss ratio remains above historical best performance, and about the capacity of seasoned sales consultants (SCs) and how AI tools are helping to increase it.

Answer

Kevin Hourican, Chair of the Board and CEO, confirmed that penetration with existing customers (local drop size) is modestly down year-over-year but improved versus Q2, and the loss ratio is still up versus historical best but making significant progress due to supply chain and merchandising efforts, coupled with improved sales consultant retention. He explained that AI tools like AI 360 reduce administrative burden for all SCs, increasing their capacity to spend more time with customers, which will drive increased sales consultant productivity. Kenny Cheung, CFO, added that retention improvement is seen across all SC tenure buckets, leading to higher productivity for the entire sales team.

John Heinbockel asked if Local drop size was still modestly negative, if the loss ratio remained above historical best levels, and about sales consultant (SC) capacity, particularly for seasoned SCs, and how AI tools contribute to it.

Answer

CEO Kevin Hourican confirmed that penetration with existing customers (drop size) was modestly down year-over-year but improved versus Q2, largely due to foot traffic. He acknowledged the loss ratio was still above historical best but noted significant Q2 progress driven by supply chain improvements (on-time deliveries, fill rates) and improved sales consultant retention. He stated that all SCs, regardless of tenure, have increased capacity due to AI tools reducing administrative planning, allowing more customer-facing time, which drives productivity rather than headcount reduction. CFO Kenny Cheung emphasized retention improvement across all SC tenure buckets, leading to broader team stabilization and higher productivity.

John Heinbockel asked about the adjusted Q2 local volume growth, considering the FreshPoint divestiture, and Sysco's ability to achieve its 4% sales force growth ambition if the macro environment remains weak. He also questioned the impact of the 90 basis point penetration increase on drop size and its potential effect on U.S. profitability.

Answer

Kevin Hourican, Chair and CEO of Sysco, clarified that the at least 100 basis point improvement applies to USFS total local volume, and that external environment improvement is not required due to workforce stability and initiative impact. He confirmed that increased penetration with existing customers positively impacted drop size. He attributed strong supply chain productivity and service outcomes to notable improvements in retention, leading to more productive and safer drivers and selectors, reduced shrink, and improved cost per piece. Kenny Cheung, CFO, added that the 4% volume growth is a long-term perpetuity target, not expected this year as new hires require 12-18 months to reach full productivity, but still anticipates positive growth for the year.

John Heinbockel asked about the ability to achieve the 4% local volume growth ambition, adjusted for FreshPoint, if the macro backdrop remains weak. He also questioned the impact of the 90 basis point penetration increase on drop size and U.S. profitability.

Answer

Kevin Hourican, Chair and CEO, clarified that the 100 basis point improvement is for USFS total local volume, and continued progress is expected regardless of the external environment due to workforce stability and initiative impact. He confirmed that the 90 basis point penetration improvement positively impacted drop size. He highlighted Q1 as the strongest quarter for supply chain productivity and service, driven by improved retention and productivity of the supply chain workforce, leading to better cost per piece. Kenny Cheung, CFO, added that the 4% volume growth is a perpetuity target, not expected this year due to new hires needing time to become fully productive.

John Heinbockel of Guggenheim Securities drilled down on the relationship between sales force investment and local case growth, asking if growth is now positive and what the company's targets are for sales force headcount and local case growth.

Answer

CEO Kevin Hourican stated that Sysco plans to add approximately 4% to its sales headcount in fiscal 2026. He explained that as new hires mature and the company laps a period of high customer loss, local case volume is expected to inflect to positive and profitable growth. CFO Kenny Cheung noted that long-term, the goal is for headcount growth to align with volume growth, driving operating leverage.

John Heinbockel from Guggenheim asked about the elevated customer churn across the industry, questioning if it was primarily price-oriented and what other factors were driving it.

Answer

CEO Kevin Hourican identified two main drivers for increased industry churn. First, customers are more 'value seeking' due to their own cost pressures, a behavior enabled by increased online price transparency. Second, post-COVID supply chain resiliency concerns have led customers to use multiple distributors more frequently. He stated Sysco's scale is an advantage in this environment and mentioned a future initiative to focus on retaining its most profitable customers, which he expects to be a tailwind in fiscal 2026.

John Heinbockel of Guggenheim Securities posed a multi-part question about the sales force, asking about the cadence of new hires, the future impact of expiring non-compete agreements, and the expected timeline for returning to positive local case growth.

Answer

CEO Kevin Hourican confirmed that new sales cohorts are being tracked and are performing on their expected maturity curve. He noted a second wave of growth is anticipated in fiscal 2026 as non-compete agreements expire. While expressing confidence in showing sequential progress, he did not commit to a specific quarter for when local case growth would turn positive.

John Heinbockel of Guggenheim Partners asked about the maturation curve for new sales cohorts, the common factors in geographies showing early success, and the potential size of the specialty products opportunity.

Answer

CEO Kevin Hourican reported that new sales cohorts are progressing up the productivity curve as expected, driving an increase in net new customers. He identified the successful 'proof point' geographies as metro markets where Sysco has historically been under-indexed and is now adding headcount to capture share. Regarding the specialty opportunity, he confirmed it is substantial, stating that the percentage of customers not yet buying specialty products is 'north of' 20%.

John Heinbockel asked about the wallet share of Albertsons' acquired customers, specifically how it differs between upper decile loyalty members, average loyalty members, and new members, and if there's a significant difference with pharmacy customers. He also inquired whether divisions with price investments have achieved positive food volume and if Albertsons sees potential to exit markets to redeploy assets.

Answer

CEO Susan Morris explained that digitally engaged customers spend 2-3 times more, and pharmacy engagement further increases this to 4-5 times, with a focus on building on this strength through personalized journeys. Regarding price investments, Susan Morris noted strong unit improvement in invested categories, with many moving to positive year-over-year or significantly lessened decline. She confirmed that Albertsons is evaluating its entire portfolio, with an outsized list of store closures expected in 2025 due to the merger. President and CFO Sharon McCollam added that real estate operations will be sophisticated in 2026, and all non-core assets are being evaluated, but no massive write-offs are indicated.

John Heinbockel asked about the wallet share of Albertsons' acquired customers, particularly how it differs among upper decile loyalty members, average loyalty members, and new customers, and the impact of pharmacy engagement. He also questioned whether divisions with price investments have achieved positive food volume and the potential for exiting markets to redeploy resources.

Answer

CEO Susan Morris explained that digitally engaged customers spend 2-3 times more, with engagement rising further across the ecosystem (online, loyalty, app features, health/pharmacy), potentially reaching 4-5 times with pharmacy. She noted strong unit improvement in price-invested categories, with many moving to positive year-over-year. Susan Morris confirmed that Albertsons is evaluating its entire portfolio, with an outsized list of store closures expected for 2025, and is looking to grow in strong markets while evaluating underperforming ones. President and CFO Sharon McCollam added that the company plans to materially sophisticate its real estate operations in 2026 and is evaluating all non-core assets, but is not signaling massive write-offs.

John Heinbockel sought clarification on whether food volumes were positive in the quarter and asked about the most significant opportunities for labor productivity.

Answer

President & CFO Sharon McCollam clarified that while traffic was positive, grocery units saw a sequential improvement from Q4 but were not yet positive. CEO Susan Morris identified key productivity opportunities in DC automation, predictive store labor scheduling ('wall-to-wall forecasting'), and technology like the 40-store ESL pilot. McCollam added that improving the utilization of existing tech, including Vision AI at self-checkout, is also a major focus.

Asked for clarification on whether food volumes were positive in the quarter and inquired about the most significant opportunities for labor productivity.

Answer

The company clarified that while traffic was positive, grocery units saw a sequential improvement from Q4 but were not yet positive. The most fruitful labor productivity opportunities are in DC automation, predictive scheduling (wall-to-wall forecasting), electronic shelf labels (currently in pilot), and improved utilization of existing in-store technologies like self-checkout with Vision AI.

John Heinbockel of Guggenheim Partners inquired about the engagement journey and lifetime value progression of new pharmacy customers, and asked about the primary levers for enhancing profitability in the e-commerce channel.

Answer

CEO-elect Susan Morris described the pharmacy customer journey as an evolution over 1.5 to 2 years, where engagement across multiple platforms unlocks significant lifetime value, noting pharmacy cross-shoppers have a 4x larger basket. For e-commerce profitability, she identified growing sales and scale as the largest opportunity, leveraging store proximity and improving picking efficiency through batching and in-house tools.

Inquired about the opportunity to increase wallet share with new customers and the timeline for doing so. Also asked when food volumes might turn positive and what the long-term algorithm assumes for volume growth.

Answer

Wallet share is increased by engaging customers on the company's four digital platforms, which can increase spend by 2-5x. The long-term algorithm assumes about 50 basis points of food volume growth, but it is difficult to predict when the market will return to that level.

John Heinbockel inquired about the opportunity to increase share of wallet from new customers acquired over the last two years and asked for a timeline on when overall food volumes might turn positive.

Answer

CEO Vivek Sankaran detailed that wallet share increases as customers engage with multiple digital platforms, such as e-commerce and loyalty, where spending can multiply. He noted that while the long-term algorithm assumes about 50 basis points of food volume growth, it is currently difficult to predict when the market will return to that level.

John Heinbockel asked about the international pipeline for warehouse openings in Europe and Asia, and Costco's remodel philosophy in the U.S., including the number of remodels, their extent, and the sales lift achieved.

Answer

Ron Vachris (President, CEO, and Director, Costco Wholesale Corporation) indicated a good international growth runway, especially in Spain, the UK, and Asia, expecting a 50/50 split between U.S. and international expansion. He noted 5-6 relocations annually with dramatic sales uplifts (20-60%) and continuous investment in existing warehouses to update fresh food areas and ancillary businesses.

John Heinbockel inquired about Costco's international pipeline, particularly in Europe and Asia, and the company's remodel philosophy in the U.S., including the number of remodels, their extent, and the resulting sales lift.

Answer

Ron Vachris, President, CEO, and Director, outlined a strong international growth runway, especially in Spain, the U.K., and Asia, expecting these projects to materialize over the next five years, maintaining a 50/50 balance between U.S. and international expansion. He noted approximately five to six relocations annually, which yield significant sales uplifts (20-60%) by upgrading underserving buildings. He also mentioned continuous investment in existing warehouses to update fresh food areas and integrate new ancillary businesses.

John Heinbockel posed strategic questions regarding the B2B opportunity, including the size and acceleration of business centers, and the potential use of the balance sheet to acquire real estate for future development.

Answer

President and CEO Ron Vachris stated that there's tremendous capacity for business centers, with quicker growth expected in Canada (now six locations) and opportunities in new U.S. markets and relocated old warehouses. He confirmed openness to acquiring chunks of real estate in the right markets to create value and facilitate future expansion.

John Heinbockel asked about Costco's B2B opportunity, including business centers and online, and whether the company would use its balance sheet to acquire real estate chunks for future development to accelerate the process.

Answer

President and CEO Ron Vachris identified tremendous capacity for business centers, particularly in Canada and new U.S. markets, often utilizing old warehouses. He confirmed openness to acquiring additional property to enter the right markets and create value, if such opportunities arise.

John Heinbockel asked about the B2B opportunity, including the size and potential acceleration of business centers, and whether Costco would use its balance sheet to acquire real estate chunks to speed up development.

Answer

President and CEO Ron Vachris confirmed significant capacity for business centers, especially in Canada, and a quicker growth rate. He noted that relocated warehouses often serve well as business centers due to size and parking, with 60% of goods delivered by truck. He also stated openness to acquiring additional property in the right markets to create value and expand opportunities.

John Heinbockel from Guggenheim Securities inquired about further cost-saving opportunities within the supply chain and depot network. He also asked how the uncertainty around tariffs is impacting demand planning and inventory flow for the next six months.

Answer

Executive VP & CFO Gary Millerchip noted that while the depot network is already highly efficient, optimizing it for growing scale remains a focus. He highlighted e-commerce logistics as a key area for continued efficiency gains. President, CEO & Director Ron Vachris added that buyers are actively developing short, mid, and long-term strategies to navigate tariffs, including making buying decisions 6-8 months out, sourcing domestically where possible, and leveraging non-U.S. regions to move tariff-impacted goods.

John Heinbockel from Guggenheim Securities inquired about opportunities for cost reduction in the supply chain and how tariff uncertainty is impacting inventory planning for the next six months.

Answer

CFO Gary Millerchip noted that while the depot network is highly efficient, optimizing it for scale continues to offer incremental leverage, with e-commerce logistics being a key area for profit improvement. CEO Ron Vachris explained that buyers are empowered to make purchasing decisions 6-8 months out, using strategies like shifting to domestic production or pulling orders forward to mitigate tariff risks. He also mentioned leveraging Costco's global footprint to move tariff-impacted goods to non-U.S. markets.

John Heinbockel asked a series of questions about the Kirkland Signature (KS) private label, focusing on new item introductions, opportunities in non-foods, and the overall success rate of KS products.

Answer

Executive Ron Vachris identified non-foods as the greatest opportunity for KS expansion, citing successes like motor oil and golf balls. He emphasized that KS development is strategic and item-focused, not a race to add SKUs. While the success rate is high, he stressed that KS items are held to the same performance standards as national brands and are removed if they don't perform.

John Heinbockel of Guggenheim Securities asked about the priority of reinvesting membership fee income across price, product quality, IT, and labor, and inquired about the pipeline for international club openings.

Answer

Executive Gary Millerchip explained that the company views reinvestment holistically, aiming to deliver more value than the membership fee costs through a combination of lower prices, mitigating inflation, improving the member experience, investing in employees, and innovating with Kirkland Signature. Executive Ron Vachris added that the company sees a realistic path to opening around 30 warehouses annually for the next few years, with a significant portion outside the U.S., citing opportunities in Canada, Mexico, Europe, and Asia.

John Heinbockel requested a breakdown of the 9 basis point core-on-core margin improvement by category (fresh, sundries, nonfood). He also asked about the Kirkland Signature strategy regarding price decreases, penetration, and profitability management.

Answer

Gary Millerchip, an executive, detailed that within core-on-core margins, food and sundries were slightly negative, fresh was slightly positive, and nonfood was the strongest. Ron Vachris, an executive, added that Kirkland Signature penetration is in the high 20s and growing, with a commitment to investing in price to drive volume. Gary Millerchip also noted that while margins on KS items are capped, the growing mix creates an overall margin tailwind for the company.

John Heinbockel asked about the year two and year three comparable sales performance of new stores, specifically if they tick down from the high single-digit rate, and the traffic/ticket composition. He also inquired about the significance of the upcoming World Cup next year and the long-term real estate plan for Florida, noting its underdeveloped status and asking about availability and cost factors.

Answer

CEO Steve Lawrence highlighted the significant potential of the World Cup, especially with games in Academy's footprint, noting strong initial reads on related merchandise. He anticipates a long-lasting tailwind for the soccer business beyond 2026 due to increased participation. CFO Carl Ford explained that the 14th month (the first month a new store enters the comp set) typically sees a negative comp due to the anniversary of grand opening activities, but year two and three generally show good strength. Regarding Florida, Carl acknowledged its strong marketplace for Academy's fishing assortment and demographics but noted the state's high rents. He emphasized the company's commitment to a 20% ROIC and a four-year payback, making them selective in site acquisition. Steve added that Florida is an existing market with significant opportunity in underserved mid-sized areas, and growth there will continue.

John Heinbockel asked for clarification on the size distribution of the three income cohorts and whether more targeted marketing efforts, such as CRM or social media, could further leverage the growing $100,000+ income group. He also followed up on the previously mentioned 100 basis points of supply chain opportunity, asking about its cadence and whether the accelerating store openings and increased capacity utilization might expand this opportunity beyond 100 basis points.

Answer

CFO Carl Ford clarified that the three income cohorts (below $50K, $50K-$100K, above $100K) are roughly one-third each, but there's been a significant shift over the last year with higher-income quintiles growing. CEO Steve Lawrence confirmed that with the new CDP and data, Academy is actively working on targeted marketing to convert new high-value customers from casual shoppers to loyalists, including efforts to encourage omnichannel shopping. Mr. Ford affirmed that the 100 basis points supply chain opportunity is still 'alive,' with some basis points invested last year to be recouped this year, expecting this cadence over a five-year long-range plan driven by WMS rollout and operational improvements.

John Heinbockel of Guggenheim Securities asked about the future growth of the Jordan brand SKU count and its ability to drive incremental traffic, as well as the strategy for chasing seasonal inventory.

Answer

CEO Steven Lawrence expects the Jordan assortment to continue growing into more categories and stores, viewing it as a multi-year growth platform that is already bringing in new, higher-income customers. He affirmed that the company has maintained liquidity to chase inventory trends if opportunities arise, citing the strategic Q1 inventory build as an example of their flexible and opportunistic approach to inventory management.

On behalf of John Heinbockel, an analyst asked for an update on the timing for realizing the 100 basis points of supply chain savings and whether any new opportunities have been identified since the new head of supply chain joined.

Answer

CFO Carl Ford stated there is no trepidation about achieving the 100 basis points of leverage from supply chain improvements outlined in the long-range plan. He noted the new supply chain head, Rob Howell, is identifying further opportunities beyond the WMS implementation, such as creating more efficient multi-stop truck delivery routes. The next DC conversion is now targeted for early 2026 to incorporate learnings from the recent Georgia implementation.

John Heinbockel of Guggenheim Securities inquired about Kroger's accelerated sourcing program, strategies for network concentration, and potential portfolio adjustments, including exiting or expanding in certain markets. He also asked about the desired characteristics and capabilities for the new CEO.

Answer

Chairman and CEO Ron Sargent discussed plans for new store investments, highlighting 14 new groundbreakings in Q4 and a 30% increase in new store builds for 2026. He emphasized the entry into Jacksonville with Harris Teeter and the aspiration to be a national retailer, open to acquisitions. Regarding the CEO search, Sargent stated the board is looking for an external candidate with deep understanding of retail transformation, customer focus, experience operating at scale, and cultural alignment, with an announcement expected in Q1 2026.

John Heinbockel asked about the potential size of Kroger's sourcing opportunity, whether it could be in the billions over time, and what new approaches are being implemented to capture this, including the role of the new Head of Product Sourcing. He also inquired about further in-store actions to speed up delivery times beyond two hours, such as picking by quadrant or utilizing electronic shelf labels.

Answer

Ronald Sargent, Interim CEO & Chairman, confirmed sourcing (both COGS and indirect) is a significant opportunity, referencing the new hire, Ed Oldham, and benchmarking against competitors. He noted efforts to simplify promotions and improve CPG support, but did not commit to specific amounts or timing. For delivery speed, Mr. Sargent stated faster than two hours is possible with different fees. He highlighted technology, including AI for multiple order picking, the rollout of electronic shelf tags, and special picking areas, as key to in-store efficiency, with more details to come in the e-commerce strategy refresh.

John Heinbockel from Guggenheim Securities asked for clarification on what management considers 'noncore' assets and how store remodels are prioritized against new stores in capital allocation. He also questioned how the new approach to cost optimization differs from past efforts.

Answer

Interim CEO & Chairman Ronald Sargent defined 'core' assets as those dedicated to serving customers, including stores and e-commerce. EVP & CFO David Kennerly explained that new stores typically offer higher returns than the company average, while remodels are in the middle. On cost optimization, Mr. Kennerly stated that as new leaders, they bring a 'fresh set of eyes' to find efficiencies in direct costs, indirect costs, and corporate expenses, with a new focus on process improvement and technology.

John Heinbockel from Guggenheim Securities asked for clarification on what management considers 'noncore' assets and how store remodels are prioritized in capital allocation against new stores. He also questioned how the new leadership's approach to cost optimization differs from past efforts.

Answer

Interim CEO & Chairman Ronald Sargent defined 'core' assets as those dedicated to serving customers, including stores and e-commerce. EVP & CFO David Kennerly explained that new store projects typically offer higher returns than the company average, while remodels are in the middle. On cost optimization, Mr. Kennerly noted that as new leaders, they bring a 'fresh set of eyes' and will target direct costs, indirect costs, and G&A, while also focusing on process improvements and technology to 'work smarter'.

John Heinbockel asked about the digital growth outlook for 2025, the primary drivers for reducing digital losses (such as shed throughput versus delivery density), and the timeline for reaccelerating the opening of new fulfillment sheds.

Answer

Interim CFO Todd Foley expects continued digital improvement in 2025, driven by incremental gains across all areas rather than a single factor. He stated that reaccelerating shed openings is not imminent and is contingent on achieving target profitability levels and ensuring new sheds can launch with sufficient volume to be scalable.

John Heinbockel of Guggenheim Securities, LLC inquired about the productivity initiatives for in-store digital order selection, asking about the breadth of the rollout and the potential magnitude of cost-per-order reduction.

Answer

Chairman and CEO Rodney McMullen stated that they expect to achieve a double-digit percentage reduction in cost-per-order over the next two to three years. He explained that the rollout is ongoing, starting with the highest-volume locations first, and that the underlying technology has potential applications in other parts of the business. The ultimate goal is to make the cost indifferent between online and in-store shopping.

John Heinbockel asked about the greatest opportunities for labor productivity, specifically questioning the viability of electronic shelf labels in a dollar store setting. He also asked if shrink could be reduced to around 1% without negatively impacting sales, implying a natural floor.

Answer

Todd Vasos, CEO, stated confidence in further reducing shrink, recalibrating targets below 2019 levels due to outsized opportunities from SKU rationalization and overall inventory optimization. He believes these efforts will continue to benefit shrink and damages in 2026 and beyond, providing greater assurance for the long-term framework. He did not directly address electronic shelf labels or labor productivity in his response.

John Heinbockel of Guggenheim Securities, LLC asked about the strategy for acquiring trade-in customers beyond organic attraction and the company's current thinking on pack-size architecture.

Answer

CEO Todd Vasos acknowledged the organic nature of the trade-in but highlighted the DoorDash partnership and the DG Media Network as key initiatives for attracting new and diverse customers. He reaffirmed the company's commitment to smaller pack sizes, stating they are essential for their customer's budget, especially in the current economic climate, and that CPG partners are supportive of this strategy.

John Heinbockel of Guggenheim Securities, LLC inquired about plans to accelerate customer trade-in beyond organic growth and the company's strategy regarding consumable pack sizes.

Answer

CEO Todd Vasos identified the DoorDash partnership and the new home delivery initiative as key drivers attracting new, diverse customers. He also highlighted the DG Media Network as a tool to reach beyond the core customer base. Regarding merchandising, Vasos reaffirmed a strong commitment to smaller pack sizes, stating they are essential for the core customer's budget, especially in the current economic climate, and that CPG partners now recognize their importance.

John Heinbockel inquired about the ROI of current promotions compared to past successful efforts and asked if there was a significant operational 'unlock' available to lower the comp-store sales breakeven point for leveraging expenses.

Answer

CEO Todd Vasos affirmed that promotions are the best use of margin, historically leading to a 'stickier consumer' and a strong return. Regarding expenses, he noted that while labor rates are higher than expected, initiatives like the rolltainer sort are aimed at improving the customer experience, not stripping out labor. He suggested they are working on other SG&A levers to help modify expenses moving forward.

John Heinbockel asked about Five Below's product priorities for the next year, particularly product development, and whether the company is now attracting new vendors due to increased brand awareness or scale.

Answer

CEO Winnie Park expressed excitement for new Chief Merchandising Officer Michelle Israel's perspective, emphasizing a continued focus on broader lifestyle trends over single items. She noted new opportunities like party and celebration, and confirmed that more vendors with greater brand recognition are coming to the table, citing Lego and licensed products as examples.

John Heinbockel from Guggenheim Securities inquired about the store layout, asking if 'Five Beyond' items in Home and Tech would be moved in-line from the back of the store, and also asked about the strategy for 'chase products' and closeouts for the holiday season.

Answer

CEO Winnie Park confirmed that the back of the store is now being used for major seasonal statements like Halloween and Holiday, with more 'Five Beyond' items being integrated in-line to maintain flexibility. She reiterated that chasing hot trends and leveraging opportunistic closeouts remain core components of the product strategy.

John Heinbockel from Guggenheim Securities, LLC asked about the strategy for chasing inventory for the holiday season, including lead times from Asia and the role of closeouts.

Answer

CEO Winnie Park stated that closeouts remain a very important and amplified part of their strategy. She noted that while this year's inventory flow is unusual due to tariffs, they are ordering ahead and focusing on diversifying sourcing to countries like India and domestic vendors to gain agility. COO Ken Bull confirmed they have ample distribution capacity to handle accelerated shipments.

John Heinbockel asked about the progress on new product development for the upcoming seasons and the strategic plan for increasing marketing spend, which is currently below 2019 levels.

Answer

CEO Winnie Park expressed confidence in the summer product assortments, which focus on value, outdoor play, and chasing trends like exclusive beauty items. Regarding marketing, she stated the immediate goal is to optimize the existing budget with the new CMO, focusing on efficiency and better connecting with customers through social media and digital channels to drive store traffic.

John Heinbockel inquired about Five Below's forward-looking product strategy, focusing on merchandise allocation by 'world,' recapturing extreme value, plans for SKU assortment reduction, and the role of various price points.

Answer

Interim CEO Ken Bull stated the focus is on achieving consistent performance across all 'worlds' with trend-right, high-quality products at extreme value for kids. He confirmed a meaningful SKU reduction is planned for mid-next year and that $1-$3 price points are being emphasized. Executive Chairman Tom Vellios added there is a significant opportunity to reset certain product areas, reduce SKUs to drive newness, and place a greater emphasis on the core 'Five Below' price range while being highly selective with 'Five Beyond' items.

John Heinbockel of Guggenheim Securities asked a multi-part question about potential organizational changes to improve speed and newness, whether consumer perception of the brand has shifted, and the strategy for communicating the business changes to customers.

Answer

Interim President and CEO Kenneth Bull responded that a merchandising organization transformation is already underway to regain speed. He noted that customer surveys indicated a demand for more "value," which Five Below defines as the intersection of trend, quality, and price. Bull stated that marketing efforts to re-engage customers would follow once the product assortment is improved to drive better conversion.

John Heinbockel asked about the divergence between traffic and units, specifically if traffic would be strong while units grew less due to higher price points, and how this impacts space allocation and store replanogramming long-term.

Answer

CEO Mike Creedon explained that while multi-price items might lead to a natural decline in units as space is reallocated, this makes the space more productive. He emphasized strong customer resonance with multi-price and confidence in driving value across price points, adapting store layouts based on customer trends.

John Heinbockel inquired about the divergence between traffic and units, anticipating slower unit growth due to higher-priced items, and how this might influence space allocation and replanogramming within stores over the intermediate to longer term.

Answer

CEO Mike Creedon explained that the company follows customer preferences, noting strong resonance with multi-price. He stated that unit declines are a natural consequence of converting less productive $1.25 sections to more profitable multi-price space, emphasizing that strategic pricing and customer response will guide store setup.

John Heinbockel inquired about the percentage of baskets containing both consumable and discretionary items, the dynamic between treasure hunt and consumable repetition driving traffic, and the current interest in zone pricing.

Answer

CEO Michael Creedon explained that both consumables and discretionary items drive traffic, with nuances by income cohort. He noted that the 'thrill of the hunt' resonates with higher-income shoppers. Zone pricing remains an interest but is a lower priority due to the current focus on tariff mitigation strategies.

John Heinbockel from Guggenheim Securities asked about the progress of implementing multi-price options in freezer and cooler sections and questioned the company's philosophy on regional versus national pricing.

Answer

CEO Michael Creedon stated that freezer/cooler expansion is a key part of the multi-price strategy, with the mix of price points tailored to store demographics. Regarding pricing, he sees an opportunity for 'zone pricing' on the edges, using assortment to cater to regional differences in perceived value (e.g., California vs. Kansas), while maintaining the brand's core consistency.

John Heinbockel asked about product priorities, particularly in discretionary and seasonal categories, and the potential for multi-price cooler expansion. He also questioned if the expected comp improvement would be equally driven by discretionary and consumable sales.

Answer

CEO Mike Creedon emphasized that holidays and seasonal categories are the core drivers of the Dollar Tree business, focusing on the 'wow' factor of discovery. While acknowledging the recent mix shift to consumables to meet customer needs, he stressed that discretionary products are the 'DNA of Dollar Tree.' He expressed excitement about fueling the discretionary business with the expanded assortment as the multi-price strategy matures.

John Heinbockel inquired about the company's product priorities, particularly in discretionary and seasonal categories, and asked whether the expected comp improvement would be driven more by discretionary or consumable sales.

Answer

CEO Michael Creedon emphasized that seasonal and holiday items are the core of Dollar Tree's DNA and a primary focus for driving customer discovery. While acknowledging the need to meet demand for consumables, he stated that the real power of multi-price is unlocking discretionary growth, as demonstrated in Q4. The strategy is to maintain a balance, providing necessities while focusing on 'wowing' customers with discretionary products.

John Heinbockel asked about the performance of non-3.0 stores, the drivers of the comp gap versus 3.0 stores, and why the company isn't accelerating the multi-price rollout given its success.

Answer

Interim CEO Mike Creedon explained that the comp gap narrowed because the base chain's performance improved, partly due to refreshes of existing Dollar Tree Plus stores. He stated the rollout was intentionally slowed to prioritize execution quality, introducing new management sign-offs, and to manage organizational capacity, which was strained by the rapid conversion of the 99 Cents Only stores in Q3.

John Heinbockel asked for details on the drivers of the 4.6% comp in converted stores, specifically regarding unit volume and multi-price penetration. He also questioned whether the flattening of consumable share gains at Dollar Tree was due to internal factors or competition, and what the plan was to accelerate the multi-price rollout.

Answer

COO Mike Creedon stated that multi-price penetration will reach about 15% of SKUs in converted stores and affirmed that the company is still gaining both unit and dollar market share. He explained the rollout pace was deliberately moderated to ensure stores are fully prepared for conversion, a key learning from early phases. CFO Jeff Davis added that at Family Dollar, the decline in discretionary sales has also flattened, indicating positive results from assortment resets.

John Heinbockel asked about the unit volume component of the 4.6% comp in converted stores, whether the flattening of consumable share gains was due to internal or competitive factors, and the plan to accelerate the multi-price rollout.

Answer

COO Mike Creedon stated that multi-price penetration will reach about 15% in converted stores this year and asserted that the company is still gaining both unit and dollar market share. He clarified that the rollout pace was intentionally moderated to ensure stores are fully prepared for conversion, a key learning from early phases, rather than 'muscling through' and compromising results. CFO Jeff Davis added that the decline in discretionary sales at Family Dollar was also flattening.

John Heinbockel asked about the drivers of natural growth, specifically inquiring about drop size, new account distribution versus existing growth, and the opportunity presented by improving fill rates in the natural segment. He also followed up on the potential for increased profitability in the conventional business, particularly regarding EBITDA margin expansion.

Answer

Sandy Douglas (CEO, UNFI) stated that drop sizes have been positive due to growth with larger customers, leading to increased efficiency. He highlighted sequential improvements in fill rates driven by technology (RELEX), Lean Daily Management, and localized management, noting continued opportunities. Matteo Tarditi (President and CFO, UNFI) explained that conventional EBITDA reflected network optimization benefits, supplier programs, and temporary procurement gains, emphasizing a strategy of creating new capabilities and continuous improvement. Sandy Douglas added that a long runway of continuous improvement opportunities in the cost base should lead to edging up EBITDA margins.

John Heinbockel inquired about the drivers of UNFI's strong natural growth, specifically asking about drop size, new account distribution versus existing growth, and the opportunity presented by improved fill rates. He also asked about the potential for increased profitability in the conventional business, noting its EBITDA margin improvement.

Answer

CEO Sandy Douglas explained that positive drop sizes, driven by larger customers, contribute to efficiency, and fill rates are improving sequentially due to technology like RELEX, lean daily management, and localized management, with further opportunities ahead. President and CFO Matteo Tarditi attributed conventional EBITDA improvement to network optimization, supplier programs, and temporary procurement gains, emphasizing that future profitability will be driven by new capabilities, network optimization, and lean management. Sandy Douglas added that UNFI sees a long runway for continuous improvement in execution, services, and programs, expecting EBITDA margins to continue to edge up.

John Heinbockel inquired about UNFI's natural merchandising initiatives, focusing on opportunities within the 'long tail' of innovation and supply, and the potential for continued high-single-digit growth in the natural segment. He also asked about the conventional segment's profitability, opportunities for meaningful improvement, and whether it might be strategically shrunk over the next five years.

Answer

CEO Sandy Douglas explained that natural merchandising focuses on simplifying the experience for emerging suppliers and facilitating innovation for natural retailers, while for conventional retailers, it involves deepening their involvement in natural categories. President and CFO Matteo Tarditi noted that the natural segment historically has higher profitability due to specialized assortments and operating leverage. He outlined three areas for improving profitability across both segments: enhancing product/service mix, driving efficiency (shrink, indirect costs), and embedding lean operations. He highlighted expected margin expansion from 2024 to 2027.

John Heinbockel asked about UNFI's natural merchandising initiatives and capabilities, specifically identifying the biggest opportunities, such as supporting innovation from emerging suppliers and helping conventional retailers deepen their natural category involvement. He also inquired about the opportunity to improve conventional segment profitability, noting its lower margin compared to natural products, and whether this segment might thoughtfully shrink over time.

Answer

CEO Sandy Douglas explained that merchandising efforts focus on simplifying the experience for emerging suppliers to facilitate innovation for natural retailers, and for conventionally positioned customers, it's about a roadmap to deepen their involvement in natural categories. President and CFO Matteo Tarditi added that while natural products historically have higher profitability, UNFI is focused on improving profitability across both segments by enhancing product/service mix, driving efficiency through shrink reduction and operating expenses, and embedding lean practices. He highlighted expected margin expansion over the coming years.

John Heinbockel of Guggenheim Securities questioned the impact of the cyber breach on the Lean Six Sigma rollout and the potential for increased product shrink. He also asked about the long-term benefits of Lean Six Sigma, particularly regarding labor productivity.

Answer

President & CFO Giorgio Matteo Tarditi acknowledged a potential short-term "speed bump" for the lean rollout due to the incident but affirmed the underlying momentum remains strong. He noted that fresh inventory was prioritized to manage shrink. Tarditi expressed confidence in sustaining long-term productivity gains from lean management, driven by improved throughput, network-wide expansion, and the future addition of value stream mapping.

John Heinbockel of Guggenheim Securities inquired about the functional changes and day-to-day impact of the wholesale business realignment into Natural and Conventional divisions. He also asked which of the four mentioned incremental strategic opportunities management views as the most impactful.

Answer

CEO James Alexander Douglas explained that the realignment centers on providing specialized product expertise—innovation for Natural products and promotional focus for Conventional products—across all customer types. He identified developing professional and digital services for historically underserved customers as the most promising incremental opportunity, highlighting the importance of participating in retail media networks.

John Heinbockel of Guggenheim Securities inquired about the balance between decentralized procurement and scale, potential changes to compensation to drive accountability, and the timeline for realizing productivity gains from Lean initiatives.

Answer

CEO Sandy Douglas explained that decentralized procurement aims to improve fill rates and reduce inventory, similar to their shrink reduction efforts, and that compensation is always being reviewed to align with outcomes. President & CFO Matteo Tarditi added that the goal is mid-to-high single-digit productivity gains from Lean and automation, with a 6-12 month rollout framework to achieve their multi-year cost-out targets.

John Heinbockel of Guggenheim Securities, LLC asked about the strategic role of the conventional business within UNFI's portfolio and the balance between labor productivity gains and wage inflation.

Answer

CEO Sandy Douglas explained that the company's product portfolio aims to meet all customer needs, with both conventional and natural products remaining material, while network rationalization focuses on efficiency. President & CFO Matteo Tarditi added that the goal is for productivity improvements from lean initiatives to more than offset wage inflation pressures.

John Heinbockel asked about the potential to accelerate the maturity curve for new centers and inquired about the labor model, specifically how to drive efficiencies without compromising the guest experience.

Answer

Chairman & CEO Chris Morris stated that while he believes a faster ramp to maturity is possible through a combination of marketing, operations, and guest engagement, it is a belief that still needs to be proven. Regarding labor, Morris emphasized that the greatest way to improve labor margin is by driving more volume. He mentioned potential short-term efficiencies with the Guest Service Associate role but stressed that the long-term solution is sustainable traffic growth.

Asked about the extent of underperformance in the store base after closures, the primary drivers for this underperformance (specifically AUV), the strategy to accelerate AUV, and the characteristics of the 'high-value guest' the company is now targeting.

Answer

The executive confirmed that low AUV is the main issue for underperforming centers. The strategy to boost AUV involves smarter performance marketing and a refined brand identity to attract new, high-value guest segments identified through recent research. This new targeting is seen as an expansion, not a replacement, of their current customer base.

John Heinbockel asked about the percentage of underperforming centers and inquired about non-revenue ways to improve franchisee economics, such as reducing capital costs or improving labor productivity.

Answer

CEO David Berg estimated that a small percentage of mature centers, less than 10%, have negative EBITDA. On non-revenue improvements, he mentioned ongoing work to lower new center construction costs and the potential use of targeted pricing to offset high labor costs. However, he stressed that the primary lever for improvement remains driving new guest traffic.

John Heinbockel asked for a detailed breakdown of the four factors impacting 2025 profitability, their potential carryover into 2026, and the nature of the increased marketing spend.

Answer

CFO John Meloun explained the impacts: 1) transition costs from the Rumble/CycleBar divestiture, 2) a lower system-wide sales outlook, 3) increased marketing spend, and 4) providing room for the new CEO's adjustments. He noted most impacts are contained to 2025. President, North America John Kawaja clarified the marketing spend includes performance marketing and a new brand awareness campaign for Club Pilates.

John Heinbockel asked about the expected impact of the new field operations team and the process for resolving the large backlog of over 1,000 delayed studio licenses.

Answer

CEO Mark King explained that the new field operations team will have a significant impact by assisting new franchisees with pre-sales and training, while also auditing existing studios to ensure playbook adherence. Regarding delayed licenses, King noted the new COO is undertaking a thorough evaluation to understand the varying reasons for delays and will launch a campaign to either activate or terminate these licenses to free up territories.

John Heinbockel asked for an assessment of Stretch Lab's negative comps, the strategy for underperforming brands, and the plan for international expansion.

Answer

CEO Mark King explained that Stretch Lab is undergoing a full review, exploring everything from labor qualification and marketing to new corporate programs and group stretch formats. He confirmed a 2025 portfolio review will determine capital allocation for non-scaled brands. Regarding international growth, King emphasized placing leadership on the ground in Europe and Asia to support master franchisees, building on the strength of Club Pilates and BFT.

John Heinbockel asked about the consistency of execution across brands, the potential benefits of franchisee consolidation, and the distinction between member and franchisee experience issues.

Answer

CEO Mark King acknowledged that execution consistency varies, with some brands like Club Pilates being stronger than others. He is focused on standardizing operating playbooks to improve performance across the board before evaluating brands further. King stated that both member and franchisee experiences are critical, with a focus on providing better upfront support for franchisees and improving the entire member journey, from sign-up to post-visit engagement, to reduce friction.

John Heinbockel inquired about Planet Fitness's strategy for increasing club density, asking how the company balances opportunities in existing urban markets against expansion into less dense, rural areas. He also asked about the future allocation between national and local marketing spend.

Answer

CEO Colleen Keating explained that growth opportunities exist in both suburban areas and through testing smaller club footprints in infill and rural locations. Regarding marketing, she confirmed the new campaign is resonating and that the strategy will remain a balance of national brand-building and local efforts, with a goal to aggregate national spend more efficiently.

John Heinbockel inquired about the company's philosophical approach to Black Card pricing, including the potential to push pricing further, and asked if there was a material difference in member reaction to the $27.99 versus $29.99 price tests.

Answer

CEO Colleen Keating explained that the company will wait to make a decision on a Black Card price change until after the anniversary of the classic card increase. She noted that historically, Planet Fitness has adjusted Black Card prices every few years, viewing it as having more price elasticity than the classic tier. She also confirmed there was no significant difference in member reaction between the $27.99 and $29.99 tests, and the company is now only testing the $29.99 price point.

John Heinbockel asked about the highest priority strategic imperatives for reinvestment, potential changes to the marketing cadence beyond Q1, and the company's current strategy for the Perks program, particularly for Black Card members.

Answer

CEO Colleen Keating identified top-line growth via marketing and branding, and accelerated unit growth via development, as two key priorities. She noted new CMO Brian Povinelli will have an opportunity to shape future marketing strategy. Regarding Perks, she highlighted over $10 million in member redemptions in 2024, viewing it as a key tool for value and app engagement. CFO Jay Stasz added that focusing on attrition is as important as member joins.

John Heinbockel asked how the company is bridging its brand message to appeal to both novice and experienced gym-goers and whether it was seeing higher churn among more serious members. He also inquired about club capacity management, especially during peak hours, if member engagement increases.

Answer

CEO Colleen Keating explained the brand is evolving to meet a broader consumer base that is more educated on fitness, and that format optimizations like adding strength equipment are building capacity. CFO Tom Fitzgerald added that member visit frequency is up, but average members per club is still well below capacity limits, with most clubs not exceeding 75% capacity even in the peak month of March.

John Heinbockel of Guggenheim Securities sought clarification on the drivers of the mid-single-digit comp lift in test stores beyond meat and produce, and also asked for the CEO's view on company-owned stores.

Answer

President and CEO Jason Potter confirmed the comp lift in the Oakland test store was broad-based across many categories and was achieved without incremental marketing or price reductions. He attributed the success to making stores easier to shop, which increased both customer count and basket size. Regarding ownership, Potter affirmed his belief in the IO model and stated he has no current plans for a program to open a significant number of corporate-owned stores.

John Heinbockel asked two related questions: first, whether the bigger opportunity lies with everyday Key Price Items (KPIs) or the treasure hunt, and second, about potential investment in the field organization.

Answer

CEO Jason Potter stated that both are critical. Tightening everyday KPIs is essential for value perception, while the real-time order guide is unlocking the treasure hunt opportunity by improving visibility for IOs. Regarding the field organization, he noted it was early but that he would consider any investments that improve support for stores.

John Heinbockel of Guggenheim Partners asked if current macro inflation is the primary issue affecting basket size and inquired about the strategy for the UGO acquisition, particularly the timeline for converting it to the independent operator (IO) model.

Answer

Chairman Eric Lindberg acknowledged they have work to do on the basket size and are analyzing the issue. Regarding UGO, he stated there is no hard date for the IO conversion, emphasizing the benefit of using the company-operated model to test and learn. An unnamed executive added that the focus is on store refreshes, expanding product assortment, and driving sales before a broader integration, including the IO model, over time.

John Heinbockel questioned if the 6% EBITDA margin target for next year was conservative and asked about the desired characteristics for a new CEO, while also confirming that Eric Lindberg was not a permanent candidate.

Answer

Interim President and CEO Eric Lindberg confirmed he is not a candidate for the permanent role and outlined the search for a leader with public company experience, a proven track record of scaling a retail model, and a cultural fit. Interim CFO Lindsay Gray clarified that the 6% adjusted EBITDA margin is a full-year 2025 target that the company will be 'building towards' as it works through lingering systems costs from 2024.

John Heinbockel of Guggenheim Securities asked about Mister Car Wash's marketing strategy, questioning the balance between promotions and brand awareness, and the timing of increased ad spend given the macroeconomic environment. He also inquired about whether competitor membership pricing was becoming more rational.

Answer

CEO John Lai stated that the marketing strategy is a blend of awareness campaigns and targeted offers, with early tests proving successful enough to warrant a measured increase in spend. Lai confirmed that competitors are showing more pricing rationality and are engaging in less promotional activity, which he views as a positive development.

John Heinbockel asked how average monthly member visitation differs by membership tier and geography, and how it has trended over time. He also sought clarity on the mechanics and timing of the revenue lift from the price increase.

Answer

CFO Jedidiah Gold stated that visitation frequency is consistent across all tiers at about 3-3.2 times per month and has been stable for the last 4-5 years. CEO John Lai explained the price increase is a phased rollout for training purposes. After a 30-day notice, the revenue lift is realized over the subsequent 30-60 days as member billing cycles renew, with the full impact starting in May.

John Heinbockel inquired about the scope of the upcoming base membership price increase, the long-term marketing spend strategy, and the greenfield development pipeline, including whether the company is reserving financial capacity for M&A opportunities.

Answer

CEO John Lai confirmed that after successful testing, the company will implement base price increases in select, underpriced markets during 2025. He also stated that marketing investments are expected to triple in 2025 following encouraging Q4 test results. Regarding growth, Lai explained that while the 30-35 greenfield target is prudent, the company remains opportunistic and disciplined for potential M&A, emphasizing their strength in post-acquisition integration.

John Heinbockel requested details on marketing initiatives, specifically the balance between stimulating trial versus brand awareness, and the ideal long-term marketing spend. He also asked for quantification of the recent retail sales improvement.

Answer

Executive John Lai explained that the company plans to increase ad spend in Q4 and 2025, experimenting with new channels like digital out-of-home while avoiding aggressive discounting. Executive Jedidiah Gold noted that retail sales declined in the mid-to-high single-digit range in Q3, which was an improvement from prior quarters, driven by higher revenue per customer from the Titanium offering.