John Kernan • Cowen Inc.

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CFO John Klinger confirmed that the quarter started strong, experienced a minor weather-related dip in June, but finished July strongly and entered Q3 with momentum. He also reaffirmed that the company's model assumes 10 to 20 basis points of bottom-line flow-through for every one percentage point of comp sales upside.

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CEO Ernie Herrman confirmed that categories like Beauty and other consumables are very strong, serving as traffic and frequency drivers due to their exceptional value. CFO John Klinger reiterated that while operational efficiencies help, the number one lever for long-term margin expansion is top-line sales growth.

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CEO & CFO Martin Hoffmann explained that the strong first-half performance allows for a focus on high-quality, durable growth, enabling more selective door openings and a focus on full-price sales. For long-term margin expansion, Hoffmann pointed to a higher DTC mix, growth in the apparel category, and economies of scale. Co-Founder & Executive Co-Chairman David Allemann added that On's positioning at the intersection of performance and fashion, as seen in collaborations like Loewe, creates a higher long-term margin potential than a pure sports brand.

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Co-CEO Martin Hoffmann confirmed the company strategy remains unchanged and the leadership transition will be smooth, with an active search for a new CFO underway. He reported the Atlanta warehouse automation is progressing well. Executive Co-Chairman Caspar Coppetti described LightSpray as a 'revolution' and, while not providing a timeline, confirmed more product launches using the technology are planned for this year.

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CFO Sarah Oughtred explained the second-half outlook reflects a greater headwind from the planned pullback in promotions, which will affect customer acquisition and order value. Regarding selling expenses, she expressed confidence in returning to 2023 levels by the next year, noting that progress on efficiencies has been faster than expected, though leverage will be less pronounced with slower back-half revenue growth.

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CFO Sarah Oughtred stated that transitory DC costs in selling expense will normalize but be partly offset by higher fixed facility and international shipping costs. G&A will see higher people costs offset by a ~$13M reduction in stock-based compensation. She confirmed international is profitable and the non-scrubwear mix should grow.

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CFO Sarah Oughtred explained that the 2024 fulfillment center investment positions the company for future scale, and the planned 2025 Canadian distribution center will be a less costly third-party model. She reiterated that Q3 contained the year's outsized marketing spend, with Q4 and 2025 expected to normalize, subject to strategic decisions to drive top-line growth.

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CFO Justin Picicci explained that while tariffs are the largest headwind, the company is confident it can be more than offset by tailwinds like AUR growth and promotional pullback, leading to slight gross margin expansion for the year. He acknowledged that cost inflation pressures will disproportionately impact North America, likely shifting the regional profitability mix slightly more toward international.

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CFO Justin Picicci attributed the growth to strong brand positioning and effective marketing, while noting the outlook remains cautious due to regional sentiment and geopolitics. President and CEO Patrice Louvet added that the key city ecosystem strategy is transforming the region from its historical wholesale dependency, with plans for 10 new owned stores and 25 partner stores in the fiscal year to expand the DTC footprint.

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Executive Justin Picicci affirmed that the promotional pullback lever remains a durable driver of AUR growth with significant runway. He highlighted that in Q3, they successfully reduced promotions across all regions and channels, including highly elevated markets like China. He expressed confidence that the company's new customer acquisition muscle, which focuses on full-price consumers, will allow this 'flywheel' to continue.

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President and CEO Patrice Louvet acknowledged the consistent outperformance in European DTC and confirmed the region is underpenetrated. He stated that significant opportunities remain for selective store expansion in both new and existing key cities, and the company is on track with its Investor Day targets for new store openings while being disciplined in its approach.

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Chairman, President & CEO Tim Boyle stated that tariff uncertainty remains high, but mitigation efforts include price adjustments, vendor negotiations, and supply chain efficiencies. He expressed caution about consumer demand elasticity with higher prices. EVP & CFO Jim Swanson clarified that the company is absorbing the lion's share of the $35-40 million tariff impact in 2025. He also noted that inventory is in "excellent shape," with the year-over-year increase primarily due to the early receipt of fall inventory to get ahead of potential tariffs.

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CEO Tim Boyle identified improved, differentiated marketing and a greater emphasis on underperforming categories like footwear as key catalysts for growth, stating the company is not talking about its superior products enough. Regarding SG&A, both Boyle and CFO Jim Swanson emphasized that top-line growth is the primary lever, supplemented by the ongoing profit improvement program focused on supply chain efficiencies and disciplined cost management to balance investment with profitability. Boyle described the consolidated North American wholesale channel as one where Columbia must be a better supplier with superior product and marketing to drive sell-through.

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CFO Steven Fasching indicated that for Q2, international growth would moderate from Q1's high rate while the U.S. would see some improvement, though international would still be the main growth driver. He described the U.S. HOKA DTC recovery as a continued, incremental improvement rather than a sharp inflection, partly due to ongoing wholesale expansion.

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CFO Steven Fasching indicated that for Q2, international growth would moderate from Q1's high rate while the domestic business would see some improvement, though international remains the primary growth engine. For HOKA's US DTC, he guided towards continued incremental improvement rather than a dramatic inflection, citing the near-term pressure from ongoing wholesale channel expansion.

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CEO Stefano Caroti attributed UGG's strength to its expansion beyond slippers into new categories like slipper-sneaker hybrids and strong growth in its men's business. CFO Steve Fasching added that the brand's scarcity model and strong underlying demand contributed to the Q4 beat. For HOKA, Caroti reiterated that opportunities exist across specialty and sporting goods channels globally, where the brand remains underpenetrated versus competitors.

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CEO Stefano Caroti confirmed U.S. growth met expectations and reiterated the goal for international sales to eventually reach 50% of the total by outpacing U.S. growth. CFO Steve Fasching added that some U.S. sales shifted earlier into Q3, impacting Q4 inventory. Regarding margins, Fasching acknowledged the strength of the scarcity model but warned that pressures from inflation, freight (a ~150 bps headwind in Q4), and foreign exchange will make current levels difficult to sustain.

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CFO Zac Coughlin confirmed that the guidance incorporates a significant impact from a more promotional environment. He stated that the full-year forecast now includes approximately 100 basis points of pressure from increased promotionality. He clarified that the company has assumed the heightened promotional levels seen in Q1 and planned for Q2 will continue throughout the remainder of 2025, indicating this challenging backdrop is fully embedded in the updated outlook.

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CEO Stefan Larsson stated the channel mix will ultimately follow the consumer. CFO Zac Coughlin affirmed that the company's 15% EBIT margin target is independent of channel mix, as they aim for profitability across all channels. Regarding the G-III transition, he explained that due to its phased, multi-year nature, no significant, discrete financial impact is expected to be called out in the near term.

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CEO Michael O'Sullivan identified a macro slowdown and inflation as key risks, while potential upsides include a widening value gap, favorable tax legislation for consumers, and company-specific initiatives. EVP & CFO Kristin Wolfe clarified that while ocean rates are contracted, the guidance assumes the company will not face significant exposure to higher spot market rates due to potential shipping volatility.

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CEO Michael O'Sullivan stated that the Q4 comp was driven by both an increase in transactions and a higher average transaction value, with higher traffic and AUR being the strongest metrics. He highlighted relative strength in accessories, beauty, and home, though all major categories comped well. Regionally, the Southeast and Southwest were above the chain average, but all regions saw at least mid-single-digit growth. EVP & CFO Kristin Wolfe added that weather had a net negative impact of about one percentage point on the Q4 comp, primarily due to unseasonably warm weather in November hurting cold-weather businesses.

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CEO Michael O'Sullivan affirmed his long-term commitment, stating he is 'not going anyway' and intends to see the 2028 plan through. He praised his executive team as the 'A team'. CFO Kristin Wolfe explained that supply chain savings are ahead of schedule, with about 50 bps of the 100 bps long-range goal expected to be realized in fiscal 2024. The remainder is expected in '25 and '26, with further opportunities from new, more automated distribution centers like the one opening in 2026.

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CFO Kristin Wolfe detailed four factors for the back-half margin outlook, with the primary driver being the 53rd-week calendar shift, which boosts Q3 total sales growth but negatively impacts Q4. Executive David Glick added that despite elevated CapEx for new stores and a major new DC, the company has sufficient cash flow to continue its share repurchase program at a pace similar to recent years.

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CEO Michael O'Sullivan identified the primary risks as a macro slowdown and increased inflation, while potential upsides include a widening value gap versus other retailers, legislative tailwinds for consumers, and internal initiatives. EVP & CFO Kristin Wolfe clarified the freight contingency, stating that while domestic freight is secured and international ocean rates are contracted through Q1 2026, the guidance assumes no significant exposure to the volatile spot market, which could be a risk if import surges occur.

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President and CEO Lauren Hobart identified significant opportunities in executing Foot Locker's existing strategies and improving gross margin, noting that Ed Stack will lead a dedicated team to unlock this value. Executive VP & CFO Navdeep Gupta projected total square footage growth to be in the low single-digit range, around 2%, driven by new House of Sport and Fieldhouse locations.

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CFO Navdeep Gupta stated that stores in their second year are comping positively as community engagement deepens, expressing excitement about their maturation trajectory. He also noted that core categories like athletic apparel and footwear continue to drive growth, with footwear being the 'engine that drives the chain.' He mentioned plans to continue expanding brands like On and HOKA deeper into the store base, with 90% of stores now having premium footwear decks.

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CFO Navdeep Gupta explained the new DC is necessary to support significant sales growth and increased product velocity, with no material changes to cost expectations for H2. President and CEO Lauren Hobart added that stores are a critical part of their eCommerce fulfillment strategy. She also confirmed that vertical brands like DSG, VRST, and CALIA are performing exceptionally well, filling key gaps in the portfolio and earning increased floor space.

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Executive John Vandemore acknowledged the complexity of modeling COGS, noting that tariffs primarily impact FOB price but also affect other factors like freight and labor when shifting production. Regarding DTC, he confirmed Skechers is still excited to open stores where it is profitable, with a bias towards international markets. He highlighted the strength of the omnichannel model, noting that robust e-commerce growth compensated for more volatile store traffic during the quarter.

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John Vandemore (executive) detailed that the elevated CapEx is for two major, long-term distribution center expansions in China and the U.S., with the latter providing significant efficiency gains. David Weinberg (executive) added the U.S. project replaces expensive off-site storage. Regarding long-term margins, both executives stated that while they aim to sustain and grow the operating margin, the primary focus remains on investing for growth. They believe significant growth potential remains, which will require continued investment.

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CFO John Vandemore reported continued strength in global e-commerce and solid international comp store growth. U.S. comps were roughly flat against a tough 14% comparison from the prior year. He attributed the G&A leverage to effective labor management within the distribution network and other targeted cost-reduction initiatives, expressing optimism that more efficiencies could be found.

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Executive David Weinberg and CFO John Vandemore highlighted that the guidance increase is driven by a strong domestic wholesale order book, the timing benefit from delayed European shipments, and continued DTC strength. On freight, Vandemore acknowledged rising spot rates but noted their impact is delayed and partially offset by contractual rates. Weinberg added that customer acquisition is currently driven by expanding the base with comfort features, with a larger push into performance athletics like football and basketball just beginning.

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CFO Meghan Frank confirmed that marketing spend is expected to remain around the 5% of sales level in 2025, similar to 2024. She described it as an area the company monitors closely and would consider flexing, dependent on business trends and the effectiveness of new campaigns and activations.

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CFO Meghan Frank reported continued strength in China, with 36% constant currency growth in Q3 and an outlook for over 30% growth in Q4. She noted healthy operating margin expansion but emphasized the focus is on long-term growth, not near-term margin optimization. CEO Calvin McDonald added that 2025 expansion plans include Italy (company-operated) and four new franchise markets, driven by strong brand momentum and pull from international consumers.

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CFO Meghan Frank addressed margin concerns by reiterating the company's commitment to its 'Power of Three x2' plan, which includes modest operating margin expansion over five years. CEO Calvin McDonald stated that the company continues to acquire new guests across all demographics and that the team has improved its inventory mix for sizing entering Q3, indicating no major, unaddressed shift in the core customer profile.

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CFO Meghan Frank countered that the company is delivering strong margins despite slower growth and remains committed to its Power of Three x2 goal of modest operating margin expansion. CEO Calvin McDonald stated that the customer profile has not fundamentally shifted; they continue to acquire guests across all demographics and have improved the size mix entering Q3, indicating planning is adapting effectively.

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Group President and COO Michael Hartshorn attributed the higher SG&A rate primarily to store-related wage increases since the pre-COVID period. He stated that while they continuously seek efficiencies, the leverage point for SG&A remains at about a 3% comparable store sales gain.

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Group President & COO Michael Hartshorn characterized the real estate landscape as tight, with limited new construction and increased competition for desirable locations. However, he expressed confidence in the company's strong real estate team and its healthy pipeline to support growth plans over the next several years.

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CFO Adam Orvos reiterated the company's long-term model where an additional point of comp yields 10-15 basis points of margin expansion, with sustained comp growth being the primary driver. Group President and COO Michael Hartshorn acknowledged that border stores perform very well but stated he could not specifically attribute broad regional performance to immigration, noting the fluctuating strength of markets like California and Texas.

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CFO Andrew Page identified the primary driver as the mix shift toward the higher-margin Arc'teryx brand, along with lapping a more promotional period in the Ball & Racquet segment. Arc'teryx CEO Stuart Haselden added that within Arc'teryx itself, lower transportation costs, reduced markdowns, and higher initial product margins all contributed to the expansion.

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CEO Bracken Darrell stated his belief that Vans is underdeveloped internationally, which presents a major long-term growth opportunity. However, he also highlighted that fixing the U.S. business represents the single biggest immediate upside for the brand. He concluded that significant opportunities exist both at home and abroad.

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CFO Carl Ford reiterated the existing new store productivity framework ($12M-$16M year 1 sales, 20% ROIC hurdle). Regarding SG&A, he noted that while the long-range plan includes deleverage for growth, the team is managing costs tightly, with Q2 expense increases tied directly to growth initiatives. He stated that as the base store comp trajectory improves, the company expects to see leverage, and the current guidance is within the long-range plan's framework.

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